Tax Guru – Ker$tetter Letter

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Archive for May, 2020

Deducting Expenses Paid With PPP Funds

Posted by taxguru on May 28, 2020

From a Client:

Kerry, Our corp received a PPP loan for $71,200 for payroll – so I take it, if forgiven, this rule applies?

 

My Reply:

As you know, the rules for all of these new pandemic spurred programs are being developed on the fly, so there are constant changes and tweaks to the details.  It’s not as bad as the constant back and forth details of what does or doesn’t spread the virus that we are hit with every day, but it’s close.

What is a bit confusing in the discussions of having a "tax free" debt forgiveness is this twist.  If you are not allowed to deduct the expenses paid from the tax free PPP money, those loan proceeds are in effect being taxed by reducing your deductions and increasing your taxable income.

The tax effects of expenses paid by forgiven loan funds from the PPP program have been and are still being discussed a lot, including on tax message boards and webinars that I take part in.  The current thinking, as explained in that article you sent, is that the ages old concept of not allowing deductions for expenses which have been reimbursed will apply in order to avoid a type of double dipping.

There is some talk about Congress adding a special provision into a future stimulus bill to allow deductions for PPP paid expenses, while maintaining the tax free status of the debt forgiveness.  However, if that were to survive all the way to Trump, it would almost certainly only apply to very small businesses, after the PR fiasco of big corporations scooping up a huge portion of the PPP funds.  Depending on where they set the threshold for qualifying small businesses, there is still a good chance that yours would fall under that limit and be eligible.  With the current lack of cooperation between the political parties, I wouldn’t hold my breath for this to ever materialize.

Since the dis-allowance of deductions only applies if the loan is forgiven, that is still the best way to go if you meet the qualifications for the debt to be wiped out.  Claiming the deductions still only returns a portion of the out of pocket costs to you, while the forgiveness offsets it all.

I hope this helps.  If anything changes in this regard, I will keep you posted.  Hopefully, there will be more concrete guidance on this matter before the 9/30/20 tax filing deadline for your corp’s current tax year.

Let me know if you have any other questions or would like to discuss any of this in more depth on the phone or Zoom.

Kerry

 

ExpertsGoofyPath

Posted in Debt Relief, Deductions | Comments Off on Deducting Expenses Paid With PPP Funds

All Ponzi Schemes Eventually Collapse

Posted by taxguru on May 22, 2020

Even the ones that all Americans are forced at the point of a gun to participate in, such as Social Security and MediCare cannot go on forever.  As I mentioned in my earlier post on why grabbing SS benefits ASAP is the only way to avoid being frozen out, the mythical SS Trust Fund is running out of the money necessary to honor the current payment plans. 

The current virus crisis has exacerbated that problem, with millions of fewer people able to contribute to the “Trust Fund” and holidays from this forced participation being proposed as a means of kick-starting the economy that has been devastated by the shut-downs.

From ForbesNew Analysis Confirms: The Social Security Trust Fund Is In Trouble 

From Bipartisan Policy Center: COVID-19 May Deplete Social Security Trust Funds This Decade 

From SSA: The 2020 OASDI Trustees Report

Posted in ponzi, social security | Comments Off on All Ponzi Schemes Eventually Collapse

Schedule For IRS Paper Stimulus Checks

Posted by taxguru on May 13, 2020

For those individuals who haven’t provided IRS with their personal bank account info to allow direct deposits of the up to $1,200 per person stimulus checks, IRS has to send out paper checks via the USPS.

With millions of such checks required, this will be taking a number of months.  Rather than mailing them in random order, IRS is doing so based on the amount of AGI (Adjusted Gross Income) that was reported on 2018 or 2019 1040s.  This begins with the lowest income individuals, which does make a lot of sense in this time of financial crisis, and increases by $10,000 each week

Here is the current IRS mailing schedule, courtesy of Forbes:

Here is the planned weekly schedule for the IRS to mail stimulus checks based on annual adjusted gross income, as first reported by The Washington Post. All dates represent the “week ending” (for example, the week ending April 24) and the IRS could change this schedule at any time.

Less than $10,000: April 24

$10,001 – $20,000: May 1

$20,001 – $30,000: May 8

$30,001 – $40,000: May 15

$40,001 – $50,000: May 22

$50,001 – $60,000: May 29

$60,001 – $70,000: June 5

$70,001 – $80,000: June 12

$80,001 – $90,000: June 19

$90,001 – $100,000: June 26

$100,001 – $110,000: July 3

$110,001 – $120,000: July 10

$120,001 – $130,000: July 17

$130,001 – $140,000: July 24

$140,001 – $150,000: July 31

$150,001 – $160,000: August 7

$160,001 – $170,000: August 14

$170,001 – $180,000: August 21

$180,001 – $190,000: August 28

$190,001 – $198,000: September 4

Remaining checks: September 11

Posted in IRS, stimulus | Comments Off on Schedule For IRS Paper Stimulus Checks

Banks Encouraging Loan Fraud

Posted by taxguru on May 11, 2020

Whenever trillions of dollars are being tossed around, you can be sure that the scammers and fraudsters will all be out in full force to glom onto as much of that loot as they can.  That should have been obvious to everyone when the special loan programs for the current virus crisis were rushed through Congress. 

Banks have been busy enticing everybody, whether they are eligible or not, to take out these loans and are even calling it “Free Money” because of the promise of tax free loan forgiveness. Banks have seen this as easy money for themselves, and it’s not just openly corrupt banks, such as Wells Fargo, that are doing this.  They have already received billions of dollars for processing these risk-free loans and are still trolling for more borrowers with bogus promises.

Here’s what I wrote as a reply to a client’s email, stating that his banker was encouraging him “to try and get some of the free money everybody else seems to be getting.”

I would be very very careful about taking part in these special loan programs that have been set up to combat the economic slowdown.  Bankers are making billions of dollars in fees for setting up these risk-free loans and are lying to borrowers as to the benefits, such as tax-free forgiveness. 

With all of this new money, people who are being egged on by fee-seeking bankers, are swarming to it like flies to a pile of poop.  This has not been missed by those in power and it is guaranteed that these loan applications and future requests to forgive the loans will be scrutinized even more closely than IRS does with tax returns.  If you were to apply for your loan to be forgiven, they will demand tight documentation of how the loan money was used

I just did a quick internet search and found some Forbes articles that I put into your Qbox folder on this issue.  There will be many more all over the media, as the government increases their examinations and prosecutions and publicizes those who are caught as a scare tactic. 

One big question: after a borrower is busted for illegally participating in one of these special loan programs, will the bankers who processed those loans also be charged with fraud?  My money is on a big fat “No.”  Too many congress-critters are on the banks’ payroll to allow such a thing to happen.  They will pass laws indemnifying all banks from any legal liability from these loans, if they haven’t already done so.  Just like everyone in Congress, I don’t have the time to read all of the legislation that they pass.

Posted in banks, COVID-19, Fraud | Comments Off on Banks Encouraging Loan Fraud