Business Tax
Below is a reminder of some important things that need to be done as part of your year-end accounting. There are four sections below, some or all of which may or may not apply to your particular situation.
Payroll Protection Program (PPP) Update
If you received one of these loans, you are NOT required to make payments until 10 months from the end of your covered period (24 weeks after the loan was received). You can wait until then to apply for forgiveness. Forgiveness applications are now open with most banks, but you do NOT have to file the application until you are ready. If your PPP Loan is for under $150,000 and your bank is accepting forgiveness applications, you may be eligible to file for forgiveness using Form 3508S. The forgiveness application process may not get any easier than using this form for loans of this size. As part of the recent legislation, the threshold for filing this much simpler application was increased from $50,000 to $150,000, so please confirm with your bank prior to submitting Form 3508S as they might not yet be ready to accept the application or they may be waiting on an updated Form 3508S.
As it currently stands, the income from the loan forgiveness is NOT taxable and the expenses used for the forgiveness ARE deductible. Not being allowed to deduct the expenses was corrected with the bill that was passed on December 21, 2020, but the bill is awaiting signature for enactment.
Additionally, there is now a second iteration of PPP loans for those companies with under 300 employees and who suffered a 25% drop in revenues for any quarter from 2019 to 2020. If you qualify, please contact your bank to see when they will start accepting applications
As it currently stands, the income from the loan forgiveness is NOT taxable and the expenses used for the forgiveness ARE deductible. Not being allowed to deduct the expenses was corrected with the bill that was passed on December 21, 2020, but the bill is awaiting signature for enactment.
Additionally, there is now a second iteration of PPP loans for those companies with under 300 employees and who suffered a 25% drop in revenues for any quarter from 2019 to 2020. If you qualify, please contact your bank to see when they will start accepting applications
Economic Injury Disaster Loans (EIDL) Grants
You may be able to apply for an EIDL Grant/Advance of up to $10,000. If you have previously received one, but not for the full $10,000, you may be able to apply for the difference. We are still awaiting guidance on when these applications will open and how the money will be allocated for this round of grants. At the current time, we are also uncertain of how the EIDL Grants will interact with the PPP loan program and forgiveness.
2020 Form 1099's
If applicable, your business needs to send Form 1099’s to required recipients on or before January 31, 2021. The IRS website gives more details, but in general nonemployee compensation needs to be reported to any individual, unincorporated business (including LLC’s unless taxed as a corporation), or attorney or law firm (even if incorporated) that you paid $600 or more to for services (not goods) or rents, or $10 or more in interest an during the calendar year in total whether by check, cash, etc. (do NOT include amounts paid by credit or debit card).
The red copy of the Form 1096 and the red copies of the Form 1099’s need to be sent to the IRS on or before January 31, 2021 as per the instructions or penalties could be assessed.
For those of our clients who use QuickBooks or Sage Peachtree or similar software, these programs can produce the 1099’s if the payees/vendors who need to be issued a 1099 are marked as such in the vendor set-up and their expense category is marked as a 1099 type expense.
We can help you prepare these forms and help calculate totals paid to each vendor, but ultimately you are responsible for providing us with the correct vendor information and amount paid.
The penalties for failure to comply with the 1099 filing requirements have greatly increased (click here for more details) ) and so have IRS enforcement efforts in the area. Please note that intentional disregard to file these forms could result in a $550 per form penalty with no limitation on the maximum amount of a penalty.
The red copy of the Form 1096 and the red copies of the Form 1099’s need to be sent to the IRS on or before January 31, 2021 as per the instructions or penalties could be assessed.
For those of our clients who use QuickBooks or Sage Peachtree or similar software, these programs can produce the 1099’s if the payees/vendors who need to be issued a 1099 are marked as such in the vendor set-up and their expense category is marked as a 1099 type expense.
We can help you prepare these forms and help calculate totals paid to each vendor, but ultimately you are responsible for providing us with the correct vendor information and amount paid.
The penalties for failure to comply with the 1099 filing requirements have greatly increased (click here for more details) ) and so have IRS enforcement efforts in the area. Please note that intentional disregard to file these forms could result in a $550 per form penalty with no limitation on the maximum amount of a penalty.
S-Corp >2% Shareholder Health Insurance Premiums
The IRS requires that company paid health insurance premiums for S-corporation owners who own 2% or more of the stock in the corporation as well as owners of LLC’s taxed as S-corporations be reported on the W-2 and Form 941. You should report this to your payroll service provider ASAP. This amount goes in box 1 wages, but is not subject to social security or Medicare taxes (FICA) or unemployment taxes. There should be no federal or state withholding. This is simply a reporting requirement and the amount of the premiums included on the W-2 is deductible from income on the owner’s personal income tax return. Remember, this amount is also reflected on your 4th quarter payroll tax returns. The total health insurance premiums paid in 2020 for more than 2% S-corporation owner(s) must be included on line 1 of the Form 941 return. The premiums are not included on line 5a or 5c however. On the more than 2% shareholder’s 2020 W-2, the total health insurance premiums paid in 2020 for each more than 2% S-corporation owner must be included on their respective W-2’s in boxes 1 and 16 (and box 18 if applicable). In addition, the premium amount should be listed in box 14. If you use a payroll service, your payroll provider will know what to do, but if you have any questions or need any help please feel free to contact us.
Personal Use of Company Car
If you or any of your employees have a company owned vehicle that is used personally as well, the IRS requires written records be maintained by employers to document the business and personal use of employer provided vehicles. This worksheet will provide you or us with the information needed to calculate the value of the personal use portion of the company automobile that needs to be added to the final paycheck of the year. The personal use value should be added to your or the employee’s final 2020 paycheck as gross wages, subject to all taxes (federal, social security, Medicare, state, local and unemployment) just like any other wage, and then the same personal use value amount should be deducted from the net paycheck.
Either you can complete the worksheet or you can fill out the top portion and send it back and we will calculate the personal use portion. This should be done ASAP to ensure the amount is reported on your payroll prior to yearend.
Either you can complete the worksheet or you can fill out the top portion and send it back and we will calculate the personal use portion. This should be done ASAP to ensure the amount is reported on your payroll prior to yearend.