Category Archives: First Time Home Buyer IRA

SBA’s Inspector General Reports SBA Failed to Follow Guidelines on PPP Loans

Think the FAQs Released by the SBA and IRS give the definitive answer on how the PPP loans are to be made, used and forgiven? Think again. According the SBA’s Inspector General report the SBA has failed to follow guidelines on PPP loans included in the law.

In a report released May 8th the SBA’s Office of Inspector General (OIG), led by Inspector General Hannibal Ware, told Congressional leaders that the agency failed to follow several congressional mandates in implementing the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The report stated that borrowers “including rural, minority and women-owned businesses may not have received the loans as intended” even though Congress had specifically required the SBA to give clear guidance to lenders about under-served and rural markets. It also found that the rules issued by the SBA requiring borrowers to use 75% of the PPP funding on payroll costs in order to qualify to receive full forgiveness of their loan were not consistent with the law, as the Cares Act didn’t mandate any specific amount be dedicated for payroll expenses. According to the National Society of Accountants many members have heard from their clients that the 75% requirement created a hardship as their businesses were not yet in operation or only in limited operation and they really needed the loans to enable them to pay rent, utilities and other ongoing expenses that were due regardless of the fact that they operations were limited by government action.

As we draft this article, the SBA has yet to comment on the report’s findings, however, the report does include a statement on the original intent of the SBA regarding the 75/25 Rule; the agency said it did so “in light of the act’s overarching focus on keeping workers paid and employed.”

Click here to read the full SBA Inspector General’s Report https://www.sba.gov/sites/default/files/2020-05/SBA_OIG_Report_20-14_508.pdf

Do you have an SBA 7(a) or 504 loan?

The CARES Act gives debt relief to business with 7(a) and 504 SBA loans. The Small Business Administration will automatically pay the principal, interest, and fees on these loans for a period of six months.  This relief also applies to new 7(a), 504, and microloans issued prior to September 27, 2020. To get this relief you do not need to take action unless according to the SBA website you have preauthorized and recurring payments (auto debits or ach payment through your bank) as the SBA says these payments will not be automatically canceled and will be applied to your loan in lieu of the debt forgiveness offered under the CARES act. To get the debt relief you will need to cancel any preauthorized payment of debts. For additional information see the SBA’s website at https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/sba-debt-relief.

 

What happens if I don’t get my Economic Impact Payment?

The payments being sent out or direct deposited by the IRS to your bank account are an advance on a credit that will be reconciled when you file your 2020 tax return. The CARES Act grants individuals with Adjusted Gross Income (AGI) of less than $75,000 and married couples with AGI of less than $150,000 a refundable credit of $1,200 for singles and $2,400 for married couples. An additional credit of $500 is allowed for each qualifying child of the taxpayer.

For purposes of the credit, an “eligible individual” is any individual other than a non-resident alien OR an individual for whom a dependency deduction is allowable to another taxpayer for the tax year.

The amount of the credit is reduced (but not below zero) by 5% of the taxpayer’s adjusted gross income (AGI) in excess of: (1) $150,000 for a joint return, (2) $112,500 for a head of household, and (3) $75,000 for all other taxpayers.

The stimulus payment currently being sent out by the IRS is an advance of these refundable credits. 

If you do not receive a payment as an advance stimulus payment OR if you do not receive the correct amount this will be dealt with when you file your 2020 federal income tax return.

The amount of any credit due on your 2020 tax return is reduced, but not below zero, by the amount of advanced credit you received. This means if you got a credit of $1200 based on your 2019 AGI but are not entitled to the credit based on your 2020 income you will NOT have to repay any excess payments received.

If you did not get a payment based on your 2018 or 2019 income tax returns but do qualify based on the income reported on your 2020 return any additional amount you qualify for will be paid after you file your 2020 tax return.

What does all this mean to you? It boils down to this: if you don’t get a payment you are going to have to wait until you file your 2020 return to get your payment. So, if you are entitled you will get your payment is just might take a while. If you do get the advanced credit and get too much, you get to keep what you got and not have to repay it.

Payroll Protection Program Loan (PPP) Update

04/10/20 – Loans are being processed or at least so we are told by our contact at Bank United.
We filed applications for our company as well as for many of our clients. In many cases we filed for our clients on their banks on line systems or by providing them with the documents and other information to provide their bankers.

To date none of the loans that we or our clients have filed for have been funded, but we recently received acknowledgment from our long time bank officer that applications were now being processed, but that they had so many applications that it would take some time for them to get to all of them.

While we can’t say just when funding will arrive what we can say is that at least it seems like the banks and the SBA have worked out the process. We will update you as we get additional information and please let us know if and when you get funded if you have submitted an application for one of these loans.

First Coronavirus Response Act: Employer FICA & Self-Employed Credits

Employer FICA tax relief.

Qualified sick leave and family leave payments mandated by the new law are exempt from the 6.2% Social Security tax component of the employer FICA tax on wages. Employers must pay the 1.45% Medicare tax component of the FICA tax on qualified sick leave and family leave payments, but they can claim a credit for that outlay.

Credits for self-employed people.

For a self-employed individual who’s affected by the COVID-19 emergency, the new law allows a comparable refundable credit against the individual’s federal income tax bill. If the credit exceeds the individual’s federal income tax bill (including the self-employment tax), the excess will be refunded via a check from the government. The credit equals:

  • 100% of the self-employed person’s sick-leave equivalent amount, or
  • 67% of the person’s sick-leave equivalent amount for taking care of a sick family member or taking care of the individual’s child following the closing of the child’s school or childcare location.

The sick-leave equivalent amount equals the lesser of:

  • The individual’s average daily self-employment (SE) income, or
  • $511 per day for up to 10 days (up to $5,110 in total) to care for the individual or $200 per day for up to 10 days (up to $2,000 in total) to care for a sick family member or a child following the closing of the child’s school or childcare location.

In addition, a self-employed individual could receive a family leave credit for up to 50 days. The credit amount would equal the number of leave days multiplied by the lesser of:

  • $200, or
  • The individual’s average daily SE income.

The maximum total family leave credit would be $10,000 (50 days x $200 per day).

Credits for self-employed individuals are only allowed for days during the period beginning on a date specified by Treasury Secretary Mnuchin and ending on December 31, 2020. The beginning date will be within 15 days of March 18, 2020.

Important: To properly claim the credit, self-employed individuals must maintain whatever documentation the IRS requires in future guidance. Contact your tax professional for details.

We are Enrolled Agents “EAs”

Our tax professionals are Enrolled Agents. Enrolled Agents (EAs) are the only tax professionals who are empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service. They are tax specialists, Enrolled Agents are required to demonstrate to the Treasury their competence in matters of taxation before receiving their designation. Unlike CPAs who may or may not specialize in taxation and who are licensed by the states.

For more information about EAs and the history of EAs click here 

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The IRS has issued guidance on the federal income tax treatment of hard forks (protocol changes to cryptocurrency that result in a permanent diversion from the legacy distributed ledger) and airdrops (distributions of cryptocurrency to multiple taxpayers’ distributed ledger addresses). According to the agency, a taxpayer doesn’t have gross income as a result of a hard fork if he or she doesn’t receive units of a new cryptocurrency. However, a taxpayer will recognize ordinary income as a result of an airdrop following a hard fork if he or she receives units of new cryptocurrency. The IRS also has published a list of Frequently Asked Questions (FAQs) that covers other virtual currency topics, such as methods for calculating and assigning cost basis, the tax consequences of a soft fork, and receiving virtual currency as a gift. The FAQs are available at www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions . Rev. Rul. 2019-24 .

Crypto & Virtual Currency IRS Want You On The Record

10/16/2019 — The IRS is not kidding around when it comes to crypto and other virtual currency and tokens! It can easily be seen just how hard the IRS is working to get a handle on these transaction by taking a look at the draft copy of the new 2019 Schedule 1. The first question on the revised form is “?? ??? ???? ??????? ????, ??? ??? ???????, ????, ????, ????????, ?? ????????? ??????? ??? ????????? ???????? ?? ??? ??????? ?????????” Looks like they want to get taxpayer on the record as whether or not they have any dealings in virtual currency. It’s important to remember that lying on a tax return can be considered a criminal act.

2019 Draft 1040 Schedule 1

 

Is Starting a Business Right for You?

Business Start Up Graphic

Thinking about starting a business? Here are some tips you may want to consider before investing your time and money.

        • Are you doing it for the right reasons? Many times, people tell me they are thinking about starting a business so they can work less, not have a boss to report to or just want to be in charge. All of these are bad reasons to start a business. Anyone who has owned a successful business can tell you they work all the time not less than when they were working for someone else. Don’t like reporting to a boss as a business owner you have lots of people to report including your customers. Like being in charge, starting out in many businesses the only one you will be in charge of is yourself.

       

        • Just how much money do you have to invest and how much risk are you willing to take. For example, you might have $50,000 to invest; but in addition to that, you could be grantor on a lease, have a bank loan or even owe suppliers for goods. Knowing how much you are willing to risk can help you avoid putting yourself in a hole that you can never get out of.

       

        • Will you be starting a business from scratch coming up with a concept and deciding what to sell, how to sell it and how to market, or would you be best suited to buying and operating a franchise that has established products, selling, market and operating procedures?

       

        • Then there is choosing the type of business entity that best fits your needs now and into the future. What kind of business entity is best for you depends on many options, including  whether you will have investors, additional owners who will also be working in the business and the kinds of liabilities the business could create. It will also depend on your plans to distribute profits or keep them in the business for expansion.

       

        • Other important choices include location, required licensing, sales and use tax responsibility, required leasehold improvement and bookkeeping requirements.For assistance with all these things and much more, it’s important to have a team of professionals you can trust to turn to.

       

    • Remember that it’s this team ‘ s job to see all the bumps and traps in the road ahead. Don’t be upset when they don’t seem as enthused about your plans as you do, because it not their job to get you excited it’s their job to be sure you are prepared. Your team should include an accounting and tax professional, an attorney and others depending on the kind of business you are starting.

Questions About Converting an IRA To A Roth IRA

Question: “Does it make sense to convert my IRA to a ROTH IRA?”

Answer: We need a lot more information to answer that question. The answer will depend on your marginal projected tax rate for the year, along with your projected marginal tax rate at retirement. It also depends on how long you project between conversion and beginning withdrawals. While Roth IRAs can be a great choice, the conversion should not be done without fully understanding the tax ramification and what your plans and needs will be for the money in the account. If you know that you will be in a low tax bracket this year due to being out of work or having deductible business losses it can make a lot of sense to convert some or all or your IRA to a Roth IRA. Just how much to convert depends on your projected income and how much you can get in at the projected lower marginal rate.

We welcome your questions. Just email them to Info@RMSAccounting.com or call us at 954-563-1269.

Employee vs Independent Contractor

Would your business be safe from the reclassification of independent contractors to employees if the IRS or Department of Labor (DOL) decided to audit your use and classification of independent contractors? As the cost of having employees has increased over the years, more and more businesses are trying to avoid those costs by replacing services performed by employees with services provided by independent contractors. However, simply calling someone an independent contractor does not necessarily make them an independent contractor.

Misclassification can become very expensive when challenged by the IRS or the DOL. The result can be responsibility for uncollected taxes, penalties, even disallowance of pension plans and health insurance costs.

To help you better understand the proper classification of independent contractors and employees, we have just released a new publication “Can You Pass an IRS or DOL Audit of Independent Contractors vs. Employees?” It’s available free. To download a copy, simply  click here.