Finish Strong Friday – Tax Season Edition

PPP Taxability … I know, a dead horse, but… with the passage of the Consolidated Appropriations Act of 2020 (CAA2020) we were appreciative of the fact that PPP forgiveness was again, and finally, not taxable – now we have to shift our attention to Massachusetts… and if Mass doesn’t get their act together, very soon mind you, the forgiveness of the PPP loan will be taxable to individuals, but not Corporations – makes perfect sense. Individuals include Sole-Proprietors, and owners of “flow-through” businesses (S-Corps, Partnerships, most LLCs). In the state legislature currently is Senate Docket No. 172 which addresses this issue. Keep in mind there were $14.5 Billion of PPP loans (not including this new “second draw”) approved for Massachusetts companies, if, say, ¾’s (my guess) of those went to Sole-Prop’s and Flow-Throughs that equates to approximately $550 Million of tax revenue that the state would be have to be willing to turn down. I don’t know which way this one is going to go. Let your lawmakers here from you!

Can you say “select all, extend”?

Tax Season – officially opened today. The IRS is now accepting e-files for individuals. We had a few waiting in the hopper. Business e-filing has actually been open for a little while now.

ERTC – your new favorite acronym… stands for “Employee Retention Tax Credit” or even shorter ERC for you guessed it – Employee Retention Credit. We are going with ERC in our office because of the obvious gains in efficiency. Way back in the CARES Act this credit was introduced to employers. It didn’t garner a ton of attention because the Paycheck Protection Program (PPP) stole the show, and if you applied for and received a PPP loan then you couldn’t utilize the ERC. Then, with the passing of the Consolidated Appropriations Act (passed late December 2020) the ERC now gets its day in sun. The new bill kept the ERC going (it was supposed to sunset 12/31/2020) for the first two quarters of 2021 AND made it so that a business could utilize PPP and ERC together AND ERC could be applied retroactively back into 2020! Remember how we’ve been saying to stay patient on applying for PPP forgiveness – well we love it when we are proven right… it never gets old. Those that have already applied for forgiveness don’t necessarily no longer qualify it may just be a little more challenging and their potential credit may be reduced. Not everyone will qualify for the ERC, and as part of our approach to your year-end work, we have added the steps of analyzing for this opportunity and we will reach out if we believe you qualify for a retroactive application of the ERC for the year 2020. Please don’t hesitate to reach out for questions on this one – so far we are seeing that it can be can quite impactful.

Many have asked if tax deadlines will be extended again – while part of me liked it and part of me hated it – I have to remember it’s not up to me. Even with the late passage of the CAA2020 and additional stimulus being discussed in Congress and at the White House – the IRS is saying that there are no plans to push the deadlines out.

To wrap this up and start the weekend please remember to support local. While many businesses have faired well there are many others that are severely hurting. It’s February on Cape Cod – which is hard enough in a good year never mind that we are nearly 12 months into a global pandemic. Go out to eat, get a day pass at the gym and get a workout in, buy local beer, get your Valentine’s Day (it’s this Sunday guys) schwag at a local chocolate shop and main street retailer, start that project and call the handyman, electrician, plumber etc. We are very much in this together.

So, with Valentine’s Day thoughts abound – love to you all.

Stay well, stay healthy, support local,

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Stephan P. McMahon & Company