Good recordkeeping is an essential element of tax planning

Now is a good time for people to begin thinking about next year’s tax return. While it may seem early to be preparing for 2022, reviewing your recordkeeping now will pay off when it comes time to file again.
Here are some suggestions to help taxpayers keep good records.

Taxpayers should develop a system that keeps all their important information together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.

Throughout the year, they should add tax records to their files as they receive them. Having records handy makes preparing a tax return next year easier.
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• Taxpayers should notify the IRS if their address changes. Taxpayers should let the IRS know if they change their address. They should also notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return.
  
  
• Review their tax return to make sure they didn’t overlook any credits or deductions. Double check credits and deductions.  Records that taxpayers should keep include receipts, canceled checks and other documents that support income, including any unemployment compensation.
  
  
• Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for figuring gains or losses.
• Taxpayers should keep records for three years from the date they filed the return. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.

Accounting:

• An information system that provides reports to stakeholders about the economic activities and condition of a business.
  • Financial accounting: The area of accounting that focuses on recording transactions and events so that general-purpose financial statements can be prepared.
  • Managerial accounting: The branch of accounting that aids management in making financing, investing, and operating decisions for the company.
  • The head of the accounting department in a company is called comptroller or chief financial officer (CFO).

 
Statement of stockholders’ equity: A financial statement that reports the change in financial condition due to the changes in stockholders’ equity items for a specific period of time.
 
Retained earnings: Net income retained in a corporation. (Beginning retained earnings + Net income – Dividends = Ending retained earnings)
 
Stockholders’ equity: The stockholders’ rights to the assets of a business.
Assets = Liabilities + stockholder’s Equity
 
Statement of cash flows: Provides a summary of the cash receipts and cash payments and reports the change in financial condition due to the change in cash during a specific period of time.
 
Financial Accounting Standards Board (FASB): The authoritative body that has the primary responsibility for developing accounting principles.
 
Financial accounting system: A system that includes:

• (1) a set of rules for determining what, when, and the amount that should be recorded for an economic event;
• (2) a framework for facilitating preparing financial statements; and
• (3) one or more controls to determine whether errors could have occurred in the recording process.

 
Cash basis of accounting: A system of accounting in which only transactions involving increases or decreases of the entity’s cash are recorded. (Practiced in Chapter 2)

• Under the cash basis of accounting, net income and net cash flows from operating activities are equal.

 
Accrual Basis of Accounting: A system of accounting in which revenue is recorded as it is earned, and expenses are recorded and matched against the revenue they generate.

• Under the accrual basis of accounting, net income and net cash flows from operating activities may be significantly different.
• Revenue is recorded when it is earned, expense when expense is incurred in generated revenue, and adjusting entries required in order to prepare financial statements.

​Causes to Check Out, With Local Ties

As you may know, I am a networker. I am involved in a few organizations (many of them with events highlighted above). I get to meet some great business people and many of them focus any spare time they have to a cause. I wanted to highlight a few of them today.
 
1. Rotary Club
Rotary's International goal is to rid the world of Polio. Local Clubs, support that cause and even more! I am a member of Rotary Club of Schaumburg/ Hoffman Estates (Meets on Fridays at Noon in Schaumburg.  

2. Walk to End Alzheimer's
I have known Kari-Ann Ryan for many years and in all that time, she has spearheaded a movement to End Alzheimer's. Her life has been affected personally. You can also be added to her email list for all the events she organizes, by emailing her: kari.ann.b.ryan@gmail.com

3. National Association of Parks Foundations
The NAPF's vision is to build effective, active, local park foundations, volunteers and other citizens that support their park systems to enhance the park experience in their communities. These Park Foundations usually provide funding for Park District Activities for people in the community that generally cannot afford them.
 
Please contact my longtime friend,  Donald Ortale, Executive Director of NAPF, to learn more about how you can help. Call him at 630-965-1000 or email dortale@ortaleassociates.com 
 
4. The Business Ledger- 2020 Guide to Business Philanthropy & Social Responsibility
This is a list of notable local nonprofits and charities. 

#GivingTuesday is a global day of giving fueled by the power of social media and collaboration.
 
The following is a summary of a full article at Charity Navigator:
 
A gift to a qualified charitable organization may entitle you to a charitable contribution deduction against your income tax if you itemize deductions.
If the gifts are deductible, the actual cost of the donation is reduced by your tax savings. 

• A contribution to a qualified charity is deductible in the year in which it is paid. 
• Most, but not all, charitable organizations qualify for a charitable contribution deduction.
• You can deduct contributions only if they are made to or for the use of a qualified recipient. 
• An organization could lose its charity status if it devotes a substantial part of its activities to formulating propaganda or otherwise trying to influence legislation. 
• There are limits to how much you can deduct, but they're very high.
• Rules exist for non-cash donations.
• Remember to document.
• Organizations to Which You Can Give and Deduct Your Donation:
  • Churches and other religious organizations;
  • Tax exempt educational organizations;
  • Tax exempt hospitals and certain medical research organizations;
  • A government unit, such as a state or a political subdivision of a state;
  • Publicly supported organizations such as a community chest;
  • Certain private foundations that distribute all contributions they receive to public charities within two-and-a-half months after the end of the foundation's fiscal year;
  • A private operating foundation which pools all of its donations in a common fund;
  • Certain membership organizations that rely on the general public for more than a third of their contributions.

Read Complete Article From Charity Navigator Here

​The IRS has published this flowchart to help determine if employee retention credits can be used by a company. 

​It also includes a table with some differences between the current credits available for COVID related leave.

​This is what we have been able to glean so far from SBA and Department of the Treasury notices (along with CPA and Law firm interpretations).
 
The SBA will be relying on banks to gather and submit the required paperwork for PPP Loan forgiveness.  Fully expect some banks to ask for more documentation than others.  Some banks are asking for the PPP funds to go into a separate account.  Keep very good records and be prepared to submit details. 
 
Loan forgiveness will be based upon maintaining headcount, maintaining wages for each employee and payroll cost/other cost ratio. 
 
Headcount reduction is determined by dividing the base FTE headcount during the 8 weeks of the PPP loan by the base FTE headcount during the look back period.  The look back period is either from 1/1/20 to 2/29/20 OR 2/15/19 to 6/30/19 at the borrower’s discretion.  There is no definition yet of full-time equivalent (FTE) employees.  Until that is issued, the best advice is to use 30 hours of part-timers = 1 FTE as that’s been used before by the agencies involved.
 
Forgiveness is reduced for not maintaining wages per employee.  The lookback period for wage level is 1st Q 2020.  If any employee’s salary is reduced by more than 25% during the 8 weeks of the PPP then the forgiveness is reduced dollar-for-dollar by the dollar amount of the portion beyond the 25% reduction.  For employees earning more then $100,000, reductions are only considered if the employee ends up below $100,000 annualized in the more than 25% reduction.  There has been no guidance given yet on how to calculate or compare these periods, for now, best advice is to use a weekly average for both periods.
 
And lastly at least 75% of the forgiveness must be payroll costs.  Payroll costs include wages, commission, tips, paid leave, insurance premiums, retirement contributions, etc.  Wages above $100,000 annualized to any single employee are excluded.  The rest (up to 25%) must be for mortgage, rent or utilities.  If more is spent in non-payroll categories the forgiveness will still cap based upon the 75% / 25% ratio.
 
There is no final guidance on the order of reduction, but everything I have read is presuming that the headcount reduction will be first and then the wage level reduction and then the 75% / 25% calculation will be last.  In most cases this produces the biggest overall reduction in forgiveness so it’s safest for projections.
 
An example: 
A company had 10 FTE employees during the preferred look back period.  During the PPP period they had 6 FTE employees.  They reduced 1 of the employee’s wages by 30% (by reducing their hours average from 30 to 21 but keeping their rate at $11.00 an hour).  During the PPP period they spent $30,000 on payroll, $4,000 on rent and $2,000 on utilities.  They are looking for $36,000 in forgiveness. 
 
They have a 60% reduction due to headcount, therefor $21,600 is eligible for forgiveness. 
 
The wage reduction beyond a 25% reduction is $132 for the 8 weeks, therefor $21,468 is eligible for forgiveness. 
 
Their payroll was 83% of the total, so the rent/utilities forgiveness is not reduced, therefor $21,468 is eligible for forgiveness. 
 
The remaining $14,532 becomes a loan at 1% to be paid back over 2 years.
 
I don’t think I quite made the 1 sheet reference target, and even still this misses a lot of the finer details. 
 
There are a couple of ways that employers could not keep headcount or wage levels during the 8 weeks of PPP but restore them by 6/30/20 and still get forgiveness, but there are no details at all on how that works or how long after 6/30/20 they’d have to keep those levels restored so I’ve left that off.
 
Future guidance may change everything here.  Feel free to reach out to me if you have any questions, and I’ll do my best to help.

​1.  IRS launches tool to help non-filers register for Economic Impact Payments

To help millions of people, the Treasury Department and the IRS launched a new web tool allowing quick registration for Economic Impact Payments for those who don’t normally file a tax return. The non-filer tool, developed in partnership between the IRS and the Free File Alliance, provides a free and easy option designed for people who don't have a return filing obligation, including those with too little income to file. The feature is available only on IRS.gov, and users should look for Non-filers: Enter Payment Info Here to take them directly to the tool.

"People who don't have a return filing obligation can use this tool to give us basic information so they can receive their Economic Impact Payments as soon as possible," said IRS Commissioner Chuck Rettig. "The IRS and Free File Alliance have been working around the clock to deliver this new tool to help people."

Economic Impact Payments will be distributed automatically to most people starting next week. Eligible taxpayers who filed tax returns for 2019 or 2018 will receive the payments automatically. Automatic payments will also go in the near future to those receiving Social Security retirement or disability benefits and Railroad Retirement benefits.
For more information and additional updates, visit IRS.gov/coronavirus.


2.  IRS extends more tax deadlines to cover individuals, trusts and estates

The Department of Treasury and the Internal Revenue Service this week announced extensions of additional key tax deadlines for individuals and businesses.

Last month, the IRS announced that taxpayers generally have until July 15, 2020, to file and pay federal income taxes originally due on April 15. No late-filing penalty, late-payment penalty or interest will be due.
Notice 2020-23 expands this relief to additional returns, tax payments and other actions. As a result, the extensions generally now apply to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. Individuals, trusts, estates, corporations and other non-corporate tax filers qualify for the extra time. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due.
More information on tax relief is available at IRS.gov/coronavirus.


3.  CARES Act: Guidance available on net operating losses

The Internal Revenue Service this week issued guidance providing tax relief under the CARES Act for taxpayers with net operating losses, in addition the agency issued tax relief for partnerships filing amended returns.
 
COVID Relief for taxpayers claiming NOLs
Revenue Procedure 2020-24 provides guidance to taxpayers with net operating losses that are carried back under the CARES Act by providing procedures for:

• Waiving the carryback period in the case of a net operating loss arising in a taxable year beginning after Dec. 31, 2017, and before Jan. 1, 2020,
• Disregarding certain amounts of foreign income subject to transition tax that would normally have been included as income during the five-year carryback period, and
• Waiving a carryback period, reducing a carryback period, or revoking an election to waive a carryback period for a taxable year that began before Jan. 1, 2018, and ended after Dec. 31, 2017.

Six month extension of time for filing NOL forms
In Notice 2020-26, the IRS grants a six-month extension of time to file Form 1045 or Form 1139, as applicable, with respect to the carryback of a net operating loss that arose in any taxable year that began during calendar year 2018 and that ended on or before June 30, 2019.  Individuals, trusts, and estates would file Form 1045, and corporations would file Form 1139.
 
COVID relief for partnerships with NOLs
The IRS also issued Revenue Procedure 2020-23, allowing eligible partnerships to file amended partnership returns using a Form 1065, U.S. Return of Partnership Income, by checking the “Amended Return” box and issuing amended Schedules K-1, Partner’s Share of Income, Deductions, Credits, to each of its partners. Partnerships filing these amended returns should write “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended return.

WASHINGTON – The U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (Labor) announced that small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (Act), signed by President Trump on March 18, 2020.
 
The Act will help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. The legislation will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.
 
Key Takeaways
 

• Paid Sick Leave for Workers 
  • For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid child care leave when employees’ children’s schools are closed or child care providers are unavailable.
• Complete Coverage
  • Health insurance costs are also included in the credit.
  • Employers face no payroll tax liability.
  • Self-employed individuals receive an equivalent credit.
• Employers receive 100% reimbursement for paid leave pursuant to the Act.
• Fast Funds
  • An immediate dollar-for-dollar tax offset against payroll taxes will be provided
  • Where a refund is owed, the IRS will send the refund as quickly as possible.
  • Reimbursement will be quick and easy to obtain.
• Small Business Protection
  • ​​Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened.

 

• Easing Compliance
  • Requirements subject to 30-day non-enforcement period for good faith compliance efforts.

 
To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.
 
Background
 
The Act provided paid sick leave and expanded family and medical leave for COVID-19 related reasons and created the refundable paid sick leave credit and the paid child care leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and Dec. 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.
 
Paid Leave
 
The Act provides that employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis. An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional 10 weeks of expanded paid family and medical leave at 2/3 the employee’s pay.
 
Paid Sick Leave Credit
 
For an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.
 
For an employee who is caring for someone with Coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus, eligible employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
 
Child Care Leave Credit
 
In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
 
Prompt Payment for the Cost of Providing Leave
 
When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees' share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.
 
Under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.
 
The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.
 
If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.
 
Examples
 
If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
 
If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
 
Equivalent child care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.
 
Small Business Exemption
 
Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue. The exemption will be available on the basis of simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer’s business as a going concern. Labor will provide emergency guidance and rulemaking to clearly articulate this standard.
 
Non-Enforcement Period
 
Labor will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. Under this policy, Labor will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. Labor will instead focus on compliance assistance during the 30-day period.
 
For More Information
 
For more information about these credits and other relief, visit Coronavirus Tax Relief on IRS.gov. Information regarding the process to receive an advance payment of the credit will be posted next week.        

Paying taxes is not optional – it’s the law. Taxpayers do have options when it comes to how they pay their taxes. The IRS offers several easy ways to pay taxes. Taxpayers can pay online, by phone or with their mobile device using the IRS2Go app, just to name a few.

Some taxpayers must make quarterly estimated tax payments throughout the year. This includes sole proprietors, partners, and S corporation shareholders who expect to owe $1,000 or more when they file. Individuals who participate in the gig economy might also have to make estimated payments.

Here are five options for taxpayers who need to pay their taxes. They can:

• Pay when they e-file using their bank account, at no charge, using electronic funds withdrawal.
• Use IRS Direct Pay which allows taxpayers to pay electronically directly from their checking or savings account for free. They can choose to receive email notifications about their payments when they pay this way. Taxpayers should watch out for email schemes. IRS Direct Pay sends emails only to users who request the service.
• Pay using a payment processor by credit card, debit card or digital wallet options. Taxpayers can make these payments online, by phone or through the IRS2Go app.
• Make a cash payment at more than 7,000 participating retail stores nationwide. To pay with cash, visit IRS.gov and follow the instructions.
• Pay over time by applying for an online payment agreement. Once the IRS accepts an agreement, the taxpayers can make their payment in monthly installments.