Thursday, August 13, 2020

PPP Loan forgiveness Process Kicked off

 On August 4, the Small Business Association and Department of the Treasury released a 10-page document to address 23 of the most frequently asked questions (FAQs) from borrowers on PPP loan forgiveness. This was then followed up on August 11, with some additional PPP loan FAQs and additional PPP loan forgiveness FAQs. The new guidance covers how to calculate how much of your PPP loan may be forgivable in 4 areas: general loan forgiveness, payroll costs, non-payroll costs, and loan forgiveness reductions.


As of August 12, 2020, the SBA began accepting PPP Loan Forgiveness applications with the option of using one of two application forms to apply for forgiveness, SBA Form 3508 and SBA Form 3508EZ


The EZ Form (Form 3508EZ) applies if you meet any one of these three criteria:

  1. Are self-employed and have no employees; OR
  2. Did not reduce the salaries or wages of their employees by more than 25% AND did not reduce the number or hours of their employees; OR
  3. Experienced reductions in business activity as a result of health directives related to COVID-19 AND did not reduce the salaries or wages of their employees by more than 25%.

    Borrowers with more complicated cases who are not able to use the EZ form will still need to fill out the standard, lengthier loan forgiveness application.


    Forgiveness Eligibility

    The loan covers expenses for either 8 weeks or 24 weeks (depending on choice or if the loan was dated on or after June 5th) starting from the loan origination date, or until December 31, 2020, whichever occurs first. At least 60 percent of the PPP loan must be used to fund payroll and employee benefits costs. The remaining 40 percent can be spent on mortgage interest payments, rent and lease payments, or utilities. If these guidelines are met – and there was no reduction in FTEEs in comparison to a chosen reference period and there was no reduction in wages in comparison to a defined reference period - you’ll be able to have 100% of the loan forgiven.

    Wednesday, September 5, 2018

    Three steps charities applying for tax-exempt status need to take

    Before applying for tax-exempt status, a charitable organization must determine whether it is a trust, corporation or association. After that, there are three additional steps to take:

    1. Gather organization documents
    Each application for exemption – except Form 1023-EZ – must be accompanied by an exact copy of the organization’s organizing document. This is generally one of these:
    • Articles of incorporation for a corporation
    • Articles of organization for a limited liability company
    • Articles of association or constitution for an association
    • Trust agreement or declaration of trust for a trust
    Organizations that do not have an organizing document will not qualify for exempt status. If the organization’s name has been legally changed by an amendment to its organizing documents, they should also attach an exact copy of that amendment to the application.
    State law generally determines whether an organization is properly created and establishes the requirements for organizing documents.

    2. Determine state’s registration requirements
    State government websites have useful information for tax-exempt organizations. They can find things including tax information, registration requirements for charities, and information for employers.

    3. Get an employer ID number for the new organization
    Organizations can apply for an EIN online, by fax, or by mail. International applicants may apply by phone. The instructions for Form SS-4, Application for Employer I.D. Number have additional details.
    Third parties can receive an EIN on a client's behalf by completing the Third Party Designee section on the bottom of page 1. The third party must remember to get the client's signature on the form. This avoids having to file a Form 2848, Power of Attorney, or Form 8821,Tax Information Authorization, to get an EIN for their client.
    It’s important that an organization doesn’t apply for an EIN until it is legally formed. Nearly all organizations are subject to automatic revocation of their tax-exempt status if they fail to file a required return or notice for three consecutive years. When an organization applies for an EIN, the IRS presumes the organization is legally formed and the clock starts running on this three-year period.

    Thursday, May 24, 2018

    Special tax benefit for armed forces

    Members of the military and their families are often eligible for certain tax breaks. For example, members of the armed forces don’t have to pay taxes on some types of income. Special rules could also lower the tax they owe or give them more time to file and pay taxes.
    No matter what time of the year, it’s good for members of the military and their spouses to familiarize themselves with these benefits. Here are some things for these taxpayers to know about their taxes:
    • Combat pay exclusion. If someone serves in a combat zone, part or even all of their combat pay is tax-free. This also applies to people working in an area outside a combat zone when the Department of Defense certifies that area is in direct support of military operations in a combat zone. There are limits to this exclusion for commissioned officers.
    • Deadline extensions. Some members of the military, such as those who serve in a combat zone, can postpone most tax deadlines. Those who qualify can get automatic extensions of time to file and pay their taxes.
    • Earned income tax credit. If those serving get nontaxable combat pay, they may choose to include it in their taxable income to increase the amount of EITC. That means they could owe less tax or get a larger refund.
    • Signing joint returns. Normally, both spouses must sign a joint income tax return. If military service prevents that, one spouse may be able to sign for the other or get a power of attorney.
    ROTC allowances. Some amounts paid to ROTC students in advanced training are not taxable. This applies to allowances for education and subsistence. Active duty ROTC pay is taxable. For instance, pay for summer advanced camp is 

    Monday, March 19, 2018

    Everything you need to know about bitcoin and your taxes

    • It looks like 2018 will be a landmark year when it comes to the IRS and taxing cryptocurrency gains.
    • The IRS treats cryptocurrency as property, so there are capital gain implications.
    • The best way to minimize is to buy and hold for more than a year.

    Bitcoin had its coming-out party in 2017. With all the excitement and opportunities around cryptcurrency, it might be easy to forget about crypto taxation. Almost every bitcoin or other "altcoin" transaction — mining, spending, trading, exchanging, air drops, etc. — will likely be a taxable event for U.S. tax purposes.
    Without a doubt, 2018 will be a landmark year for Internal Revenue Service enforcement of cryptocurrency gains. Taxpayers should stay ahead of the game rather than be reactionary. The IRS is always more lenient with taxpayers who come forward on their own accord rather than those that get discovered. Coming forward now actually could be the difference between criminal penalties and simply paying interest.
    With only several hundred people reporting their crypto gains each year since bitcoin's launch, the IRS suspects that many crypto users have been evading taxes by not reporting crypto transactions on their tax returns.
    Unfortunately, the IRS has provided very little guidance with regard to bitcoin taxation. One thing, however, is clear: Although both the public and the crypto community refer to bitcoin and altcoins as virtual currencies, the IRS treats them as property for tax purposes. Therefore, selling, spending and even exchanging crypto for other tokens all likely have capital gain implications. Likewise, receiving it as compensation or by other means will be ordinary income.
    While bitcoin receives most of the attention these days, it is only one of hundreds of cryptocurrencies. Everything discussed with regard to bitcoin taxation applies to all cryptocurrencies.
    Let's look at specific crypto transactions and their tax implications:
    • Trading cryptocurrencies produces capital gains or losses, with the latter being able to offset gains and reduce tax.
    • Exchanging one token for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses.
    • Receiving payments in crypto in exchange for products or services or as salary is treated as ordinary income at the fair market value of the coin at the time of receipt.
    • Spending crypto is a tax event and may generate capital gains or losses, which can be short-term or long-term. For example, say you bought one coin for $100. If that coin was then worth $200 and you bought a $200 gift card, there is a $100 taxable gain. Depending on the holding period, it could be a short- or long-term capital gain subject to different rates.
    • Converting a cryptocurrency to U.S. dollars or another currency at a gain is a taxable event, as it is treated as being sold, thus generating capital gains.
    • Air drops are considered ordinary income on the day of the air drop. That value will become the basis of the coin. When it's sold, exchanged, etc., there will be a capital gain.
    • Mining coins is considered ordinary income equal to the fair market value of the coin the day it was successfully mined.
    • Initial coin offerings do not fall under the IRS's tax-free treatment for raising capital. Thus, they produce ordinary income to individuals and businesses alike.
    Although specific identification of the particular coin being sold or exchanged would allow taxpayers to manage their short- and long-term capital gains, exchanges and wallets are currently not set up to choose which coins to sell or exchange. Therefore, the IRS will likely default to First-In-First-Out treatment, although no guidance has been provided, so taxpayers are allowed to pick their methodology as long as it is consistent throughout the return.
    That being said, the best way to minimize is to buy and hold for more than a year. Short-term capital gains are taxed at your normal ordinary income tax rate while long-term gains are taxed at a reduced rate (15 percent to 23.8 percent, depending on your bracket). Of course, given the volatility, it still might be in your best interest to lock in the profit now and take the tax hit, but that is up to you to decide.
    Digital exchanges are not broker-regulated by the IRS, which makes matters more complicated for preparing tax documents if you traded cryptocurrency. Exchanges do not issue a 1099 form, nor do they calculate gains or cost basis for the trader. Many don't even allow transacting in dollars, instead opting for Ethereum. This means that self-reporting is necessary.
    Exchanges are starting to take note of tax reporting, however. Coinbase, for example, now provides a Form 1099-K, but only to certain business users and GDAX users who have received at least $20,000 cash for sales of cryptocurrency related to at least 200 transactions in a calendar year.
    Other users need to use their account transaction history. The reporting of gains/losses and cost basis is still in beta and not guaranteed to be accurate. Therefore, we strongly recommend keeping detailed records of all crypto transactions at all exchanges in order to have all the crypto information needed for your U.S. tax return. Those records include dates of earning, buying or exchanging coins, market value at that date to calculate cost basis and the date and sales proceeds when a coin is sold, exchanged or spent.
    Fortunately, there are some services available that can take your trading history and provide you with a fairly clean output for Schedule D on your tax return. Many investors have used and, for example.

    Thursday, November 16, 2017

    Seven Things to Do When and IRS Letter Arrives

    The IRS mails millions of letters to taxpayers every year for many reasons. Here are seven simple suggestions on how individuals can handle a letter or notice from the IRS:
    1. Don’t panic. Simply responding will take care of most IRS letters and notices.
    2. Read the entire letter carefully. Most letters deal with a specific issue and provide specific instructions on what to do.
    3. Compare it with the tax return. If a letter indicates a changed or corrected tax return, the taxpayer should review the information and compare it with their original return.
    4. Only reply if necessary. There is usually no need to reply to a letter unless specifically instructed to do so, or to make a payment.
    5. Respond timely. Taxpayers should respond to a letter with which they do not agree. They should mail a letter explaining why they disagree. They should mail their response to the address listed at the bottom of the letter. The taxpayer should include information and documents for the IRS to consider. The taxpayer should allow at least 30 days for a response.
      When a specific date is listed in the letter, there are two main reasons taxpayers should respond by that date:
      • To minimize additional interest and penalty charges.
      • To preserve appeal rights if the taxpayers doesn’t agree.
    6. Don’t call. For most letters, there is no need to call the IRS or make an appointment at a taxpayer assistance center. If a call seems necessary, the taxpayer can use the phone number in the upper right-hand corner of the letter. They should have a copy of the tax return and letter on hand when calling. 
    7. Keep the letter. A taxpayer should keep copies of any IRS letters or notices received with their tax records.  

    Wednesday, August 23, 2017

    Divorce or Separation May Affect Taxes

    Divorce or Separation May Affect Taxes

    Taxpayers who are divorcing or recently divorced need to consider the impact divorce or separation may have on their taxes. Alimony payments paid under a divorce or separation instrument are deductible by the payer, and the recipient must include it in income. Name or address changes and individual retirement account deductions are other items to consider. has resources that can help along with these key tax tips:
    • Child Support Payments are not Alimony.  Child support payments are neither deductible nor taxable income for either parent.
    • Deduct Alimony Paid. Taxpayers can deduct alimony paid under a divorce or separation decree, whether or not they itemize deductions on their return. Taxpayers must file Form 1040; enter the amount of alimony paid and their former spouse's Social Security number or Individual Taxpayer Identification Number.
    • Report Alimony Received. Taxpayers should report alimony received as income on Form 1040 in the year received. Alimony is not subject to tax withholding so it may be necessary to increase the tax paid during the year to avoid a penalty. To do this, it is possible to make estimated tax payments or increase the amount of tax withheld from wages.
    • IRA Considerations. A final decree of divorce or separate maintenance agreement by the end of the tax year means taxpayers can’t deduct contributions made to a former spouse's traditional IRA. They can only deduct contributions made to their own traditional IRA. For more information about IRAs, see Publications 590-A and 590-B.
    • Report Name Changes.  Notify the Social Security Administration (SSA) of any name changes after a divorce. Go to for more information. The name on a tax return must match SSA records. A name mismatch can cause problems in the processing of a return and may delay a refund.
    For more on this topic, see Publication 504, Divorced or Separated Individuals. Get it on at any time.
    Avoid scams. The IRS does not initiate contact using social media or text message. The first contact normally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on to find out.

    Thursday, July 20, 2017

    Understanding Charitable Remainder Trusts

    How to Secure a Lifetime Income, Save Taxes & Benefit a Charity

    Since 1969, countless families have used charitable remainder trusts (CRTs) to increase their incomes, save taxes and benefit charities.
    What does a CRT do?
    A CRT lets you convert a highly appreciated asset like stock or real estate into lifetime income. It reduces your
    income taxes now and estate taxes when you die. You pay no capital gains tax when the asset is sold. And it lets you help one or more charities that have special meaning to you.
    How does a CRT work?
    You transfer an appreciated asset into an irrevocable trust. This removes the asset from your estate, so no estate taxes will be due on it when you die. You also receive an immediate charitable income tax deduction.
    The trustee then sells the asset at full market value, paying no capital gains tax, and re-invests the proceeds in income-producing assets. For the rest of your life, the trust pays you an income. When you die, the remaining trust assets go to the charity(ies) you have chosen. That’s why it’s called a charitable remainder trust.

    Charitable Remainder Trust
    Why not sell the asset myself and re-invest?
    You could, but you would pay more in taxes and there would be less income for you. Let’s look at an example.
    Years ago, Max and Jane Brody (ages 65 and 63) purchased some stock for $100,000. It is now worth $500,000. They would like to sell it and generate some retirement income.
    If they sell the stock, they would have a gain of $400,000 (current value less cost) and would have to pay $60,000 in federal capital gains tax (15% of $400,000). That would leave them with $440,000. (See chart at right.)
    If they re-invest and earn a 5% return, that would provide them with $22,000 in annual income. Multiplied by their life expectancy of 26 years, this would give them a total lifetime income (before taxes) of $572,000. Because they still own the assets, there is no protection from creditors and no charitable income tax deduction is available.
    What happens if they use a CRT?
    If they transfer the stock to a CRT instead, the Brodys can take an immediate charitable income tax deduction of $90,357. Because they are in a 35% tax bracket, this will reduce their current federal income taxes by $31,625.
    The trustee will sell the stock for the same amount (see chart at right), but because the trust is exempt from capital gains tax, the full $500,000 is available to re-invest. The same 5% return will produce $25,000 in annual income which, before taxes, will total $650,000 over their lifetimes. That’s $78,000 more in income than if the Brodys had sold the stock themselves. And because the assets are in an irrevocable trust, they are protected from creditors.
    What are my income choices?
    You can receive a fixed percentage of the trust assets (like the Brodys), in which case your trust would be called a charitable remainder unitrust. With this option, the amount of your annual income will fluctuate, depending on investment performance and the annual value of the trust.
    The trust will be re-valued at the beginning of each year to determine the dollar amount of income you will receive. If the trust is well managed, it can grow quickly because the trust assets grow tax-free. The amount of your income will increase as the value of the trust grows.
    Sometimes the assets contributed to the trust, like real estate or stock in a closely-held corporation, are not readily market-
    able, so income is difficult to pay. In that case, the trust can be designed to pay the lesser of the fixed percentage of the trust’s assets or the actual income earned by the trust. A provision is usually included so that if the trust has an off year, it can make up any loss of income in a better year.
    Comparison of Income After Sale
     Without CRTWith CRT
    Current Value of Stock$ 500,000$ 500,000
    Capital Gains Tax*- 60,0000
    Balance To Re-Invest$ 440,000$ 500,000
    5% Annual Income$ 22,000$ 25,000
    Total Lifetime Income$ 572,000$ 650,000
    Tax Deduction Benefit**$ 0$ 31,625
    *15% federal capital gains tax only.
    (State capital gains tax may also apply.)
    **$90,357 charitable income tax deduction times 35% income tax rate.

    Can I receive a fixed income instead?
    Yes. You can elect instead to receive a fixed income, in which case the trust would be called a charitable remainder annuity trust. This means that, regardless of the trust’s performance, your income will not change.
    This option is usually a good choice at older ages. It doesn’t provide protection against inflation like the unitrust does, but some people like the security of being able to count on a definite amount of income each year. It’s best to use cash or readily marketable assets to fund an annuity trust.
    In either (unitrust or annuity trust), the IRS requires that the payout rate stated in the trust cannot be less than 5% or more than 50% of the initial fair market value of the trust’s assets.
    Who can receive income from the trust?
    Trust income, which is generally taxable in the year it is received, can be paid to you for your lifetime. If you are married, it can be paid for as long as either of you lives.
    The income can also be paid to your children for their lifetimes or to any other person or entity you wish, providing the trust meets certain requirements. In addition, there are gift and estate tax considerations if someone other than you receives it. Instead of lasting for someone’s lifetime, the trust can also exist for a set number of years (up to 20).
    Do I have to take the income now?
    No. You can set up the trust and take the income tax deduction now, but postpone taking the income until later. By then, with good management, the trust assets will have appreciated considerably in value, resulting in more income for you.
    How is the income tax deduction determined?
    The deduction is based on the amount of income received, the type and value of the asset, the ages of the people receiving the income, and the Section 7520 rate, which fluctuates. (Our example is based on a 3.0% Section 7520 rate.) Generally, the higher the payout rate, the lower the deduction.
    It is usually limited to 30% of adjusted gross income, but can vary from 20% to 50%, depending on how the IRS defines the charity and the type of asset. If you can’t use the full deduction the first year, you can carry it forward for up to five additional years. Depending on your tax bracket, type of asset and type of charity, the charitable deduction can reduce your income taxes by 10%, 20%, 30% or even more.
    What kinds of assets are suitable?
    The best assets are those that have greatly appreciated in value since you purchased them, specifically publicly traded securities, real estate and stock in some closely-held corporations. (S-corp stock does not qualify. Mortgaged real estate usually won’t qualify, either, but you might consider paying off the loan.) Cash can also be used.
    Who should be the trustee?
    You can be your own trustee. But you must be sure the trust is administered properly—otherwise, you could lose the tax advantages and/or be penalized. Most people who name themselves as trustee have the paperwork handled by a qualified third party administrator.
    However, because of the experience required with investments, accounting and government reporting, some people select a corporate trustee (a bank or trust company that specializes in managing trust assets) as trustee. Some charities are also willing to be trustees.
    Before naming a trustee, it’s a good idea to interview several and consider their investment performance, services and experience with these trusts. Remember, you are depending on the trustee to manage your trust properly and to provide you with income.
    Do I still have some control?
    Yes. For as long as you live, the trustee you select—not the charity—controls the assets. Your trustee must follow the instructions you put in your trust. You can retain the right to change the trustee if you become dissatisfied. You can also change the charity (to another qualified charity) without losing the tax advantages.
    Can I make any other changes?
    Generally, once an irrevocable trust is signed, you cannot make any other changes. Be sure you understand the entire document and it is exactly what you want before you sign.
    Sounds great for me. But if I give away the asset, what about my children?
    If you have a sizeable estate, the asset you place in a CRT may only be a small percentage of your assets, so your children may be well taken care of. However, if you are concerned about replacing the value of this asset for your children, there is an easy way to do so.
    As the illustration below shows, you can take the income tax savings, and part of the income you receive from the charitable remainder trust, and fund an irrevocable life insurance trust. The trustee of the insurance trust can then purchase enough life insurance to replace the full value of the asset for your children or other beneficiaries.

    Replace Asset with Insurance
    Why use a life insurance trust?
    With a trust, the insurance proceeds will not be included in your estate, so you avoid estate taxes. You can keep the proceeds in the trust for years, making periodic distributions to your children and grandchildren. And any proceeds that remain in the trust are protected from irresponsible spending and creditors (even spouses).
    Life insurance can be an inexpensive way to replace the asset for your children. (Every dollar you spend in premium buys several dollars of insurance.) Insurance proceeds are available immediately, even if you and your spouse both die tomorrow. And, in addition to avoiding estate taxes, the proceeds will be free from probate and income taxes.
    So what’s the catch?
    There really isn’t one. Combining a charitable remainder trust with an irrevocable life insurance trust is a winning formula for everyone—you, your children and the charity.
    You convert an appreciated asset into lifetime income, and because you pay no capital gains tax when the asset is sold, you receive more income than if you had sold it yourself and invested the sales proceeds. You receive an immediate charitable income tax deduction, reducing your current income taxes. And by removing the asset from your estate, you reduce estate taxes that may be due when you die.
    With the life insurance trust replacing the full value of the asset, your children receive much more than if you had sold the asset yourself, and paid capital gains and estate taxes. Plus the proceeds are free of income and estate taxes, and probate.
    Finally, you will make a substantial gift to a favorite charity. And because the charity knows it will receive the gift at some point in the future, it can plan projects and programs now—benefiting even before receiving the gift.
    Should I seek professional assistance?
    Yes. If you think a charitable remainder trust would be of value to you and your family, speak with a tax-planning attorney, insurance professional, corporate trustee, investment adviser, CPA, and/or favorite charity. Be sure an attorney experienced in CRTs prepares the documents.
    Benefits of a Charitable Remainder Trust
    • Convert an appreciated asset into lifetime income.
    • Reduce your current income taxes with charitable income tax deduction.
    • Pay no capital gains tax when the asset is sold.
    • Reduce or eliminate your estate taxes.
    • Gain protection from creditors for gifted asset.
    • Benefit one or more charities.
    • Receive more income over your lifetime than if you had sold the asset yourself.
    • Leave more to your children or others by using life insurance trust to replace the gifted asset.

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