Preface: “People don’t realize that we cannot forecast the future. What we can do is have probabilities of what causes what, but that’s as far as we go. And I’ve had a very successful career as a forecaster, starting in 1948 forward. The number of mistakes I have made are just awesome. There is no number large enough to account for that.” – Alan Greenspan
Austrian Economics, Business Cycles, and the Theory and Practice of Money – Segment I 7.27.222 Austrian Economics Presentation Segment I
Preface: “Choose a job you love, and you will never have to work a day in your life.”—Confucius.
American Rescue Plan: Employee Retention Credit Extended
The American Rescue Plan Act of 2021 modifies the employee retention credit first created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act then extended and expanded under the Consolidated Appropriations Act, 2021. This highly popular employment tax credit is designed to encourage businesses to keep workers on their payroll and support small businesses and nonprofits through the Coronavirus economic emergency.
Eligible employers may claim the credit against employment taxes equal to a percentage of qualified wages paid to employees beginning in 2020. The American Rescue Plan Act of 2021 modifies the rules for the employee retention credit for calendar quarters beginning after June 30, 2021 as follows:
Eligible Employers
An eligible employer is defined as:
• An employer whose trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease (COVID-19);
• An employer that experiences at minimum a 20% decline in gross receipts for the calendar quarter compared to the same quarter in 2019; or
• A recovery startup business.
If the employer was not in existence at the beginning of the same calendar quarter in 2019, then the employer may use the same calendar quarter in 2020. Employers may also elect to determine if they meet the gross receipts test using the immediately preceding calendar quarter compared to the corresponding calendar quarter in 2019.
A “recovery startup business” means any employer that began carrying on any trade or business after February 15, 2020 with average annual gross receipts of $1,000,000 or less, and is otherwise not an eligible employer described in items 1 or 2 above.
Qualified Wages
Qualified wages are based on the business’s average number of full-time employees in 2019 (or 2020, if not in existence in 2019).
• Small employers, those that had 500 or fewer employees, may receive the credit for wages paid to employees whether or not they are providing services to the employer.
• Large employers, those that had more than 500 employees, may only receive the credit for wages paid to employees for time the employees are not providing services to the employer.
• Severely financially distressed employers, those that are experiencing a minimum 90% decline in gross receipts for the calendar quarter compared to the same quarter in 2019, may receive the credit for wages paid to employees during any calendar quarter.
Credit Amount
In general, the amount of the credit is 70% of qualified wages paid to an employee up to $10,000 per quarter. Recovery startup businesses may claim a maximum credit of no more than $50,000 per quarter. Qualified wages may include amounts paid to provide and maintain a group health plan that are excluded from employees’ gross income.
Employers must report their qualified wages on their federal employment tax returns, usually Form 941, Employer’s Quarterly Federal Tax Return. They can reduce their required deposits of payroll taxes withheld from employees’ wages by the amount of the credit.
Small employers, those that had 500 or fewer employees, may elect for any calendar quarter to receive an advance payment of the credit not to exceed 70 percent of the average quarterly wages paid by the employer in calendar year 2019.
No Double Benefit
There are limitations when considering an eligible employer’s ability to claim the employee retention credit. A double tax benefit is not allowed. Other credits that impact the employee retention credit include, but are not limited to, the following:
• wages that are paid for with forgiven Payroll Protection Program (PPP) proceeds cannot qualify for the employee retention credit;
• qualifying wages for this credit cannot include wages for which the employer received a tax credit for paid sick and family leave; and
• employees are not counted for this credit if the employer is allowed a work opportunity tax credit.
Because of the enhancements and expansion of the employee retention credit, your business may now have an opportunity to take the advantage of this tax benefit. Please call our office to discuss the employee retention credit
Preface: “Central banks have made clear that after a sluggish start, they’re serious about putting a lid on inflation. Now, as prices soar even faster than expected, they’re weighing increasingly drastic options.” (London) CNN Business 7.14.22
Loans At Rates Below Market Interest
When consideration of making an interest free loan certain tax rules are applicable. Interest free loans are considered a below-market loan and there are certain tax implications of making such loans of which you should be aware.
A below-market loan is a loan on which the interest charged is less than the applicable federal rate (AFR). The excess of interest computed using the AFR over the interest actually charged is treated as being transferred by the borrower to the lender as interest and also as being transferred back from the lender to the borrower. The amount and the timing of these deemed transfers depend upon the type of the loan. Deemed transfers are treated for all tax purposes as if actually made.
The deemed transfer from the lender to the borrower is treated as a gift, compensation, dividend, or contribution to capital depending on the relationship between the borrower and the lender. The deemed interest is then treated as transferred back to the lender as interest. These deemed transactions, of course, may have an income tax effect through the creation of income and deductions, a gift tax effect through the creation of a taxable transfer, or an estate tax effect through the creation of a taxable gift that becomes an adjusted taxable gift.
These rules apply only to loans of money. They specifically apply to gift loans, compensation-related loans, corporation-shareholder loans, tax avoidance loans, certain loans to continuing care facilities, and other below-market loans if the interest arrangement has a significant effect on the federal tax liability of the borrower or the lender. The IRS has authority to exempt any class of transactions from these rules if there is no significant effect on any federal tax liability of the borrower or the lender as a result of the interest arrangements.
For below-market loans other than demand or gift loans, the lender is treated as transferring and the borrower is treated as receiving, on the date of the loan, an amount equal to the excess of the loan amount over the present value of all principal and interest payments under the loan. All amounts are included by the lender and deducted by the borrower under original issue discount (OID) principles.
De minimis rules create exceptions for gift loans, compensation-related loans, and corporation-shareholder loans, if the aggregate amount of loans between the borrower and the lender does not exceed $10,000. In addition, in the case of a gift loan between individuals, the amount of the deemed transfers is limited to the net investment income of the borrower, if the aggregate amount of loans between the individuals does not exceed $100,000.
If a loan is subject to the rules discussed above, special tax reporting requirements apply to both the borrower and the lender.
Preface: In the first stage, the city is proposing to begin reviewing a zoning change for what it is calling the Vanderbilt corridor, from 42nd to 47th Streets along Vanderbilt Avenue. If approved, developers would be allowed to build taller and larger buildings than currently permitted in exchange for substantive transportation improvements. — Anonymous
2022 Tax Planning: Qualified Opportunity Zones
The Tax Cuts and Jobs Act included tax advantageous changes for businesses and individuals. One of these is the creation of the opportunity zones tax incentives, an type of economic development tool that allows taxpayers to invest in selected distressed areas with tax benefits. This incentive’s purpose is to spur economic development and job creation in distressed communities by providing tax benefits to investors. Low-income communities and certain contiguous communities qualify as opportunity zones if a state, the District of Columbia or a U.S. territory nominates them for that designation and the U.S. Treasury certifies that nomination.
A taxpayer may elect to defer the taxation of capital gain realized from the sale or exchange of property to an unrelated party by reinvesting the capital gain in a qualified opportunity zone fund (QOF). The taxpayer must reinvest the proceeds within 180 days of the sale or exchange. The reinvestment may be made by transferring cash or property to the qualified opportunity zone fund. A taxpayer may choose to defer taxation on only a portion of the capital gain. It is not necessary to reinvest all of the capital gain from the sale or exchange that generated the capital gain.
Qualified Opportunity Fund (QOF)
A qualified opportunity fund (QOF) is a corporation or a partnership that holds at least 90 percent of its assets in qualified opportunity zone property.
• if the investor holds the qualified opportunity fund investment for at least five years, the basis of the qualified opportunity fund investment increases by 10% of the deferred gain;
• if the investor holds the qualified opportunity fund investment for at least seven years, the basis of the qualified opportunity fund investment increases to 15% of the deferred gain;
• if the investor holds the investment in the qualified opportunity fund for at least 10 years, the investor is eligible to elect to adjust the basis of the qualified opportunity fund investment to its fair market value on the date that the qualified opportunity fund investment is sold or exchanged.
Qualified Opportunity Zone (QOZ) Property
QOZ business property is tangible property that a QOF acquired by purchase after 2017 and uses in a trade or business:
• the original use of the property in the Qualified Opportunity Zone commenced with the Qualified Opportunity Fund or Qualified Opportunity Zone business or the property was substantially improved by the Qualified Opportunity Fund or Qualified Opportunity Zone business; and
• for 90% of the holding period the Qualified Opportunity Fund or Qualified Opportunity Zone business held the property, substantially all (generally at least 70 percent) of the use of the property was in a Qualified Opportunity Zone.
Several hundred such tax advantaged zones have been designated by the IRS. A taxpayer does not need to live in the Qualified Opportunity Zone to invest in it.
If the taxpayer reinvests any capital gain into a Qualified Opportunity Fund within 180 days after the sale, tax on the gain is not due until December 31, 2026 or, if earlier, the date the taxpayer sells their investment in the fund. Additionally, if the taxpayer does not sell their investment for ten years, any appreciation in the value of the investment is not taxed at all.
Please call our office to learn more about the rules on the qualified opportunity zones to determine the ways you may qualify to defer the recognition of capital gain.
