Weighing the risks vs. rewards of a mezzanine loan
The economic impact of the COVID-19 pandemic has hurt many companies but also opened opportunities for others to expand or pivot into more profitable areas. If your business needs working capital to grow, rather than simply survive, consider a mezzanine loan. These work by layering a junior loan on top of a senior (or primary) loan, combining aspects of senior secured debt from a bank and equity-based financing from direct investors. The advantages: a relatively quick approval process and access to working capital that you may be unable to obtain elsewhere. Drawbacks include high interest rates and potential loss of ownership share if delinquency or default occurs. Contact us for more info.
Prioritize customer service now more than ever
As companies adjust to the COVID-19 crisis and resulting economic fallout, prioritizing customer service is more important than ever. Success starts at the top. Encourage your management team and fellow business owners (if any) to regularly interact with customers. Moving down the organizational chart, cultivate customer-service heroes by celebrating achievements and empowering employees. Leverage the latest technology to deploy a system of immediate or at least timely customer feedback. Continually reassess your approach to customer service to suit the changing circumstances of not only the pandemic, but also your industry and local economy. Contact us for help.
Employers have questions and concerns about deferring employees’ Social Security taxes
The IRS has issued guidance to employers about the presidential action to allow employers to defer certain payroll taxes. Notice 2020-65 was issued to implement President Trump’s executive memo signed Aug. 8. The deferral involves wages or compensation paid to an employee beginning Sept. 1, 2020, and ending Dec. 31, 2020, but only if the amount paid for a biweekly pay period is less than $4,000, or an equivalent amount in other pay periods. The guidance postpones the withholding and remittance of the employee share of Social Security tax until the period beginning Jan. 1, 2021, and ending April 30, 2021. Penalties, interest and additions to tax will begin to accrue on May 1, 2021.
Homebuyers: Can you deduct seller-paid points?
Despite the pandemic, the National Association of Realtors reports that existing home sales and prices are up nationwide, compared with last year. If you’re a homebuyer, you may wonder if you can deduct mortgage points paid on your behalf by the seller. Yes, you can, subject to some important limitations. For example, the rule allowing a deduction for seller-paid points doesn’t apply to points that are allocated to the part of a mortgage above $750,000 ($375,000 for marrieds filing separately) for tax years 2018 through 2025 (above $1 million for tax years before 2018 and after 2025). It also doesn’t apply to points on a loan used to improve (rather than buy) a home and in other situations.
Back-to-school tax breaks on the books
Despite the COVID-19 pandemic, students are going back to school this fall, either remotely, in-person or a combination. In any event, parents may be eligible for certain tax breaks to help defray the cost of education. For example, with the American Opportunity Tax Credit (AOTC), you can save a maximum of $2,500 for each full-time college or grad school student. This applies to qualified expenses including tuition, room and board, books and computer equipment and other supplies. But the credit is phased out for moderate-to-upper income taxpayers. This is only one of the tax breaks available for education. Contact us for assistance in your situation.
ESOPs offer businesses a variety of potential benefits
Wouldn’t it be great if your employees worked as if they owned the company? An employee stock ownership plan (ESOP) could make this a reality. Under an ESOP, employees take part ownership of the business through a retirement savings arrangement. Among the biggest benefits for employers, along with having an extra-motivated workforce, is that contributions to qualified retirement plans such as ESOPs are typically tax-deductible. The company can also benefit from a clearer path to a smooth succession. There are some risks, however, including complexity of setup and administration, and a strain on cash flow in some situations. Please contact us to discuss further.
5 key points about bonus depreciation
You’re probably aware of the 100% bonus depreciation tax break that’s available for a wide variety of qualifying property. There are some important points to be aware of when it comes to this powerful tax-saving tool. For example, bonus depreciation is available for new and most used property. And it’s scheduled to phase out. Under current law, 100% bonus depreciation will generally be phased out in steps. An 80% rate will apply to property placed in service in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, and a 0% rate will apply in 2027 and later years. Asset depreciation can be a complex area of tax law. Contact us with questions about your situation.
Helping employees understand their health care accounts
For employees to get the full value out of health care accounts such as health FSAs, HRAs and HSAs, they need to know which expenses are eligible for reimbursement or a tax-free distribution. Employers shouldn’t provide tax advice, but you can give participants a heads-up that reimbursement rules vary depending on account type. IRS Publication 502 can be helpful, but it’s written primarily to inform taxpayers of what medical expenses are tax-deductible. You may want to warn employees that various factors affect whether and when a medical expense is reimbursable. These include timing rules, insurance premium restrictions and over-the-counter drug documentation. Contact us for more info.
Will You Have to Pay Tax on Your Social Security Benefits?
If you’re getting close to retirement, you may wonder: Will my Social Security benefits be taxed? It depends on your other income. If you’re taxed, up to 85% of your payments could be hit with federal income tax. If you file a joint tax return and your “provisional income,” plus half your Social Security benefits, isn’t above $32,000 ($25,000 if unmarried), none of your benefits will be taxed. If it falls above those amounts, you must report a certain percentage of your benefits as income. If you know your Social Security benefits will be taxed, you can arrange to have the tax withheld from the payments. Otherwise, you may have to make estimated tax payments. Contact us for more information.
CARES Act made changes to excess business losses
The CARES Act made changes to excess business losses that affect those who hold an interest in a business (or may do so in the future). This includes changes that are retroactive and there may be opportunities to file amended tax returns. The CARES Act made several retroactive corrections to the excess business loss rules as they were originally stated in the 2017 Tax Cuts and Jobs Act. Most importantly, the law clarified that deductions, gross income or gain attributable to employment aren’t taken into account in calculating an excess business loss. This means that excess business losses can’t shelter either net taxable investment income or net taxable employment income.