The possible tax consequences of PPP loans
If your business got a Paycheck Protection Program (PPP) loan taken out due to the COVID-19 crisis, there are potential tax implications. The PPP allows eligible businesses to receive loans that will be forgiven if they spend the proceeds on certain items within a certain period of time. In general, the reduction or cancellation of non-PPP debt results in cancellation of debt (COD) income to the debtor. However, forgiveness of PPP debt is excluded from gross income. The IRS has stated that expenses paid with PPP proceeds can’t be deducted, because the loans are forgiven without having taxable COD income and are tax-exempt income. Deducting the expenses would result in a double tax benefit.
The tax implications of employer-provided life insurance
Does your employer provide you with group term life insurance? If so, and depending on the amount of coverage, this employee benefit may create undesirable income tax consequences for you. The first $50,000 of group term life insurance coverage that your employer provides is excluded from taxable income and doesn’t add anything to your income tax bill. But the employer-paid cost of group term coverage in excess of $50,000 is taxable income to you. It’s included in the taxable wages reported on your Form W-2 — even though you never actually receive it. Contact us if you have questions about group term coverage or how much it is adding to your tax bill.
Thoughtful onboarding is more important than ever
In today’s anxious environment of COVID-19-related safety concerns and compliance challenges, a thoughtful onboarding program is more important than ever. Onboarding refers to “[a formal] process of helping new hires adjust to social and performance aspects of their new jobs quickly and smoothly,” according to the Society for Human Resource Management. It’s a crucial opportunity for you to explain how your company is coping with the COVID-19 crisis, as well as to introduce new workers to their jobs. Onboarding programs generally involve three parts: 1) preparing the employee for work, 2) optimizing his or her first day, and 3) following up regularly. Contact us for more info.
File cash transaction reports for your business — on paper or electronically
Does your business receive large amounts of cash or cash equivalents such as bank checks? You may be required to submit forms to the IRS to report these transactions. Each person engaged in a trade or business who receives more than $10,000 in cash in one transaction, or in two or more related transactions, must file Form 8300. Any transactions conducted in a 24-hour period are considered related transactions. Businesses required to file Form 8300 should know that in addition to filing on paper, e-filing is an option. The form is due 15 days after a transaction. Businesses that file electronically get an automatic acknowledgment of receipt when they file. Contact us with questions.
Strengthen your supply chain with constant risk awareness
Business owners are no strangers to supply-chain worries; the pandemic has only complicated matters. One commonly known threat is concentration, when a business relies on a customer or supplier for 10% or more of its revenue or materials, or on several customers or suppliers located in the same geographic area. Check regularly into which suppliers are available to serve you and whether new ones have emerged that might allow you to mitigate concentration. Keep a close eye on COVID-19 severity, weather conditions, tax rates, regulatory changes and geopolitical uncertainty in areas where your suppliers operate. Contact us for help making cost-effective improvements to your supply chain.
Are scholarships tax-free or taxable?
If your child has been awarded a scholarship, congratulations! But be aware that there may be tax implications. Scholarships and fellowships are generally tax-free for students at elementary, middle and high schools, as well as those attending college, graduate school or accredited vocational schools. It doesn’t matter if the scholarship makes a direct payment to the student or reduces tuition. However, certain conditions must be met. A scholarship is tax-free if it’s used to pay for: Tuition and fees required to attend the school, and fees, books, supplies and equipment required of students. Room and board, travel, research and clerical help don’t qualify. Contact us to learn more.
Why do partners sometimes report more income on tax returns than they receive in cash?
If you’re a partner in a business, you may wonder: Why in some years, were you taxed on more partnership income than was distributed to you from the partnership? The answer lies in the way partnerships and partners are taxed. Unlike regular corporations, partnerships aren’t subject to income tax. Instead, each partner is taxed on the partnership’s earnings whether or not they’re distributed. Similarly, if a partnership has a loss, the loss is passed through to partners. (However, various rules may prevent a partner from currently using his share of a partnership’s loss to offset other income.) Contact us if you’d like to discuss how you’re taxed as a partner.
Take advantage of a “stepped-up basis” when you inherit property
If you’re planning your estate, or you’ve recently inherited assets, you may be unsure of the “cost” (or “basis”) for tax purposes. Fair market value rules Under the fair market value basis rules (also known as the “step-up and step-down” rules), an heir receives a basis in inherited property equal to its date-of-death value. So, […]
Reopening concepts: What business owners should consider
“Reopening” a business, even if it was never completely closed, involves grappling with a variety of tricky strategic planning concepts. First you must decide when it’s safe to reopen, or further reopen. This decision should be based on scientific data and trusted guidance from all levels of government (including local). You also need to carefully consider and implement a policy regarding testing on-site employees for COVID-19. Involve your attorney in this effort. Beyond testing, there’s the matter of working safely. Re-evaluate the layout and functionality of your facilities, as well as the need for more protective equipment and upgraded technology. Contact us for help.
Even if no money changes hands, bartering is a taxable transaction
During the COVID-19 crisis, many small businesses are strapped for cash. They may find it beneficial to barter for goods and services instead of paying cash for them. If your business engages in bartering, remember that the fair market value of goods you receive is taxable income. And if you exchange services with another business, the transaction results in taxable income for both parties. Some businesses join barter clubs that facilitate barter exchanges. If you join such a club, you’ll be asked to provide your Social Security number or employer identification number. You may receive a form that reports barter transactions. Contact us if you need assistance or would like more information.
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