Blog: Ask A CPA

PPP Loans – A Primer

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Let’s discuss the Paycheck Protection Program (PPP) loan initiative enacted under the CARES Act to keep small businesses afloat during COVID-19. The PPP lets small businesses borrow up to 250% of their average monthly payroll to cover payroll, utilities, rent, and interest. If the loan proceeds are used for these specific expenses during the 24-week period following disbursement of the loan, then the loan need not be repaid, provided that at least 60% of the proceeds are used for payroll.

The CARES Act says that forgiven PPP loans are nontaxable. The law is silent on whether expenses paid with forgiven PPP funds are deductible. So, the IRS issued an administrative ruling which said that to prevent a double tax benefit, the expenses are not deductible. Businesses with PPP loans are pleading with Congress to reverse the ruling and the lawmakers are listening. The Senate is trying to pass a narrow bill that would reverse the IRS ruling and many House members are also in agreement. I am telling my clients to book the receipt of the PPP loan and the subsequent disbursements as follows. Upon receipt of the loan proceeds, you should debit cash and credit Note Payable – PPP. As you spend your loan proceeds, you should credit cash and debit Note Payable – PPP. This will have no effect on the Income Statement and will comply with the IRS ruling. I would advise keeping a list of all your expenses in a separate file off the books.

Keep a close eye on your net income because if the loan proceeds and the related non-deductible expenses exceed your reduction in revenues then you could have a large increase in your taxable income. If Congress reverses the IRS, then you will have a huge benefit. I will keep you posted.  

IRS Faces Next Challenge: Reopening

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The IRS is trying to reopen dozens of offices around the country this week and trying to recall thousands of employees after they were sent home for months to telecommute. The IRS priorities are completing the $267 billion in stimulus payments that require a check, processing 2019 personal tax returns with refunds, and tackling the 10 million pieces of mail that have accumulated while they were at home telecommuting. They are also getting ready for the July 15, 2020 deadline.The major service centers remain closed for now and those that are open are not running at full strength. Refunds are being processed more slowly than usual and there is very little, if any, telephone assistance. The IRS is directing people to the IRS website when possible.  

Now is a Good Time to File

If you need to file your business or personal tax return by the July 15, 2020 deadline, then now is a good time. Give us a call at (713) 785-8939 and we will make an appointment. If you can’t get ready by July 15, then we can get an extension for you until September 15 for your business and October 15 for your personal income tax returns.

Till Next Time,
Robert Stevenson, CPA 
June 09, 2020

Let’s Get Your Tax Return Done

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I hope you and your family are doing well and staying safe. My office is open, and I am looking forward to seeing you and making sure you file your tax returns by the new deadline of July 15, 2020. That is the deadline for personal, partnership, corporate, trust, and even franchise tax returns for the 2019 tax year only. If possible, I would like to begin getting your information together so that we can get it done. If that is not possible, I can extend your return to the final due dates of September 15, 2020 for businesses and October 15, 2020 for individuals.

On another note, the IRS continues to send Economic Impact Payments. IRS.gov will have answers to many of your questions and if you need help, try using the Get My Payment tool on the IRS.gov webpage. Starting later this month, the number of paper checks being delivered to taxpayers will sharply increase. For many taxpayers, the last chance to obtain a direct deposit of their Economic Impact Payment rather than receive a paper check is coming soon. You should visit Get My Payment on IRS.gov by noon on Wednesday, May 13 to check on your payment status and, when available, provide your direct deposit information.

Take care and stay safe,

Robert Stevenson, CPA
May 12, 2020

Important Choice in the Republican Primary for US House District 7

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If Republicans want to take back the US House of Representatives in 2020, then it all begins in your district. If you live in the 7th congressional district like I do, I recommend voting for Cindy Siegel in the Republican Primary on March 3rd. Early voting is from February 18 to the 28th.

Why Cindy Siegel? Competence. Cindy has been a practicing CPA in the district for over 30 years. She has been the mayor of Bellaire and a city councilmember for 15 years. She is a former Metro Board member, Alzheimer’s Association board member, and others. She has been president of the Greater Houston Council of Federated Republican Women’s Clubs, Past Vice-Chairman and Treasurer of the Harris County Republican Party, Texas Federated Republican Women board member, Past President of the Magic Circle Republic Women’s Club, she is a Republican Precinct Chairman, and she has a long history of voting in Republican primaries and helping Republican candidates get elected. She has incredible experience and heavy grassroots support—just look at her endorsement list.

Wesley Hunt is her primary opponent. He went to West Point and has the military resume. He has the money. It is primarily from PACs and the National Republican Party. He has the Ted Cruz endorsement. He is a 37 year-old combat veteran and has worked in Houston for the past 10 years. Why don’t I support him? He has not voted since 2008 and in that election he voted in the Democratic primary. He did not vote in the 2016 general election. I’ll say it again, he did not vote for President Trump in 2016. In addition, he does not have the grassroots support nor the experience that his opponent has. She has dealt with federal, state, and local officials during two major floods from hurricanes, she has battled the IRS for her clients, and she understands intimately the issues that district 7 residents face every day. I also believe she has the better chance of defeating Democrat Lizzie Fletcher. Lizzie Fletcher most recently voted to impeach the President. Siegel is the most competent.

Check her out at www.CindySiegel.com.

Till Next Time,

Robert Stevenson, CPA
February 13, 2020

The Doolittle Raiders Are All Now History

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Shortly after the Japanese bombed our naval base at Pearl Harbor on December 7, 1941, Lt. Col. Jimmy Doolittle led a raid to bomb Tokyo on April 18, 1942. He recruited 80 volunteers to fly 16 land-based B-25s. They took off from an aircraft carrier with roughly 500 feet of runway. The B-25s normally needed thousands of feet of runway to take off, so they were stripped and were able to lift. When they took off, they were roughly 400 miles from Tokyo and barely had enough fuel to make it. Once the mission was successfully completed they continued on and their planes crashed in the mountains in China. They parachuted out in the dark of night. Lt. Dick Cole jumped 9000 feet from his doomed bomber and ultimately landed in a tree. He had never parachuted before.

Lt. Cole died just two weeks ago at age 103 and an epic chapter in American History was closed. After the raid, the crew was soon reunited. With the Japanese in close pursuit, a harrowing escape began. Three men were killed in action, eight pilots were captured, three were executed, one died in captivity, and the remaining men made it back with the help of the Chinese. At each raider reunion, there were 80 silver goblets, one for each airman. They would drink toasts to those who had died in the previous year, then overturn the lost men’s goblets. The final goblet belonged to Lt. Dick Cole, the last of that brave group known as Lt. Col. Jimmy Doolittle’s Raiders.

The raid shocked the Japanese, prompting them to contract their forces and aim for Midway.  In winning that battle, America began to win the war.

When you take time to remember the sacrifices that our brave men and women in the armed forces made for our freedom you should also remember this quote by Benjamin Franklin: “They who give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.” You should then listen to the candidates running for president and decide if giving up your liberty for your safety, and then losing both, was worth it. Americans will decide in 2020 if they want to give up their liberty for their safety.

That is all today. Let me know if you have a question—you can call my office or simply leave a comment on this post.

A Quick Overview of Tax Reform Changes

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The changes enacted by the Tax Cuts and Jobs Act affect every taxpayer filing a 2018 tax return this year. To help my fellow taxpayers understand these changes, I have prepared a quick overview below.

Tax Rates Lowered

Starting in 2018, tax rates are lower for almost every income bracket. The seven rates range from 10 percent to 37 percent.

Standard Deduction Nearly Doubled

For 2018, the basic standard deduction is $12,000 for singles, $18,000 for head of household, and $24,000 for married couples filing a joint return. Higher amounts apply to people who are blind or at least age 65. Along with other changes, this means that more than half of those who itemized their deductions in tax year 2017 may instead take the higher standard deduction on their 2018 tax return.

Itemized Deductions Limited or Discontinued

Home mortgage interest on a new mortgage above $750,000 is not deductible, as well as interest on home equity loans not used for home improvements. State and local taxes are only deductible up to $10,000, but this limit does not apply to your rental property or business taxes. All those business expenses and other miscellaneous itemized deductions that you deducted on Form 2106 and Schedule A in prior years are no longer deductible in 2018.

Child Tax Credit Doubles and Phase-out Expanded

The child tax credit is now $2,000 for each qualifying child under the age of 17. And the phase-out doesn’t begin until your AGI exceeds $400,000 for married couples and $200,000 for other taxpayers. Remember: Last year the credit was $1,000 and the phase-out began at $110,000 for married couples. This is a big deal for young families.

New Credit for Other Dependents

Taxpayers can claim a $500 credit for each dependent who doesn’t qualify for the Child Tax Credit. This includes older children, as well as qualifying relatives, such as a parent.

That is all today. I look forward to visiting with you next week. In the meantime, don’t hesitate to reach out if you have a question—you can call my office at (713) 785-8939, send me an email, or leave a comment on this post. I’d love to hear from you.

The Internal Revenue Service After the Shutdown

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The tax system administered by the IRS will feel the effects of the federal shutdown for a long time. The five-week closure in December and January couldn’t have come at a worse time for the Service, which was gearing up for the 2019 filing season, its first under the new tax law. Some experts are saying it could take the Service up to eighteen months to recover.

During the shutdown, the IRS lost about 125 IT employees, which averages about 25 for each shutdown week. Given the agency’s antiquated computer systems, losing these people is a big deal. Training service workers, especially customer service workers, on the new tax law was also delayed. This will also likely affect the already dismal level of service provided on the IRS’s toll-free helplines. Are you wanting to call the IRS with a question? Be prepared to give personal information about yourself to help customer service representatives confirm your identity. You will have to supply your Social Security number and date of birth, your filing status, and probably data from your prior year return.

There is also a huge mail backlog—over 5 million pieces of unprocessed mail. So if you mailed correspondence to the Service during the shutdown, good luck.

The audit rate for 2019 will plunge, since enforcement was put on hold. The IRS will also have a difficult task of attracting and retaining talented workers, especially millennials. Fear of future shutdowns may lead existing employees to retire early or flee to the private sector, adding to the IRS’s ongoing brain drain problem. Over 33% of IRS employees are over age 55, and only 125 workers nationwide are under age 26. Does this sound good to you? So I must ask, does the federal government seem like the best alternative to run our healthcare system? You will get to decide in 2020.

That is all today. I look forward to visiting with you next week. In the meantime, don’t hesitate to reach out if you have a question—you can call my office at (713) 785-8939, email me at robert@robertstevensoncpa.com, or simply leave a comment on this post. I’d love to hear from you.

Welcome to Tax Season! Details on the New 199A Deduction

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Tax season has begun. This week, I examine a new section to the Internal Revenue Code that intends to give some degree of parity to certain types of small businesses—you can find the details below.

The New Section 199A Deduction

Congress added a new section to the Internal Revenue Code. Section 199A is intended to give some degree of parity to small businesses that operate as partnerships, S corporations, sole proprietorships, trusts, publicly traded partnerships, and REITS. Since C corporations are now taxed at 21%, Congress decided to give small flow-through businesses taxed at the higher individual level a break. The deduction is limited to the lower of 20% of Qualified Business Income or 20% of the individual’s taxable income.

If you are a Service Trade or Business, i.e. health, law, accounting, actuarial services, performing arts, consulting, athletics, financial services, brokerage services, or any other trade or business that relies on the reputation or skill of one or more of its employees, then your deduction is only allowed if your taxable income is below $315,000 if filing MFJ and $157,500 for all others.

For businesses other than service—businesses whose owners have taxable income above the phase out limit of $415,000 for MFJ and $207,500 for all others—there are deduction limitations based on W-2 wages and depreciable assets. It is a little complicated, but it is a great deduction.

Tax Season Has Begun

The IRS has begun accepting 2018 tax returns and is issuing refunds. Now is the time to begin gathering your tax data and making an appointment with your tax preparer. If you need a tax preparer and would like to use our firm, then do not hesitate to give me a call and we will set an appointment for you.

That is all today. I look forward to visiting with you next week. In the meantime, don’t hesitate to reach out if you have a question—you can call my office at (713) 785-8939 or leave a comment on this post. I’d love to hear from you.

Happy New Year – Remember to File Your Personal Income Tax Return

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I hope everyone had a restful and spiritual holiday season. As you know, it is my job to remind you that the New Year brings about your renewed responsibility to file your personal income tax return. It will be due on April 15, 2019. Also due on April 15 are your Trust returns on Form 1041 and your C Corporation returns on Form 1120. On March 15, 2019, your S Corporations on Form 1120S and your Partnerships on Form 1065 are due. These deadlines can all be extended.

You may also want to know that your Property Renditions are due to the HCAD by April 1, 2019 and your Texas Franchise Tax Reports are due to the State Comptroller by May 15, 2019. I probably don’t need to tell you that your payroll reports, which include your W-3, W-2s, Form 941, Form 940, and your TWC Report are due at the end of January.

I Want To Help You Understand the New Tax Law

I would like for you to consider having me come to your business to give a short (hour or less) seminar on the new tax law to your employees. I would talk about how the Tax Cuts and Jobs Act affects your business in particular and how it affects your employees. There are many changes that will seriously impact many taxpayers, and this would be a great opportunity to educate them. Afterward, we could have a Q&A session. We can discuss the content that would benefit your employees. There would be no obligation and it would be free.

That is all today. I look forward to visiting with you next week. In the meantime, don’t hesitate to reach out if you have a question—you can call my office at (713) 785-8939 or simply leave a comment on this post. I’d love to hear from you.

What Should Texas Do About Sales Tax – The Wayfair Decision

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In 1992, the US Supreme Court ruled in North Dakota v Quill that a physical presence test must be met for a state to charge sales and use tax. Online sales by retailers with no nexus in a state were not required to charge sales tax.

That may change very soon.

On June 21, 2018 the US Supreme Court ruled in South Dakota v Wayfair that states can impose a sales tax on out of state retailers, even those that do not have a physical presence in the state. It leaves the decision to the various state legislatures: Do they stay with the Quill decision and forego millions in sales tax revenue, or do they adopt the Wayfair decision and require the out of state seller to collect and remit the sales and use tax? In 1992 online sales were in the millions and now they are in the billions and states and cities want the revenue. There will probably be a threshold for small retailers that will exempt them from sales tax reporting similar to Quill if annual sales are (for example) less than $100,000 or they have less than 200 transactions. Also, can you imagine filing and paying 50 sales tax returns every quarter (or month)? What should Texas do?  Should we lower the state rate?

In Houston, we pay sales tax at an 8.25% rate. The state portion is 6.25%, the city portion is 1.00%, and the MTA (Metropolitan Transit Authority) portion is 1.00%.

I support charging sales tax on online purchases because it will help level the playing field.

I believe this will broaden the base and allow for a reduction in the rate.

I will keep you posted.

That is all today. I look forward to visiting with you next week. In the meantime, please don’t hesitate to reach out if you have a question. You can call my office at (713) 785-8939.