Category: Federal Government

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 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.

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.

Tax Reform Update—Here’s What to Expect

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The IRS is working on implementing the changes created by the Tax Cuts and Jobs Act (TCJA).  Here are some of the major tax reform changes you can expect.

New Business Deduction Form

One of the most exciting TCJA changes is the new form the IRS is developing for taxpayers to calculate the qualified business income deduction (QBI). Self-employed taxpayers, partners, and S corporation shareholders will use this form to claim the QBI deduction on their tax return. If you are in this group then stay tuned for IRS guidance expected to come out during 2018 and be sure to work with your tax preparer to maximize your QBI deduction. I will keep you informed.

TCJA Changes for Individuals

One important change: You won’t claim a dependent exemption for your children or other dependents or a personal exemption for yourself or your spouse. You will still need to provide the information needed to take the credits for your children and non-child dependents if you qualify. Another change is the doubling of the standard deduction to $24,000 for taxpayers who are married and filing jointly. But your total allowable deduction for state and local taxes such as sales tax, state income tax, real estate tax, and personal property tax is limited to $10,000. The interest payments on your home equity loan might not be deductible. As we discussed in recent weeks, you can no longer deduct employee business expenses on Form 2106 and you can no longer deduct miscellaneous itemized deductions. Casualty and theft losses are no longer deductible unless they occur in a federally declared disaster area. And lastly, medical expenses are only deductible to the extent they exceed 7.5% of AGI. I hope this helps—I will continue to review TCJA tax law changes in the weeks and months to come.

That is all today. I look forward to visiting with you next week. Let me know if you have a question—you can reach my office at (713) 785-8939. You can also leave a comment on this post.

Why is the Deadline April 17 this Year?

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This tax season, April 15 falls on a Sunday and Monday, April 16 is Emancipation Day. Emancipation Day is a holiday in Washington D.C. to mark the anniversary of the signing of the Compensated Emancipation Act, which President Abraham Lincoln signed on April 16, 1862. It is annually held on April 16 and is a legal holiday in Washington D.C., and it has the effect of nationally extending the due date for filing your personal and trust income tax returns. The Compensated Emancipation Act freed about 3,000 slaves in Washington D.C. in 1862, but slavery did not officially end in the United States until after the Civil War in 1865, when the House passed the Thirteenth Amendment to the U.S. Constitution.

If you don’t file your return by the due date or you don’t get an extension and you owe tax, then you will be subject to the late filing penalty and the late payment penalty. Together, they add up to 5% per month, or fraction thereof, up to a maximum of 25% of your unpaid tax. Please give me a call if you would like to file for an extension of time to file your return. If you know that you will owe additional tax with your return, then you must pay your tax with the extension to avoid the above penalties. Remember, this is an extension of time to file, not an extension of time to pay; you will have six months to get the job done—until October 15, 2018. See you soon.

That is all today. I look forward to visiting with you next week. Let me know if you have a question—you can send an email to robert@robertstevensoncpa.com or call (713) 785-8939. You can also leave a comment on this post.

Hurricane Harvey Casualty Loss and NOLs

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As Tax Day draws nearer, I continue to hear questions from taxpayers whose homes were affected by Hurricane Harvey. Today, I explore one instance in which a casualty loss from Harvey may be treated as an NOL, or net operating loss, and used to recover prior tax payments.

Can Your Casualty Loss from Hurricane Harvey Create an NOL for Carryback?

Yes. There may be an opportunity for an additional refund.

Individuals can claim an NOL for casualty losses that exceed the amount that can be utilized in the year the loss was sustained and reported. For those who suffered severe damage, the casualty loss may exceed their income and, therefore, they would not be able to fully utilize their casualty loss deduction for the year in which the loss occurred. The IRS allows such individuals to treat the loss as an NOL and carry it back to prior years. If income was insufficient in the prior years, a carryforward is available.

If done within one year of the NOL year, then you would use Form 1045; this will allow the taxpayer to receive a prompt refund. If the claim is filed more than one year after the close of the NOL year, then it must be filed on Form 1040X within the relevant statute of limitations for the loss year. Your normal NOL gets a two year carryback, but a special rule for casualty losses extends the carryback period to three years.

Congress enacted a special five-year carryback for those who suffered a loss from Hurricane Katrina. However, a similar special five-year carryback was not enacted for those who suffered losses from Hurricane Sandy. Tax professionals will be keeping an eye out for any new legislation that might extend the carryback period for victims of Hurricanes Harvey and Irma. Hopefully very few taxpayers will need five years to absorb their loss.

That is all for today. I look forward to visiting with you next week. In the meantime, don’t hesitate to reach out with questions. Feel free to email robert@robertstevensoncpa.com or call my office at (713) 785-8939. I’m also available by text at (713) 906-8331.

Can You Deduct Interest on a Home Equity Loan Used to Remodel Your Home?

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In short, yes.

Debt secured by a first or second home and used to improve the place has always been considered acquisition indebtedness, so the new law’s crackdown on home equity loans doesn’t apply. After 2017, you can no longer deduct interest on home equity debt used for other purposes, such as to buy a car, pay off credit card debt, or pay college tuition. Remember when we changed the Texas Constitution to allow borrowing on the equity in your farm, ranch, or home for purposes other than home improvements? It was the early 1990s. Well, you can still borrow on your equity for other purposes, you just can’t deduct the interest.

There is also a new limit on eligible acquisition mortgage debt. The new law limits the deductibility of interest on acquisition indebtedness to $750,000 for tax years after December 31, 2017. The new law allows homeowners with existing mortgages to continue to deduct interest on a total of $1 million of debt for a first and second home, but for new buyers, the $1 million limit fell to $750,000 for a first and second home.

When it comes to refinancing your mortgage, homeowners can refinance mortgage debt up to $1 million that existed on December 14, 2017, and still deduct the interest. But the new loan cannot exceed the amount of the mortgage being refinanced, unless used to improve your home.

Example: If Joe has a $1 million mortgage he has paid down to $800,000, then he can refinance up to $800,000 of debt and continue to deduct interest on it. If he refinances for $900,000 and uses the $100,000 of cash to upgrade the home, then he could deduct the interest on the $900,000. But if he uses the $100,000 for other purposes, such as paying off credit card debt, then he couldn’t deduct interest on any of the $900,000 refinancing. I hope this helps.

That is all for today. I look forward to visiting with you next week.  In the meantime, don’t hesitate to reach out with questions.