Electronic Tax Return Delivery Process:

Rapacki + Co CPAs is pleased to offer electronic tax return delivery through SafeSend Returns. In addition to providing clients with a simple, easy-to-use process for securely reviewing and e-signing their tax documents, this system will help streamline communication between our professionals and those they serve.

Clients who use SafeSend Returns will be able to:

Electronically sign, save, and print their tax documents.
Have a live link to their tax documents for up to three years.
Electronically access their payment vouchers and receive email reminders of payments due.
Forward their tax documents to bankers and other professional advisors through a secure email link.

SafeSend Returns Process
Clients will be able to complete the following process using either their computer, smartphone, or tablet:

The client will receive an email from SafeSend Returns with a unique and secure access link when their tax documents are ready for review. Rapacki + Co’s firm name will be included in the email. Once they click on the access link, the client will be asked to complete an identity verification process through the SafeSend Returns platform.
After they have verified their identity, SafeSend Returns will walk the client through the review and e-sign process with step-by-step instructions.
The client will be able to download and save their files once they have reviewed them. (Documents that are downloaded as a zip file cannot typically be opened by smartphones or tablets.)
Should you have any questions, please feel free to contact our office at (952) 945-5011. Additional help and resources are also available through the SafeSend Returns Help Center.

We have a video to help.

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The FAFSA is the portal to federal grants and loans as well as financial aid from states and individual colleges. Another important thing to keep in mind is that some states and colleges have earlier deadlines for scholarships applications (which often require a FAFSA form). These scholarships are often awarded on a first-come, first-served basis. So the sooner a student completes the form, the more likely they are to receive scholarship funds.

Some experts believe the shift to virtual learning has hampered students’ ability to file timely FAFSAs. The FAFSA form is long and requires a lot of detailed information. Students often need assistance from a counselor or other knowledgeable adult to complete the form. This kind of assistance is more difficult when to obtain when students and counselors cannot meet one-on-one, but it is worth the effort to be assertive in seeking out assistance and accept help when it is offered.

There is some concern among parents because the current FAFSA form uses pre-pandemic income data from 2019 – which often does not always accurately reflect a household’s present circumstances. Financial experts recommend contacting colleges’ financial aid offices to explain extenuating circumstances. They are accustomed to these types of inquiries and are eager to provide extra assistance when possible.

The post Heads Up to Students Planning to Attend College Next Year appeared first on Rapacki.

• You did not pay taxes on the forgiveness amount, and
• You could deduct the expenses you paid with the PPP money

In late April, the IRS issued Notice 2020-32, which asserts that PPP loan recipients may not deduct business expenses paid using the PPP monies that gave rise to forgiveness (defined payroll, rent, utilities, and interest).

In a May 5, 2020, letter to Secretary of the Treasury Steve Mnuchin, Senator Chuck Grassley (chair of the Committee on Finance, Senator Ron Wyden (ranking member on the Committee on Finance), and Congressman Richard E. Neal (chair of the Committee on Ways and Means) jointly stated that the IRS got this wrong and that the intent of the CARES Act was for the PPP to be a tax-free grant.

The IRS was unmoved by the lawmakers’ letter. Their position was clear: no deduction for expenses paid with the PPP money. The IRS understood that perhaps lawmakers did not mean for that to happen, but in the eyes of the IRS, the way lawmakers enacted the law created the problem. To fix it, lawmakers simply need to pass a new law. So far, that has not happened.

On November 18, the IRS drove two nails into the coffin regarding deductions for PPP monies that were forgiven and spent on payroll, rent, interest or utilities.

• In Revenue Ruling 2020-27, the IRS ruled that you may not deduct expenses paid with the PPP loan monies if you have received or expect to receive forgiveness of those monies
• In Revenue Procedure 2020-15, the IRS set forth safe-habor procedures to follow if your PPP forgiveness is subsequently denied, or if you decide not to apply for forgiveness.

The Effect on You

You continue to come out ahead if you cannot deduct some or all of the expenses you paid with PPP money. Remember, you do not pay taxes on the income. You just cannot deduct the expenses.

Proprietors and Partners

The self-employed taxpayer with no employees has his or her loan forgiven based on his or her 2019 Schedule C net income. There’s no spend on payroll.
In its three “you can’t deduct it” judgments, the IRS gives no guidance on how it will treat the money spent by Form 1040 Schedule C filers other than any spent on rent, interest, or utilities – which of course, would be non-deductible. But most proprietors with no employees obtain full forgiveness with no spend on rent, interest or utilities.

For now, it appears Form 1040 Schedule C filers have the equivalent of the Monopoly game’s “get out of jail free” card. The same is true of partnerships and distributions to partners.

Potential Trouble for Your Section 199A Deduction

Based on what we know now, if your Section 199A deduction depends on payroll, your inability to deduct payroll costs paid with PPP money will cost you some of your Section 199A deduction.

What You Can Do

Join with hundreds of thousands of business taxpayers and tax professionals who are urging lawmakers to fix the non-deductibility issue. To help encourage action, get in touch with your state’s lawmakers.

• S. 3612 is the Senate bill to make the PPP forgiveness money used to pay business expenses tax-deductible. To express your opinion, contact your senators. You can find them at this link: https://www.senate.gov/senators/contact.
• H.R. 6821 is the House bill to make the PPP forgiveness money used to pay for business expenses tax-deductible. To express your opinion, contact your representative. You can find him or her at this link: https://www.house.gov/representatives.

The post IRS Efforts to Destroy Tax Deductions for PPP-paid Expenses appeared first on Rapacki.

Establish Your 2020 Retirement Plan

Do you have your employer’s retirement plan in place? If not, and you have some cash on hand, get that retirement plan in place now so you can obtain a tax deduction for 2020. For most defined contribution plans, you (the owner-employee) are both the employee and the employer, whether you operate as a corporation or a proprietorship. That is a good thing because you can make both the employer and the employee contributions, allowing you to put a good chunk of money away.

Your plan document defines when you can make employee and employer contributions that will result in 2020 tax deductions. Make sure you know exactly when to make those deductions.

Claim the new, improved retirement plan start-up tax credit of up to $15,000

First, you need to answer two questions:

• Are you the solo worker in your business?
• Is your retirement plan in place as you read this?

If the answer is no to both questions, consider establishing a new qualified retirement plan (such as a profit-sharing plan, 401(k) plan, or a defined pension plan), a SIMPLE IRA plan, or a SEP to qualify for a non-refundable tax credit that is the greater of:

• $500, or
• The lessor of (a) $250 multiplied by the number of you non-highly compensated employees who are eligible to participate in the plan, or (b) $5,000

The credit is based on your “qualified start-up costs,” which are ordinary and necessary expenses paid or incurred in connection with:

• Establishment of administration of an eligible employer plan, or
• Retirement-related education or employees with respect to the plan

The credit applies to year of the start-up and for the next two years (capped at $5,000 a year or $15,000 maximum). You may deduct costs in excess of the tax credit as ordinary and necessary expenses.

Note that the employer with no employees is not eligible for the small business plan start-up credit.

Claim the new automatic enrollment $500 tax credit for each of three years ($1,500 total)

The SECURE Act added a nonrefundable credit of $500 per year for up to three years beginning in 2020 or later in which you, as an eligible small employer, include an automatic contribution arrangement in a 401(k) or SIMPLE plan. The $500 auto contribution tax credit is in addition to the start-up credit and can apply to both newly created and existing retirement plans. Further, you do not have to spend any money to trigger the credit. You just need to add the auto-enrollment feature.

As with the start-up credit above, you are an employer eligible for the credit, for the preceding year if:

• You had no more than 100 employees, each with compensation of $5,000 or more, and
• Your plan had at least one employee eligible to participate who is not a highly compensated employee

A solo business operator with no employees is not eligible for the automatic enrollment credit.

Convert to a Roth IRA

Consider converting your 401(k) or traditional IRA to a Roth IRA. If you make good money on your IRA investments and will not need your IRA money during the next five years, the Roth IRA can produce financial results far superior to the traditional retirement plan. Note that you will need to determine how much tax you will have to pay to convert your existing plan to an IRA, and be sure you have enough cash on hand to do so.

Here are four reasons you should consider converting your retirement plan to a Roth IRA:

• You can withdraw the monies you put into the Roth IRA at any time, both tax- and penalty-free, because you have invested previously taxed money into the account
• You can withdraw the money you converted from the traditional plan to the Roth IRA at any time, tax-free. (If you make that conversion withdrawal within five years, however, you pay a 10 percent penalty.)
• When you have your money in a Roth IRA, you pay no tax on qualified withdrawals, which are distributions taken after age 59 ½, provided you have had your Roth IRA in place for at least five years
• Unlike a traditional IRA, you do not have to receive required minimum distributions from a Roth IRA when you reach age 72

Again, make sure you have enough cash on hand to pay the tax on the conversion to a Roth IRA, and do not invade your existing 401(k) or traditional IRA to pay the taxes as that is likely to trigger the double whammy of paying conversion taxes and the 10 percent penalty on the invasion.

The post Last Minute Year-End Retirement Deductions for Small Business Owners appeared first on Rapacki.

• Considered your employees
• Is for $50,000 or less

If you meet those conditions, your loan forgiveness amount may have increased by 100 percent even though you reduced pay or headcount

Before the $50,0000-or-less rule was instituted, you had to suffer a reduction in loan forgiveness or meet one of many exceptions that allowed you to cut annual salaries or hourly wages by more than 25 percent and/or reduce the number of employees or average hours paid.

Now, with a PPP loan of $50,000 or less, you do not have to consider the myriad of rules about employees. Regardless of what you did with your employees, you qualify for full forgiveness if:

• Your PPP loan is $50,000 or less
• You spent the PPP money on costs that are eligible for forgiveness
• At least 60 percent of the forgiveness is for qualified payroll costs (including defined payroll for owners)

For example, Henry obtained a PPP loan of $34,000 based on his Schedule C income and pay to his part-time employee. When Covid-19 hit, Henry laid off his part-time worker and has not rehired him. Using SBA Form 3508S and the 24-week covered period, Henry qualifies for 100 percent forgiveness of his $34,000 loan because he spent $20,833 (61 percent) on the deemed payroll to himself and the remainder on five months’ rent and utilities.

Note on the Form 3508S expiration date: The SBA form has an expiration date of October 31, 2020, listed on the upper right corner; however, the SBA says we should disregard that date. The exacting wording from the SBA is, “The expiration dates in the upper right corner of the posted PPP loan forgiveness application forms . . . reflect the temporary expiration date for approved use of the forms. This date will be extended, and when approved, the same forms with the new expiration date will be posted.”

The post Good News if Your PPP Loan is for $50,000 or Less appeared first on Rapacki.

Although Congress clearly intended for the PPP to be tax-free, the IRS did not follow congressional intent. A month after Congress created the PPP last spring and provided that forgiveness of loans under the PPP should not result in taxable cancellation of indebtedness income for the recipients, the IRS ignored congressional intent by issuing a notice saying that the expenses funded by each such a loan should become nondeductible the moment the loan is forgiven — thereby resulting in exactly the same net tax costs for loan recipients as would have been the case if Congress had not exempted the forgiveness of the loans from tax.

Last week the IRS issued Revenue Ruling 2020-27 saying that even if a taxpayer’s PPP loan has not yet been forgiven by the end of the taxable year, the taxpayer nonetheless loses any deductions for expenses funded by the loan during the year if the taxpayer reasonably expects to receive forgiveness of the loan in the following year.

This means if you used the funds as required by PPP program, then it’s reasonable to expect your PPP loan will be forgiven, however the forgiveness will have to offset the expenses you paid. Put in another way, the forgiveness is taxable. However, there was some uncertainty WHEN the forgiveness would be effective (i.e. when forgives is applied for or when it is approved?)

From the guidance published last week, the IRS is still holding true to this stance, and they’ve eluded to when forgiveness would have to be recorded. They said if a borrower has a reasonable expectation of forgiveness, borrowers can’t deduct expenses paid for with PPP funds in year 2020. Meaning, whether you have or have not applied for forgiveness as of the end of this year, but you expect to apply and be granted forgiveness you won’t be able deduct the expenses.

On the other hand, you are able to deduct expenses (and thus NOT offset them with PPP forgiveness) in 2020 if all three of the following are met:

1) You incurred eligible expenses for PPP,
2) You received a PPP loan and expect the loan to be forgiven in a subsequent year, and
3) In the subsequent year, your forgiveness is denied or you never request forgiveness

There is still the possibility that congress will override the IRS in an upcoming stimulus package, which could result in PPP forgiveness being tax-free as initially intended.

The post PPP Loan Forgiveness Update appeared first on Rapacki.

Who Gets Medicare Part A and Part B Benefits

If are already getting Social Security benefits, you will automatically receive Medicare Part A and Part B benefits starting the first day you turn 65. (If you’re under 65 and have a disability, you will automatically get Part A and Part B after you receive benefits for 24 months.)

When you are automatically enrolled you will receive a red, white and blue Medicare card in the mail 3 months before your coverage begins.

If you are approaching age 65 and do not yet receive Social Security benefits, you will need to sign up for Medicare by contacting them three months before you turn 65.

What is Medicare Part A and Part B?

Part A is hospital Insurance. It helps cover inpatient care in hospitals, skilled nursing facility care, hospice care and home health care.

Part B is medical insurance. It helps cover outpatient care, home health care, durable medical equipment (such as wheelchairs, hospital beds, etc.), and many preventive services.

Part A and Part B Options

You do not pay a premium for automatic Part A coverage. Part B coverage is automatic; however, it includes a premium that is deducted from your monthly Social Security benefit. You can choose not to keep Part B coverage, but you must let Medicare know before the coverage date on your Medicare card.

If you choose not to keep Part B when you are first enrolled in Medicare but change your mind, you may have to wait to enroll and pay a penalty for as long as you have Part B.

What If You Didn’t Automatically Get Enrolled in Part A and Part B?

You won’t automatically get enrolled in premium-free Part A if you are still working and not getting Social Security. For premium-free Part A, you can enroll any time after you are first eligible for Medicare. Your Part A coverage will be retroactive six months from when you sign up, but no earlier than when you were first eligible for Medicare. You can only sign up for Part B during the enrollment periods listed below.

Remember, if you don’t sign up for Part A (If you have to buy it) and Part B when you are first eligible, your enrollment may be delayed and you may have to pay a late enrollment penalty.

Initial Enrollment Period

You can first sign up for Part A and Part B during the 7-month period that begins 3 months before the month you turn 65 and ends 3 months after you turn 65.

Special Enrollment Period

After your Initial Enrollment Period is over, you may have the chance to sign up during a Special Enrollment Period under certain conditions. If you didn’t sign up when you were first eligible because you had group health coverage based on employment (yours, your spouse’s or a family member’s – if you have a disability), you can sign up for Part A and/or Part B:

• Any time you’re still covered by the group health plan
• During the 8-month period that begins the month after employment ends or the coverage ends, which ever happens first

You usually do not have to pay a late enrollment penalty if you sign up during a Special Enrollment Period. Note: If you are on disability, the group health plan coverage is based on a family member’s current employment (other than a spouse), the employer offering the group health plan must have 100 or more employees for you to get a Special Employment Period.

COBRA coverage, retiree health plans, VA coverage and individual health coverage are not considered coverage based on current employment, and you are not eligible to sign up for Special Enrollment Period Medicare when that coverage ends. To avoid paying a higher premium, make sure you sign up for Medicare when you are first eligible.

General Enrollment Period

If you didn’t sign up for Part A (if you have to buy it) and/or Part B during your Initial Enrollment Period and don’t qualify for a Special Enrollment Period, you can sign up during the General Enrollment Period between January 1 and March 31 each year. Your coverage won’t start until July 1 of that year, and you may have to pay a higher Part A and and/or Part B premium for late enrollment.

Get More Information

To learn more about enrollment periods, visit www.medicare.gov or call 1-800-633-4247. For information about signing up for Medicare contact www.mymedicare.gov or call 1-800-633-4227.

You can also get free, personalized health insurance counseling from your State Health Insurance Assistance Program (SHIP). In Minnesota, you can contact http://www.mnaging.net/ or call (651) 431-2500 or toll-free: (800) 882-6262. In Massachusetts, you contact https://www.mass.gov/health-insurance-counseling or call (800)-243-4636.

ONE MORE IMPORTANT NOTE

Once you’re enrolled in Medicare, you not done yet. There are many different ways to get coverage, including Part D Prescription coverage. To review all of your options visit www.medicare.gov. There are also insurance brokers who specialize in Medicare coverage. They can be found through a simple Google search using the term “Medicare Insurance Brokers.”

The post Getting Close to Retirement? Start Considering Your Medicare Benefit Choices Now appeared first on Rapacki.

The EZ form still requires borrowers to do calculations and provide documentation, but not as much as the full form. (Note that borrowers still need to save documentation for proof of certifications.)

Who can use the EZ PPP Forgiveness form?

The EZ form can be used on any size loan if the borrower can affirm one of the following:

1. The borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP Loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483).
2. The borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during their Covered Period or Alternative Payroll Covered Period compared to the period of January 1, 2020 and March 31, 2020 (“employees” means individuals who did not receive wages or salary at an annualized rate in an amount of more than $100,000 during any period of 2019), and either:

• • They did not reduce the number of employees or the average paid hours of those employees from Jan. 1, 2020 to the end of their Covered Period. (The borrower can ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the borrower was unable to hire similarly qualified candidates for unfilled positions on or before December 31, 2020, and reductions in an employee’s hours that the borrower offered to restore but the employee refused), OR
  • They were unable to operate during the Covered Period at the same level of business activity as before Feb. 15, 2020, due to compliance with established requirements of or issued guidance on maintaining standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19 called for between March 1, 2020 and Dec. 31, 2020.

A borrower who cannot certify at least one of the above statements does not qualify to use the EZ Form and should complete the full forgiveness form.

How do the EZ form and the Full Forgiveness PPP form differ?

The EZ form has eight lines for calculations compared to the full form’s 11 lines, and requires the borrower to provide the following documentation:

• Payroll costs
• Mortgage interest payments
• Rent or lease payments
• Utility payments
• Potential forgiveness amount (add lines 1-4)
• Loan amount
• Payroll cost 60% requirement (divide line 1 by 0.6)
• Forgiveness amount (the smallest of lines 5, 6, and 7)

The main difference between the forms is the three additional requirements that borrowers must include on the full form from PPP Schedule A to account for full-time equivalency (FTE) and salary/hourly wage reduction adjustments.

The post New EZ Paycheck Protection Program (PPP) Loan Forgiveness Form appeared first on Rapacki.

Filling out the form correctly is important because if you don’t withhold enough tax, you could end up owing a large sum to the IRS at the end of the year. On the other hand, if you overpay withholding you are temporarily giving money to the government that you could use for things like paying bills or investing.

The IRS issued a new W-4 for 2020. (Note: You do not need to fill out a new W-4 if your employer already has your old form on file.) The new form eliminated the ability to claim personal allowances (with the old form, the more allowances you claimed, the less your employer withheld from your check; the fewer allowances you claimed, the more your employer withheld) and no longer uses a worksheet to calculate your withholding amount.

The new form is designed to make determining how much your employer withholds easier. If you are single, have a spouse who does not work, do not have dependents, have income from only one job, and are not claiming tax credits or itemizing deductions other than the standard deductions, all you have to do is provide your name, address, Social Security number and filing status.

If your situation is more complicated, the IRS recommends using their Withholding Calculator to determine how to accurately fill out the form. The IRS website also provides FAQs with information on filling out the form.

There are a number of situations in which you should fill out a new W-4 form. They include:

• Taking on side employment that will increase your overall income
• Getting married or divorced
• Having or adopting a child

Starting a job in the middle of year (if you were not employed earlier the year) also affects how you fill out your W-4 form. If you will be employed for no more than 245 days in the year, you can request that your employer use the part-year method to compute withholding. That way you will not have too much money withheld from your check and will avoid having to wait until tax time to have that money returned to you.

The post What you need to know about your W-4 form (even if you aren’t starting a new job) appeared first on Rapacki.

The survey’s results also showed that pre- and present retirees perceived retirement risks differ from their actual risks. Research economist Wenliang Hou of the Center for Retirement Research at Boston College analyzed five major sources of risk faced by a typical retiree:

• Mortality or longevity (living longer than expected and running out of money)
• Market (bad stock returns or a decline in housing values)
• Health (unexpected medical expenses and long-term care costs)
• Family (death of a spouse or unforeseen needs of family members)
• Policy (such as a Social Security benefit reduction)

Hou’s empirical analysis found the biggest risk faced by retirees is longevity, followed by health risk, market risk, family risk and policy risk. On the other hand, pre- and present retirees subjectively ranked market volatility as the highest risk, followed by longevity risk, health risk, family risk and policy risk.

Hou said the discrepancy between perceived and actual risks shows the need for better education of pre- and present retirees, so they can make planning decisions based on their actual risks. Hou also points out the need for the creation lifetime income products such as annuities, which can offset longevity and market risk, and he recommends development of public and private programs that protect retirees from the risks posed by long-term care.

The post Retirement Risks to Consider appeared first on Rapacki.