Alerts

On January 8, 2021, the U.S. Small Business Administration (SBA) released the Second Draw Borrower Application Form, SBA Form 2483-SD, for borrowers seeking a Second Draw PPP Loan.

IMPORTANT NOTE: Borrowers who previously returned some or all of their First Draw PPP Loan funds or did not accept the full amount will also need to submit a Borrower Application Form, SBA Form 2483. 

The release of the applications came mere hours after the SBA announced that the portal to accept PPP loan applications will re-open for existing PPP borrowers the week of January 11^th. To promote access to capital, only community financial institutions will be able to make Second Draw PPP Loans on Wednesday, January 13, 2021. The PPP will open to all participating lenders shortly thereafter.

Here’s what you need to know about Second Draw PPP Loans.

Eligibility

A borrower is generally eligible for a Second Draw PPP Loan if the borrower previously received a First Draw PPP Loan and has or will use the full amount, has no more than 300 employees,* and can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

*Exceptions in employee numbers apply for businesses in the Accommodation and Food Services sector (NAICS Code beginning with 72).

Alternative calculations are provided for applicants that were not in business for all of 2019 as follows:

• For entities not in business during the first and second quarters of 2019 but in operation during the third and fourth quarters of 2019, applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than either the third or fourth quarters of 2019.
• For entities not in business during the first, second, and third quarters of 2019 but in operation during the fourth quarter of 2019, applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than the fourth quarter of 2019.
• For entities not in business during 2019 but in operation on February 15, 2020, applicants must demonstrate that gross receipts in the second, third, or fourth quarter of 2020 were at least 25% lower than the first quarter of 2020.

Borrowing Capacity

For most applicants, the maximum loan amount of a Second Draw PPP Loan is 2.5x the average monthly 2019 or 2020 payroll costs up to $2 million. For borrowers in the Accommodation and Food Services sector, the maximum loan amount for a Second Draw PPP Loan is 3.5x the average monthly 2019 or 2020 payroll costs up to $2 million.

The following methodology, authorized by the Consolidated Appropriations Act, 2021 (the Act), will be useful for many applicants in calculating the loan amount.

Step 1: Aggregate payroll costs (defined below) from 2019 or 2020 for employees whose principal place of residence is the United States.

Step 2: Subtract any compensation paid to an employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred.

Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).

Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5 or 3.5 if the applicant operates in the Accommodation and Food Services sector.

Step 5: Determine the lessor of the result of Step 4 or $2 million.

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave (except those paid leave amounts for which a credit is allowed under Families First Coronavirus Response Act, Sections 7001 and 7003); allowance for separation or dismissal; payment for the provision of employee benefits (including insurance premiums) consisting of group healthcare coverage, group life, disability, vision, or dental insurance, and retirement benefits; payment of state and local taxes assessed on compensation of employees; and, for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.

Additional information on how to calculate maximum loan amounts (by business type) can be found in the Interim Final Rule on Paycheck Protection Program as Amended released on January 6, 2021.

Required Documentation for Payroll Costs

Generally, an applicant will be required to submit the following information:

• If the applicant is not self-employed, the applicant’s Form 941 (or other tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever was used to calculate payroll), as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions, must be provided. A partnership must also include its IRS Form 1065 K-1s.
• If the applicant is self-employed and has employees, the applicant’s 2019 or 2020 (whichever was used to calculate loan amount) IRS Form 1040 Schedule C, Form 941 (or other tax forms or equivalent payroll processor records containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever was used to calculate loan amount), as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions, if applicable, must be provided. A payroll statement or similar documentation from the pay period covering February 15, 2020 must be provided to establish the applicant was in operation on February 15, 2020.
• If the applicant is self-employed and does not have employees, the applicant must provide (a) its 2019 or 2020 (whichever was used to calculate loan amount) Form 1040 Schedule C, (b) a 2019 or 2020 (whichever was used to calculate loan amount) IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes that the applicant is self-employed; and (c) a 2020 invoice, bank statement, or book of record to establish that the applicant was in operation on February 15, 2020.

However, the Interim Final Rule on Second Draw Loans released on January 6th provides administrative relief to applicants. It states that “[a]t the time an applicant submits its loan application form, it must submit the following (detailed above) unless the documentation was submitted to the lender for the First Draw PPP Loan (i.e., the applicant used calendar year 2019 figures to determine both its First Draw PPP Loan amount and its Second Draw PPP Loan amount, and the lender for the applicant’s Second Draw PPP Loan is the same as the lender that made the applicant’s First Draw PPP Loan).”

Lenders are still required to “[c]onfirm the dollar amount of average monthly payroll costs for 2019 or 2020 (whichever was used to calculate loan amount) by reviewing the payroll documentation submitted with the borrower’s application.” Therefore, we expect many lenders will require the submission of the payroll documentation noted above in order expedite application processing time.

Required Documentation for Gross Receipts

For loans with a principal amount greater than $150,000, sufficient documentation establishing that the applicant experienced a reduction in revenue must be provided at the time of application, which may include relevant tax forms, such as annual tax forms, or if relevant tax forms are not available, a copy of the applicant’s quarterly income statements or bank statements.

For loans with a principal amount of $150,000 or less, the applicant must submit documentation sufficient to establish that the applicant experienced a reduction in revenue at the time of application, on or before the date the borrower submits an application for loan forgiveness, or, if the borrower does not apply for loan forgiveness, at SBA’s request. Such documentation may include relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, a copy of the applicant’s quarterly income statements or bank statements.

What’s Next

We expect participating lenders to accept applications across various formats and timeframes.  Businesses should consider where to apply, evaluate eligibility, and gather the appropriate documentation for the respective application(s).

On January 8, 2021, the U.S. Small Business Administration (SBA) released the Borrower Application Form, SBA Form 2483, for businesses applying for a First Draw PPP Loan or requesting an increase in their First Draw PPP Loan. Existing borrowers seeking a Second Draw PPP Loan will need to submit the Second Draw Borrower Application Form, SBA Form 2483-SD.

Release of the applications came hours after the SBA announced that the portal to accept PPP loan applications will re-open for new borrowers and certain existing PPP borrowers the week of January 11th. To promote access to capital, only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11th. The PPP will open to all participating lenders shortly thereafter.

Here’s what you need to know about First Draw PPP Loans.

Eligibility

Eligible small entities, that together with their affiliates (if applicable), have 500 or fewer employees, including nonprofits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors can apply.* Entities with more than 500 employees in certain industries, that meet the SBA’s alternative size standard or size standards for those industries, can also apply.

*Exceptions in employee numbers apply for businesses in the Accommodation and Food Services sector (NAICS Code beginning with 72).

Existing PPP borrowers that did not receive loan forgiveness by December 27, 2020 may (1) reapply for a First Draw PPP Loan if they previously returned some or all of their First Draw PPP Loan funds, or (2) under certain circumstances, request to modify their First Draw PPP Loan amount if they previously did not accept the full amount for which they were eligible.

Borrowing Capacity

For most borrowers, the maximum loan amount of a First Draw PPP Loan is 2.5x the average monthly 2019 or 2020 payroll costs up to $10 million. For borrowers applying for an increase in their First Draw PPP Loan, the period used for calculating monthly payroll costs for the initial application will be used to determine borrowing capacity.

The following methodology, authorized by the Consolidated Appropriations Act, 2021 (the Act), will be most useful for many applicants.

Step 1: Aggregate payroll costs (defined below) from 2019 or 2020 for employees whose principal place of residence is the United States.

Step 2: Subtract any compensation paid to an employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred.

Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).

Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.

Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do not include the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid).

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave (except those paid leave amounts for which a credit is allowed under the Families First Coronavirus Response Act, Sections 7001 and 7003); allowance for separation or dismissal; payment for the provision of employee benefits (including insurance premiums) consisting of group healthcare coverage, group life, disability, vision, or dental insurance, and retirement benefits; payment of state and local taxes assessed on compensation of employees; and, for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.

Additional information on how to calculate maximum loan amounts (by business type) can be found in the Interim Final Rule on Paycheck Protection Program as Amended, released on January 6.

Required Documentation

Generally, an applicant will be required to submit the following information:

• If the applicant is not self-employed, the applicant’s Form 941 (or other tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever was used to calculate payroll), as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions, must be provided. A partnership must also include its IRS Form 1065 K-1s.
• If the applicant is self-employed and has employees, the applicant’s 2019 or 2020 (whichever was used to calculate loan amount) IRS Form 1040 Schedule C, Form 941 (or other tax forms or equivalent payroll processor records containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever was used to calculate loan amount), as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions, if applicable, must be provided. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the applicant was in operation on February 15, 2020.
• If the applicant is self-employed and does not have employees, the applicant must provide (a) its 2019 or 2020 (whichever was used to calculate loan amount) Form 1040 Schedule C, (b) a 2019 or 2020 (whichever was used to calculate loan amount) IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes that the applicant is self-employed; and (c) a 2020 invoice, bank statement, or book of record to establish that the applicant was in operation on February 15, 2020.

$900 BILLION COVID RELIEF BILL

On December 27, 2020, the President signed the Consolidated Appropriations Act, 2021 (the CCA) into law. The CCA is a further legislative response to the coronavirus (COVID-19) pandemic. Some of the key provisions of the CCA impacting businesses and individuals include:

Enhancements to Employee Retention Credit (ERC)

Businesses that received a loan pursuant to the Paycheck Protection Program (PPP) are now eligible for the ERC. The ERC is designed to encourage businesses to retain their full-time employees through the pandemic and is a fully refundable tax credit for companies experiencing severe business disruptions due to COVID-19. The ERC can result in a substantial financial benefit for organizations. Initially set to expire on December 31st, the ERC is now available for wages paid through July 1, 2021.

Continuing Paycheck Protection Program (PPP) and Other Small Business Support

Clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven.

Additional PPP funds available for second draw of loans for eligible small businesses.

Expansion of eligible expenses that can be used for PPP loan forgiveness.

Eligibility of 501(c)(6) Organizations for Loan Under the PPP

Expands eligibility of 501(c)(6) organizations with fewer than 300 employees and certain thresholds are met concerning lobbying receipts and activities.

Extension of CARES Act Unemployment Provisions

Includes a $300 supplement to all state and federal unemployment benefits starting December 26, 2020 to March 14, 2021.

Business Meals Temporarily 100% Deductible

The bill reverses previous limitations and provides a temporary full deduction of certain business meals. With this new legislation, meal expenses incurred after December 31, 2020 and before January 1, 2023 could be 100% deductible.

Additional 2020 Recovery Rebates

Provides a $600 refundable advanced tax credit to each eligible taxpayer.

Click here for a complete summary of the CCA.

MASSACHUSETTS TO PROVIDE $668 MILLION IN GRANTS FOR SMALL BUSINESS RELIEF

Governor Baker announced a $668 million small businesses relief fund through which eligible businesses may receive grant money of up to $75,000 for operating expenses.

The grants will be administered by the Massachusetts Growth Capital Corporation and applications will open Thursday, December 31. More information can be found on the Massachusetts Growth Capital Corporation website here.

On December 20, 2020, Congress agreed to terms of the Emergency COVID Relief Act of 2020 (the Act). The Act, which will provide an additional $900 billion of funds to stimulate the economy, includes significant changes to the Paycheck Protection Program (PPP). President Trump signed a one-day extension of government funding to prevent a government shutdown, enabling lawmakers to write the final text for the relief package.

To the satisfaction of many, three notable clarifications from prior guidance are included in the Act regarding the tax implications of PPP funds:

1) PPP loan forgiveness
2) PPP covered expenses
3) Owners’ basis for flow-thru entities

PPP Loan Forgiveness

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) implies that forgiveness of a PPP loan is non-taxable. While the terminology was inconsistent at times, wavering from forgiveness of indebtedness to excluded from gross income, the CARES Act and subsequent guidance reiterated that forgiveness will not create a taxable event. This Act reaffirms this position.

PPP Covered Expenses

Much of the PPP tax conversation has been focused on the treatment of covered expenses – payroll, utilities, rent, and interest as defined by Section 1106(b) of the CARES Act. Internal Revenue Service (IRS) Notice 2020-32 indicated that a borrower cannot deduct expenses paid with funds that create non-taxable income. The IRS then doubled down with the issuance of Revenue Ruling 2020-27 affirming their position that a taxpayer may not deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan, even if the taxpayer has not applied for forgiveness of the covered loan by the end of such taxable year.

The Act significantly changes course for year-end tax planning. When referencing the covered expenses under the PPP, the Act states “no deductions shall be denied or reduced…by reason of the exclusion from gross income,” meaning the expenses ARE deductible.

Owners’ Basis for Flow-Thru Entities

Many of the tax implications questions were focused on the deductibility of expenses. The Act addressed such and also provided a welcomed clarification for owners of flow-thru entities (S corporations and LLCs/partnerships), especially after the additional limitations of PPP funds placed on owner compensation. The Act states “no basis increase shall be denied, by reason of the exclusion from gross income,” meaning PPP forgiveness will INCREASE basis.

A Closer Look

Considering the clarifications and trusting that the IRS will not impede the legislation, we have provided an example of how the changes could affect your loan forgiveness tax impact.

C corporations:

Corporations will have non-taxable income to the extent the PPP loan is forgiven and accounted for as such. All expenses paid will be fully deductible and all wages will count toward the computation of federal and state R&D tax credits.

This loss can now be carried back five years or carried forward indefinitely.

Depending on the previous taxable position of the company, this change could result in a big win for some corporations. Five years ago, income tax rates were much higher than they are today. If five years ago the company was in a 34% tax bracket and today at 21%, the result of this law is a 47% higher tax benefit

S corporations and LLCs/partnerships:

The big question since March related to flow-thru entities was whether an owner’s basis would increase or not. The clarified forgiveness amount, while not taxable, will increase basis.

To accompany the example above, consider an S corporation with one shareholder. The tax loss of $1 million might not have been allowed since the taxpayer is being allocated a $1 million tax loss and their basis was zero. However, since the law indicates that you will get basis for the forgiveness of the PPP loan, the taxpayer’s basis is now $1 million before the loss and the owner can use this basis on their individual income tax return, allowing them to deduct the $1 million loss against other income.

The challenge many flow-thru entities will have will relate to buy-out clauses. There could be unintended consequences from M&A transactions or when partners enter and leave an entity.

Self-employed individuals and farmers:

Similar to flow-thru entities, this legislation will allow individuals and farmers to claim the losses. There is a specific question on IRS Forms Schedules C and F which ask a question each taxpayer must answer: is ‘all or some’ investment at risk? Taxpayers can take the position that the forgiveness amount gives them basis to claim these losses now and can check the box in the affirmative.

Waldron Rand’s Take

Over the last few months we have been busy tax planning with our clients who expected to have their PPP loans forgiven, and each conversation hinged on a variable – what will taxable income be if the IRS and/or Congress react? We debated ordering rules, the impact on IRS Section 199A, R&D credits and the impact to owners of flow-thru entities.

The changes regarding deductibility provide answers to many of the questions and concerns we, along with borrowers and other practitioners, had. More importantly, these changes correct the unintended tax consequences of PPP funds and keep cash in the hands of the small businesses, magnifying the PPP impact.

Flow-thru entities should review their Operating Agreements and Shareholder Agreements to fully understand the impact PPP forgiveness may have on their business.

While significant, the clarification on the tax implications of PPP funds is just a small piece of the Act. For more updates and guidance on all things COVID-19, visit our alerts.

Tax Implications of PPP Funds Finally Align with Congressional Intent: Originally published by Aprio, LLP, an affiliate member of Morison KSi

Dear Client,

We hope this letter finds you and your family well.

2020 has been a complex year on many fronts, and the tax legislation is no exception. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress with overwhelming support and was signed into law by President Trump on March 27th, 2020. CARES was far-reaching and included substantial stimulus for businesses, particularly small businesses. Also, let us not forget about the massive Tax Cuts and Jobs Act (TCJA) that generally went into effect two years ago but still impacts tax planning. It is possible that there could be more tax law changes, in addition to the “unprecedented” events we have experienced this year.

Below is a reminder and brief overview of some of the significant changes that you should be aware of during the upcoming tax season and beyond, and actions you can take now.

ITEMIZED DEDUCTIONS

Previously, charitable contributions could only be deducted if taxpayers itemized their deductions. However, taxpayers who don’t itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. For the purposes of this deduction, qualifying organizations are those that are religious, charitable, educational, scientific or literary in purpose.

The CARES Act also temporarily suspends limits on charitable contributions. Individuals who itemize their deductions may deduct qualified contributions of up to 100 percent of their adjusted gross income.

STANDARD DEDUCTION

The standard deduction has been increased in 2020 to $24,800 for married taxpayers filing jointly and $12,400 for single taxpayers. Married taxpayers over age 65 each have an additional $1,300 added to their standard deduction ($1,650 for an unmarried taxpayer).

NET OPERATING LOSS (NOL)

For NOLs that arise in 2018 and later tax years, the TCJA generally reduces the maximum amount of taxable income that can be offset with NOL deductions from 100% to 80%. In addition, the TCJA generally prohibits NOLs incurred in 2018 and later tax years from being carried back to an earlier tax year — but it allows them to be carried forward indefinitely (as opposed to the 20-year limit under pre-TCJA law). Under the CARES Act, taxpayers are now eligible to carry back NOLs arising in 2018 through 2020 tax years to the previous five tax years. The CARES Act also allows taxpayers to potentially claim an NOL deduction equal to 100% of taxable income for prior-year NOLs carried forward into tax years beginning before 2021.

Through 2025, the TCJA applies a limit to deductions for current year business losses incurred by noncorporate taxpayers. Such losses generally can’t offset more than $250,000 ($500,000 for married couples filing jointly) of income from other sources, such as salary, self-employment income, interest, dividends and capital gains. (The limit is annually adjusted for inflation.) “Excess” losses are carried forward to later tax years and can then be deducted under the NOL rules. The CARES Act temporarily eliminates the limitation. These taxpayers can now deduct 100% of business losses arising in 2018, 2019 and 2020. If any of these changes reduce your tax liability for 2018 or 2019, you may be able to file amended returns to receive a refund now.

BONUS DEPRECIATION

Prior to the TCJA, qualified retail improvement property, restaurant property and leasehold improvement property were depreciated over 15 years under the modified accelerated cost recovery system (MACRS). The TCJA classifies all of these property types as qualified improvement property (QIP).

Congress intended QIP placed in service after 2017 to have a 15-year MACRS recovery period and, in turn, qualify for 100% bonus depreciation. Bonus depreciation is additional first-year depreciation of 100% for qualified property placed in service through Dec. 31, 2022. For 2023 through 2026, bonus depreciation is scheduled to be gradually reduced.

However, the statutory language didn’t define QIP as 15-year property. Therefore, QIP defaulted to a 39-year recovery period, making it ineligible for bonus depreciation. The CARES Act corrected this drafting error. Taxpayers that have made qualified improvements during the past two years can claim an immediate tax refund for the bonus depreciation they missed. Taxpayers investing in QIP in 2020 and beyond also can claim bonus depreciation going forward, according to the phaseout schedule. In some cases, however, it might be more beneficial to claim depreciation over 15 years.

INTEREST DEDUCTION

Generally, under the TCJA, interest paid or accrued by a business is deductible only up to 30% of adjusted taxable income (ATI). Taxpayers with average annual gross receipts of $25 million or less for the three previous tax years generally are exempt from the limitation. Larger real property businesses can elect to continue to fully deduct their interest, but then they’re required to use the alternative depreciation system for real property used in the business.

The CARES Act increases the interest expense deduction limit to 50% of ATI for the 2019 and 2020 tax years. (Special partnership rules apply for 2019.) It also permits businesses to elect to use 2019 ATI, rather than 2020 ATI, for the 2020 calculation, which may increase the amount of the deduction. If these changes reduce your tax liability for 2019, you may be able to file an amended return to receive a refund now.

RETIREMENT PLANS

In response to the COVID-19 crisis, the CARES Act provides some temporary relief to retirement plan owners:

• Owners who need funds from their accounts to help them financially survive the crisis: The Act waives the 10% early withdrawal penalty — along with providing additional tax advantages that taxpayers age 59½ and older can also benefit from — on COVID-19-related distributions up to $100,000. These generally are 2020 withdrawals made by someone who has been (or whose family has been) infected with COVID-19 or who has been economically harmed by the virus. Distributions may be recontributed to the retirement plan over the three-year period starting the day after the withdrawal. If distributions aren’t recontributed, income tax payments can be spread out over three years. Many additional rules apply, so contact your tax advisor for details.
• Owners who don’t need funds from their accounts this year: The Act waives retirement plan required minimum distributions for 2020. This potentially allowed taxpayers to avoid having to sell plan investments during a down market.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in late 2019, makes a variety of tax law changes related to retirement plans.

Here are some key changes that could affect you:

• Allows penalty-free IRA withdrawals of up to $5,000 for the birth or adoption of a child,
• Repeals the maximum age of 70½ for making traditional IRA contributions,
• Increases the age for beginning required minimum distributions (RMDs) from age 70½ to age 72, for taxpayers who didn’t turn age 70½ before Jan. 1, 2020 (that is, were born after June 30, 1949), and
• Reduces the time period for taking IRA distributions to 10 years for beneficiaries — other than surviving spouses and certain others — inheriting IRAs after Dec. 31, 2019.

ESTATE AND GIFT TAXES

The lifetime estate and gift tax exclusions are increased to $11,580,000 per person. The annual gift tax exclusion remains $15,000 for 2020. Massachusetts still taxes estates over $1,000,000 and has no gift tax requirement.

IMPORTANT REMINDERS

1. You should consider deferring income such as bonuses until 2021, as a way of deferring tax.
2. Your long-term capital gains may be subject to a 0% tax rate if your taxable income for all income and long-term capital gains is below $80,000 for married filing jointly and $40,000 for single filers.
3. You should consider converting your traditional IRA to a Roth IRA if you expect your adjusted gross income to be substantially lower in 2020. The conversion to the Roth IRA will increase your adjusted gross income.
4. If your itemized deductions are not higher than the standard deduction, consider bunching deductions and charitable donations so they will be of value to you every other year.
5. You should consider maximizing your contributions to your retirement plans such as a 401(k) or 403(b). You should also consider making contributions to a traditional or Roth IRA account if you qualify.  If you are self-employed, you should consider setting up a SEP plan or Solo 401(k) account.
6. Taxpayers over age 72 can make charitable donations directly from their Individual Retirement Accounts (IRAs) using their RMDs. Charitable donations made directly from IRAs are not taxable. This applies only to IRAs, not 401(k) plans.

IMPACT OF PRESIDENTIAL ELECTION

President-elect Joe Biden has announced a tax plan that departs significantly from the policies created under the Tax Cuts and Jobs Act of 2017 and other tax legislation passed during President Trump’s administration. Below are a few key takeaways from Biden’s proposals. Please keep in mind that the results of the runoff elections in Georgia, which will determine the Senate’s balance of power, will have a direct impact on the likelihood of any of these proposals becoming law. We will keep you informed of developments through our newsletter as this evolves.

1. The top individual federal income tax rate would rise from 37% to the pre-Trump rate of 39.6%.
2. The corporate rate would rise from 21% to 28%; a 15% alternative minimum tax would apply to corporate book income of $100 million and higher.
3. Individuals earning $400,000 or more would pay additional payroll taxes.
4. The maximum Child and Dependent Tax Credit would rise from $3,000 to $8,000 ($16,000 for more than one dependent).
5. Tax relief would be offered for student debt forgiveness and the first-time homebuyer credit would be restored.
6. The estate tax exemption would drop by about 50%.

Please contact us so we can evaluate your situation and develop a strategy that meets your needs.

Wishing you a happy and healthy holiday season!

Your team at Waldron Rand

Dear Clients and Friends of Waldron Rand:

The President has signed the $2 trillion CARES Act (Coronavirus Aid, Relief, and Economic Security Act) into law as one of the largest and most comprehensive relief bills in history.  Many provisions in the new law apply to relief for taxpayers and businesses.

Please note that the law passed contained over 600 pages covering many different areas of the law and government.  We are providing a summary of key highlights as it relates to the taxation of individuals and businesses.

Individuals

Rebates

Eligible individual taxpayers will receive a tax credit for 2020 of $1,200 ($2,400 for joint filers) along with $500 for each qualifying child.  These credits will be sent out as advance payments in the form of a direct deposit or check, which will be taken as a reduction of their credit on their 2020 return.  There are phaseouts of the credit based on the taxpayer’s adjusted gross income which are Single $75,000, married filing joint $150,000 and married filing separate $112,500.

Retirement plans

Taxpayers can receive distributions up to $100,000 without imposition of the 10% excise penalty for early distributions if used for purposes related to the coronavirus.  The taxpayer must have been diagnosed or had a dependent who was diagnosed, or who have suffered financially as a result of being quarantined, laid-off, received a reduction in hours or may have had lost their childcare service.

Distributions can be repaid over three years.  Loans from qualified retirement plans have also been increased from $50,000 to $100,000.  The new law also suspends required minimum distribution rules (RMD) for the 2020 year.

Charitable contributions

The new law allows an above the line deduction of $300.  The AGI limits on charitable contributions have been increased from 60% to 100% for individuals.

Net operating losses:

The new law allows a 5-year carryback for losses generated in 2018, 2019 and 2020.  There is also an election to forgo the carryback.  The new law also suspends the 80% limitation on NOL’s to be carried forward.  The excess loss limitation ($250,000 single, $500,000 MFJ) that was enacted by the Tax Cuts and Jobs Act is now repealed.

Businesses:

Payroll taxes

The new law allows deferred payments of up to 50% of 2020 payroll taxes (employer) through 12/31/2021.  The other 50% will be deferred to 12/31/2022.  Self-employment taxes also have the same deferral provisions.

Refunds for payroll tax credits can also be requested in advance.  This is for required paid sick leave and paid family leave credits that were recently enacted in the Families First Coronavirus Response Act that was passed into law last week.

Refundable credit for retaining employees

Eligible employers are allowed a refundable credit for 50% of qualified wages paid to each employee up to $10,000. Employers are eligible if their business was interrupted or suspended due to shutdowns ordered by a governmental authority.

Business interest limitation

For tax years 2019 and 2020, the Section 163(j) adjusted taxable income percentage has increased from 30% to 50%.

Qualified Improvement Property

The new law also makes qualified improvement property 15-year property and eligible for bonus depreciation.   This is a technical correction from the Tax Cuts and Jobs Act.

Small Business Loans

Waldron Rand is counseling clients on various business loan programs included in the CARES Act.  Details on these loans are as follows:

Paycheck Protection Program

There will be $350B available for expedited individual loans up to $10M through approved lenders that are guaranteed 100% by the US government.  Loan proceeds can be used to cover payroll, insurance, mortgage, rent and utility payments that are incurred from 2/15/2020 through 6/30/2020.

The maximum loan equals 2.5 months of regular payroll expenses (capped at $100,000 of annual salary per employee).  Borrowers are eligible for loan forgiveness equal to the amount spent on eligible costs, subject to employee retention formula. In addition, borrower and lender fees are waived, along with collateral and personal guarantee requirements.  The maximum interest rate is four percent and the loan maturity can be as long as 10 years.  No prepayment fees will be charged, and loan payments can be deferred for 6-12 months.

Eligible businesses include the following:

• Businesses with fewer than 500 employees.
• Small businesses as defined by the Small Business Administration (SBA) Size Standards at 13 C.F.R. 121.201.
• 501(c)(3) nonprofits, 501(c)(19) veteran’s organization, and Tribal business concern described in section 31(b)(2)(C) of the Small Business Act with not more than 500 employees.
• Hotels, motels, restaurants, and franchises with fewer than 500 employees at each physical location without regard to affiliation under 13 C.F.R. 121.103.
• Businesses that receive financial assistance from Small Business Investment Act Companies licensed under the Small Business Investment Act of 1958 without regard to affiliation under 13 C.F.R. 121.10.
• Sole proprietors and independent contractors.

Please note that the SBA is required to issue implementing regulations within 15 days and the U.S. Department of Treasury will be approving new lenders.

Economic Injury Disaster Loans

The new law also expands the types of entities eligible to receive up to $1.5 million in direct loans from the Small Business Administration and loan guarantees for substantial economic injury caused by the COVID-19 pandemic.

A substantial economic injury is defined as a business concern that is unable to meet its obligations as they mature or to pay its ordinary and necessary operating expenses.

The loan proceeds may be used for working capital necessary to carry your concern until resumption of normal operations, expenditures necessary to alleviate the specific economic injury, providing paid sick leave to employees, maintaining payroll, meeting increased costs to obtain materials, making rent or mortgage payments and repaying obligations that cannot be met due to revenue losses.

Eligible Entities:

• Any business with fewer than 500 employees.
• Tribal businesses as defined by 15 U.S.C. 657a(b)(2)(C) with fewer than 500 employees.
• Cooperatives with fewer than 500 employees.
• ESOPs as defined by 15 USC 632 with fewer than 500 employees.
• Individuals operating as a sole proprietor or an independent contractor during the covered period (January 31, 2020 to December 31, 2020).
• Small businesses as defined by the Small Business Administration Size Standards at 13 C.F.R. 121.201.
• Private non-profits with exemptions under sections 510(c), (d) or (e) of the Internal Revenue Code.

These are summaries of key tax and small business loan provisions from the new law and the eligibility and procedural requirements for some provisions are complex.

Please contact us if you have any questions.

Your Team at Waldron Rand.

The President has signed the Families First Coronavirus Act (HR 6201, the “Act”) intended to ease the economic consequences stemming from the novel coronavirus disease (COVID-19) outbreak by providing family and medical leave, and sick leave, to employees and providing tax credits to employers and to the self-employed providing the leave. The law will be effective April 2, 2020.

Family and medical leave. The Act includes the Emergency Family and Medical Leave Expansion Act (EFMLEA), which requires employers with fewer than 500 employees to provide both paid and unpaid public health emergency leave to certain employees through December 31, 2020. After 10 days of unpaid leave, the law provides 12 weeks of qualifying family and medical leave at two-thirds of their salary when employees can’t work because their minor child’s school or child care service is closed due to a public health emergency. Those on the payroll for at least 30 calendar days are eligible. Benefits are capped at $200 a day per individual (or $10,000 in total) and expire at the end of the year.

Emergency paid sick time. Under the Emergency Paid Sick Leave Act (EPSLA), private employers with fewer than 500 employees, and public employers of any size, must provide 80 hours of paid sick time to full-time employees who are unable to work (or telework) for specified virus-related reasons.The payment is capped at $511 a day per individual (or $5,110 in total) and expires at year-end.

Employer tax credits. Covered employers that are required to offer emergency FMLA or paid sick leave are eligible for refundable tax credits. The Act also provides for similar refundable credits against the self-employment tax.

Employers with fewer than 50 workers can apply for an exemption from providing paid family and medical leave and paid sick leave if it “would jeopardize the viability of the business.”

The most efficient method of delivery of tax information is via our secure email server (Zix) or our secure portal. Please contact sarahd@waldronrand.com if you need any assistance with either method. You can still send packages to us via regular mail as well, but please be aware that this will likely result in a delay in when we can begin working on your return.

As communicated in our earlier alerts, the IRS has moved the 2019 tax filing and payment deadline to July 15, 2020. This covers all 2019 income tax balances due as well as first quarter estimated tax payments for 2020. There is no longer a dollar limitation on the amount eligible for deferral to this new filing deadline. The Massachusetts Department of Revenue have not yet legislated a match to this federal extension, but they have indicated that their intention to conform. We are continuing to actively process as many tax returns as possible in spite of the extension.

Dear Clients,

We are continuing to stay on top of evolving guidance around the April 15^th tax deadline. On Tuesday, Treasury Secretary Mnuchin announced a 90 day extension to pay your 2019 tax balance (up to $1,000,000) without additional penalties and interest. Yesterday, the IRS released Notice 2020-17, providing further details of this extension.

According to this guidance, the April 15^th tax filing deadline is still in effect in order to achieve this ability to defer payment. Currently, both the MSCPA and AICPA are aggressively lobbying to the Department of Treasury for this extension to apply to the filing deadline as well, in order to relieve the incredible burden on both taxpayers and accounting professionals to timely file all tax returns or extension requests during this crisis. Fortunately, last night we were able to speak with the author of Notice 2020-17, Jennifer Auchterlonie, to voice our concerns and obtain some clarity on the process. Instead of the traditional requirement to provide the IRS with a taxpayer’s projected tax liability in order to obtain a valid extension, Ms. Auchterlonie relayed to us that extension requests can be submitted without any values and will therefore not require individual tax projections. This clarification allows us to continue to focus our efforts on completing tax returns as quickly as possible. We will also be prepared to release protective extension requests automatically for all clients that have not yet filed their 2019 return so that there is no concern of missing the July 15^th deferred payment date.

For those who have not yet sent in your 2019 tax information, please continue to gather and send it along as soon as possible. Given our primarily remote work environment, email or portal delivery is the most efficient method to exchange your data and tax organizer. However, if you need to share materials by paper, we do still have people (as of now) in the office to receive regular mail. Also, we will continue to monitor our After Hours drop box, located at the back door of our building.

IRS Notice 2020-17 also does clarify that the payment deadline will apply to the first quarter estimated tax payments for 2020 as well, originally due April 15th. It does not apply to second quarter estimates due in June, nor any other type of tax liability.

We are all working diligently, whether at home or in the office, to continue to complete as many tax returns as possible. However, we request your patience during this difficult time as our turnaround will be longer than usual given the circumstances.

We will continue to keep you informed as more information becomes available.

Stay well,

Your friends at Waldron Rand

Dear Clients and Friends,

The coronavirus has far reaching impact.  We are anticipating an extension of the April 15^th deadline. At this time, the IRS has not made a ruling. As we receive updates, we will keep you informed via email.

It is important that we keep our team safe, healthy and productive. Therefore, we have moved to a virtual work environment. Most team members are working from their homes, using computers which link to our Virtual Private Network (VPN), the same secure platform we use in our offices.

We are here to help and serve you. You can reach us via email or by calling our main line at (781)449-5825 and, if nobody is able to answer the phone, you can use our dial by name directory to leave a voicemail in the appropriate inbox. You can also find a staff directory on our website.  There you will find individual emails for each team member.

We do anticipate our office will remain open, with limited staff, at most times. That said, we encourage electronic delivery of your tax information, if possible. Otherwise, please feel free to come by the office to drop anything off. If there is nobody in the office at that time, please note that we have a secure drop box outside of our back entrance, which we will check frequently.

The influence of COVID-19 is evolving. As we learn more from the IRS, we will keep you informed via emails.

In December 2019, Congress passed—and the President signed into law—the Setting Every Community Up for Retirement Enhancement (SECURE) Act.  The SECURE Act is landmark legislation that may affect how you plan for your retirement. Many of the provisions go into effect in 2020, which means now is the time to consider how these new rules may affect your tax and retirement planning situation.  

Changes in the law might offer you and your family tax-savings opportunities, but not all the changes are favorable. This article outlines some of the key provisions of the Act and their effects on taxpayers.  

Repeal of the maximum age for Traditional IRA contributions 

Before 2020, Traditional IRA contributions were not allowed once the individual attained age 70½. Starting in 2020, new rules allow an individual of any age to make contributions to a Traditional IRA, as long as the individual has compensation, which generally means earned income from wages or self-employment.  

Required minimum distribution age raised from 70½ to 72 

Before 2020, retirement plan participants and IRA owners were generally required to begin taking required minimum distributions (RMDs) from their plans by April 1 of the year following the year they reached age 70½.  

Under the new law, individuals do not need to begin taking RMDs until reaching age 72. 

Partial elimination of stretch IRAs 

For plan participants or IRA owners who died before 2020, both spousal and nonspousal beneficiaries were generally allowed to stretch out the tax-deferral advantages of these plans or IRAs by taking distributions over their lifetimes or life expectancies. In the context of an IRA, this is sometimes referred to as a “stretch IRA”.  

However, for plan participants or IRA owners who die beginning in 2020 (later for some participants in collectively bargained plans and governmental plans), distributions to most nonspouse beneficiaries generally must be distributed within 10 years following the plan participant’s or IRA owner’s death. For those beneficiaries, the “stretching” strategy is no longer allowed.  

Exceptions to the 10-year rule are allowed for distributions to (1) the surviving spouse of the plan participant or IRA owner; (2) a child of the plan participant or IRA owner who has not reached majority; (3) a chronically ill individual; and (4) any other individual who is not more than 10 years younger than the plan participant or IRA owner. Beneficiaries who qualify under one of these exceptions may generally still take their distributions over their life expectancies as allowed under the rules in effect for deaths occurring before 2020.  

Expansion of Section 529 education savings plans to cover registered apprenticeships and distributions to repay certain student loans 

A Section 529 education savings plan (a 529 plan, also known as a qualified tuition program) is a tax-exempt program established and maintained by a state or one or more eligible educational institutions (public or private). Any person can make nondeductible cash contributions to a 529 plan on behalf of a designated beneficiary. The earnings on the contributions accumulate tax free and distributed earnings are excludable from taxable income up to the amount of the designated beneficiary’s qualified higher education expenses.  

Before 2019, qualified higher education expenses didn’t include the expenses of registered apprenticeships or student loan repayments. But for distributions made after December 31, 2018 (the effective date is retroactive), tax-free distributions from 529 plans can be used to pay for fees, books, supplies, and equipment required for the designated beneficiary’s participation in an apprenticeship program. In addition, tax-free distributions (up to $10,000) are allowed to pay the principal or interest on a qualified education loan for the designated beneficiary, or a sibling of the designated beneficiary. 

Kiddie tax changes 

In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), which made changes to the so-called “kiddie tax” on the unearned income of certain children. Before enactment of the TCJA, a child’s net unearned income was taxed at the parents’ tax rates if the parents’ tax rates were higher than the child’s tax rate.  

Under the TCJA, for tax years beginning after December 31, 2017, a child’s taxable income attributable to net unearned income is taxed according to the brackets that apply to trusts and estates. Children to whom kiddie tax rules apply and who have net unearned income also have a reduced exemption amount under the alternative minimum tax (AMT) rules.  

The new rules enacted on December 20, 2019, repeal the kiddie tax measures added by the TCJA. Starting in 2020 (with the option to start retroactively in 2018 and/or 2019), a child’s unearned income is taxed under pre-TCJA rules, and not at trust/estate rates. Starting retroactively to 2018, the new rules also eliminate the reduced AMT exemption amount for children to whom the kiddie tax rules apply and who have net unearned income.  

Penalty-free retirement plan withdrawals for expenses related to the birth or adoption of a child 

Generally, a distribution from a retirement plan must be included in income and, unless an exception applies (for example, distributions in case of financial hardship), a distribution before the age of 59 1/2 is subject to a 10% early withdrawal penalty on the amount includible in income.  

Starting in 2020, plan distributions (up to $5,000) that are used to pay for expenses related to the birth or adoption of a child are penalty free. The $5,000 amount applies on an individual basis, so for a married couple, each spouse may receive a penalty-free distribution up to $5,000 for a qualified birth or adoption.  

Taxable non-tuition fellowship and stipend payments treated as compensation for IRA purposes 

Before 2020, stipends and non-tuition fellowship payments received by graduate and postdoctoral students were not treated as compensation for IRA contribution purposes, and could not be used as the basis for making IRA contributions.  

Starting in 2020, the new rules remove that obstacle by permitting taxable non-tuition fellowship and stipend payments to be treated as compensation for IRA contribution purposes. This change will enable these students to begin saving for retirement without delay.  

The SECURE Act involves many changes and options to consider based on your personal tax and retirement situation. To help you get the most out of the new rules, and avoid potential pitfalls, talk with an expert who can develop custom advice and solutions for you and your family. Please contact us to learn how we can help you navigate this new landscape. 

-Your Team at Waldron H. Rand 

This alert is a follow-up to our previous alert on the Massachusetts Paid Family and Medical Leave law.

While the law is still scheduled to go into effect on January 1, 2021, the original start date for employers to begin contributing to the Family and Employment Security Trust Fund (July 1, 2019) has been delayed to October 1, 2019. Business and government leaders agreed on the delay to allow employers time to understand and comply with the law.

Because of the funding delay, the original tax, 0.63% of employees’ wages, will increase to 0.75% in October. Starting in 2021, this rate is subject to annual review and possible readjustment to keep up with trust fund spending.

Open issues employers are grappling with include whether they qualify for an exemption to the law (by maintaining a more generous leave program) and what portion of the 0.75% tax they should pay (versus taking out of employees’ pay). Employers must pay at least 60% of the medical leave tax, but are not required to pay any part of the family leave tax.

Do these issues affect your company and employees? Waldron Rand will continue to monitor developments on the implementation of the Paid Family and Medical Leave law and provide updates as we learn more. In the meantime, please contact us if you need information or guidance on the law and its effects.

Dear Client,

2018 has been a very busy year for tax legislation, with possibly more to come before the end of the year. During the year, we sent several communications explaining the new tax laws based on our interpretation of the tax code. This brief overview summarizes some significant changes you should be aware of during the upcoming tax season and beyond, and actions you can take to respond to these changes.

ITEMIZED DEDUCTIONS

• There has been much talk about the changes in itemized deductions. As you may have heard, the deduction for state and local income and property taxes is now capped at a maximum of $10,000.
• The home mortgage interest deduction for new loans entered into after December 15, 2017 is limited based on acquisition debt of a total of $750,000 for a principal residence and vacation home combined. There is no longer a deduction for home equity debt unless that debt is below the $750,000 amount and is used to purchase or substantially improve your home.
• Miscellaneous itemized deductions such as investment fees and employee business expenses are eliminated.
• Casualty and theft losses are now only allowed in federally declared disaster areas.
• The charitable deduction has not changed, but it may no longer benefit taxpayers because the standard deduction has increased.

STANDARD DEDUCTION

The standard deduction has been increased to $24,000 for married taxpayers filing jointly and $12,000 for single taxpayers. Married taxpayers over age 65 each have an additional $1,300 added to their standard deduction ($1,600 for an unmarried taxpayer).

ALIMONY

For divorce or separation agreements executed after December 31, 2018, the new law eliminates the deduction for payments of alimony and the requirement for the recipient to include alimony in taxable income.

529 PLANS

Up to $10,000 per year of disbursements from 529 plans are now considered qualified distributions if used to pay elementary and middle school tuition.

KIDDIE TAX

The tax on unearned income of children under the age of 19 or full-time students under the age of 24 no longer is based on their parents’ tax bracket. That income is now taxed at trust and estate tax rates.

CHILD AND FAMILY CREDIT

The child credit is increased and is now available to higher-income earners.

ALTERNATIVE MINIMUM TAX (AMT)

The AMT still exists; however, most of the preference items that subjected taxpayers to the AMT are eliminated or reduced, so fewer taxpayers will pay the additional AMT.

NET OPERATING LOSS (NOL)

An NOL can no longer be carried back to prior years. It may be carried forward, but the NOL carryover can now only offset  a maximum of 80% of the following year’s income.

BUSINESS CHANGES

• There is a new qualified business income deduction with complex rules that apply to shareholders in S corporations, partners in partnerships, and sole proprietors and real estate professionals. This deduction could be as much as 20% of qualified business income. This deduction phases out for taxpayers in service businesses, beginning at taxable income of $315,000 for Married Filing Jointly and $157,500 for all others.
• Entertainment expenses (including all sporting event tickets) are no longer deductible. Taxpayers who categorize meals and entertainment together must now separate them since business meals are still 50% deductible.
• There is a new 100% bonus first-year depreciation for new or used machinery and equipment purchased or put in service in 2018.

ESTATE AND GIFT TAXES

The lifetime estate and gift tax exclusions are increased to $11,200,000 per person. The annual gift tax exclusion is $15,000 for 2018. Massachusetts still taxes estates over $1,000,000 and has no gift tax requirement.

IMPORTANT REMINDERS

1. If you are over age 70 ½ , you must begin to take required minimum distributions (RMDs) from your retirement plans. You must take the first distribution by April 1 following the year you turn 70 ½. You may defer this distribution until the following year; however, in that year you must take two distributions.
2. If your itemized deductions are not higher than the standard deduction, consider bunching deductions and charitable donations so they will be of value to you every other year.
3. Taxpayers over age 70 ½ can make charitable donations directly from their Individual Retirement Accounts (IRAs) using their RMDs. Charitable donations made directly from IRAs are not taxable. This applies only to IRAs, not 401(k) plans.

Now is the time to start thinking about your 2018 tax return and the effect the new rules may have on you.

Please contact us so we can evaluate your situation and develop a strategy that meets your needs.

Wishing you a happy and healthy holiday season!

Your team at Waldron Rand

On June 28, 2018, Governor Baker and the Massachusetts Legislature reached a compromise on a major employee benefits and pay bill, dubbed the “Grand Bargain”. As its formal name, “An Act Relative to Minimum Wage, Paid Family Medical Leave, and the Sales Tax Holiday”, indicates, the bill includes four components:

• Paid family and personal medical leave
• An increased minimum wage phased in over a 5-year period
• A reduction in overtime pay rules for Sunday and holiday hours
• A permanent annual sales tax holiday

The focus of this update is Paid Family and Medical Leave.

Massachusetts Paid Family and Personal Medical Leave

Under the law, beginning in 2021, eligible employees of Massachusetts companies may take up to 12 weeks of paid family leave to care for a new child or other family member (domestic partner, grandparent, grandchild, sibling, parent of spouse or domestic partner) and up to 20 weeks of paid medical leave for their own personal medical issues. Payments to employees will be provided by the Family and Employment Security Trust Fund (see below).  The weekly paid family or medical leave benefit amount will be equal to (i) the portion of the employee’s average weekly wage that is equal to or less than 50% of the state average weekly wage (currently $1,338.05) replaced at the rate of 80%, plus (ii) the portion of the employee’s average weekly wage that is more than 50% of the state weekly wage replaced at 50%. The maximum weekly benefit amount will be $850 per week, adjusted annually to remain at 64% of the state average weekly wage. Employees may take an aggregate maximum of 26 weeks of paid leave per year.

The federal Family and Medical Leave Act (FMLA) provides up to 12 weeks of unpaid, job-protected leave for employees with 1,250 hours of service for companies with 50 or more employees. In contrast, the Massachusetts law covers all employers with one or more employees working in Massachusetts, and all employees are eligible, with no required minimum length of service or hours worked.

Paying for the Law

Beginning on July 1, 2019, employers begin contributing 0.63% of each employee’s pay to the Family and Employment Security Trust Fund. For companies with 25 or more employees, employers may deduct a portion of this payment from employees’ wages. For companies with fewer than 25 employees, employers must deduct payroll tax, but they are not required to contribute to the trust fund. Any employer that offers comparable or better family leave benefits to employees may apply to opt out of the program.

Implementing the Law

The law goes into effect in 2021. In the meantime, employers must meet several intermediate deadlines:

• On January 1, 2019, employers must post notices about the law and provide written explanations of the law’s benefits and employees’ rights.
• On March 31, 2019, the newly created Massachusetts Department of Family and Medical Leave will publish proposed regulations for comment, with an eye toward finalizing the regulations on July 1, 2019, when employers begin contributing to the trust fund.

As always, Waldron Rand will follow developments related to the Paid Family and Medical Leave bill as they come into focus. If you would like to discuss how the law might affect you, your company, or your employees, please contact us for a personalized analysis and discussion of your needs.

On Thursday, June 21, 2018, the U.S. Supreme Court handed down a tax ruling that affects retailers nationwide doing business online and in physical stores. 

The ruling allows states to require retailers to collect sales taxes on internet purchases, eliminating what traditional retailers perceived as an unfair advantage in pricing. While retailers with brick-and-mortar locations in different states have been required to collect local and state sales taxes, internet competitors sometimes avoided these requirements, creating a price difference that many viewed as one reason customers opt to shop online. 

Although some companies are already taxing a substantial percentage of their internet sales, the ruling could help raise this percentage, increasing state tax revenue and creating a more equitable competitive landscape. While the ruling is generally seen as good news for retailers who maintain physical stores, it presents many potential challenges for smaller companies trying to comply with the rules. 

For details on the ruling, see the Bloomberg article, “What the High Court Online Sales Tax Ruling Means for Retailers”, and contact us for specific, personal answers to your questions. 

Dedham, MA January 3, 2018 – For over 100 years, Waldron Rand has built a reputation for delivering unparalleled business, tax, and assurance services and expertise to our clients. And our business continues to evolve with our clients’ needs, enabled by key industry associations we maintain locally and globally.

But our most valuable associations are with our employees — our success comes from our people. Today, Waldron Rand’s ability to deliver holistic accounting, auditing, and consulting services to businesses and individuals is even more powerful, with the addition of three new partners.

Join us in celebrating the newest partners in the oldest continuing public accounting firm in the country!

Brian Dlugasch, of Medfield, MA, joined Waldron Rand in 2008. Read more about Brian.

Nicole Barrick, of Mansfield, MA, joined Waldron Rand in 2006. Read more about Nicole.

Matt Dlugasch, of Millis, MA, joined Waldron Rand in 2011. Read more about Matt.

Waldron Rand is delighted to welcome three new partners to continue our long, proud tradition of comprehensive, partner-level service to individuals and businesses. Adding these trusted advisors to our team enables us to expand the depth and breadth of our investing, accounting, auditing, and tax preparation services and leverage their special strengths to help businesses and individuals manage challenges, navigate change, and seize opportunities.

Congratulations to Brian, Nicole, and Matt as they take Waldron Rand into our next 100 years.

We have sent you two previous alerts regarding the forthcoming tax bill headed to the President’s desk.  Congress is enacting the biggest tax reform law in thirty years, one that will make fundamental changes in the way you, your family and your business calculate your federal income tax bill, and the amount of federal tax you will pay. Since most of the changes will go into effect next year, there’s still a narrow window of time before year-end to soften or avoid the impact of crackdowns and to best position yourself for the tax breaks that may be heading your way. Here’s a quick rundown of last-minute moves you should think about making.

Lower tax rates coming.

The Tax Cuts and Jobs Act will reduce tax rates for many taxpayers, effective for the 2018 tax year. Additionally, many businesses, including those operated as passthroughs, such as partnerships, may see their tax bills cut.

The general plan of action to take advantage of lower tax rates next year is to defer income into next year. Some possibilities follow:

• If you are about to convert a regular IRA to a Roth IRA, postpone your move until next year. That way you’ll defer income from the conversion until next year and have it taxed at lower rates.
• Earlier this year, you may have already converted a regular IRA to a Roth IRA but now you question the wisdom of that move, as the tax on the conversion will be subject to a lower tax rate next year. You can unwind the conversion to the Roth IRA by doing a re-characterization-making a trustee-to-trustee transfer from the Roth to a regular IRA. This way, the original conversion to a Roth IRA will be cancelled out. But you must complete the re-characterization before year-end. Starting next year, you won’t be able to use a re-characterization to unwind a regular-IRA-to-Roth-IRA conversion.
• If you run a business that renders services and operates on the cash basis, the income you earn isn’t taxed until your clients or patients pay. So if you hold off on billings until next year-or until so late in the year that no payment will likely be received this year-you will likely succeed in deferring income until next year.
• If your business is on the accrual basis, deferral of income till next year is difficult but not impossible. For example, you might, with due regard to business considerations, be able to postpone completion of a last-minute job until 2018, or defer deliveries of merchandise until next year (if doing so won’t upset your customers). Taking one or more of these steps would postpone your right to payment, and the income from the job or the merchandise, until next year. Keep in mind that the rules in this area are complex and may require a tax professional’s input.
• The reduction or cancellation of debt generally results in taxable income to the debtor. So if you are planning to make a deal with creditors involving debt reduction, consider postponing action until January to defer any debt cancellation income into 2018.

Disappearing or reduced deductions, larger standard deduction.

Beginning next year, the Tax Cuts and Jobs Act suspends or reduces many popular tax deductions in exchange for a larger standard deduction. Here’s what you can do about this right now:

• Individuals (as opposed to businesses) will only be able to claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the total of (1) state and local property taxes; and (2) state and local income taxes. To avoid this limitation, pay the last installment of estimated state and local taxes for 2017 no later than Dec. 31, 2017, rather than on the 2018 due date. But don’t prepay in 2017 a state income tax bill that will be imposed next year – Congress says such a prepayment won’t be deductible in 2017. However, Congress only forbade prepayments for state income taxes, not property taxes, so a prepayment on or before Dec. 31, 2017, of a 2018 property tax installment is apparently OK.
• The itemized deduction for charitable contributions won’t be chopped. But because most other itemized deductions will be eliminated in exchange for a larger standard deduction (e.g., $24,000 for joint filers), charitable contributions after 2017 may not yield a tax benefit for many because they won’t be able to itemize deductions. If you think you will fall in this category, consider accelerating some charitable giving into 2017.
• The new law temporarily boosts itemized deductions for medical expenses. For 2017 and 2018 these expenses can be claimed as itemized deductions to the extent they exceed a floor equal to 7.5% of your adjusted gross income (AGI). Before the new law, the floor was 10% of AGI, except for 2017 it was 7.5% of AGI for age-65-or-older taxpayers. But keep in mind that next year many individuals will have to claim the standard deduction because many itemized deductions have been eliminated. If you won’t be able to itemize deductions after this year, but will be able to do so this year, consider accelerating “discretionary” medical expenses into this year. For example, before the end of the year, get new glasses or contacts, or see if you can squeeze in expensive dental work such as an implant.

Estate and Gift Tax Highlights

• Increases the taxable threshold to estates above $11.2 million (Massachusetts still taxes estates greater than $1 million)
• Increases the gift tax threshold as above (Massachusetts has no gift tax)

The new Tax Cuts and Jobs Act is complex, and we are here to support you. We wish you and your family a happy holiday season. We look forward to working with you in the new year.

This alert was posted prior to the passing of more recent tax legislation.  Before acting on any of the information in the following piece, please consult with a tax expert to learn if and how current legislation might impact or nullify what is stated in this article.

As Congress works to negotiate a final version of the Tax Cuts and Jobs Act, taxpayers are wondering what — if any — action they should take. While the lack of certainty presents challenges, here are four tax planning ideas to consider while the final negotiations are underway.

• Defer income and accelerate deductions
  If possible, it might make sense to defer income, including self-employment earnings and business income, and accelerate business deductions. If tax rates fall, you may not only benefit by pushing off the recognition of taxable income to 2018, but you may also reduce your overall tax burden by taking advantage of lower tax rates next year.
• Make state and property tax payments (but consider the AMT)
  Making state and property tax payments early might enable you to take higher deductions on these taxes. The bill under consideration eliminates any non-business state and local income tax deduction and limits the total property tax deduction to $10,000 for married taxpayers ($5,000 for individuals). Therefore, you might consider prepaying any projected balance due on your 2017 state income tax return before year-end or accelerating the payment of future property tax payments. However, if paying these taxes in 2017 triggers the alternative minimum tax (AMT), this strategy may not be beneficial for you.
• Accelerate other itemized deductions
  If proposed changes to certain other deductions pass, it might benefit you to pay for those costs now.  With an increased standard deduction, coupled with limitations or eliminations of previously available itemized deductions, you may no longer receive a greater tax benefit by completing Schedule A, “Itemized Deductions”, with your tax return. If this applies to you, then accelerating deductions into 2017 such as mortgage interest, charitable deductions, investment expenses, medical expenses and the aforementioned tax payments could provide a significant benefit for you.
• Home equity indebtedness
  The new tax law could possibly eliminate the deduction for interest on home equity indebtedness starting in 2018 while retaining some benefit for acquisition indebtedness. Therefore, prepayment of interest on your home equity debt may be advisable.

At Waldron Rand, our experts are keeping a close eye on the progress of the tax bill and how it might affect our clients. We will send a follow-up alert if and when tax reform legislation is signed into law.  In the meantime, we invite you to reach out with any questions on the pending tax reform and to discuss how to apply these and other strategies to your unique tax situation.

This alert was posted prior to the passing of more recent tax legislation.  Before acting on any of the information in the following piece, please consult with a tax expert to learn if and how current legislation might impact or nullify what is stated in this article.

Dear Client:

We hope that you and your family are well. As we mentioned in our recent e-mail blast, we have all been very busy attending tax conferences so that we can best advise you about the future tax situation. While no one knows exactly what will happen, the consensus among the politicians and industry leaders is that tax rates will go down and the tax benefits of existing deductions may be reduced. Additionally, the Alternative Minimum Tax (AMT) and the Net Investment Income Tax (NIIT) may be repealed and the Estate and Generation Skipping Tax obligations will probably be eased. We can also look for education credits and dependent care deductions to be simplified and increased.

Keeping what we think we know in mind, we have compiled a list of actions that should be considered before the end of the year.

• Be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare tax. Since there is a chance that both of these surcharges will be repealed in 2017, we should consider ways to minimize taxable wages and Net Investment Income for 2016. For example, it may be advantageous to try to arrange with your employer to defer, until early 2017, a bonus that may be coming your way. Further, since both surcharges depend upon Adjusted Gross Income (AGI), there may be other opportunities for 2016 tax savings by managing overall AGI. For example, contributing the maximum to your retirement plans lowers your AGI.
• If you expect to owe state and local income taxes when you file your 2016 tax return, consider asking your employer to increase your withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2016. This is not an advisable strategy if you will be subject to AMT in 2016. We can help you with that decision.
• Remember to take required minimum distributions (RMDs) from your IRA or other retirement plans. RMDs must begin by April 1 of the year following the year you reach age 70-½.
• If you become eligible in December of 2016 to make health savings account (HSA) contributions, you can make a full year’s worth of deductible HSA contributions for 2016.
• If you are thinking about installing energy saving improvements to your home, such as certain high-efficiency insulation materials, do so before the close of 2016. You may qualify for a “nonbusiness energy property credit” that won’t be available after this year, unless Congress reinstates it.
• Make gifts sheltered by the annual gift tax exclusion before the end of the year. The exclusion applies to gifts of up to $14,000 made in 2016 and 2017 to each of an unlimited number of individuals. You can’t carry over unused exclusions from one year to the next.
• Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2016, the expensing limit is $500,000 and the investment ceiling limit is $2,010,000. There is also a 50% bonus first year depreciation for certain assets bought and placed in service this year. The bonus depreciation deduction is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the 50% first-year bonus write off is available even if qualifying assets are in service for only a few days in 2016
• If you own an interest in a partnership or S corporation, consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.
• Consider using a credit card to charge deductible expenses before the end of the year. Doing so will increase your 2016 deductions even if you don’t pay your credit card bill until after the end of the year. It’s possible that itemized deductions will be of less value to you in 2017. Further, as mentioned above, with a potential reduction in tax rates, you may receive a greater benefit from certain tax deductions in the current tax year while the top marginal rates tax rates are seemingly at a peak.
• To reduce 2016 taxable income, consider disposing of a passive activity in 2016 if doing so will allow you to deduct suspended passive activity losses. One word of caution regarding Publicly Traded Partnerships (PTPs); because of the complexity of the tax and foreign income laws, ownership of a PTP requires an increase in the amount of time needed to prepare your tax return . Further, when these PTPs are sold, there is often a taxable ordinary gain to report.
• The scrutiny on foreign asset reporting and disclosure is only increasing as more and more countries are sharing information with the IRS.   Please contact us right away with any questions about your foreign investments, foreign retirement plans, offshore family trusts or any other foreign income and assets, and we will be happy to assist with an evaluation of required US reporting and disclosure responsibilities. It is critical to comply with these requirements in a complete, accurate and timely manner to avoid the extremely high penalties that accompany each foreign form.

These are just some of the year end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you. Please let us know in advance if you have had any complicated tax transactions this year so that we have time to plan any moves that you should make before the end of 2016. It’s also important for us to know if you have a change in address or e-mail address, or any major life milestones.

Very truly yours,

Waldron H. Rand & Company, P.C.

2017 TAX BRACKETS

2017 PHASEOUTS

Lifetime gift and estate tax exemption Per Person will be $5,490,000

The Kiddie Tax will apply to children under the age of 19 and college students under the age of 24 with unearned income greater than $2,100.

This alert was posted prior to the passing of more recent tax legislation.  Before acting on any of the information in the following piece, please consult with a tax expert to learn if and how current legislation might impact or nullify what is stated in this article.

In December 2016 the Fair Labor Standards act will have new rules. The Department of Labor’s revised rules impact how exempt and nonexempt employees are classified and compensated.  ADP’s ebook provides a quick summary of the key changes you will need to know regarding:

• Classification of exempt and nonexempt employees
• Overtime and travel
• Independent contractors
• Weather related compensation

Of course we are always here to assist you look at the impact these revisions will have on your business and help you think about where you might have exposure.  Please reach out if you have concerns regarding these forthcoming changes.

This alert was posted prior to the passing of more recent tax legislation.  Before acting on any of the information in the following piece, please consult with a tax expert to learn if and how current legislation might impact or nullify what is stated in this article.

On December 18, 2015, Congress passed the “Protecting Americans from Tax Hikes Act of 2015” (PATH).    There are a number of tax relief provisions that were set to expire at the end of 2015. These have been either retroactively extended or made permanent.

What this mean for businesses:

PERMANENT INCREASE AND EXTENSION OF SEC. 179 EXPENSING: The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts currently are $25,000 and $200,000, respectively. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended. The provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.

EXTENSION AND MODIFICATION OF BONUS DEPRECIATION: The provision extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down, with 40 percent in 2018, and 30 percent in 2019. The provision continues to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2015. The provision modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation. The provision also modifies bonus depreciation to include qualified improvement property and to permit certain trees, vines, and plants bearing fruit or nuts to be eligible for bonus depreciation when planted or grafted, rather than when placed in service.

15-YEAR STRAIGHT-LINE COST RECOVERY FOR QUALIFIED LEASEHOLD IMPROVEMENTS MADE PERMANENT: The provision permanently extends the 15-year recovery period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property.

EXTENSION AND MODIFICATION OF RESEARCH CREDIT: The Research and Development tax credit which generally allows taxpayers a 20 percent credit for qualified research expenses or a 14 percent alternative simplified credit will be extended. Additionally, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability, The credit can also be utilized by certain small businesses against the employer’s portion of payroll tax (i.e., FICA) liability.

EXTENSION OF EXCLUSION OF 100% OF GAIN ON CERTAIN SMALL BUSINESS STOCK: The provision extends the temporary exclusion of 100 percent of the gain on certain small business stock for non-corporate taxpayers to stock acquired and held for more than five years. This provision also permanently extends the rule that eliminates such gain as an AMT preference item.

PERMANENT EXTENSION OF REDUCTION IN S CORPORATION RECOGNITION PERIOD FOR BUILT IN GAINS: The provision permanently extends the rule reducing to five years (rather than ten years) the period for which an S corporation must hold its assets following conversion from a C corporation to avoid the tax on built-in gains.

What this means for individuals:

ENHANCED CHILD TAX CREDIT MADE PERMANENT: The Child Tax Credit (CTC) allows taxpayers to claim a $1,000 tax credit for each qualifying child under age 17 that the taxpayer can claim as a dependent. The CTC phases out when taxpayers’ income exceeds certain thresholds. To the extent the CTC exceeds the taxpayer’s tax liability, the taxpayer is eligible for a refundable credit equal to 15% percent of earned income in excess of a threshold dollar amount. The provision permanently sets the threshold amount at an unindexed $3,000.

ENHANCED AMERICAN OPPORTUNITY TAX CREDIT MADE PERMANENT: The Hope Scholarship Credit is a credit of $1,800 (indexed for inflation) for various tuition and related expenses for the first two years of post-secondary education. It phases out for AGI starting at $48,000 (if single) and $96,000 (if married filing jointly) – these amounts are also indexed for inflation. The American Opportunity Tax Credit (AOTC) takes those permanent provisions of the Hope Scholarship Credit and increases the credit to $2,500 for four years of post-secondary education, and increases the beginning of the phase-out amounts to $80,000 (single) and $160,000 (married filing jointly) for 2009 to 2017. The provision makes the AOTC permanent.

DEDUCTION OF CERTAIN EXPENSES OF ELEMENTARY AND SECONDARY SCHOOL TEACHERS MADE PERMANENT: The provision permanently extends the above-the-line deduction (capped at $250) for the eligible expenses of elementary and secondary school teachers. Beginning in 2016, the provision also modifies the deduction to index the $250 cap to inflation and include professional development expenses.

EXTENSION OF MORTGAGE INSURANCE PREMIUMS TREATED AS QUALIFIED RESIDENCE INTEREST: The provision extends through 2016 the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction. This deduction phases out ratably for a taxpayer with AGI of $100,000 to $110,000.

EXTENSION AND MODIFICATION OF CREDIT FOR NONBUSINESS ENERGY PROPERTY: The provision extends through 2016 the credit for purchases of nonbusiness energy property. The provision allows a credit of 10 percent of the amount paid or incurred by the taxpayer for qualified energy improvements, up to $500.

EXTENSION OF ABOVE-THE-LINE DEDUCTION FOR QUALIFIED TUITION AND RELATED EXPENSES: The provision extends through 2016 the above-the-line deduction for qualified tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).

EXTENSION OF TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS FOR CHARITABLE PURPOSES: The provision permanently extends the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from Individual Retirement Accounts (IRAs). The exclusion may not exceed $100,000 per taxpayer in any tax year.

Please keep in mind that these are just a few of the provisions that could affect you or your business. As always, please contact us if you have any questions or concerns.

Please remember that the due date for the 2015, 2nd Quarter Estimated Tax Payments is June 15, 2015.

If you have questions about your second quarter payments, please contact us at 781.449.5825.

This alert was posted prior to the passing of more recent tax legislation.  Before acting on any of the information in the following piece, please consult with a tax expert to learn if and how current legislation might impact or nullify what is stated in this article.

Congress Passes & the President Signs “Tax Increase Prevention Act of 2014”

The Senate passed and the President signed into law legislation which will retroactively extend many critical tax credits and deductions that had originally expired at the end of 2013.

What does this mean for your business?

• An increase in the Sec. 179 deduction from $25,000 to $500,000 through December 31, 2014. The deduction ceiling for 2014 was set at $25,000 (allowing only $25,000 in equipment or major purchases to qualify for an immediate deduction). This law will retroactively extend 2013’s $500,000 Sec. 179 limitation for one year.
• 50% bonus depreciation will be extended for eligible property acquired and placed in service during 2014.
• Retroactive extension of the research and development tax credit through December 31, 2014.

What does this mean for individuals?

• The law will extend a number of individual tax credits and deductions, including previously expired residential energy credits and green energy tax incentives.

Please keep in mind that these are just a few of the provisions that could affect you or your business and that these extensions will apply to 2014 only. Additional legislation will be required to extend them past December 31, 2014.

To take advantage of these changes, please call us to discuss possible moves to consider before year end.

Waldron H. Rand & Company, P.C. is an independent member of KSI International (“KSI”), an association of independent accounting firms located around the world. The member firms of KSI collaborate to provide services to global clients, but are separate and distinct legal entities which cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party.

Circular 230 Disclosure: Any advice contained in this email (including any attachments unless expressly stated otherwise) is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

©2014 Waldron H. Rand & Company, P.C. All Rights Reserved.

This alert was posted prior to the passing of more recent tax legislation.  Before acting on any of the information in the following piece, please consult with a tax expert to learn if and how current legislation might impact or nullify what is stated in this article.

We understand that tax planning is never easy. This year (2014) the midterm elections have changed the Congressional landscape and added to the complexity of year end planning.  It is too early to know exactly how, or if, this will affect the 2015 tax structure. In addition, to make planning even more complicated, Congress has yet to act on a host of tax breaks that expired at the end of 2013.

In 2013 many of our clients felt the effect of the expiration of the Bush tax cuts and the commencement of the Affordable Care Act Medicare surcharges.  Most of these tax increases take effect when Adjusted Gross Income (AGI) is above specified thresholds. Therefore, reduction of AGI has become an important tax planning technique.

Ways to reduce Adjusted Gross Income:

• Contribute the maximum to any retirement plan in which you are entitled to participate.
• Contribute to a Health Savings Account if you are eligible.
• Consider selling stocks that have decreased in value in order to realize losses.
• Taxpayers who don’t expect to be in a higher tax bracket in 2015, should postpone income to 2015 and accelerate deductions to 2014.
• Converting an IRA to a ROTH IRA may be a good long term plan, but it will increase your 2014 AGI.

Sole proprietors should consider using their credit card at the end of the year to pay deductible expenses. Doing so will increase deductions even if the credit card bill is paid in 2015.

If you are 70½⁺:

• If you turned 70 ½ in 2014 and are required to take the Required Minimum Distribution (RMD) from your retirement plan, let us do some planning to see if you would benefit by taking the RMD in 2014 or delaying it until 2015.
• For taxpayers over age 70 ½, failure to take the RMD will result in a large penalty.
  

Other items to consider before the end of the year:

• If your 2014 taxable income is similar to 2013 taxable income, make sure that your withholding and estimated quarterly payments are large enough to avoid an underpayment penalty. Keep in mind that if your 2013 taxable income was above $150,000, your estimated payments and withholding must equal at least 110% of your 2013 tax liability. If your 2013 taxable income was under $150,000, your prepayments only need to be 100% of the prior year’s tax liability.
• Estimate the effect of any year end planning on the Alternative Minimum Tax (AMT).
• Gifts of up to $14,000 per donee can save gift and estate taxes in the future.
• An estate tax return must be filed in Massachusetts for any decedent whose gross assets totaled more than $1,000,000. The exclusion amount for a federal return is $5,340,000. However, if the decedent had a surviving spouse, a federal return should be filed in order to take advantage of the portability of the exemption.
• If you own an interest in a partnership or S corporation consider whether you need to increase your basis in the entity to be able to deduct a loss.
• Disposing of a passive activity with suspended losses will allow the losses to be taken in 2014.

Be Aware of Fraud!       

• The IRS does not have your email address. If you receive an email that seems to be from the IRS, DO NOT RESPOND.

See below for  2014 pertinent numbers and tax bracket charts

• These are just some of the year end steps to consider.  We can tailor a particular plan that will work best for you.  If you have any tax issues in 2014 or if your 2014 income is substantially different from 2013, please contact us as soon as possible.

Our best wishes for a great Holiday Season and a Healthy New Year!

Waldron H. Rand & Company, P.C.

2014 Applicable Tax Related Numbers:

Single Tax Payers Income and Tax:

Married Filing Jointly and Surviving Spouses:

This alert was posted prior to the passing of more recent tax legislation.  Before acting on any of the information in the following piece, please consult with a tax expert to learn if and how current legislation might impact or nullify what is stated in this article.

The Affordable Care Act has brought with it many changes to the tax and employee benefit options that companies need to consider. What were once eligible benefits for an individual employee now can cause heavy penalties for employers. Prior to 2014, the reimbursement of health insurance purchased by the employee, outside of the employer group health insurance plan, was not included in taxable income of the employee.

Beginning in 2014, reimbursements of that nature must be treated as taxable to the employee, according to the IRS issued Notice 2013-54. This Notice eliminates the opportunity for employers to offer “stand-alone” Health Reimbursement Accounts (HRAs) and other tax-favored arrangements for individual (non-group) health insurance policies that the employee buys either in the new Health Insurance Marketplace or outside it. Violation has the potential to subject the employer to a $100 per day penalty for each violation ($36,500 per year, per employee). The notice eliminates many but not all tax favored reimbursement plans. You simply do not want to be in violation. It is therefore recommended that you discuss any employee health care reimbursement plans or payments with us.

Waldron H. Rand & Company, P.C. is an independent member of KSI International (“KSI”), an association of independent accounting firms located around the world. The member firms of KSI collaborate to provide services to global clients, but are separate and distinct legal entities which cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party.

Circular 230 Disclosure: Any advice contained in this email (including any attachments unless expressly stated otherwise) is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

©2014 Waldron H. Rand & Company, P.C. All Rights Reserved.

This alert was posted prior to the passing of more recent tax legislation.  Before acting on any of the information in the following piece, please consult with a tax expert to learn if and how current legislation might impact or nullify what is stated in this article.

In a highly unusual move, the leadership of the Massachusetts Senate and House of Representatives held a press conference on Thursday, September 12 to announce their intention to repeal a new half-billion dollar state tax on custom software and network design services, better known as the “tech tax.” The “tech tax” included a 6.25 percent sales tax on computer and software services and there was growing concern that the new tax, which was vague and confusing, was creating a perception that Massachusetts had become a less friendly environment for innovative technology firms.With the repeal of this unpopular new tax legislative leaders stated that they would not propose any other taxes to make up for the lost revenue. Christopher Anderson, President of the Massachusetts High Technology Council explained in an email to the organization’s constituents, “This tax was aimed squarely at the heart of the Massachusetts economy, which is why our Tax Competitiveness Team flagged it as problematic as soon as it was first proposed by Governor Patrick in January. Since then, as the tax worked its way through a rigid legislative process with no formal hearings, we regularly called attention to the harm it would cause to our state’s competitiveness and high tech economy.”

Lawmakers said they will review surplus from last year’s state budget and early projections of a surplus in the current year spending plan, along with one-time corporate tax settlements, to make up the difference. If you have any questions about this repeal, please feel free to contact any of us.

The Waldron Rand Leadership Team

Bill Kams, Jack Mozes, Rick Dlugasch, Sharon Shaff and Susan Kams

Waldron H. Rand & Company, P.C. is an independent member of KSI International (“KSI”), an association of independent accounting firms located around the world. The member firms of KSI collaborate to provide services to global clients, but are separate and distinct legal entities which cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party.

Circular 230 Disclosure: Any advice contained in this email (including any attachments unless expressly stated otherwise) is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

©2013 Waldron H. Rand & Company, P.C. All Rights Reserved.

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) ruled on August 29, 2013 that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

Under the ruling, same sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit.

For more information or to discuss your specific questions, please contact any of us directly or review the Treasury Department’s official press release.

The Waldron Rand Leadership Team

Bill Kams, Jack Mozes, Rick Dlugasch, Sharon Shaff and Susan Kams

Waldron H. Rand & Company, P.C. is an independent member of KSI International (“KSI”), an association of independent accounting firms located around the world. The member firms of KSI collaborate to provide services to global clients, but are separate and distinct legal entities which cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party.

Circular 230 Disclosure: Any advice contained in this email (including any attachments unless expressly stated otherwise) is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

©2013 Waldron H. Rand & Company, P.C. All Rights Reserved.

This alert was posted prior to the passing of more recent tax legislation.  Before acting on any of the information in the following piece, please consult with a tax expert to learn if and how current legislation might impact or nullify what is stated in this article.

Fiscal Cliff Compromise Ready for Obama’s Signature

It’s finally done! Congress has passed the “American Taxpayer Relief Act.” Although the Act would prevent many of the scheduled tax hikes for the upcoming year, it will result in an increase in income taxes for most high-income individuals, including flow-through income from their S Corporations, LLCs and Partnerships. If you would like to discuss how the new rules will impact your specific tax situation, please don’t hesitate to contact any of us at (781) 449-5825.

Tax rates. Beginning in calendar year 2013, the income tax rates for most individuals will stay at 10%, 15%, 25%, 28%, 33% and 35%, however there will be 39.6% rate for individuals with income above a certain threshold. The applicable threshold is $450,000 for joint filers and surviving spouses; $425,000 for heads of household; $400,000 for single filers; and $225,000 for married taxpayers filing separately. These dollar amounts are inflation-adjusted for tax years after 2013.

Personal Exemption and Itemized Deduction Phaseouts. For tax years beginning after 2012, the personal exemption phaseout is reinstated for joint filers making at least $300,000 and single filers making at least $250,000. Similarly, the reduction in the benefit that higher income taxpayers can receive from itemized deductions (which also had been previously suspended) is also reinstated beginning this year.

Capital Gains and Qualified Dividend Rates. Tax rates on capital gains and qualified dividend income would increase from 15% to 20% for single filers with income exceeding $400,000 and joint filers with income exceeding $450,000. Taxpayers in the 10% and 15% tax brackets will continue to benefit from a 0% rate.

Estate Tax. The estate and gift tax lifetime exemption will be $5,000,000 per person( $10,000,000 per married couple). For amounts above this level, the estate tax rate will be increased to 40%. The portability feature that allows the estate of the first spouse to die to transfer his or her unused exclusion to the surviving spouse will remain. All changes are effective for individuals dying and gifts made after 2012.

AMT relief. The Act permanently provides a patch for the alternative minimum tax by increasing the AMT exemption amounts for 2012 and beyond.

Education. The Act extends for five years the American Opportunity tax credit, which permits eligible taxpayers to claim a credit equal to 100% of the first $2,000 of qualified tuition and related expenses, and 25% of the next $2,000 of qualified tuition and related expenses (for a maximum tax credit of $2,500 for the first four years of post-secondary education). The Act also extends temporarily the deduction for certain expenses of elementary and secondary school teachers, which expired at the end of 2011 and which is now revived for 2012 and continued through 2013, and the above-the-line deduction for qualified tuition and related expenses, which expired at the end of 2011 and which is now revived for 2012 and continued through 2013.

Miscellaneous Extended Provisions:

• The exclusion for discharge of qualified principal residence indebtedness, which applied for discharges before Jan. 1, 2013 and which is now continued to apply for discharges before Jan. 1, 2014;
• The treatment of mortgage insurance premiums as qualified residence interest, which expired at the end of 2011 and which is now revived for 2012 and continued through 2013;
• The option to deduct State and local general sales taxes, which expired at the end of 2011 and which is now revived for 2012 and continued through 2013.
• Tax-free distributions from individual retirement plans for charitable purposes, which expired at the end of 2011 and which is now revived for 2012 and continued through 2013. Because 2012 has already passed, a special rule permits distributions taken in 2012 to be transferred to charities for a limited period in 2013. Another special rule permits certain distributions made in 2013 as being deemed made on Dec. 31, 2012.

Depreciation Provisions. The following depreciation provisions are retroactively extended by the Act through 2014:

• 15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
• 7-year recovery period for motorsports entertainment complexes;
• The increased 2012 expensing limitations of $500,000 and the treatment of certain real property as Code Sec. 179 property;
• The Act also extends the 50% bonus depreciation provisions with respect to property placed in service after Dec. 31, 2012.

The Code Sec. 41 research credit is modified and retroactively extended for two years through 2013. There are many other business credits such as the New Markets, Employer Wage, and Work Opportunity Credits that are extended. The exclusion of 100% of gain on certain small business stock acquired before Jan. 1, 2014 is also extended, as is the basis adjustment to stock of S Corporations making charitable contributions of property under Code Sec. 1367(a) in tax years beginning before Dec. 31, 2013. The reduction in S corporation recognition period for built-in gains tax under Code Sec. 1374(d)(7) is extended through 2013, with a 5-year period instead of a 10-year period.

Various Energy Credits are Extended:

• These include the nonbusiness energy property credit under Code Sec. 25C for energy-efficient existing homes. This is retroactively extended for two years through 2013. A taxpayer can claim a 10% credit on the cost of: (1) qualified energy efficiency improvements, and (2) residential energy property expenditures, with a lifetime credit limit of $500 ($200 for windows and skylights)
• Also included is the alternative fuel vehicle refueling property credit under Code Sec. 30C. Taxpayers can claim a 30% credit for qualified alternative fuel vehicle refueling property placed in service through Dec. 31, 2013, subject to the $30,000 and $1,000 thresholds.
• The credit for 2- or 3-wheeled plug-in electric vehicles under Code Sec. 30D is modified and retroactively extended for two years through 2013.
• The credit for biodiesel and renewable diesel under Code Sec. 40A is retroactively extended for two years through 2013.
• The credit for energy-efficient new homes under Code Sec. 45L and The credit for energy-efficient appliances under Code Sec. 45M are retroactively extended for two years through 2013.

This is a quick summary of the law as we know it. There will be many more details to follow. The new taxes on investment income and earned income that were included in the Healthcare Bill are in effect for 2013 and beyond and are in addition to any taxes mentioned above.