Chamber Chatter

Rex and Caitlyn were on Chamber Chatter with John Courtis this week. We talked about how individuals and businesses can Think Yuma First through the Arizona Tax Credits. You can listen to the podcast here: http://kbluam.com/podcasts/chamberchatter/ChamberChatter-6-3-20.mp3.

Left to Right: Rex Pope, John Courtis, Caitlyn Pope

Corporate Tuition Tax Credit

Coming up soon, C Corporations and S Corporations can apply through a School Tuition Organization (STO) to make a tax credit contribution that will fund scholarships for local, low-income K-12 kids attending private schools. Contact us to find out more about the credit. We administer an STO – School Tuition Association of Yuma – and can help you understand the rules.

The corporate tax credit has total cap put in place by the State of Arizona, so businesses must apply through an STO and be pre-approved by Arizona to make the contribution. The application process is very competitive and the window opens at the beginning of July, so make sure you contact an STO right away if you’d like to contribute for the 2020/2021 year.

Individual Tax Credits

There are also many individual Arizona credits. Here are some of the credits and local organizations that qualify:

2020 Arizona Tax Credits – Maximum Contribution for Married Filing Jointly (Other Status):

Private School Tax Credit: Maximum $2,365 ($1,183):
School Tuition Association of Yuma (STAY): https://www.azstay.org/


Foster Care Tax Credit: Maximum $1,000 ($500):
Arizona Baptist Children’s Services: https://abcs.org/

Jessie’s Closet: https://www.jessiescloset.org/meet-us


Qualified Charitable Organization: Maximum $800 ($400):
Crossroads Mission – http://crossroadsmission.org/
Yuma Community Food Bank – https://www.yumafoodbank.org/
Amberly’s Place- https://www.amberlysplace.com/
Assistance League of Yuma – https://www.assistanceleague.org/yuma/  
Full list of organizations can be found here: https://azdor.gov/sites/default/files/media/CREDITS_2020_qfco.pdf

Public School Tax Credit: Maximum $400 ($200):
Yuma Union High School District – https://www.yumaunion.org/  
Yuma Elementary School District One – https://www.yuma.org/
Crane Schools – http://www.craneschools.org/

Fortunate enough to get a PPP loan? Forgiven expenses aren’t deductible

The IRS has issued guidance clarifying that certain deductions aren’t allowed if a business has received a Paycheck Protection Program (PPP) loan. Specifically, an expense isn’t deductible if both:

  • The payment of the expense results in forgiveness of a loan made under the PPP, and
  • The income associated with the forgiveness is excluded from gross income under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

PPP basics

The CARES Act allows a recipient of a PPP loan to use the proceeds to pay payroll costs, certain employee healthcare benefits, mortgage interest, rent, utilities and interest on other existing debt obligations.

A recipient of a covered loan can receive forgiveness of the loan in an amount equal to the sum of payments made for the following expenses during the 8-week “covered period” beginning on the loan’s origination date: 1) payroll costs, 2) interest on any covered mortgage obligation, 3) payment on any covered rent, and 4) covered utility payments.

The law provides that any forgiven loan amount “shall be excluded from gross income.”

Deductible expenses

So the question arises: If you pay for the above expenses with PPP funds, can you then deduct the expenses on your tax return?

The tax code generally provides for a deduction for all ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Covered rent obligations, covered utility payments, and payroll costs consisting of wages and benefits paid to employees comprise typical trade or business expenses for which a deduction generally is appropriate. The tax code also provides a deduction for certain interest paid or accrued during the taxable year on indebtedness, including interest paid or incurred on a mortgage obligation of a trade or business.

No double tax benefit

In IRS Notice 2020-32, the IRS clarifies that no deduction is allowed for an expense that is otherwise deductible if payment of the expense results in forgiveness of a covered loan pursuant to the CARES Act and the income associated with the forgiveness is excluded from gross income under the law. The Notice states that “this treatment prevents a double tax benefit.”

More possibly to come

Two members of Congress say they’re opposed to the IRS stand on this issue. Senate Finance Committee Chair Chuck Grassley (R-IA) and his counterpart in the House, Ways and Means Committee Chair Richard E. Neal (D-MA), oppose the tax treatment. Neal said it doesn’t follow congressional intent and that he’ll seek legislation to make certain expenses deductible. Stay tuned.

© 2020

ADOR Warning About Third-Party Tax Collection Letters

The Arizona Department of Revenue (ADOR) is warning taxpayers about tax collection letters from a third-party collections agency using the title “Distraint Warrant.” These notices are not sanctioned by ADOR; the department does not currently use third-party tax collectors.⠀

According to ADOR, the unsanctioned Distraint Warrant letter advises the recipient of unpaid taxes to the State of Arizona and that the “State of Arizona uses the warrant in collection actions, such as garnishment of wages, bank accounts, property seizures, federal tax refund offset, and creation of a property lien.” The notice then provides a deadline to call a 1-800 number. DO NOT call the number!⠀

Arizona tax payers can contact the department at https://azdor.gov/contact-us⠀

https://bit.ly/36L0cva

ador.jpg

PPP Loan Certification and Forgiveness

PPP loans are meant for small businesses, which are generally defined for the purposes of the program as having 500 or fewer employees. The purpose of the loans is to allow businesses to continue to pay their employees and keep their operations up and running in the midst of economic hardship brought on by the COVID-19 pandemic.

PPP loans are eligible for loan forgiveness if certain conditions are met. The proceeds of the loan must be spent on qualifying expenses in the eight-week period after the funds are received by the borrower. Additionally, 75% must be used for payroll purposes. The remaining 25% can be used for other qualifying expenses such as utility payments, rent, or mortgage interest. Borrowers should verify with their lenders regarding which expenses will qualify.

In addition to the spending requirements, businesses that receive PPP funding are expected to maintain employment and compensation levels. Loan forgiveness may be reduced if employee or compensation levels decline. Businesses may have an opportunity to rehire employees by no later than June 30, 2020 to avoid decreases forgiveness eligibility based on employee reduction. The Treasury FAQ on PPP Loans addresses whether forgiveness will be reduced if an employer laid off an employee and offered to rehire the same employee, but the employee declined the offer. According to the answer to Question 40 in the FAQ: 

SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

To qualify for forgiveness, applicants need to prove they need the funds and certify they don’t have access to additional sources of capital. Additionally, they must certify that the current economic uncertainty (which has been created by the COVID-19 pandemic) makes the loan request necessary in order for the applicant’s operations to continue.

Because businesses must certify they have no access to other sources of capital and the current economic situation has made the loan necessary, the SBA warned on April 23rd that businesses with substantial access to capital would not qualify for the PPP loans. Subsequently, some larger companies returned their PPP funds. Additionally, some small companies are also concerned that this warning and disqualification may apply to them. However, guidance from the Treasury’s FAQs on PPP Loans states: “Any borrower that, together with its affiliates received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”

If you borrowed less than $2 Million, your certification will be deemed to have been made in good faith according to the guidance from the Treasury.

If you borrowed $2 Million or more, it will not necessarily disqualify you. You may still have adequate basis for making the good-faith certification based on your individual circumstances. However, if the SBA determines a business that borrowed $2 Million or more did not have adequate basis, they will seek repayment of the funds and the borrower will not be eligible for forgiveness of the loan.

For further reading:


Do you have tax questions related to COVID-19? Here are some answers

The coronavirus (COVID-19) pandemic has affected many Americans’ finances. Here are some answers to questions you may have right now.

My employer closed the office and I’m working from home. Can I deduct any of the related expenses?

Unfortunately, no. If you’re an employee who telecommutes, there are strict rules that govern whether you can deduct home office expenses. For 2018–2025 employee home office expenses aren’t deductible. (Starting in 2026, an employee may deduct home office expenses, within limits, if the office is for the convenience of his or her employer and certain requirements are met.)

Be aware that these are the rules for employees. Business owners who work from home may qualify for home office deductions.

My son was laid off from his job and is receiving unemployment benefits. Are they taxable?

Yes. Unemployment compensation is taxable for federal tax purposes. This includes your son’s state unemployment benefits plus the temporary $600 per week from the federal government. (Depending on the state he lives in, his benefits may be taxed for state tax purposes as well.)

Your son can have tax withheld from unemployment benefits or make estimated tax payments to the IRS.

The value of my stock portfolio is currently down. If I sell a losing stock now, can I deduct the loss on my 2020 tax return?

It depends. Let’s say you sell a losing stock this year but earlier this year, you sold stock shares at a gain. You have both a capital loss and a capital gain. Your capital gains and losses for the year must be netted against one another in a specific order, based on whether they’re short-term (held one year or less) or long-term (held for more than one year).

If, after the netting, you have short-term or long-term losses (or both), you can use them to offset up to $3,000 ordinary income ($1,500 for married taxpayers filing separately). Any loss in excess of this limit is carried forward to later years, until all of it is either offset against capital gains or deducted against ordinary income in those years, subject to the $3,000 limit.

I know the tax filing deadline has been extended until July 15 this year. Does that mean I have more time to contribute to my IRA?

Yes. You have until July 15 to contribute to an IRA for 2019. If you’re eligible, you can contribute up to $6,000 to an IRA, plus an extra $1,000 “catch-up” amount if you were age 50 or older on December 31, 2019.

What about making estimated payments for 2020?

The 2020 estimated tax payment deadlines for the first quarter (due April 15) and the second quarter (due June 15) have been extended until July 15, 2020.

Need help?

These are only some of the tax-related questions you may have related to COVID-19. Contact us if you have other questions or need more information about the topics discussed above.

© 2020