Don’t mess with the Department of Labor and the Overtime Rules!

Some Key West Restaurants recently found out that the Department of Labor means business when they were assessed $162,000 is back wages for overtime violations. Employers need to keep good records of hours worked, comply with wage and hour regulations and properly pay employees for time worked. It’s also important to under stand the rules governing exempt and non-exempt employees.

For more on this case check out the news release from the U.S. Department of Labor Wage and Hour Division. https://www.dol.gov/newsroom/releases/whd/whd20210603

 

Bills from the Hill

Below is a list tax bills introduced in Congress for which bill text became available between June 3 and June 10, 2021. The bill text for each bill can be accessed by clicking on the bill number.

Individuals: 

H.R.2304 – Save Social Security Act of 2021. To amend title II of the Social Security Act and the Internal Revenue Code of 1986 to modify the portion of wages and self-employment income subject to payroll taxes.

H.R.2305 – Senior Accessible Housing Act. To provide a refundable tax credit to seniors who install modifications on their residences that would enable them to age in place.

H.R.2439 – SALT Fairness for Working Families Act. To increase the limitation on the amount individuals can deduct for certain State and local taxes.

H.R.2447 – Veterinary Medicine Loan Repayment Program Enhancement Act. To provide for an exclusion for assistance provided to participants in certain veterinary student loan repayment or forgiveness programs.

S.1399 – Homecare for Seniors Act. To allow qualified distributions from health savings accounts for certain home care expenses.

Business: 

H.R.2341 – Bring Jobs Home Act. To encourage domestic insourcing and discourage foreign outsourcing.

H.R.2370 – Preserving Family Farms Act of 2021. To increase the limitation on the estate tax valuation of certain real property used in farming or other trades or businesses.

H.R.2653 – MMEDS Act of 2021. To rescue domestic medical manufacturing activity by providing incentives in economically distressed areas of the United States and its possessions.

S.1233 – Small Business Tax Fairness and Compliance Simplification Act. To simplify reporting requirements, promote tax compliance, and reduce tip reporting compliance burdens in the beauty service industry.

S.1256 – Providing Real Opportunities for Growth to Rising Entrepreneurs for Sustained Success (PROGRESS) Act. To provide a tax credit for investors in start-up businesses, to provide a credit for wages paid by start-up businesses to their first employees, and for other purposes.

S.1274 – Remote and Mobile Worker Relief Act of 2021. To limit the authority of States or other taxing jurisdictions to tax certain income of employees for employment duties performed in other States or taxing jurisdictions, and for other purposes.

S.1283 – Tax on Wall Street Speculation Act. To impose a tax on certain trading transactions to invest in our families and communities, improve our infrastructure and our environment, strengthen our financial security, expand opportunity and reduce market volatility.

S.1300 – Promotion and Expansion of Private Employee Ownership Act of 2021. To amend the Internal Revenue Code of 1986 and the Small Business Act to expand the availability of employee stock ownership plans in S corporations, and for other purposes.

Energy: 

H.R.2346 – E–QUIP Act. To allow 10-year straight line depreciation for energy efficient qualified improvement property.

H.R.2406 – Electric Power Infrastructure Improvement Act. To establish a tax credit for installation of regionally significant electric power transmission lines.

H.R.2482 – MICROGRID Act. To provide tax credits for microgrid property.

S.1266 – Hydrogen Utilization and Sustainability Act. To expand the renewable electricity production credit to include electricity produced from hydrogen.

S.1298 – Clean Energy for America Act. To provide tax incentives for increased investment in clean energy.

H.R.2411 – Broadband for All Act of 2021. To provide a tax credit to consumers to reimburse a portion of the cost of broadband infrastructure serving limited broadband districts.

S.1376 – Protect America’s Paper for Recycling Act. To modify the definition of municipal solid waste.

S.1387 – PTC Elimination Act. To repeal the credit for electricity produced from certain renewable resources, and for other purposes.

H.R.2421 – Collegiate Housing and Infrastructure Act of 2021. To provide for collegiate housing and infrastructure grants.

Infrastructure: 

S.1299 – Public Buildings Renewal Act of 2021. To provide for the tax-exempt financing of certain government-owned buildings.

S.1308 – American Infrastructure Bonds Act of 2021. To provide a credit to issuers of American infrastructure bonds.

S.1403 – Move America Act of 2021. To provide for Move America bonds and Move America credits.

Retirement: 

S.1272 – SIMPLE Plan Modernization Act. To promote retirement savings on behalf of small business employees by making improvements to SIMPLE retirement accounts and easing the transition from a SIMPLE plan to a 401(k) plan.

S.1273 – Military Spouses Retirement Security Act. To provide a credit to small employers for covering military spouses under retirement plans.

Excise taxes:

H.R.2350 – Discriminatory Gaming Tax Repeal Act of 2021. To repeal chapter 35 (relating to taxes on wagering).

H.R.2427 – NFA Modernization Act of 2021. To increase the transfer tax on certain firearms.

H.R.2466 – Law Enforcement Protection Act of 2021. To include armor-piercing, concealable weapons within the definition of ‘‘firearm’’ under the National Firearms Act.

S.1314 – Tobacco Tax Equity Act of 2021. To provide tax rate parity among all tobacco products, and for other purposes.

Tax deadlines: 

H.R.2422 – To move the April 15, 2021 estimated tax payment deadline to May 17, 2021 for individuals and corporations.

H.R.2437 – To extend to May 17 the first scheduled individual estimated tax payment for 2021.

 

Uh Oh — Why did I get a letter from the IRS?!?

You open your mailbox and see a “scary” looking letter addressed to you from the IRS. It’s a notice of payment due. What should you do?

Do not automatically assume the letter is correct and submit payment to make it “go away”. There have been many recent tax law changes and very little time to implement the changes – the IRS can be wrong, and it happens more often than you’d think. These IRS letters, called correspondent audits, need to be taken seriously, but not without undergoing a solid review. So, what should you do if you receive one?

Open the envelope. Remember that the first step to taking care of whatever issue lies inside the envelope is to open it. Stay calm and try not to over-react to the correspondence. We know this is easier said than done, but remember the IRS sends out millions of these types of letters each year. Most of them correct simple oversights or common filing errors.

Review it. Review the letter and understand exactly what the IRS is telling you needs to be changed, and determine whether or not you agree with their findings. Speak to your tax professional to gain understanding and determine what next steps should be.
Timely Response. The IRS will include in the letter what they believe you should do and within what time frame. Do NOT ignore this information. Delays in responses can generate penalties and additional interest payments.

Help is a phone call away. You are not alone. Utilize your tax preparer and planner, who deals with this all the time. At RMS Accounting we are here year-round to help you should an issue with your return arise.

Don’t assume the problem is resolved. Do not ignore the letter and be on the lookout for further correspondence. Until you receive definitive confirmation that the problem has been resolved, you need to assume the IRS still thinks you owe them money. If no correspondence confirming the corr3ection is received, a written follow-up to the IRS will be required.

Need to Withdraw from your Retirement Accounts? What you need to know!

The idea of saving for retirement is drilled into our heads. 401(k)s or IRAs are where we stock away funds as we prepare for the day we say goodbye to the workforce. But did you know, the government actually requires you to take money out of those accounts once you reach retirement? It’s called the Required Minimum Distribution (RMD) rule.

Surprised to hear this? Keep reading to learn what you should know about RMDs well before you reach retirement age.

One year hiatus: not anymore. In 2020 the required minimum distribution rules were suspended. They have been reactivated in 2021. This will catch many by surprise, so remind any loved ones over the age of 72to make their distribution calculation.

Penalties. Don’t withdraw the required amount of money? The IRS can assess a penalty equal to 50 percent of the amount that should have ben withdrawn in addition to the regular tax due. The rules require you to withdraw a certain amount of money revery year from tax-deferred r3etirement plans like 401(k)s sand traditional IRAs after you reach the age of 72 (regardless of whether you want to).

Plan in advance. Don’t wait until you’re 72 to start thinking about required distributions. You can start withdrawing funds from retirement accounts without penalty after you reach 59½. If you start planning a tax-efficient withdrawal strategy before the required distribution rules kick in, you can manage what tax rate will be applied to your retirement distributions.

How much do I have to withdraw? What you’re required to withdraw is based partially on the average life expectancy of someone your age. Utilizing your prior year retirement account balance in conjunction with the calculation based upon the IRS’s life expectancy tables, a required withdrawal amount is determined. The financial institution handling your retirement account will usually do the calculation for you.

What if I am not retired yet? If you reach 72 and are still working for an employer with a provided 401(k), you usually do NOT have to take a distribution from that account as long as you don’t own 5 percent or more of the company. You do, however, have to take funds from other plans where you have assets.

Do all accounts require distributions? Not all. Roth IRA accounts do not have the minimum distribution requirement, while allowing you extra flexibility to manage your other taxable withdrawals during retirement.

Required Minimum Distribution (RMD) rules can be complex and confusing. Tax planning is an important piece of a retirement strategy. At RMS Accounting we are here year round to help you in your tax planning – we’re only a phone call away.

Employee Retention Credits of Up To $50,000 Available to Certain Startup Businesses

Startup Businesses that began business activities after February 15, 2020 may be eligible to receive Employee Retention Credits of up to $50,000 per calendar quarter. The credit is part of the American Rescue Plan Act (ARPA), signed by President Biden on March 11, 2021. It can be used to offset payroll expenses for qualifying business and is available for wages paid after June 30, 2021 and before Jan. 1, 2022.

Businesses that qualify under the recovery startup business test do not have to meet the either of the following requirements; 1) been subject to a government order suspending the employer’s trade or business. Or 2) A substantial decline in an employer’s gross receipts as stated in the law. Instead to qualify they must pass the recovery startup business test this test requires, that they began carrying on a trade or business after Feb. 15, 2020, and have average annual gross receipts under $1,000,000 for the 3-tax-year period ending with the tax year which precedes the calendar quarter for which the employee retention tax credit or ERTC is determined. (note Since new businesses don’t general have gross receipts any business that started after Feb. 15, 2020 should meet the requirements.

This allows many new businesses that would not otherwise qualify for the employee retention credit to qualify. The credit which can not exceed $50,000 per quarter is equal to 70% of the first $10,000 of payroll per employee per quarter. Hence an employer with 7 employees who each earned $8,000 during the quarter would receive a refundable credit of $39,200.

 

For more information on the Employee Retention Credit and recovery startup businesses click here.

Taxpayer Certainty and Disaster Tax Relief Act of 2020, Makes Qualifying Restaurant Meals 100% Deductible for 2021 and 2022

IRS WANTS BUSINESS TO KNOW WHAT IS A “RESTAURANT” IS!

The IRS has lets us all know what is, and what is not, a restaurant, for purposes of the rule that allows a 100% deduction for certain business expenses for food and beverages provided by a restaurant during 2021 and 2022.

For purposes of 100% deduction, a “restaurant” is a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.

However, a restaurant does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or vending machine or kiosk. The 50% deduction limitation continues to apply to the amount of any deduction otherwise allowable to the taxpayer for any expense paid or incurred for food or beverages acquired from these types of business.

The 50% deduction limitation also continues to apply to any eating facility located on the business premises of the employer and used in furnishing meals excluded from an employee’s gross income, and any employer-operated eating facility treated as a de minimis fringe benefit, even if such

HINT – Business that provide qualifying restaurant meals for employees, customers or prospective customers the qualify for the 100% deduction need to track these expenses separately from those qualifying for only a 50% deduction. They should also be tracking nondeductible entertainment expenses separately from meals and travel expenses.

ACTION ITEM – Add general ledger accounts for the following to your chart of accounts: 1) 2021-2022 100% Deductible Restaurant Meals. 2) 50% Deductible Meals. 3) Non-Deductible Entertainment. Then be sure items are properly coded to the correct general ledger account.

For more information see IRS Notice 2021-25 and

IRS To Send Out Advance Child Tax Credit Payment

But beware as these payments may have strings attached.

IRS set to start mailing advice “Child Tax Credit”, CTC. Qualifying parents with children Child Tax Credityounger than 6 will begin receiving $300.00 per child for children under 6 years of age per month, and $250 each for children 6 to 17 per month.

This could cause a problem for many families come tax time if they have come to rely on the CTC to offset their tax bill or so that they get a refund when they file their tax return. This is especially true for those that are self employed and those who use the CTC to reduce their estimated tax payment.

This change is part of the American Rescue Plan and requires no action on the part of taxpayers as the IRS and treasure will automatically make payment to those deemed eligible. It is however important that every taxpayer who received the payment keep track of the amounts received as this information will be needed when it comes time to file your 2021 tax return.

The CTC begins to phased out, when income exceeds $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers. So while one could receive the payment because their 2020 income is less that the phase out, and then have to repay the amounts received if their 2021 income exceeds the phase out.

The IRS is still in the process of updating information on the CTC and advance payments so keep a close eye on the IRS web site https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021, RMS Accounting will also be publishing updates as more information becomes available.

𝗜𝗥𝗦 𝗣𝗿𝗶𝘃𝗮𝘁𝗲 𝗟𝗲𝘁𝘁𝗲𝗿 𝗥𝘂𝗶𝗻𝗴 𝟮𝟬𝟮𝟭𝟭𝟰𝟬𝟬𝟭.

𝗜𝗻 𝗮 𝗯𝗹𝗼𝘄 𝘁𝗵𝗲 𝗺𝗮𝗹𝗲 𝘀𝗮𝗺𝗲 𝘀𝗲𝘅 𝗺𝗮𝗿𝗿𝗶𝗲𝗱 𝗰𝗼𝘂𝗽𝗹𝗲𝘀 𝘄𝗮𝗻𝘁𝗶𝗻𝗴 𝘁𝗼 𝗵𝗮𝘃𝗲 𝗮 𝗯𝗮𝗯𝘆 𝘁𝗵𝗲 𝗜𝗥𝗦 𝗵𝗮𝘀 𝗶𝘀𝘀𝘂𝗲𝘀 𝗣𝗿𝗶𝘃𝗮𝘁𝗲 𝗟𝗲𝘁𝘁𝗲𝗿 𝗥𝘂𝗶𝗻𝗴 𝟮𝟬𝟮𝟭𝟭𝟰𝟬𝟬𝟭.

The ruling limits medical deductions to, only medical costs directly attributable to the couple. According to the IRS the couple could deduct, as medical expenses, only fees and costs directly attributable to their own medical care, such as sperm donation and freezing.

Since expenses involving egg donation, IVF, and gestational surrogacy are incurred for someone who isn’t the taxpayer, the taxpayer’s spouse or the taxpayer’s dependent, payments related to those services are not deductible as medical expenses under Code Sec. 213.

American Rescue Plan Act of 2021 – Business Provisions

The American Rescue Plan Act of 2021 was passed by congress and signed into law by the president on March 11, 2020. The law has provisions effecting individuals, businesses, pension plans and payroll in addition to funding many other unrelated items. In this post we concentrate on the provisions of the Act affecting Businesses in other posts we have dealt with the provisions that affect individuals and we will be adding posts that address the other portions of the ACT as well as information that clarifies and defines how the law will be applied as released by the IRS, Treasury, SAB and other government agencies.

COBRA Premium Subsidy

Assistance-eligible individuals (AEIs) may receive a 100% subsidy for COBRA premiums for any period of COBRA coverage beginning on April 1, 2021 (the first day of the first month beginning after enactment) and ending on September 30, 2021. Employers are required to administer and will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by AEIs. If the credit amount exceeds the quarterly Medicare payroll tax, the excess will be treated as an overpayment refundable. Assistance-eligible individuals will not be eligible for the Health Care Tax Credit for any period of coverage in which they receive a COBRA subsidy.  The requirements are complex and require a business to provide notice to employees and employers to claim the refundable credit on their quarterly federal payroll tax returns.

Employer-Provided Dependent Care Assistance Exclusion Increased

The exclusion for employer provided dependent care expense, directly or through a 125-cafeteria plan, is increased for the year 2021 only, from $5,000 to $10,500, and from $2,500 to $5,250 in the case of a separate return filed by a married individual.

Targeted Economic Injury Disaster Loan Advances

Eligible small businesses may receive targeted Economic Injury Disaster Loan (EIDL) advances from the Small Business Administration. Amounts received as targeted EIDL advances are not included in the gross income of the person or entity that receives the amounts. Expenses paid using these funds are fully deductible

Since the targeted EIDL advances are treated as tax-exempt income, they will be allocated to the partners or shareholders and increase their bases in their partnership interests.

Restaurant Revitalization Grants

Eligible restaurants, food trucks, and similar businesses may receive Restaurant Revitalization Grants from the Small Business Administration.  Amounts received as Restaurant Revitalization Grant are not included in the gross income of the person or entity who receives the amounts. (How to apply has not yet been announced.)

Expansion of Rule on Deduction of Compensation of Publicly Held Corporation Employees

The compensation limit for deduction of publicly held corporations of $1 million per year for compensation paid to any “covered employee” has been expanded to cover more employees and now includes the eight highest-paid employees, rather than the three other highest-paid employees.

It’s important to understand that new laws means that regulations and instructions are not yet in place to provide guidance. The information provided here is meant to assist in awareness of changes, not to be a definitive guide as to how these changes must be implemented or just how they will affect any specific person or business. If you have questions consult a qualified tax advisor.

 

The American Rescue Plan Act of 2021 – Individual Provisions

Today the the President signed the American Rescue Plan Act of 2021 and it is now the law of the land.

The House passed the American Rescue Plan Act of 2021 yesterday, March 10, 2021, and it is became law when signed by the the President today March 11th, 2021.  What does this all mean? It means changes that will affect many 2020 tax returns; including lots that have already been filed. While many people will benefit from additional stimulus payments and the elimination of income tax on unemployment payments received in 2020, this will not be the same for all taxpayers.

Taxpayers and tax professionals alike will have many things to consider for 2020 that were not part of the equation until now. These things include when to file if your 2020 income exceeds the Phaseout thresholds to receive the 2021 Individual Recovery Rebate/credit of $1,400 each for tax filers and dependent, particularly when the taxpayer would have qualified in 2019 based on having less income. Phaseout thresholds begin at $150,000 for a joint return, $112,500 for a head of household and $75,000 for all other taxpayers. In this instance you would want to wait to file until you’ve received your credit.

The 2021 Recovery Rebate/credit of $1,400 for a married couple with 2 qualifying children could be as much as $5,600.00.  Making a child that qualified in 2019 but will not qualify in 2020 another reason to delay filing.

The child tax credit is also expanded for 2021 from $2,000 per qualifying child to $3,000 per qualifying child which now includes children under 18 years of age rather than under 17 years of age. The credit was also expanded to $3,600 for children under age 6 as of the close of the year. This credit is also subject to phaseouts so nothing is ever as straight forward as it seems.

For 2021 The EITC (Earned Income Tax Credit) has also been expanded for both those with and without qualifying dependents. Additionally, the law expands the credit so that qualifying married people filing may not automatically be excluded from claiming the credit. It also expands the amount of investment income allowed before being excluded from the credit. In many cases eligibility and requirements have more changes to come as the rules get written.

Obama Care (Affordable Care Act) premium tax credit also increases for 2021 and 2022. New percentage tables will allow taxpayers with household income over 400% of federal poverty level to be eligible for credit. ARPA (American Rescue Plan Act) provides special rules for taxpayers who have received, or been approved to receive, unemployment compensation for any week beginning during 2021.

Student loan debt discharge is now excluded from income for qualifying student loans discharged on and between January 1, 2021 and December 31, 2025.

Be sure to consult a tax professional who is staying up to date with all the changes as they happen before you file your return. Need help? At RMS Accounting we are here year-round to provide tax planning and filing assistance when you need it.