Mar 08, 2021
The growing popularity of cryptocurrency has resulted in the IRS including a new question on the 1040 Form which asks: “At any time in 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” This left many confused as to whether purchasing cryptocurrency via the US dollar would require them to check ‘yes’. For some taxpayers there was also the concern over being taxed on their crypto assets if they checked ‘yes’ or on the flip side, being penalized for falsified reporting if they marked ‘no’.
Earlier this week, the US Internal Revenue Service issued updates to its Frequently Asked Questions (FAQs) page providing clarity around cryptocurrency indicating that buying and holding of such virtual currency, if purchased with real government-issued money, does NOT need to be reported on a 1040 Form.
It should be noted, this new ruling only applies to cryptocurrency purchased with Fiat money (or fiat currency) which is a currency a government has declared to be legal tender. If you purchase cryptocurrency using other virtual currency, you are required to check ‘yes’ which may trigger a taxable event.
Should you have questions regarding your cryptocurrency tax liability, please connect with one of William Vaughan Company’s tax advisors today.
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Categories: Tax Compliance
Dec 28, 2020
The recent bill passed by Congress (Consolidated Appropriations Act [CAA]) finally became law after being signed by President Trump on Sunday, December 27th. It was feared disagreements over individual stimulus amounts and other various provisions deemed “wasteful spending” by the President would lead to a stalemate and ultimately to a pocket veto and subsequent death of the bill. Cooler heads prevailed, however, with businesses and individuals getting another financial shot in the arm. Below is a summary of the major highlights from the 5,600+ page law and the tax implications therein.
Individual Taxpayer Provisions
First and foremost, on the mind of most individuals impacted by COVID-19 are the second wave of stimulus payments and the unemployment benefits extension. Individuals will each be receiving a stimulus check in the amount of $600* ($1,200 per couple) as well as $600 per dependent child, e.g., a family of four will receive $2,400. These benefits will begin to phase-out when AGI reaches $75,000 ($150,000 for couples filing jointly) at a rate of $5 per $100 in excess of AGI thresholds. As with the first round of stimulus, these checks will be tax-free and will likely be reported as advance payment of credits on each taxpayer’s 1040.
*President Trump pushed back on this bill and advocated for stimulus checks of $2,000 per individual but staunch opposition from the Senate tabled these suggestions for what could be yet another stimulus under the next administration.
In addition to the $600 stimulus checks, Congress voted to extend the federal unemployment supplement albeit at a reduced rate of $300 per week (down from $600 under the CARES Act) through March 14, 2021. Along with the unemployment subsidy comes extensions of the Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) programs as well.
Further notable tax provisions as they relate to individuals are as follows:
- Special charitable contribution deductions for non-itemizers of $300 ($600 for married filing joint returns) for the 2021 tax year
- Extended suspension of the 60% charitable contribution limitation through 2021
- Extended deferral period for employee’s share of Social Security tax to December 31, 2021
- Permanent extension of the reduced medical expense deduction floor (7.5% of AGI)
- Ability for lower-income individuals to use 2019 earned income to calculate earned income tax credit and a refundable portion of the child tax credit (helps those who had lower earned income in 2020 due to COVID-19 receive potentially larger refunds)
- Permits rollover of unused amounts in health and dependent care flexible spending arrangements
Business Taxpayer Provisions
The biggest provision of the Consolidated Appropriations Act, 2021 in the business arena was the decision to reverse the IRS position regarding the deductibility of expenses used for PPP loan forgiveness as well as a second wave of PPP loans. Details of these provisions can be found in our recent blog post here. For the purpose of this post, we will address the other main tax provisions for businesses found in the CAA.
The existing Employee Retention Tax Credit (ERTC) was modified retroactive to the beginning of the CARES Act. Before the passage of the CAA, businesses had to choose whether they would take advantage of PPP loan forgiveness OR claim the ERTC. Now, for 2020, businesses can request forgiveness of their PPP loans AND claim the ERTC. Provisions in the law state wages paid for with PPP loan proceeds cannot be used in calculating the ERTC in order to prevent double-dipping but for businesses with enough wages and other expenses to qualify for both, that option now exists. For 2020, the ERTC calculation is the same. The credit is capped at 50% of $10,000 of wages per employee for the year.
The law also provides for an extension of the ERTC into 2021 which increases the credit available to 70% of wages up to $10,000 per employee per calendar quarter. In addition, it raises the number of employees counted when determining relevant qualified wages from 100 to 500, reduces required year-over-year decrease in gross receipts from 50% to 20%, and clarifies that group health plan costs can be considered qualified wages EVEN WHEN no other wages are paid.
Other notable business provisions include:
- Extension of Families First Coronavirus Response Act (FFCRA) paid sick leave and expanded FMLA sick leave tax credits through March 31, 2021
- Full expensing of “restaurant” meals purchased in 2021 and 2022 provided other requirements for deductibility are met
- Five-year extension of the Work Opportunity Tax Credit (WOTC)
- Five-year extension of the employer credit for paid family and medical leave
- Extended suspension of the corporate 60% charitable contribution limitation through 2021
Due to the sheer volume of text in the Consolidated Appropriations Act, 2021, it is impossible to capture everything in this post. As always, please contact your William Vaughan adviser to discuss how we can help you navigate the myriad of provisions provided for by this law to best serve you and your business.
By: Jon Floering, CPA
Dec 14, 2020
Under the Coronavirus Aid, Relief and Economic Security (CARES) Act signed into law earlier this year, businesses were provided the option to delay paying the employer portion of the Social Security payroll taxes on wages paid for the period from March 27, 2020, through Dec. 31, 2020. As we close on 2020, now is the time to set reminders for the following as this provision is set to expire:
Updating your payroll deductions for 2021 – If you elected to defer your payroll taxes, you will want to ensure your employer portion of withholdings has been reset for the new year. If you work with a payroll provider, connect with them to make sure you have stopped deferring. For those organizations who manage payroll internally, again, double check your deferral has ceased. In addition, you will want to make sure your fourth-quarter Form 941 (due January 31, 2021) reflects what you deferred.
Due dates for repayment – Any 2020 deferred payroll tax amounts are due to the federal government in two installments.
- One-half at the end of December 31, 2021.
- The remaining half at the end of December 21, 2022.
While employers are not required to submit their first payment of deferred taxes until December 2021, the CARES Act does not prohibit employers from early payment.
Income tax deduction – Employers who have opted to defer may be surprised to learn that these accrued payroll taxes, while in the books for 2020, may not be deductible from their taxable income until later. Accrual basis taxpayers seeking to claim deductions on their 2020 returns for deferred payroll tax liabilities incurred prior to Dec. 31, 2020, may be able to do so if they pay their deferred payroll taxes by Sept. 15, 2021. This may be particularly appealing to taxpayers generating losses in 2020 that will be carried back to higher tax years.
Planning ahead is key! To learn more about how this payroll tax deferral may impact your business, please contact your William Vaughan Company advisor today.
Oct 15, 2020
As the 2020 presidential election inches closer, how do President Trump’s and Vice President Biden’s tax proposals compare?
Check out our resources below. In addition, William Vaughan Company’s Tax Practice Leader, Sandi Towns has outlined some estate tax planning considerations in our latest WVC Short, here.
Sep 01, 2020
The IRS is making some significant changes to the 1099 process. Beginning with the 2020 tax year, a new 1099-NEC form will be used for reporting non employee compensation (NEC) payments. Previously NEC was reported in Box 7 of the 1099-MISC form. These payments will now be reported in Box 1 of the new 1099-NEC form. The 1099-NEC made an appearance in the 1980’s and is now making a comeback to alleviate deadline confusion caused by separate deadlines for Form 1099-MISC that report NEC in box 7 and all other Form 1099-MISC for paper filers and electronic filers. Companies will start reporting on the new Form 1099-NEC in January 2021.
There are several parts of the new 1099-NEC form worth noting:
- Box 1 is where you key in the dollar amount of non employee compensation.
- Box 4 is used for any amount you held back to comply with backup withholding requirements.
- Boxes 5-7 are used to report any state withholding.
In addition, the removal of NEC payments on the 1099-MISC form has resulted in a reordering of information and corresponding boxes. These changes are listed below:
- Box 7 is where you will now key in payer-made direct sales of $5000 or more
- Box 9 is where you will report crop insurance proceeds
- Box 10 is used for gross proceeds to an attorney
- Box 12 is for Section 409A deferrals
- Box 14 is for reporting non qualified deferred compensation income
- Boxes 15, 16, and 17 is where you will report state taxes withheld, the state identification number, and the amount of income earned in the state.
The deadline for both paper and electronic filing of the 1099-NEC form for 2020 is February 1 for both the recipient and the IRS. The 1099-MISC is due to recipients by February 1 while they are due to the IRS by March 1 for paper filing and March 31st for electronic filing.
For up-to-date information on these changes, you can visit the IRS website or connect with us at 419.891.1040.
By: Aaron Gray, Accountant
Categories: Tax Compliance