Watch out for Sneaky Tax Hikes

Let’s face it, every new presidency causes us to worry about what might happen, and President Biden has said many worrisome things, especially with regards to taxes. 

Now, this is NOT a partisan message, we’re not about politics here. The fact is that our new president has said repeatedly that he wants to raise taxes.

How much, when, and what actions to take are still far into the future, but one that really worries me is the so called “step up” tax changes he’s proposed from as far back as the summer of 2020. 

Basically, the change he’s suggesting isn’t one that a lot of people would notice, but it’s one that affects just about everyone, not just the ultra-wealthy…

Under current (and, for that matter, traditional) law, assets like a family business are “stepped up” at the time of the decedent’s death to the fair market value then. 

For example, if the founder of a family business died in August of 2019, the value of his or her business would be assessed in August of 2019.  For easy math, let’s say it was $1 million.  If the heirs continue to operate the company into 2020 and finally sell it in December of 2020 for $1.2 million, they are only taxed on the change since the founder passed away.  $200,000, in other words. 

In the plan that seems to keep showing up, the heirs would be taxed on the entire value of the business at the sale. 

All $1.2 million. 

Here’s the challenge:  there are so many other pieces of any tax puzzle, these smaller pieces often get forgotten about, but in the case of a family owned business, one that is multigenerational, the tax consequences could be very large.  Items like this rarely get a lot of press, because it’s a once-in-a-lifetime problem versus a once-a-year problem, like April 15^th. 

It’s worth watching and determining a better course of action before losing hundreds of thousands of dollars in taxes in a business you spent years building that was designed to make a better life for your family.

Even if President Biden gets his “wish list” of tax hikes, the reality is, it might take several years to actually get put in place.  That’s great, because it gives us time to work together to determine how best to attack the problem and mitigate the tax consequences of passing a business to your heirs. 

If you’ve suddenly begun to worry, relax:  let’s keep an eye on this and go ahead and schedule a time to discuss how to keep more money in your heir’s pockets.

P.S.  The “step up” isn’t just going to affect businesses, it’s also going to be a direct hit on real estate owned by the decedent.  That house you bought for $150,000 that’s now worth $350,000?  You guessed it!  Your heirs will now have to pay taxes on the total gain from the time you purchased it to the point they sell it.  This should be all over the news, but it isn’t, so make sure to keep a lookout for these sorts of “quiet” changes to taxes that often get forgotten by the media.

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm so we can schedule a confidential consultation to explain options to permanently resolve your tax problem.  Make an appointment here!  Or, call Toll-free 1-855-254-1892.

Why Many Americans Won’t Recover

This email isn’t what it sounds like.  Even while we continue to fight COVID-19 and its impact on the economy, many perfectly healthy folks who don’t have any physical challenges are doomed. 

Not by the virus, but by the negativity they’ve become used to – you know, the continuous flow of negativity from social media, the news, and their personal relationships. 

There’s actually five easy ways to beat this mental breakdown, and if 2020 seems to still be dragging you down, here’s the antidote for you…

·       Become Consistent.   If you are really ready to succeed in life, regardless of what the Coronavirus has in store for you, your family, or your job, you HAVE to become more consistent.  When will you wake up?  What do I do next?  What do I do when I get to work?  If I don't have work how will I get work? Get consistent and quit making it up. Successful people don’t change their approach unless it doesn’t work — they only change to change with conditions. 

·       Quit striving to be “normal.”  Look, doing anything “normal” today means ONLY doing something average today.  Average isn’t good.  Average isn’t enough.  And average is never going to get you noticed and allow you to rise in any position in your company or to make the kind of money you want to make.  Let’s face it, even though there is plenty of money floating around on this planet, most people don’t have much of it. It’s because most people won’t take more actions to get more money even in a crisis.

·       Not setting goals.  As much as many people hate it, goal setting might be the biggest reason for anyone to become successful.  With the New Year, a lot of people have made resolutions, but very few actually thought about them.  I’m asking you to really dig in and set realistic – and optimistic – goals to allow you to blow right past the competition in your industry, your company, and even your co-workers. 

·       A sense of entitlement.  We’ve seen this over and over again during the pandemic.  People who argue for a “living wage” or a “universal basic income” but refuse to take the time to improve their own skills.  Entitled people will never work hard enough to earn any real money because they feel things should be given to them. Nobody who accepts government handouts is rich — and they never will be unless they change their mindset.  Slaves get just enough to survive.

·       Realizing that “sales” skills are relevant in all walks of life.  It doesn’t matter if you’re a plumber, a car salesman, or a regional manager, everything you want in life is a sale when you really think about it.  It’s an exchange of value, or ideas, of materials, of money … for something else.  We live and work in an economy, and that economy is driven by sales.  Those who have sales skills – or can adapt them to their particular job – will thrive while those who don’t will subsist. 

For 2021, I want to challenge you to think about these five observations and use them to help guide you in the new year.  Even more importantly, I want you to use them to make yourself have the biggest financial rewards you’ve ever gotten in one year. 

Basically, I want you to have a tax problem because you’ve made so much “extra” money this year!

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm so we can schedule a confidential consultation to explain options to permanently resolve your tax problem.  Make an appointment here!  Or, call Toll-free 1-855-254-1892.

PPP loan 2nd Draw

So, Wayne Scully with W Scully CPA PC, focused on fixing America's tax problems. Folks, listen. Recently, my son went into a major bank to open a business bank account to start his own business. So proud of the kid. He was told by a banker that he qualifies for the PPP law. Now, I have to sit and explain to my son that, "Hey, son. You don't qualify for this loan," because really his business started in 2021, and that's what folks need to know. The business must have started no later than February of 2020 for you to qualify for this loan. So, it was totally misinformed, but it was my job to obviously explain to him that, "Hey, son. This is just not going to happen for you, unfortunately."

               So, basically today I'm here to talk about the new PPP loan program offered by the Small Business Administration, otherwise known as SBA and the Paycheck Protection Program, or as it's called PPP. This has to do with the Second Draw. The First Draw last year, that program ended, closed out towards the end of the year. Then they restarted the program, and they call it the Second Draw. So January 6th, the Economic Aid to Hard-hit Small Businesses, Nonprofits, and Venues Act was signed into law and resulted in the new PPP guidelines. This basically provides funding up until March 31st of this year, and the Second Draw sets priorities for small business and allots $284 billion towards that effort.

               Included in that, they were talking about job retention and covering certain expenses. So the changes provide really targeted relief and simplifies the loan forgiveness process to ensure a path to recovery for small businesses so hard hit. I mean, we can all appreciate that, right? We either know someone or we ourselves are in that kind of bind that we need this help. So it's good that this program is around, and it's there to help folks. The PPP program reopened its doors for lending on January 11th, and it's open to existing and also to new borrowers. January 11th, as I mentioned before, is the beginning date for the First Draw, and January 13th is the beginning date for the Second Draw.

               January 15th is going to be open to small lenders, and in January 19th opened to large lenders. So, that's just going to give you a timeline as far as if you're looking to get money from this program, you have to be attuned to those dates. So, key updates. The loan covers any period between eight to 24 weeks by the borrower's choice, so you choose what period you want to pay to disperse those funds over. Then it covers additional costs such as rent, utilities, equipment, property damage costs, supplier costs, and worker protection.

               It's eligibility was expanded to include a 501(c)(6) entities such as business leagues, trade boards, et cetera, housing co-ops, and destination marketing organizations known as tourism boards and other types of organizations would qualify. As I said before, it's looking to help nonprofits. So, that's that. It provides greater flexibility for seasonal employees and certain existing borrowers can modify the First Draw or in other words they can refinance their first loan, and it gives them an opportunity to modify the first loan. Then existing borrowers can also be eligible for a Second Draw, certain existing borrowers, not everyone.

               Guys, here's some general eligibility requirements for the Second Draw. Number one, you must have received the First Draw, spent it, or you're going to spend in full for authorized purposes. Okay? That's important. If it's not spent for authorized purposes, you may have an issue, and your business can't have more than 300 employees. All right. You have to be able to show that your gross receipts reduced by at least 25% when you compare two quarters in 2019 and 2020. A

               And just one more tidbit for you guys. There's a huge fraud alert I have to make you aware of. I learned just recently from a former IRS revenue officer that the IRS will be auditing the PPP loans. I suppose the IRS has greater knowledge and tools and resources with respect to audit these kinds of loans, whereas the SBA may not. So I suppose that joint venture between the two agencies to audit those loans. So please be careful. Use the loan for an authorized purpose. First of all, make sure you quantify for the loan. Don't you know, trying to get a loan that you don't qualify for because it may come back and bite you in the proverbial you know what.

               So, basically for any information call your tax advisor, and if you have none, give me a call. My name is Wayne Scully, and I'm with W Scully CPA PC focused on fixing America's tax problems. Our firm specializes in tax resolution matters, and we serve clients virtually. Make an appointment by visiting ww.wscullycp.com. That's ww.wscullycpa.com, or call me toll free (855) 254-1892. Please comment, like, and share this video. Thanks guys. Talk to you soon.

 

What’s the Play for 2021?

 It’s no secret that many of my emails are about growing your money (or at least keeping more of your money), but the fact is, now we’ve all made it through 2020, it’s time to get back on track. 

What do I mean? 

Well, how many of us slowed down our investing or savings in 2020? 

Exactly. 

Now, though, with the New Year in full swing, new resolutions we’re all working on, and an economy that – while it isn’t great, it’s still showing some signs of recovery (or at least stability).

Just like a morning-after vow to never drink booze again, though, you can’t let the naysayers get you down or negatively impact your own goals. 

Seriously, what are you doing to keep growing your money and your investments? Reply to this email and let me know.

Why do I want to know?  Simple – when I see a large group of my clients and friends doing something, I like to study it and see how my own expertise can provide value for them. 

Take everyone’s “go-to” investment – real estate. 

Now, a LOT of people think about real estate investment in terms of owning single family homes and renting them out, but there are hundreds of different investment models for real estate. 

Ground leases, sale/leasebacks, fix and flips, buy and holds, 1031 Exchanges, and so on. 

The truth is, you can study real estate for a lifetime and never use all the various methods, but the sheer number of ways to make money in real estate means one thing: 

There is always something making money in real estate. 

Period. 

Even systems that may not be overly popular right now might prove to be perfect for you in your situation. 

Maybe you get a smoking deal on a fourplex in an up-and-coming section of a small city. 

Maybe you learn about a family that is just trying to walk away from a home they inherited and cannot afford the upkeep on. 

Maybe you… who knows!

The point is, real estate offers a ton of ways to make and save money, but it’s very often one that requires you to have ready access to liquidity.

That’s where I can help.  As a tax professional, I can see ways that even modest amounts of cash on hand can allow you to move in on investments, and with the traditional returns on real estate far outpacing the stock markets or mutual funds, NOW is the time to get on track and understand what kind of buying power you’ve got…

…And how to get more!

Here’s the deal:  I don’t care HOW bad 2020 was, I’m challenging you to share with me what your investment goals are for 2021 and – if you’d like to take that one step further, to schedule a time with me to discuss how you can put more money in your pocket – the idea, of course, being to be ready to capture that investment when the time comes. 

Make 2021 your year AND the year you got “back!”

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm so we can schedule a confidential consultation to explain options to permanently resolve your tax problem.  Make an appointment here!  Or, call Toll-free 1-855-254-1892.

It’s Almost Tax Time!

With the New Year, it’s time to begin to sort out taxes.

W-2s will be in the mail soon, and time is rapidly running out for you to make contributions to retirement accounts.  If, like many folks, you’re ready to go ahead and get your taxes filed, let me make a few suggestions BEFORE we sit down to file…

First things first:  remember, you have to claim ALL your income, so if 2020 saw your branching out into various “gigs” like delivery driving, maybe some “cash and carry” work, or contracting, you’re legally required to document that and pay taxes on it.  At the same time, a lot of those jobs don’t take out any taxes on your earnings.

That means you’re responsible for it. 

Now, some companies will send you a 1099 for it, but, in my experience, a lot of them conveniently “forget” to do so. 

You need to make notes on that income and make sure you have it documented before you file, because not doing so can result in a “surprise” tax bill when you least expect it. 

Next – and we already touched on this a bit – if you haven’t maxed out your retirement account contributions, you need to do that prior to filing.  This isn’t just idle talk, either.  I’ve worked with many clients on tax prep that “rounded up” their 401(k) contributions at the end of the financial year to allow them to slide into a lower tax bracket.  In one case, the amount they contributed actually saved them nearly $1,000 due to the difference in their tax bills for the year. 

Besides, you’re putting this money into your retirement accounts, so you’re really “keeping” it. 

The last thing is probably the hardest. 

You need to get all your paperwork, receipts, and documentation together.  I know, many companies and financial institutions seem to take forever to send this material out to you, but filing your taxes isn’t about speed, it’s about whether or not you’ve gotten them filed correctly. 

Eventually, the IRS catches up with mistakes, and over the years, I’ve seen taxpayers get letters discussing shortcomings years after the fact.  Accuracy counts for a lot, and the only way to be accurate is to have all the date you need.  Even worse?  In some cases, the IRS can assess penalties and make those retroactive with interest to the tax year in question. 

Who wants to get hit with a tax bill three years later for $500?

Nobody, that’s who.

There’s one other part of this whole process I see very few families doing, and I’ve never really gotten a clear reason for it. 

Teaching your kids. 

Even your fifth grader probably understands the concepts of taxes, and by taking time each year to explain and share your own knowledge about income taxes and how they work – and the consequences of not following the laws – will help your kids to develop a healthy respect for money and budgeting.  You may not feel comfortable discussing your income with them, and I understand that – but sharing with them how deductions and write-offs work allows them to learn that, while we all have to pay taxes, the IRS allows us to spend less when we take certain actions. 

A car you use for business, for example. 

Your uniform allowance, or how you can deduct childcare expenses, and so on. 

They’re not going to learn this in school, sadly, and a piece of software, while useful, can only give them so many prompts to determine their tax bills. 

When you take the time to teach them, you’re helping them to think critically and maybe even inspiring them to become better money managers as they grow up. 

This time of year, of course we’re getting busier, but I’m always here if you have questions about your own returns.  As crazy as 2020 was, I have even opened up my calendar more to be available to anyone who is really puzzled about their next steps, too.

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm so we can schedule a confidential consultation to explain options to permanently resolve your tax problem.  Make an appointment here!  Or, call Toll-free 1-855-254-1892.

Don’t Fall For The Bitcoin Gamble

 

Okay, perhaps the title to this email is a little misleading – there is a LOT of activity in the world of cryptocurrency these days … and that’s kind of the problem. 

There are hundreds of “coins” out there, and a lot of shady places to buy them.  Even worse?  With so many types, it can be nearly impossible to truly understand what you’re buying and how to track its value. 

On the other hand, with the type of growth and returns we’ve seen in the last year in cryptocurrencies, it’s certainly worth learning more about, and, even if the prices tumble in a (not unexpected) bubble bust, the fact is, it’s unlikely that Bitcoin – or many others – can lose ALL their value. 

So let’s go over a “primer” of sorts for getting involved with crypto… stuff you’ll need before you ever buy anything…

·       You’ll need to choose an exchange.  Think of an exchange as a brokerage platform that allows you to convert legal tender (U. S. dollars, for example) to cryptocurrency.  Some exchanges act more like banks while others simply offer an opportunity to buy and sell crypto.  In the United States, the most common exchanges are Coinbase, Kraken, and Gemini, and while these offer a great means to exchange coins, they are not the truly anonymous cryptocurrency exchanges many people think of when they envision Bitcoin.  Obviously, you need to choose your exchange based on your plans. 

·       With your exchange sorted out, the next step is to create a wallet and set up your payment options.  Just like your real wallet, this acts as the digital meeting point of your funds – the account(s) you’ll purchase from and the digital/crypto holdings you own.  Your wallet is linked to the exchange, and, in the case of a brokerage style exchange, this is where purchases and sales of coins will be able to be deposited.  (It’s worth noting that some of the “do it yourself” guides online wait to discuss wallets until after you set up your purchase… for obvious reasons, having your wallet set up is far smarter than waiting…)

·       With your exchange sorted, your wallet in place, and your accounts linked up, it’s time to buy … but what?  THAT’S the real challenge, isn’t it?  There are so many choices, and the best plan is really the simplest – do your research.  As of this writing, it seems like there are cryptocurrencies available based on a variety of things – from computer network payment tracking to marijuana-based coins.  What is “right” for you?  You’ll have to sort that out for yourself. 

Now, obviously, there’s more to investing in Bitcoin and cryptocurrencies than this, but there are hundreds of “how-to’s” online that can really get you far more detail. 

Cryptocurrency is going to be an important part of many people’s investments in the coming years, so adopting now is not only a great idea, it’s also a useful one for the long haul. 

Now, let me be blunt:  I’m a tax professional, not a cryptocurrency expert, so while I’m happy to help you find the funds in your budget to invest (or at least investigate) crypto, if you have some interest, let’s sit down and look at your budget to see how you can use this newer tool to round out your wealth strategy.

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm so we can schedule a confidential consultation to explain options to permanently resolve your tax problem.  Make an appointment here!  Or, call Toll-free 1-855-254-1892.

PPP Loan Forgiveness and business expenses

In recent months, there has been an ongoing national debate about the deductibility of business expenditures paid from the proceeds of a PPP loan. Why? Because the Treasury has recently announced, it will abide by the normal tax protocol on deductibility of expenditure paid out of the proceeds of a loan forgiven.

What do I mean? It is normal that a business  is not allowed to double dip and receive a tax benefit from the same item twice. For me, as a tax expert, this is typical tax logic. Allow me briefly to explain the normal logic behind this. The theory is that a particular business expenditure, or even a personal expenditure, should not be a double tax benefit associated with one item.

What happened with the Paycheck Protection Program was that small businesses - and yes, some large businesses - were given free money from taxpayers, and that the money should go primarily to payroll to keep people busy during the coronavirus pandemic, but also to pay for some other necessary expenses to keep their business afloat. Well, this was structured as a loan, but the loan was forgivable, so it was free money. Most of the time, the IRS is required to collect income tax on those forgiven debts, but the original CARES Act, which created the PPP loan program, states that the IRS will not collect taxes on the forgiven amount of the loan.

Now that they cannot levy taxes on the enacted portion, the IRS came back and said the expenses paid with the enacted loan money could not be forgiven under the doctrine of not receiving a double tax benefit because that money was provided for free. By eliminating the deductions, the IRS eliminated the double tax advantage. It is simply logical that the tax deductibility that the company would normally have for the same business expenditure should not be allowed.

For me, as a tax expert, this is only logical. I take this for granted, but I fully understand how the wider small business community has been baffled by this.

They viewed it as a double whammy. The first blow came from the drop in revenue caused by the pandemic and orders to stay home. And now they are being told they cannot deduct their normal business expenses, which will lead to a higher tax bill - what money, some asked.

I fully understand where a small business owner would come from who is arguing against this measure.

But in the Omnibus Spending Act of December 21, 2020, which included this $900 billion pandemic relief package, Congress included a legal fix that directly suspended the normal protocol and reversed the IRS announcement. What Congress has done is to include it in the statute because it did not exist before - that the legislative intent of the original CARES Act was that there would be no change in the deductibility of the corporate expenditure paid for by the free money from the PPP loan. These are therefore aimed at the massive concerns of companies, especially as we are only a few months away from the due date for their business tax returns.

Again, although the expenditure was paid for by free money from the PPP loan, there is now a NO change in the deductibility of business expenditure. So if you are a small business owner and you are worried about it, that worry is now gone. The expenses you have paid with your PPP loan money will not change the way you deduct it.

It solves this whole problem. This is a big deal for small business owners, who face potentially huge tax burdens. The expenses you have paid with your PPP loan are fully deductible as normal operating expenses, and the loan will still be forgiven.

They have also included in the law a simplified procedure for writing off loans below $150,000. They also approved a second round of loans for small businesses that observed sales drop 25 percent or more due to the pandemic.

These are issues that are unlikely to receive nearly as much mainstream media attention as some of the bill's other provisions, including extending unemployment benefits.

 

But if you are a small business owner and are afraid of a potentially higher tax burden than you might have expected because some of these business expenses are not deductible, then don't worry any more because it is clear.

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm so we can schedule a confidential consultation to explain options to permanently resolve your tax problem.  Make an appointment here!  Or, call Toll-free 1-855-254-1892.