June 2021 Tax Updates

ACA Update

On June 17, 2021, a decision was rendered by the Supreme Court in CALIFORNIA, ET AL. v. TEXAS, ET AL. The challenge to the constitutionality of the Affordable Care Act was denied, leaving the law intact.

Advance Payment of Child Tax Credit

Starting in July, the IRS will begin issuing advance payments of the temporarily expanded 2021 child tax credit. Income and age restrictions apply. The IRS has opened a portal for taxpayers to use to determine eligibility.

Required Minimum Distributions

The CARES Act offered a temporary reprieve in 2020 for taxpayers who would have otherwise been obligated to take a required minimum distribution from a retirement account. In 2021, RMDs must resume as this withdrawal suspension was not extended.

Partnership Form – Schedule K-2/K-3 

The IRS has published drafts of new reporting forms for pass-through entities. Schedules K-2 and K-3 are designed to create greater transparency to partners and shareholders with foreign activity concerning the calculation of their income tax liabilities. These forms are scheduled to be used for the 2021 tax year.

US Tax Reform Update

Tax reform continues to be a frequently discussed issue in Washington, D.C. under the Biden administration. On May 28, Treasury released the Green Book, which provides a detailed review of the tax reform proposals that have been discussed under the current Administration (The American Jobs Plan and the American Families Plan). This has been seen as a document that will be used as a starting point for discussions with Congress. This reform covers corporate/Federal tax, international tax, and individuals / flow-through entities. In general, most of the proposals would take effect for taxable years beginning after December 31, 2021; however, there are a few exceptions that will look enforce law changes retroactively (e.g., either the day in which changes were announced, the day reform is passed).  

Please reach out to a member of the Siegfried team on any questions as it relates to the above.

April 15 Deadline Reminder

Although the IRS and many state and local jurisdictions have extended the 2020 Individual tax filing deadline to May 17, 2021, there are a handful of tax filings and payments that still adhere to the original April 15th deadline.

The tax filings that are still due this Thursday include corporation, gift, and trust filings as well as 1st quarter 2021 estimated tax payments. As with typical tax years, extension requests can be submitted to extend the due dates of corporate, gift and trust tax filings. 1st quarter estimated payments should be made, if required, by April 15th.

For current clients: 

As we have transitioned most tax deliverables to the Client Axcess Portal, please ensure that you have reviewed the “Filing Instructions” for any documents that have been added to your portal. These files contain all relevant information for tax payments or filings that should be submitted by April 15th.

Your online portal can be accessed here.

Feel free to reach out directly to your Siegfried Advisory contact if you have any questions on the above information. Thank you!

Corporate tax proposals outlined in Biden’s proposed infrastructure plan

Yesterday President Biden released details on an infrastructure plan known as the American Jobs Plan. As part of this, the Made in America Tax Plan was also released; this is designed to fund a significant portion of the infrastructure initiatives. Tax reform contained in this release focuses only on corporate measures (although Biden has committed to individual reform measures as well, just will likely be under a separate initiative in the coming weeks).  Effective dates are still to be determined and may vary from provision to provision.

The headline in this proposal is the increase in the corporate tax rate from 21% to 28% with enforcement of a “minimum” tax for local country operations. There are some specifics of how this will be implemented/calculated that have not been developed yet. This proposal also calls for the elimination of the FDII deduction and other industry-specific provisions that exist today. To ensure enforcement and revenue collection, the Made in America Tax Plan does include a proposal for increased IRS funding to assist with compliance review and audit enforcement.  The aforementioned provisions will likely have a broad impact on how US multinationals best structure their US and global operations.

Given the impact these proposals will have on recently-enacted TCJA provisions, it is not anticipated that there will be widespread Republican support, so the timing is still uncertain.

Current Economic Outlook

2021 Economic expectations and developments:

As we progress into this year, we expect strong growth from 2021 driven by an economic reversion to norms (recovery) contingent on the control of the virus and roll out of the vaccine. Unemployment rates may remain higher than pre-Covid levels as some businesses continue to struggle, emerging from the pandemic and as people remain fearful, potentially curbing overall economic demand.

We expect to see a large push to green energy as countries and consumer vehicle producers make pledges to phase out the consumption of fossil fuel in addition to a renewed focus on climate change, as signaled by the United States re-joining the Paris Accords.

Major areas to look at are interest rates and bond yields. In 2020 we saw a steep decline in both making raising capital using debt much more attractive, and conversely, making capital investments in debt instruments much less attractive. This could be seen by the large rotation into the equity markets which helped fuel the recovery after the large decline in March and April. But in 2021, we have seen an increase in treasury yields. This increase in treasury yields makes investing in debt markets/instruments more attractive and equity markets less attractive. This could be observed by the equity market’s reaction, where it declined as the yields increased.

See Congressional Budget Office’s report from February 2021 here.

Important Tax Updates – February/March 2021

Treasury, IRS Extend Upcoming Filing and Payment Deadline 

The Treasury Department and Internal Revenue Service announced Wednesday, March 17 that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. Information on state congruence and information on quarterly filings pending.

American Rescue Plan Act Enacted

On 3/11/21, President Biden signed the American Rescue Plan Act of 2021 (P.L. 117-2), which provides for $1.9 trillion in relief funds. This Act has various components that will impact tax profiles, including the expansion of some personal credits and unemployment exclusions, stimulus checks for eligible taxpayers, the extension of increased unemployment benefits, and additional funds allocated to the Paycheck Protection Program.

Biden Discusses Tax Increases for Certain Individuals and Businesses

As a follow-up to the recently approved COVID-related relief bill, the Biden administration is beginning talks around tax law changes. For individuals, the Biden administration has discussed raising the tax rate for the highest earners (those above $400,000) to 39.6%, taxing capital gains like ordinary income if taxpayers earn more than $1,000,000, and increasing estate tax rates to 45% for assets worth $1,000,000. For businesses, the most significant proposal would raise the corporate tax rate to 28%. There have also been discussions around changing the way that pass-through entities are treated (i.e., not respected as LLCs or partnerships).

Upcoming Tax Deadline News

Some House Ways & Means members have asked the IRS to extend the tax filing deadline as the COVID-19 pandemic continues to pressure on taxpayers and IRS processing; at a virtual tax conference earlier this week, the IRS Commission again said that the IRS has no plans to extend the tax return filing deadline beyond April 15, 2021. We will continue to update as news develops around this topic.

Payroll Tax Deferral

The Internal Revenue Service today released Notice 2021-11 addressing how employers who elected to defer certain employees’ taxes can withhold and pay the deferred taxes throughout 2021 instead of just the first four months of the year. See overview  and notice.

The Government Accountability Office (“GAO”) Foresees Potential Problems for IRS During Current Filing Season

GAO was asked to review IRS’s performance during the 2020 filing season. This report (1) describes the changes IRS made to operations and services for the 2020 filing season due to the COVID-19 pandemic; (2) assesses IRS’s performance on providing customer service and processing individual and business income tax returns during the 2020 filing season and compare to prior filing seasons, where appropriate; and (3) evaluates IRS’s plans to prepare for the 2021 filing season.

New Information on Filing Form 1040-X

The IRS has released the 2020 revision of Form 1040-X (Amended U.S. Individual Income Tax Return) and associated instructions. The revision contains new information about e-filing and mailing the form. E-filing is available for amending 2019 and 2020 returns that were originally e-filed; an amended return for tax year 2019 or 2020 also can be filed on paper. Instructions for mailing and correct addresses can be found in the Form 1040-X instructions. If a taxpayer is amending a return in response to an IRS notice, the return should be mailed to the address in the notice and FAQs.

Administration Releases 2021 Trade Policy Agenda

US Trade Representative released its 2021 Trade Policy Agenda  outlining the new Administration’s plans for trade policy in the year ahead. The Trade Policy Agenda lays out a focus on expanding the domestic economy and dealing with the economic impacts of COVID-19; it does not call for a conclusion of any of the outstanding trade agreements.

Pennsylvania 2021 SUI tax rate factors and taxable wage base to remain the same
In the calendar year 2021 employer state unemployment insurance (SUI) experience tax rates continue to range from 1.2905% to 9.9333%. The new employer rate remains at 3.6890% for non-construction employers and 10.2238% for construction employers. (Pennsylvania Department of Labor & Industry, Office of Unemployment Compensation website.)

Update: PA Decennial Report

On January 15, 2021, the state of Pennsylvania issued postcard alerts giving notice to businesses regarding the upcoming filing requirements for the PA Decennial report. This report confirms the continued existence of entities registered in the state of Pennsylvania and  is required every ten years. Failure to file a decennial report between January 1st and  December 31st, 2021 could result in forfeiture of exclusive use of the organization’s business name in the state of Pennsylvania. Filing procedures and details on who must file can be found here:

https://www.dos.pa.gov/BusinessCharities/Business/Resources/Pages/Decennial-Filing.aspx

We are happy to work with you to complete your PA Decennial filing. Feel free to reach out to us directly should you need further assistance.

Tax Legislative Highlights, January 2021

Online Power of Attorney (“POA”)

The IRS has announced that POA (Form 2848) and Tax Information Authorization (Form 8821) forms may be submitted online, easing burdens on taxpayers in a more virtual world.  See here for details and  here for FAQs.

Form 1065 Updates, Including Schedule K-1 (Form instructions here)

  • Tax Basis Partner Capital Accounts – Required for 2020 and going forward; IRS has allowed penalty relief for 2020 beginning balance calculation as long as reasonable consideration is used.
  • Business Interest Expense – For tax years beginning after 11/12/20, a new loss class for business interest expense has been established; for 2021 returns and forward, all partnerships are required to report business interest.
  • Gross Receipts – For 2021 tax returns, required to report gross receipts on K-1s if over $5mm; for 2022 returns and forward, partnerships must report gross receipts for the current year and the three immediately preceding tax years if greater than $5mm.

SE Tax Deferral

A draft SE schedule was released (instructions here) that includes the calculation of the SE tax deferral. As a result of the CARES Act, individuals can defer payment of 50% of the SS tax between 3/27/20 and 12/31/20.

Selected State Guidance on Remote Employees

Some states have issued guidance on whether or not telecommuting employees working in a state due to the impact of COVID-19 create nexus for an employer who does not operate in that state. This should be reviewed on a state-by-state basis as a developing area of guidance. DE has not yet issued specified guidance; PA initial guidance can be found here.

Extended Qualified Opportunity Zone (“QOZ”) Investing Deadline

In Notice 2021-10, the IRS provided additional extensions related to QOZs and Qualified Opportunity Funds (“QOFs”). These extensions relate to timing of investments into QOFs, relaxation of the prior 90% requirements, and the working capital safe harbor period. All extensions are automatic; however, required forms are to be filed.

Draft of 2021 Employer’s Tax Guide to Fringe Benefits Released

Two publications have been released that contain information for employers regarding the employment tax treatment of fringe benefits.

Publication 1

Publication 2

Employer Retention Credit Extended

The employee retention tax credit is a large-scale refundable tax credit instituted by the CARES Act and designed to encourage employers to retain staff.  If, due to COVID-19, an employer’s gross receipts were reduced by more than 50%, or operations were suspended in whole or in part, they may be eligible for this credit. The credit is 50% of a maximum of $10,000 in wages paid per employee, subject to other limitations; more information can be found here.

Report of Foreign Bank and Financial Accounts (“FBAR”) Filing Requirement for Virtual Currency

Generally, a U.S. person who has a financial interest in any foreign financial accounts located in a foreign country must file an FBAR if the value of those foreign accounts exceeds $10,000. Currently, regulations do not define virtual currency as a type of “reportable account.” However, authorities intend to propose to amend regulations to include this as a type of reportable account. More info here.

We will also continue to track proposed and enacted tax law changes as it relates to the new Administration, as well as discuss related compliance deadlines and planning opportunities.

The above list highlights select updates and is not intended to be comprehensive or individualized advice; please reach out to your Siegfried Advisory Relationship Coordinator if you would like to discuss the above items or any other updates.

Regards,

The Siegfried Advisory Team

Paycheck Protection Program (PPP) Updates

The Small Business Administration (SBA) has released borrower loan applications for the second round of PPP funding. The application window opened Monday (1/11) for community financial institutions that serve minority- and women-owned businesses. The SBA has said it will open the application process to all lenders in “a few days”. That date is still TBD as of the writing of this message.

This second round of funding will be open to first time applicants for a maximum loan amount of $10 million. The loan amount may be up to 2.5 times your businesses average payroll, similar to calculation for the first round of funding.

For those businesses that have received a loan previously, you are eligible to receive another one up to $2 million if you meet certain requirements. A business will be eligible if it has 300 or fewer employees, has used or will use the full amount of the previous loan, and can show at least a 25% gross revenue decline for any 2020 quarter compared to the same one from 2019 (i.e. Q2 2020 gross revenue is 25% lower than Q2 2019).

If you have any questions or would like help through the calculation and/or application process, please reach out to your Siegfried Advisory Relationship Coordinator.

Quickly Approaching Tax Deadlines Reminder

There are two important tax deadlines over the next three weeks! Please see below for more information.

Q4-2020 Estimated Payments Due January 15th, 2021

The final payment for 2020 estimated taxes is due this Friday, January 15th.   If you required additional tax planning, or need a revised copy of your vouchers or online payment instructions, please contact your Siegfried Advisory Relationship Coordinator.

2020 1099s are due to the IRS February 1st, 2021

The Siegfried Advisory team is ready and willing to assist with your business’ Form 1099 preparation.  If you would like 1099s prepared and have not yet heard from a Siegfried Advisory team member, please reach out to your SA Relationship Coordinator.

Consolidated Appropriations Act, 2021

As the Consolidated Appropriations Act, 2021 (CAA, 2021 or the Act), the appropriations bill that includes emergency Covid-19 response and relief, has now been signed into law, we want to share a few relevant updates.

Paycheck Protection Program (PPP)

Business expenses paid with Payroll Protection Program (PPP) loans that will be forgiven are now fully tax-deductible. Additionally, forgiveness will not be considered taxable income.

There is also now a simplified forgiveness application process for loans up to $150,000. All that is needed is a one-page certification submitted to your lender including the number of employees that were retained because of the program, estimated total amount spent on payroll, and total loan amount.

Finally, even if you had received a loan previously, you may be eligible to receive another one up to $2 million if you meet certain requirements. A business may be eligible if it has 300 or fewer employees, has used or will use the full amount of the previous loan, and can show 25% gross revenue decline for any 2020 quarter compared to the same one from 2019 (i.e. Q2 2020 gross revenue is 28% lower than Q2 2019).

Charitable Contributions

The Act provides guidance for both 2020 and 2021 in regards to charitable contributions for individuals who use either the standard deduction or itemize.

Non-itemizers who plan to take the standard deduction will qualify for a $300 ($600 if married filing jointly) “above-the-line” deduction for these two tax years for cash contributions made to qualified charities.

Those who itemize their deductions have previously been limited to a deduction on cash contributions made to 50% charities of 60% of their contribution base. However, for these two tax years, this 60% limit will not apply.

Meals & Entertainment

CAA, 2021 provides a break for business expenses related to meals and entertainment. While there has generally been a 50% tax-deductible limit on some of these expenses, that will not apply for expenses for food and beverages provided by a restaurant between 12/31/2020 and 01/01/2023. Essentially, 100% of these expenses will be deductible for tax years 2021 and 2022 for calendar-year filers.

Please reach out to your Siegfried Advisory Relationship Coordinator if you would like to discuss these or any other updates.

Best Regards,

The Siegfried Advisory Team