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.

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.

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.

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

What could the new tax legislation mean for you?

The House recently passed the Tax Cuts and Jobs Act, and on November 28, the Senate budget committee passed their version of the bill.

Now, the two Chambers will need to reconcile any differences to produce one version. Legislation of this magnitude has not been seen in more than 30 years, and there is pressure to put a bill on the President’s desk before the Christmas holiday.

The entire team at Siegfried Advisory is closely monitoring the progression of this tax legislation so we can help our clients determine the impact and plan for the future.

Based on current information, we anticipate most legislation will apply to the 2018 tax year; however, some items may be retroactive to 2017. We’ve put together a summary document to share some of the developments, which are all subject to change.

Read more about proposed tax legislation