Enterprise Consultants Group remains open during the COVID-19 pandemic to assist taxpayers all across the country. Our Tax Attorneys and professionals will work with you over the phone and online to resolve your IRS and State tax issues.

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Divorcing your spouse can be a complex undertaking and involves more than simply splitting up jointly owned bank accounts and properties. It also means ensuring that your taxes are completed and filed properly. A number of issues can pop up while completing taxes in the middle of a divorce, some of which may require you to file tax return(s) with your soon to be ex-spouse. In other cases, a change of marital status can result in having to file taxes quite differently than you are used to, leading to the high probability of making a mistake.

Filing Tax Returns Jointly

According to current IRS regulations, two spouses who are in the middle of a divorce, yet not officially divorced at the end of the tax year can file a joint tax return. Even if both individuals are no longer residing in the same location, as long as they are still legally married and no official divorce decree has been approved by the courts, that joint return is valid.

Business expenses are tax-deductible, or at least they usually are. The Internal Revenue Code (IRC) does not allow the deduction of some business-related expenditures. The Uniform Capitalization (UNICAP) rules, for example, require businesses to capitalize certain expenses, or include them in inventory costs. This can present disadvantages in terms of tax liability. The IRC makes an exception for farm businesses, although this may come with additional rules regarding depreciation that may have their own disadvantages. The Tax Cuts and Jobs Act (TCJA) of 2017 amended the IRC to allow other businesses to opt out of the UNICAP rules, but without being subject to the special depreciation rules. In early 2020, the IRS released guidance on how farming businesses can use the new exemption provided by the TCJA.

What Are the Uniform Capitalization Rules?

Under § 263A of the IRC, certain expenses must be capitalized or treated as inventory costs. The UNICAP rules apply to direct and indirect costs associated with real or personal property that is “produced by the taxpayer,” or that is acquired as a capital asset for the purpose of resale. These rules are significant in capital-intensive businesses like real estate. Direct costs include materials and labor directly involved in development or construction. Indirect costs arise from similar activities that benefit a property.

How Do the UNICAP Rules Apply to Farmers?

Section 263A(d)(1) exempts farmers from the UNICAP rules altogether for livestock and plants with “a preproductive period of 2 years or less.” The IRS periodically publishes a list of plants that fit this description. The most recent list, published in 2013, includes apples, coffee beans, grapes, lemons, olives, oranges, and walnuts.

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Having help around the house can be an enormous benefit for families that are overwhelmed with work, parenting, and other obligations. Hiring a household employee, however, can affect your taxes, so it is important to know what you are getting yourself into.

What Is a “Household Employee”?

The IRS uses a two-part definition of “household employee”: the job must involve domestic services, and the person must be an employee rather than an independent contractor.

Domestic Services

The term “domestic services” includes any work typically done in or around the home, including:
– House cleaning;
– Cooking;
– Child care;
– Gardening or groundskeeping; and
– In-home nursing care.

One might be tempted to think of a large, exceedingly-wealthy household like the one depicted in the television show Downton Abbey. Many households in the U.S. employ one or two household employees, such as a housekeeper and a nanny.

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Federal tax law provides favorable tax treatment for various “qualified” retirement plans by deferring income tax on contributions made by workers. The Internal Revenue Code (IRC) limits the annual amount that workers can contribute to qualified plans. Executives at large corporations have another option for retirement savings that allows them to make far greater contributions thanks to loopholes in the IRC. A bill introduced in the U.S. Senate earlier this year, the CEO and Worker Pension Fairness Act (CWPFA), would close these loopholes, resulting in higher taxes for executives.

What Is an Executive Retirement Plan?

The term “executive retirement plan” refers to certain deferred compensation plans that are not “qualified” under the IRC. They are not eligible for deferred taxation in the same way as qualified plans like individual retirement accounts (IRAs) or 401(k) plans, but large corporations have found ways to take advantage of tax deferrals.

Workers with qualified retirement accounts have an annual limit on contributions. Tax deferrals on contributions to 401(k) plans, for example, are limited to $19,500 per year. Some executive retirement plans, however, may allow unlimited contributions. A report by the Government Accountability Office (GAO), entitled Private Pensions: IRS and DOL Should Strengthen Oversight of Executive Retirement Plans, found that 2,300 corporate executives maintain around $13 billion in this type of account. Many of them contribute to these accounts after they reach their annual limit on qualified plan contributions.

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Many — perhaps most — businesses in the U.S. may anticipate substantially lower revenues during 2020 than in previous years because of the COVID-19 pandemic, and many may have losses this year. Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March in order to provide stimuli to the economy, including loans, grants, tax credits, and other benefits. One section of the CARES Act makes changes to the provisions of the Internal Revenue Code (IRC) that deal with deductions of net operating losses (NOLs). The 2017 tax reform bill eliminated most NOL carrybacks, meaning that businesses could no longer deduct current losses from taxes paid in prior years. The CARES Act temporarily reinstates carryback loss deductions, potentially allowing businesses to claim refunds against taxes paid during the past several years.

What Is a Net Operating Loss?

A business has a NOL when its total allowable deductions is greater than its taxable income during a year. Obviously, if a business’ deductions are equal to their income during a tax year, their tax liability would be zero. The IRC allows businesses to use excess NOL amounts from prior years to lower their tax bills in other years. Without those provisions, any deductions that exceed total income would be lost at the end of the year.

How Are Net Operating Losses Deductible?

Prior to 2018, businesses could carry NOLs both forward and back, subject to limitations. A loss carryforward allows a business to reduce its tax bill in the future. Suppose a company has taxable income of $2 million during a particular year, and allowable deductions of $2.5 million during the same year. It would owe nothing in federal income tax, and would have a NOL of $500,000. The following year, suppose it has taxable income of $2.7 million, and $2.5 million in deductible expenses. The business can carry $200,000 of its NOL forward, reducing its net income for the year to zero. It can apply the remaining $300,000 in subsequent years.

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Congress established multiple programs to assist individuals, families, businesses, medical providers, and others in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Paycheck Protection Program (PPP) provides loans to small businesses to cover certain operating expenses. The portion of a PPP loan used to pay covered expenses is fully forgivable, with no resulting tax liability. This created uncertainty, however, with regard to whether those same expenses are considered tax-deductible. IRS Notice 2020-32 resolves this uncertainty. Businesses receiving PPP loan forgiveness may not deduct expenses covered by this provision of the CARES Act, and if a business claims those expenses as deductions, they may not be eligible for loan forgiveness.

What Is a PPP Loan?

The PPP appears near the beginning of the CARES Act, in § 1102. The program provides loans to small businesses to cover payroll expenses, rent and mortgage payments, utilities, and other costs needed to keep the business running for the period from February 15 to June 30, 2020. The primary purpose of these loans, as indicated by the name of the program, is to enable businesses affected by the COVID-19 pandemic to keep their employees paid.

When Can a PPP Loan Be Forgiven?

Under § 1106(b) of the CARES Act, businesses may obtain forgiveness of all or a portion of the loan. The forgivable amount is equal to the total spent during the “covered period,” an eight-week period beginning on the loan origination date, for expenses directly related to payroll, rent, utilities, and mortgage payments. The forgivable amount is reduced if the business lays off employees or cuts wages.

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Almost anyone who has started a new job in the U.S. has filled out Form W-4, which tells employers how much money to withhold from paychecks for federal income tax. At the end of 2019, the IRS made significant changes to the form. While the revised form calls for more information from employees, it presents it in a way that may prove easier to understand and fill out. Here is what employees and employers should know about the new Form W-4.

What Is Form W-4?

“Withholding” generally refers to amounts deducted from employees’ gross wages for federal income tax. The amount of tax an employee will owe depends on multiple factors, including whether the employee will file singly or jointly, the number — if any — of dependents they have, and the amount of deductions they anticipate having. Employees use Form W-4 to notify the employer how much withholding to take from their paychecks.

What Is Different About the New W-4 Design?

If one were to compare the layout of the 2020 W-4 to the 2019 form, the first difference they might notice is the simpler layout of the new form. Instead of instructions packed tightly onto the first page in a tiny font, the new form begins with the fields that employees must complete. The instructions begin on the second page.

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The Paycheck Protection Program (PPP), part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, provides loans to eligible businesses to cover payroll and certain other expenses. The U.S. Small Business Administration (SBA) guarantees the loans, and a portion of each loan is forgivable. While the CARES Act specifies that forgiven loan amounts are not included in a business’ taxable income, it does not address whether the expenses paid by the forgiven loan are tax-deductible. The IRS has announced that businesses receiving PPP loan forgiveness cannot deduct these expenses.

What is the Paycheck Protection Program?

Section 1102(a) of the CARES Act amends § 7(a) of the Small Business (SB) Act, codified at 15 U.S.C. § 636(a), to establish the PPP. Eligible businesses may receive loans of up to $10 million from the SBA. The purpose of these loans is to allow businesses to maintain workers on payroll and cover other expenses from February 15 to June 30, 2020. The CARES Act caps interest rates for these loans at four percent, and defers all payments for six months to one year.

What Expenses Can Businesses Pay with PPP Loans?

The SB Act, as amended, defines “allowable uses of covered loans” to include:
– Payroll expenses, salaries, commissions, and other compensation to employees;
– Continuation of employee benefits;
– Rent and utilities; and
– Interest on mortgages and other debt incurred prior to February 15, 2020.

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Businesses across the country are struggling because of the economic downturn associated with the coronavirus pandemic. Congress has provided a variety of economic stimuli, including the Employee Retention Credit (ERC). This is a payroll tax credit found in § 2301 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act is the largest stimulus package in the nation’s history, providing around $2 trillion in direct payments, loans, grants, and tax credits.

What Is the Employee Retention Credit?

The ERC is a fully-refundable payroll tax credit that gives businesses affected by the pandemic an incentive to keep employees on their payroll. The credit applies to the employer’s share of the Social Security portion of payroll taxes under the Federal Insurance Contributions Act (FICA).

What Businesses Are Eligible for the Employee Retention Credit?

The ERC is available to most businesses that meet the CARES Act’s criteria regarding economic impact from the coronavirus.
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