Scott Gottlieb CPA P.C.

Dear Client:
At the end of 2020, Congress passed, and President Trump signed, a new law that provides for additional relief related to the coronavirus (COVID-19) pandemic. This law, the Consolidated Appropriations Act, 2021 (CAA, 2021), includes a second draw of Paycheck Protection Program (PPP) loans (PPP Second Draw Loans). It also allows businesses to deduct ordinary and necessary expenses paid from the proceeds of PPP loans.
Background. In March 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted. The CARES Act authorizes the Small Business Administration (SBA) to make loans to qualified businesses under certain circumstances. The provision established the PPP, which provided up to 24 weeks of cash-flow assistance through 100% federally guaranteed loans to eligible recipients to maintain payroll during the COVID-19 pandemic and to cover certain other expenses. The Paycheck Protection Program Flexibility (PPPF) Act made substantial changes to the PPP, including decreasing the percentage that loan proceeds must be used on payroll costs from 75% to 60%, thereby increasing the percentage that may be used for nonpayroll costs such as rent, mortgage interest and utilities from 25% to 40%. Additionally, the PPPF Act permits borrowers to defer payments of principal, interest, and fees to 10 months after the last day of the covered period (the earlier of 24 weeks or December 31, 2020). The application period closed on August 8, 2020. The SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders on October 2, 2020.
Paycheck Protection Program Second Draw Loans. The CAA, 2021 permits certain smaller businesses who received a PPP loan and experienced a 25% reduction in gross receipts to take a PPP Second Draw Loan of up to $2 million.
Eligible entities. Prior PPP borrowers must meet the following conditions to be eligible for the PPP Second Draw Loans:
Employ no more than 300 employees per physical location;
Have used or will use the full amount of their first PPP loan; and
Demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter. Applications submitted on or after Jan. 1, 2021 are eligible to utilize the gross receipts from the fourth quarter of 2020.
Eligible entities include for-profit businesses, certain non-profit organizations, housing cooperatives, veterans' organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.
Loan terms. Borrowers may receive a PPP Second Draw Loan of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or the calendar year. However, borrowers in the hospitality or food services industries (NAICS code 72) may receive PPP Second Draw Loans of up to 3.5 times average monthly payroll costs. Only a single PPP Second Draw Loan is permitted to an eligible entity.
Gross receipts and simplified certification of revenue test. PPP Second Draw Loans of no more than $150,000 may submit a certification, on or before the date the loan forgiveness application is submitted, attesting that the eligible entity meets the applicable revenue loss requirement. Non-profits and veterans' organizations may use gross receipts to calculate their revenue loss standard.
Loan forgiveness. Like the first PPP loan, the PPP Second Draw Loan may be forgiven for payroll costs of up to 60% (with some exceptions) and nonpayroll costs such as such as rent, mortgage interest and utilities of 40%. Forgiveness of the loans is not included in income as cancellation of indebtedness income.
Application of exemption based on employee availability. The CAA, 2021 extends current safe harbors on restoring full-time employees and salaries and wages. Specifically, it applies the rule of reducing loan forgiveness for the borrower reducing the number of employees retained and reducing employees' salaries in excess of 25%.
Deductibility of expenses paid by PPP loans. The CARES Act was silent on whether expenses paid with the proceeds of PPP loans could be deducted. IRS took the position that these expenses were nondeductible. The CAA, 2021 provides that expenses paid both from the proceeds of loans under the original PPP and PPP Second Draw Loans are deductible.
Please contact our office with any further questions you might have on PPP loan forgiveness.
Very sincerely yours,

How Democrats misled the nation about Trump’s tax cuts
By Post Editorial Board April 21, 2019 | 9:09pm
Gov. Andrew Cuomo
Gov. Andrew Cuomo Newsday via Getty Images
Say this for Democrats: They can be very effective — at least, when it comes to misleading Americans on taxes. That’s clear from the wide gap between the number of people who got tax cuts last year and the far smaller number who think they did.

As even The New York Times (yes, the anti-Trump Times) noted, Tax Policy Center figures show 65 percent of taxpayers got tax cuts last year, thanks to the 2017 Trump tax reforms; just 6 percent had to pay more.

Yet in early April, SurveyMonkey found only 40 percent of Americans believed they saw savings, and only 20 percent felt sure they had. An NBC/Wall Street Journal poll last month found even fewer, just 17 percent, thought their families would pay less.

Why are so many people under the wrong impression about their own taxes? As the Times put it, the gap “appears to flow from a sustained — and misleading — effort by liberal opponents of the law to brand [Trump’s tax reform] as a broad middle-class tax increase.” Give the paper credit for honesty.

Fact is, “Democrats did a very good job” at convincing people they wouldn’t benefit, the Tax Policy Center’s Howard Gleckman observed. “The reality has been unable to break that perception.”

Here in New York, as E.J. McMahon noted on these pages recently, Gov. Andrew Cuomo never stopped railing about the Trump tax cuts. He called them “an all-out direct attack on New York’s future,” suggesting they would effectively raise levies on middle-class families by as much as 25 percent.




TOP ARTICLES
2/5
Albany Dems are slapping minority kids
by not lifting the charter cap

Turns out “the vast majority” of New Yorkers actually “paid lower taxes in 2018 then they would have under the previous federal law,” wrote McMahon. Even Cuomo himself paid less: just $39,138 on his $211,289 income (18.5 percent), versus $41,765 on his slightly higher $212,776 income (19.6 percent) in 2017.

Add in the fact that the economy is strong — the job market’s hotter than it has been in years — and it’s hard to understate the benefits of the reforms passed by Republicans and signed by Trump.

Republicans just need to figure out how to overcome the deceitful messaging by the other side.

PREVIOUSLY RELEASED 2018 RETIREMENT PLAN LIMITATIONS UNCHANGED BY TAX REFORM ACT

IR 2018-19

IRS has stated that the Tax Cut and Jobs Act (PL 115-97, 12/22/17) did not affect the 2018 tax year dollar limitations for retirement plans previously announced by IRS in late 2017.
New guidance. In IR 2018-19, IRS indicated that the recently enacted Tax Cut and Jobs Act made no changes to the section of the tax law limiting benefits and contributions for retirement plans. Accordingly, the qualified retirement plan limitations for tax year 2018 previously announced in IR 2017-177, and detailed in Notice 2017-64, 2017-45 IRB 486 (see below), remain unchanged.
In IR 2018-19, IRS also noted that the tax law specifies that contribution limits for IRAs, as well as the income thresholds related to IRAs and the Code Sec. 25B saver's credit, are to be adjusted for changes in the cost of living using procedures that are used to make cost-of-living adjustments that apply to many of the basic income tax parameters. However, although the Tax Cut and Jobs Act made changes to how these cost of living adjustments are computed, after taking the applicable rounding rules into account, the amounts for 2018 previously announced in the news release and the notice remain unchanged.
The following plan limits are in effect for 2018:

Elective deferrals. The Code Sec. 402(g)(1) limit on the exclusion for elective deferrals described in Code Sec. 402(g)(3) is $18,500. This limitation affects elective deferrals to Code Sec. 401(k) plans, Code Sec. 403(b) plans, and the Federal Government's Thrift Savings Plan.
Defined contribution plans. The limit on the annual additions to a participant's defined contribution account under Code Sec. 415(c)(1)(A) is $55,000.
Defined benefit plans. The limitation on the annual benefit under a defined benefit plan under Code Sec. 415(b)(1)(A) is $220,000. For participants who separated from service before Jan. 1, 2018, the 100% of average high-three-years' compensation under Code Sec. 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2017, by 1.0197.
RIA observation: This figure was originally reported in Notice 207-64 as 1.0196. However, IRS subsequently issued a revised version that adjusted the figure to 1.0197 (see Weekly Alert ¶ 2 11/02/2017).
Annual compensation limit. The maximum amount of annual compensation that can be taken into account for various qualified plan purposes, including Code Sec. 401(a)(17), Code Sec. 404(l), Code Sec. 408(k)(3)(C), and Code Sec. 408(k)(6)(D)(ii), is $275,000.
ESOP 5-year distribution period. The dollar amount under Code Sec. 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan (ESOP) subject to a 5-year distribution period is $1,105,000, while the dollar amount used to determine the lengthening of the five-year distribution period is $220,000.
Government plans subject to the grandfather rule. The annual compensation limitation under Code Sec. 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, '93 allowed COLAs to the plan's compensation limit under Code Sec. 401(a)(17) to be taken into account, is $405,000.
Government, etc. deferred compensation plans. The limit on deferrals under Code Sec. 457(e)(15), concerning deferred compensation plans of state and local governments and tax-exempt organizations, is $18,500.
Gratuitous transfers of employer securities. The limitation under Code Sec. 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan is $50,000.
Control employee. The employee compensation amount used in the definition of "control employee" for purposes of the auto commuting rule of Reg. § 1.61-21(f)(5)(i) is $110,000. And, the compensation amount under Reg. § 1.61-21(f)(5)(iii) is $220,000.
Premiums on longevity annuity contracts. The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Reg. § 1.401(a)(9)-6, Q&A-17(b)(2)(i), is $130,000.
Systemically important plan. The threshold used to determine whether a multi-employer plan is a systemically important plan under Code Sec. 432(e)(9)(H)(v)(III)(aa) is $1,087,000,000.
Highly compensated employee. The dollar limit used in defining a highly compensated employee under Code Sec. 414(q)(1)(B) is $120,000.
Key employee in top-heavy plan. The dollar limit under Code Sec. 416(i)(1)(A)(i) relating to the definition of a key employee in a top-heavy plan is $175,000.
Catch-up contributions. The dollar limit under Code Sec. 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Code Sec. 401(k)(11) (SIMPLE 401(k) plan) or Code Sec. 408(p) (SIMPLE IRA) for individuals aged 50 or over is $6,000. The dollar limit under Code Sec. 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Code Sec. 401(k)(11) or Code Sec. 408(p) for individuals aged 50 or over is $3,000.
Simplified employee pensions (SEPs). The compensation limit under Code Sec. 408(k)(2)(C) (amount of compensation above which an employee who meets other requirements must be able to participate in the employer's SEP plan) is $600.
SIMPLE accounts. The maximum amount of compensation an employee may elect to defer under Code Sec. 408(p)(2)(E) for a SIMPLE plan is $12,500.
Limits for making deductible contributions by active plan participants to traditional IRAs. In general, an individual who isn't an active participant in certain employer-sponsored retirement plans, and whose spouse isn't an active participant, may make an annual deductible cash contribution to an IRA up to the lesser of:

An inflation-adjusted statutory dollar limit, or
100% of the compensation that's includible in his gross income for that year.
For 2018, the statutory dollar limit is $5,500, plus an additional $1,000 for those age 50 or older. If the individual (or his spouse) is an active plan participant, the deduction phases out over a specified dollar range of modified adjusted gross income (MAGI).

For taxpayers filing joint returns, the otherwise allowable deductible contribution phases out ratably for MAGI between $101,000 and $121,000.
For single taxpayers and heads of household, the otherwise allowable deductible contribution phases out ratably for MAGI between $63,000 and $73,000. For married taxpayers filing separate returns, the otherwise allowable deductible contribution phases out ratably for MAGI between $0 and $10,000.
For a married taxpayer who is not an active plan participant but whose spouse is such a participant, the otherwise allowable deductible contribution phases out ratably for MAGI between $189,000 and $199,000.
Limits for making contributions to Roth IRAs. Individuals may make nondeductible contributions to a Roth IRA, subject to the overall limit on IRA contributions. The maximum annual contribution that can be made to a Roth IRA is phased out for taxpayers with MAGI over certain levels for the tax year. For taxpayers filing joint returns, the otherwise allowable contributions to a Roth IRA phases out ratably for 2018 for MAGI between $189,000 and $199,000. For single taxpayers and heads of household, it phases out ratably for MAGI between $120,000 and $135,000. For married taxpayers filing separate returns, the otherwise allowable contribution phases out ratably for MAGI between $0 and $10,000.
Saver's credit. For tax years beginning in 2018, an eligible lower-income taxpayer can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10%, depending on filing status and AGI) of up to $2,000 of his qualified retirement savings contributions, as follows:

Joint filers: $0 to $38,000, 50%; $38,000 to $41,000, 20%; and $41,000 to $63,000, 10% (no credit if AGI is above $63,000).
Heads of households: $0 to $28,500, 50%; $28,500 to $30,750, 20%; and $30,750 to $47,250, 10% (no credit if AGI is above $47,250).
All other filers: $0 to $19,000, 50%; $19,000 to $20,500, 20%; and $20,500 to $31,500, 10% (no credit if AGI is above $31,500)

Dear client:
Under the current rules, an individual who pays alimony or separate maintenance may deduct an amount equal to the alimony or separate maintenance payments paid during the year as an "above-the-line" deduction. (An "above-the-line" deduction, i.e., a deduction that a taxpayer need not itemize deductions to claim, is generally more valuable for the taxpayer than an itemized deduction.) And, under current rules, alimony and separate maintenance payments are taxable to the recipient spouse (includible in that spouse's gross income).
However, new rules are coming soon. Under the Tax Cuts and Jobs Act rules, there is no deduction for alimony for the payer. Furthermore, alimony is not gross income to the recipient. So for divorces and legal separations that are executed (i.e., that come into legal existence due to a court order) after 2018, the alimony-paying spouse won't be able to deduct the payments, and the alimony-receiving spouse won't include them in gross income or pay federal income tax on them.
These new rules don't apply to existing divorces and separations. It's important to emphasize that the current rules continue to apply to already-existing divorces and separations, as well as to divorces and separations that are executed before 2019.
Some taxpayers may want the Tax Cuts and Jobs Act rules to apply to their existing divorce or separation. Under a special provision, if taxpayers have an existing (pre-2019) divorce or separation decree, and they have that agreement legally modified after Dec. 31, 2018, the new rules apply to that modified decree if the modification expressly so provides. There may be situations where applying these new rules voluntarily is beneficial for the taxpayers, such as a change in the income levels of the alimony payer or the alimony recipient.
If you wish to discuss the impact of these rules on your particular situation, please give me a call.
Very truly yours,

Scott Gottlieb, CPA

https://www.newsday.com/business/tax-foundation-s-state-business-tax-climate-index-2018-rankings-1.14521319

Which states have the best and worst tax climates? The Tax Foundation produces an annual index to show how states' tax systems compare, ranking corporate taxes, individual income tax, sales tax, property tax and