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Tax Preparation vs. Tax Planning

Posted on November 6th, 2020

Many people assume tax planning is the same as tax preparation, but the two are quite different. Let’s take a closer look: Read More…

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Seasonal Workers and the Healthcare Law

Posted on November 5th, 2020

Businesses often need to hire workers on a seasonal or part-time basis. For example, some businesses may need seasonal help for holidays, harvest seasons, commercial fishing, or sporting events. Whether you are getting paid or paying someone else, questions often arise over whether these seasonal workers affect employers with regard to the Affordable Care Act (ACA). Read More…

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Individual Taxpayers: Year-End Tax Planning Strategies

Posted on November 4th, 2020

With the end of the year fast approaching, now is the time to take a closer look at tax planning strategies you can use to minimize your tax burden for 2020. Read More…

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Tips for Taxpayers: Backup Withholding

Posted on November 4th, 2020

Taxpayers receiving certain types of income typically reported on certain Forms 1099 and W-2G may need to have backup withholding deducted from these payments. Here are three tips to help taxpayers understand backup withholding: Read More…

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Year-End Tax Planning Strategies for Business Owners

Posted on November 3rd, 2020

Several end-of-year tax planning strategies are available to business owners that can be used to reduce their tax liability. Let’s take a look: Read More…

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Tax-Related Items To Keep in Mind When Disaster Strikes

Posted on November 3rd, 2020

Unfortunately, disaster can strike at any time. If you’ve been affected by a disaster this year, here are six tax-related things to keep in mind that usually happen after a major disaster strikes: Read More…

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Investing in Opportunity Zones: The Facts

Posted on November 2nd, 2020

The Tax Cuts and Jobs Act included numerous changes for businesses and individuals. One of these was the creation of the Opportunity Zones tax incentive, the purpose of which is to spur economic development and job creation in distressed communities by providing tax benefits to investors.

Which Communities Qualify as Opportunity Zones?

Low-income communities and certain contiguous communities qualify as Opportunity Zones if a state, the District of Columbia, or a U.S. territory nominated them for that designation and the U.S. Treasury certified that nomination. Using this nomination process, 8,764 communities in all 50 states, the District of Columbia, and five U.S. territories were certified as Qualified Opportunity Zones (QOZs). Congress later designated each low-income community in Puerto Rico as a QOZ effective December 22, 2017.

Tax TipFor a complete list and visual map of census tracts designated as QOZs visit the Opportunity Zones Resources page at the IRS website.

Tax Benefits of Investing in Opportunity Zones

Opportunity Zones offer tax benefits to business or individual investors who can elect to temporarily defer tax on capital gains if they timely invest those gain amounts in a Qualified Opportunity Fund (QOF). Investors can defer tax on the invested gain amounts until the date they sell or exchange the QOF investment, or Dec. 31, 2026, whichever is earlier.

The length of time the taxpayer holds the QOF investment determines the tax benefits they receive:

  • Five years. If the investor holds the QOF investment for at least five years, the basis of the QOF investment increases by 10% of the deferred gain.
  • Seven years. If the investor holds the QOF investment for at least seven years, the basis of the QOF investment increases to 15% of the deferred gain.
  • Ten years. If the investor holds the investment in the QOF for at least 10 years, the investor is eligible to elect to adjust the basis of the QOF investment to its fair market value on the date that the QOF investment is sold or exchanged.

Deferral of Eligible Gain. Gains that may be deferred are called “eligible gains.” They include both capital gains and qualified 1231 gains, but only gains that would be recognized for federal income tax purposes before January 1, 2027, and that aren’t from a transaction with a related person. To obtain this deferral, the amount of the eligible gain must be timely invested in a QOF in exchange for an equity interest in the QOF (qualifying investment). Once this is done, taxpayers can claim the deferral on their federal income tax return for the taxable year in which the gain would have been recognized if they had not deferred it.Taxpayers may make an election to defer the gain, in whole or in part. For additional information, see How To Report an Election To Defer Tax on Eligible Gain Invested in a QOF in the Form 8949, Sales and other Dispositions of Capital Assets instructions.

Investing in QOZ Property as a Qualified Opportunity Fund

A QOF is an investment vehicle that files either a partnership or corporate federal income tax return and is organized for the purpose of investing in QOZ property. To become a QOF, an eligible corporation or partnership self-certifies by annually filing Form 8996, Qualified Opportunity Fund with its federal income tax return. The return, together with Form 8996, must be filed timely, taking extensions into account. An LLC that chooses to be treated either as a partnership or corporation for federal income tax purposes can organize as a QOF.

Qualified Opportunity Zone Property

QOZ property is a QOF’s qualifying ownership interest in a corporation or partnership that operates a QOZ business in a QOZ or certain tangible property of the QOF that is used in a business in the QOZ. To be a qualifying ownership interest in a corporation or partnership, (1) the interest must be acquired after December 31, 2017, solely in exchange for cash; (2) the corporation or partnership must be a QOZ business; and (3) for 90% of the holding period of that interest, the corporation or partnership was a QOZ business.

Qualified Opportunity Zone Business Property

QOZ business property is tangible property that a QOF acquired by purchase after 2017 and used in a trade or business and:

  • the original use of the property in the QOZ commenced with the QOF or QOZ business OR
  • the property was substantially improved by the QOF or QOZ business; and
  • during 90 percent of the time the QOF or QOZ business held the property, substantially all (generally at least 70 percent) of the use of the property was in a QOZ.

Leased property may also qualify as QOZ business property. The lease must be a market-rate lease entered into after December 31, 2017, to qualify.

Qualified Opportunity Zone Business

Each taxable year, a QOZ business must earn at least 50% of its gross income from business activities within a QOZ; however, the regulations provide three safe harbors that a business may use to meet this test. These safe harbors take into account any of the following:

  • Whether at least half of the aggregate hours of services received by the business were performed in a QOZ;
  • Whether at least half of the aggregate amounts that the business paid for services were for services performed in a QOZ; or
  • Whether necessary tangible property and necessary business functions to earn the income were located in a QOZ.

Questions?

Don’t hesitate to call if you have any questions or would like additional information about investing in Opportunity Zones.

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Individual Retirement Arrangements: Terms To Know

Posted on November 2nd, 2020

While many taxpayers already know about Individual Retirement Arrangements, or IRAs, and have set up an IRA with a bank or other financial institution, a life insurance company, mutual fund or stockbroker, there are other taxpayers such as those new to the workforce who may not understand how IRAs help them save for retirement. With this in mind, here is a list of basic terms to help people better understand their IRA options: Read More…

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Tax Due Dates 2021

Tax Due Dates for November 2020

Posted on November 1st, 2020

During November

Employers – Income Tax Withholding. Ask employees whose withholding allowances will be different in 2021 to fill out a new Form W-4. The 2021 revision of Form W-4 will be available on the IRS website by mid-December.

November 2

Employers – Social Security, Medicare, and withheld income tax. File form 941 for the third quarter of 2020. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 10 to file the return.

Certain Small Employers – Deposit any undeposited tax if your tax liability is $2,500 or more for 2020 but less than $2,500 for the third quarter.

Employers – Federal Unemployment Tax. Deposit the tax owed through September if more than $500.

November 10

Employees who work for tips – If you received $20 or more in tips during October, report them to your employer. You can use Form 4070.

Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the third quarter of 2020. This due date applies only if you deposited the tax for the quarter in full and on time.

November 16

Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in October.

Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in October.

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