Category Archives: COVID 19 UPDATES

5 Ways to Stay off The IRS Audit Radar

Millions of Americans filed their 2020 taxes and a handful of some will be picked out to be audited by the Internal Revenue Service.

In 2019,  0.45% of the individual tax returns were audited, according to agency data. The rate of audits per year has significantly dropped in the last decade due to staff and budget cuts. But certain red flags may make you more likely to fall into that unfortunate group, experts said.

If the IRS sends you an adjustment letter when you made a miscalculation or underreported small amounts of your income, this is not an audit. A correspondence audit — the lowest form of an audit and not a full examination — is performed via mail and may require you to provide additional information. But a correspondence audit can turn into an in-person audit if the issues become more complex.

Here are five ways to avoid tax scenarios that catch the IRS’s attention in the first place.

  1. Underreporting income – Underreporting income would be the first red flag. Unintentionally leaving out a small portion of your income may not get you audited. But if there’s a bigger discrepancy between the income you actually earned and what you reported on your return — and if it’s intentional — chances are higher that you may get audited.
  2. Overstating your tax deductions – Whether you’re claiming business tax deductions like meal and entertainment expenses or personal ones like charitable donations, you may hear from the IRS if the claimed amount seems off based on your income. The IRS system that roots out suspicious tax returns may flag a return that has deductions that are too high for the reported income level. Additionally, mixing business and personal expenses can be a red flag for the IRS. Some small business tax deductions that could pose a problem if disproportionate to your income are expenses for vehicles, home office, meals, and entertainment, among others.
  3. High-income earner – if you are in a higher income bracket, your chances of being audited increase. While the overall audit rate for 2018 was 0.6%, the chances of being audited was much higher for high-income earners. Taxpayers reporting income from $500,000 to $1,000,000 were almost twice as likely to be audited at 1.1%. That rate went up to 2.2% for taxpayers making from $1,000,000 to $5,000,000. Those earning $5,000,000 to $10,000,000 saw an audit rate of 4.2%, while those making above that threshold saw the highest rate of 6.7%.
  4. Claiming a dependent – Only one parent is allowed to claim a child on their taxes, even if the parents are filing their taxes separately. The IRS may send an audit letter to determine which taxpayer is entitled to claim the child as a dependent. A child can be claimed as a dependent if the child is under the age of 19 or is a full-time student under the age of 24 and lives with you for more than six months of the calendar year.
  5. Foreign accounts and income – Failing to report a foreign financial asset like a bank account, brokerage, or mutual fund may also bring the IRS knocking. If you hold foreign assets worth over $50,000 for a single filer and $100,000 for joint filers, you must fill out Form 8938, identifying the institution where the assets are held and the highest value of those assets in the last year. Additionally, if you take the Foreign Earned Income Exclusion break, the IRS may carefully review your return for any discrepancies. U.S. citizens who are bona fide residents of a foreign country can exclude up to $107,600 of their 2020 income if they were in that country for at least 330 full days during any period of 12 consecutive months.

Cultural Venues’ Quest for Billions in Federal Aid Is Halted by Glitch

The Small Business Administration launched with great fanfare a long awaited portal for that would allow arts venues closed down by pandemic to apply for grant money to cover rent, utilities, insurance and other accumulated expenses. Unfortunately, the site was shut down due to technical difficulties on its first day of launching.

In a statement, the SBA explained that the agency “temporarily suspended the portal and will re-open it as soon as possible to ensure all applicants have fair and equal access.” The SBA said it would share advance notice of the time and date before the reopening so that all applicants can be prepared and have equitable access to the program, which will award grants on a first-come, first-serve basis within different areas of priority.

After opening the application window Thursday, the agency made it clear in a news release issued late Wednesday night that the grants won’t start going out until later this month.“The SBA is accepting SVOG applications on a first-in, first-out basis and allocating applicants to respective priority periods as it receives applications,” the release said. “The first 14 days of SVOG awards, which are expected to begin in late April, will be dedicated to entities that suffered a 90% or greater revenue loss between April and December 2020 due to the COVID-19 pandemic. The second 14 days (days 15–28) will include entities that suffered a 70% or greater revenue loss between April and December 2020. Following those periods, SVOG awards will include entities that suffered a 25% or greater revenue loss between one quarter of 2019 and the corresponding quarter of 2020.”

The technology issues weren’t the only concern. The Office of Inspector General (OIG) for the SBA expressed “serious concerns” with the control environment and tracking of performance results with the SVOG program, which is designed to provide eligible applicants with grants equal to 45% of their gross earned revenue, up to a maximum of $10 million. The report criticizes the audit plan established by the SBA’s Office of Disaster Assistance (ODA).

The ODA’s plan allows for a total of no more than 10 audits across all of the low-risk loans but this limitation is problematic because program officials estimate that the majority of SVOG grants will be characterized as low-risk, meaning that most grants will “be disbursed in sweeping lump sum payments with minimal requirements and expectations for post-award accountability,” the report said.

Noting that the ODA estimates the SBA will receive 15,000 applications and that the average SVOG size will be $1 million, the inspector general said that the low level of auditing and spending reviews for low-risk grants means that “the bulk of grant funds will not be subject to a reasonable degree of scrutiny.”

The Shuttered Venue Operators Grant program (SVOG) is a $16 billion grant program that was set up to help qualifying live music venues, independent theaters, museums and other live-event spaces hit hard by pandemic-prompted shutdowns. It was passed with a bipartisan effort as a part of the coronavirus relief package signed into law by President Trump in December. But it’s taken a long time to arrive: the agency has said that it’s a first-of-a-kind program for them, and they had to build it from the ground up.

HOW TO REQUEST A LOAN INCREASE THROUGH SBA’S WEBSITE

If you have previously received a COVID-19 Economic Injury Disaster Loan (EIDL) from the U.S. Small Business Administration (SBA) the agency’s new increased loan limits for the COVID-19 EIDL program are now in effect and you may be eligible to receive additional loan funds.These loans were previously limited to six months of economic injury up to a maximum of $150,000. The SBA recently announced a policy change that significantly increases loan limits up to 24 months of economic injury with a maximum loan amount of $500,000.
Please be advised that for loan amounts over $25,000, SBA will continue to take a security interest in business assets evidenced by a general security agreement and UCC filing. SBA will also require an unsecured personal guarantee for loan amounts over $200,000 from any individual with 20 percent or more ownership. Real estate collateral will not be required for any loans of $500,000 or less.
Last month the SBA announced that they are extending the first payment due date for all loans until 2022. For COVID-19 EIDL loans made in calendar year 2020, the first payment due date is extended until 24 months from the date of the note, and for loans made in calendar year 2021 the first payment due date is extended until 18 months from the date of the note. Loan interest continues to accrue during the deferment period, and a loan increase will not further extend your first payment due date.
Please follow the below instructions if you would to request a loan increase:
  • Send email to CovidEIDLIncreaseRequests@sba.gov
  • Use subject line “EIDL Increase Request for [insert your 10-digit application number]”
  • Be sure to include in the body of your email identifying information for your current loan including application number, loan number, business name, business address, business owner name(s), and phone number.
  • Important: Do not include any financial documents or tax records with your initial request. You will receive a follow up email notification if we need additional documents.
Be advised that the SBA is receiving extremely large amounts of requests and will process the requests in order they are received. It may be several weeks before you receive a response from SBA on next steps to follow. Please do not resend multiple requests if you do not hear back right away as the extra emails could slow down the overall response time.
If you have any questions regarding the COVID-19 EIDL program, or SBA’s other COVID relief program, please visit SBA’s website at SBA.gov/relief for the most current updates.

SBA to Give Another $500,000 to Small Businesses

The U.S. Small Business Administration is more than tripling the maximum amount that small businesses and nonprofits can borrow under the COVID-19 Economic Injury Disaster Loans (EIDL) program. Beginning today, the U.S. Small Business Administration (SBA) is expanding its Economic Injury and Disaster Loan (EIDL) program, the organization announced in a press release. Small businesses who originally took out an EIDL loan for up to $150,000 for six months can extend that loan for up to 24 months and receive additional funds for a total of $500,000 in relief.
“More than 3.7 million businesses employing more than 20 million people have found financial relief through SBA’s Economic Injury Disaster Loans, which provide low-interest emergency working capital to help save their businesses,” said SBA Administrator Isabella Casillas Guzman in a news release. “However, the pandemic has lasted longer than expected, and they need larger loans.”
Additionally, the SBA has extended the deferment period for both Paycheck Protection Program (PPP) and EIDL loans through 2022. The first payment for all coronavirus related disaster loans disbursed in 2020 won’t be due until 24 months of loan origination. The first payment for loans issued in 2021 will be due 18 months from the loan origination date.
Typically, forgiven loans qualify as taxable income. However, given the unprecedented circumstances of the pandemic, the Internal Revenue Service has made EIDL Advances and forgiven EIDL funds non-taxable. EIDL advances do not count as part of a businesses gross income, according to IRS notice N 2021-06.
Additionally, the same notice says that business expenses that are normally tax deductible, including rent, payroll and utilities, are still deductible for the 2020 tax year even if those expenses were paid using funds from an EIDL loan or an EIDL advance.
For more information, please visit the SBA.gov website

SBA to Increase Lending Limit for COVID-19 EIDL Loans

March 31, 2021

Dear Clients, Business Associates and Friends:

 

Some loans approved prior to the week of April 6, 2021 will be eligible for an increase based on new loan maximum amounts announced March 24, 2021. Businesses that received a loan subject to current loan limit do not need to submit a request for an increase at this time. SBA will reach out directly via email closer to the April 6, 2021 implementation date to provide more details about how businesses can request an increase.

If an applicant accepted a loan for less than the full amount originally offered, the application will have up to two years after the date of the loan promissory note to request to request additional funds. Applicants may continue to request additional funds even after the application deadline of December 31, 2021.

For more information, please visit the SBA.gov website
** IF YOU HAVE MISSED ANY PREVIOUS WZ WEBINARS OR COMMUNICATION IN REGARDS TO COVID-19, PLEASE REFER TO OUR WEBSITE
Best,
WZ Partners
Wagner & Zwerman LLP

SBA to Increase Lending Limit for COVID-19 Economic Injury Disaster Loans

The U.S. Small Business Administration announced March 24 that it is increasing the maximum small businesses and nonprofit organizations can borrow through its COVID-19 Economic Injury Disaster Loan program.
Starting the week of April 6, the SBA is raising the time limit for the program from six to twenty-four months of economic injury and the maximum loan amount from $150,000 to $500,000. Any COVID-19 EIDL loans in process when the new loan limits go into effect will automatically be considered for the new maximum limits, the SBA said.
“More than 3.7 million businesses employing more than 20 million people have found financial relief through SBA’s Economic Injury Disaster Loans, which provide low-interest emergency working capital to help save their businesses,” SBA Administrator Isabella Casillas Guzman said in a news release. “We are here to help our small businesses and that is why I’m proud to more than triple the amount of funding they can access.”
The SBA has approved more than $200 billion in COVID-19 EIDL loans. The loans have a 30-year maturity with interest rates of 3.75% for small businesses, including sole proprietors and independent contractors, and 2.75% for not-for-profits.
The announcement of the higher loan limits came less than two weeks after the SBA announced March 12 that it was extending deferment periods for all its disaster loans, including the COVID-19 EIDL loans. Due to the new deferment periods COVID-19 EIDL recipients won’t have to start making payments on their loans until 2022.  Borrowers who wish to continue to making payments during the deferment as interest will continue to accrue on the outstanding loan balance.

IRS updates ‘Get My Payment’ tool so you can check on status of your money

Stimulus payments started going out over the weekend as part of the American Rescue Plan.

Now, you can check the status of your money through the IRS’ Get My Payment tool.

Nearly 160 million U.S. households will receive some $400 billion in direct payments of $1,400 per person, helping individuals earning up to $75,000 annually and couples up to $150,000.

Check the status of your 2021 Economic Impact Payment HERE.

For more information on the status of first and second payments, please click here.

 

 

SBA Extends Deferment Period for all COVID-19 EIDL and Other Disaster Loans until 2022

The U.S. Small Business Administration announced extended deferment periods for all disaster loans, including the COVID-19 Economic Injury Disaster Loan (EIDL) program, until 2022.

  • All SBA disaster loans made in calendar year 2020, including COVID-19 EIDL, will have a first payment due date extended from 12-months to 24-months from the date of the note.
  • All SBA disaster loans made in calendar year 2021, including COVID-19 EIDL, will have a first payment due date extended from 12-months to 18-months from the date of the note.

Existing SBA disaster loans approved prior to 2020 in regular servicing status as of March 1, 2020, received an automatic deferment of principal and interest payments through December 31, 2020. This initial deferment period was subsequently extended through March 31, 2021. An additional 12-month deferment of principal and interest payments will be automatically granted to these borrowers. Borrowers will resume their regular payment schedule with the payment immediately preceding March 31, 2022, unless the borrower voluntarily continues to make payments while on deferment. It is important to note that the interest will continue to accrue on the outstanding balance of the loan throughout the duration of the deferment.

“Small Businesses, private nonprofits and agricultural enterprises, including those self-employed individuals, contractors and gig workers, continue to navigate a very difficult economic environment due to the continued impacts of the Coronavirus COVID-19 pandemic, as well as historic Severe Winter Storms in 2020,” SBA Administrator Tami Perrillo said.

“The COVID-19 EIDL program has assisted over 3.7 million of small businesses, including non-profit organizations, sole proprietors and independent contractors, from a wide array of industries and business sectors, through this challenging time,” continued Perrillo.

SBA continues to strive to make available all previously approved Coronavirus Pandemic stimulus funding and administer the new targeted programs related to provisions in the 2020 Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act) as quickly as possible.

“The American people and the nation’s Small Business owners need our tireless effort and dedication to get this essential funding to those in great need, and SBA will not rest until we implement President Biden’s “American Rescue Plan” and its’ additional targeted programs and funds allocated for America’s small business and nonprofit communities,” said SBA Senior Advisor Michael Roth.

COVID-19 EIDL loans are offered at very affordable terms, with a 3.75% interest rate for small businesses and 2.75% interest rate for nonprofit organizations, a 30-year maturity. Interest continues to accrue during the deferment period and borrowers may make full or partial payments if they choose.

In mid-February 2020, SBA reached a milestone in the success of the COVID-19 EIDL program, by approving over $200 billion in emergency funding in low-interest loans, providing working capital funds to small businesses, non-profits and agricultural businesses to survive the severe impacts of this catastrophic and historic period within the entire United States of America and its territories. SBA continues to approve over $500 million each week for the COVID-19 EIDL program.

Questions on SBA COVID-19 EIDL and disaster loan payments can be answered by email at DisasterCustomerService@sba.gov or by calling SBA’s Customer Service Center at1-800-659-2955 (TTY: 1-800-877-8339).

The smallest businesses are getting extra PPP help

The smallest businesses that have had the most trouble accessing forgivable loans from the Paycheck Protection Program will soon get extra help.

The new Biden administration on Monday announced changes for the pandemic aid program focused on helping small and minority owned firms as well as sole proprietors.

Starting Wednesday, the Small Business Administration will only accept applications for PPP loans from firms with fewer than 20 employees.

The administration is also making several changes to the program, including increasing loan amounts for sole proprietors and individual contractors, eliminating restrictions around delinquent student loan debt and non-fraud felony convictions as well as allowing some non-citizen business owners to apply.

Goal is to expand access

The changes will help even the playing field for firms that make up most of the small business community – 98% of small businesses employ fewer than 20 people but have received only 45% of PPP funding thus far, according to the SBA. They also aim to address racial disparities that have been seen in loans as earlier iterations of the program left out many minority-owned businesses.

Supporting these firms is extremely important to the U.S. economic recovery, as small businesses employ nearly half of all working Americans, according to the SBA.

Here’s what small business owners need to know before the application window opens on Wednesday.

1. Businesses can apply for either a first or second draw of funds

If you are self-employed or own a business with fewer than 20 employees, lenders will prioritize your PPP loan applications starting Wednesday.

Eligible businesses can apply for either a first or second draw PPP loan, depending on their individual circumstances. To qualify for the second round of forgivable loans from the SBA, businesses must have spent or plan to spend all of their first loan and show they had a 25% or more drop in revenue in any quarter of 2020.

2. The self-employed can now get more forgivable funding

One of the biggest changes to PPP is how lenders will calculate loans for millions of self-employed workers, including sole proprietors and independent contractors.

For businesses with employees, PPP loans are generally 2.5 times payroll costs. But for one-person firms that don’t have a payroll, lenders used the net profit number from the IRS 1040 Schedule C, which includes deductions. Because of this, some workers saw very low loan amounts in previous rounds of the program.

To fix the issue, the SBA is revising the formula to match what it uses for farmers. This basically means that they will instead calculate loan amounts from gross income instead of net profit, said Chris Hurn, chief executive of Fountainhead Commercial Capital.

3. Apply as soon as possible

Experts aren’t sure if two weeks will be enough for all the smallest businesses that need help to apply for PPP loans, and since there is a limited amount of funding available, businesses should apply as soon as possible.

If you’d like to apply, this means that you should gather your tax documents including Schedule C – either from 2019 or 2020 – and have them ready to submit on Wednesday. It may also be a good idea to get in touch with a lender in your community or one that you have an existing relationship with to submit your paperwork.

In addition, if you’re able to apply for a first round PPP loan right away, there’s possibly time to allocate the money and apply for a second draw, according to Hurn.

What may be next

To be sure, these changes are late in the game for the program, which was first established by the CARES Act in response to the coronavirus pandemic and is currently set to expire at the end of March. That gives only a few weeks with the changes in place before the program ends.

And, it’s not year clear if some of the changes made will be retroactive. This would be especially important for the sole proprietors that got small first draw loans.  

 

WZ WEBINAR: Employee Retention Credit – RECORDING

Dear Clients, Business Associates and Friends:
In case you missed the webinar on 2/4/2021 you can watch it here.
And pdf’s of the presentation materials is also available below:

Presentation

Employee Retention Credit Worksheet

Employee Retention Credit Worksheet – extra rows
As always, Wagner & Zwerman are available to answer any of your questions and concerns and we are committed in providing you with the most updated information as it becomes available.
Best,
WZ Partners

 

Wagner & Zwerman LLP