The Tax Cuts and Jobs Act’s reduction in the corporate rate from 35 percent to 21 percent prompted businesses to take a second look at which entity form to choose and whether, for example, they should convert from an S corporation taxed as a passthrough entity with a single level of tax to a C corporation subject to a “double tax” — a 21 percent flat tax rate on corporate earnings and a second tax of 23.8 percent at the shareholder level on distributions of earnings and profits. 

Under the TCJA, the effective tax rate for investors in passthrough entities can range from 33.4 percent to 40.8 percent, depending on whether their share of the business income qualifies for the 20 percent deduction under section 199A. That compares with C corporations’ 39.8 percent effective tax rate when considering the second level of tax. 

According to Brian T. Lovett of Withum Smith+Brown PC, “the double taxation of a corporation right now [is] relatively affordable.” 

However, President Biden’s proposals in his American Families Plan — an increase in the capital gains and qualified dividend rate to the maximum ordinary income rate for taxpayers with income over a specified threshold and an increase in the corporate rate to something north of 21 percent — will complicate the choice of entity analysis, Lovett said during an August 17 webcast sponsored by Strafford. 

Although tax rates will increase because the government can’t spend trillions of dollars and not raise taxes, “our planning should be focused on making wise business decisions rather than reacting out of fear and without full knowledge,” Brant advised. 

At the extreme, the flat corporate tax rate could ratchet up to 28 percent and the top individual tax rate rise from 37 percent to 39.6 percent under Biden’s proposals. If, along with those changes, “section 199A is unscathed, I think the road from subchapter C to subchapter S may get very busy,” Brant surmised. 

Conversely, despite silence on section 199A, if the provision “receives an untimely death, especially for corporations that need to retain earnings . . . traveling to subchapter C may still be attractive,” Brant suggested. 

A flat tax at 28 percent isn’t that bad compared with a top individual rate of 39.6 percent, Brant said. If there’s a compromise yielding a lower corporate tax rate, clients will be calling inquiring about “that trip to subchapter C,” he said. 

Brant, like other observers, suggested that the more likely scenario is the corporate tax rate landing between 21 and 25 percent. 

the American Rescue Plan’s $300 supplement is scheduled to continue until September 2021,

21 states have announced that they are opting out. The governors of Alabama, Alaska, Arkansas, Georgia, Idaho, Indiana, Iowa, Mississippi, Missouri, Montana, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Texas, Utah, West Virginia, and Wyoming have stated that their states will stop participating in all federal pandemic jobless aid programs in June, while Arizona and Tennessee will opt out in early July. These states will also stop paying pandemic unemployment assistance benefits, which were made available for gig workers and the self-employed, as well as pandemic emergency unemployment compensation, which provides federal benefits for long-term unemployed people who have exhausted their maximum number of weeks on state benefits. All of these states have Republican governors. Other states have instead reinstated the milder requirement that applicants prove they are looking for work.

to read more https://www.bls.gov

Guiding Principles to Keep in Mind

The more an individual interacts with others, and the longer that interaction, the higher the risk of COVID-19 spread. Masks may reduce the risk of COVID-19 spread when they are consistently used by customers and employees, especially when social distancing measures are difficult to maintain. The risk of COVID-19 spread increases in a restaurant or bar setting as interactions within 6 feet of others increase, as described below. Masks may reduce the risk of COVID-19 spread when worn in any of these risk scenarios.

1. Lowest Risk: Food service limited to drive-through, delivery, take-out, and curb-side pick up.
2. More Risk: Drive-through, delivery, take-out, and curb-side pick up emphasized. On-site dining limited to outdoor seating. Seating capacity reduced to allow tables to be spaced at least 6 feet apart.
3. Higher Risk: On-site dining with indoor seating capacity reduced to allow tables to be spaced at least 6 feet apart. And/or on-site dining with outdoor seating, but tables not spaced at least six feet apart.
4. Highest Risk: On-site dining with indoor seating. Seating capacity not reduced and tables not spaced at least 6 feet apart.

What can workers do when they feel too fatigued to work safely?

Recognize these are stressful and unusual circumstances and you may need more sleep or time to recover.

Tips to improve sleep:

1. You’ll sleep better if your room is comfortable, dark, cool, and quiet.
2. If it takes you longer than 15 minutes to fall asleep, set aside some time before bedtime to do things to help you relax. Try meditating, relaxation breathing, and progressive muscle relaxation.
3. Before you begin working a long stretch of shifts, try “banking your sleep” – sleeping several extra hours longer than you normally do.
4. After you’ve worked a long stretch of shifts, remember it may take several days of extended sleep (for example, 10 hours in bed) before you begin to feel recovered. Give yourself time to recover.
5. Avoid sunlight or bright lights 90 minutes before you go to sleep, when possible. Exposure to light just before bedtime can cause you to feel more awake.
   • If you work a night shift and drive home during sunlight hours, try wearing sunglasses to reduce your exposure to sunlight during your drive home.
   • Consider using blackout shades at home when sleeping.
6. Take naps when you have the opportunity.
   • A 90-minute nap before working a night shift can help prevent you from feeling tired at work.
7. Eat healthy foods and stay physically active because it can improve your sleep.
8. Before you go to sleep, avoid foods and drinks that can make falling asleep more difficult:
   • Avoid alcohol, heavy meals, and nicotine for at least 2–3 hours before bedtime.
   • Don’t drink caffeine within 5 hours of bedtime.

Know what to do if you feel too tired to work safely.

1. Use a buddy system while you’re at work. Check in with each other to ensure everyone is coping with work hours and demands.
2. Watch yourself and your coworkers for signs of fatigue — like yawning, difficulty keeping your eyes open, and difficulty concentrating. When you see something, say something to your coworkers so you can prevent workplace injuries and errors.
3. Find out if your employer has a formal program to help you manage fatigue on the job. Read information about the program and ask questions so you fully understand your employer’s policies and procedures for helping employees manage fatigue.
4. Report any fatigue-related events or close-calls to a manager to help prevent injuries and errors.
5. Do not work if your fatigue threatens the safety of yourself or others. Report to a manager when you feel too tired to work safely.

for more https://www.cdc.gov/coronavirus/2019-ncov/community/workplaces-businesses/index.html

https://www.irs.gov/faqs/irs-procedures/forms-publications/new-exclusion-of-up-to-10200-of-unemployment-compensation

If your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021, excludes from income up to $10,200 of unemployment compensation paid in 2020, which means you don’t have to pay tax on unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.

The exclusion should be reported separately from your unemployment compensation.

STUDENT LOANS

Section 9675 of the act effectively makes all student loan debt eligible for tax-free loan forgiveness through the end of 2025.

What does this change mean for borrowers, and how should they plan for their student loans?

Understanding Section 9675

The legislation will treat any student loan forgiveness from 2021 through 2025 as tax-free.  The definition includes virtually all types of student loan debt used expressly for post-secondary education purposes.

Loans Included:

• All federally backed loans: Direct Loans, FFEL, Consolidation Loans, Federal Perkins Loans, and Parent PLUS Loans
• All state-sponsored education loan programs
• All institutional loans made by colleges and universities
• All private loans made to students and parents

The inclusion of state, institutional, and private student loans in the legislation is a massive expansion for student loan borrowers as all federal stimulus aid before the new legislation was limited to federal loan borrowers only.

H.R.1319 – American Rescue Plan Act of 2021

American Rescue Plan Act of 2021

This bill provides additional relief to address the continued impact of COVID-19 (i.e., coronavirus disease 2019) on the economy, public health, state and local governments, individuals, and businesses.

Specifically, the bill provides funding for

• agriculture and nutrition programs, including the Supplemental Nutrition Assistance Program (SNAP, formerly known as the food stamp program);
• schools and institutions of higher education;
• child care and programs for older Americans and their families;
• COVID-19 vaccinations, testing, treatment, and prevention;
• mental health and substance-use disorder services;
• emergency rental assistance, homeowner assistance, and other housing programs;
• payments to state, local, tribal, and territorial governments for economic relief;
• multiemployer pension plans;
• small business assistance, including specific programs for restaurants and live venues;
• programs for health care workers, transportation workers, federal employees, veterans, and other targeted populations;
• international and humanitarian responses;
• tribal government services;
• scientific research and development;
• state, territorial, and tribal capital projects that enable work, education, and health monitoring in response to COVID-19; and
• health care providers in rural areas.

The bill also includes provisions that

• extend unemployment benefits and related services;
• make up to $10,200 of 2020 unemployment compensation tax-free;
• make student loan forgiveness tax-free through 2025;
• provide a maximum recovery rebate of $1,400 per eligible individual;
• expand and otherwise modify certain tax credits, including the child tax credit and the earned income tax credit;
• provide premium assistance for certain health insurance coverage; and
• require coverage, without cost-sharing, of COVID-19 vaccines and treatment under Medicaid and the Children’s Health Insurance Program (CHIP).

https://www.irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-and-payment-deadline

Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17

State tax returns

The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline.

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Information presented on this Web site are summaries for general information and discussion only and may be considered an advertisement for certain purposes.  They are not full analyses of the matters presented, may not be relied upon as accounting and legal advice.

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/second-draw-ppp-loans

Who may qualify

A borrower is generally eligible for a Second Draw PPP Loan if the borrower: 

• Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
• Has no more than 300 employees; and
• Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020

MARYLAND: PASS-THROUGH BUSINESSES CAN ELECT TO BE TAXED AT THE ENTITY LEVEL STARTING IN 2020

DECEMBER 2020Legislation enacted in Maryland on May 8, 2020 creates an election for pass-through entities (PTEs, e.g., partnerships, S corporations, limited liability companies (LLCs) that are not taxed as corporations in Maryland, etc.) to pay tax at the entity level rather than at the level of the members of the entity, which creates a corresponding tax credit for members. The law was enacted in response to the annual $10,000 cap on state tax deductions introduced under the federal Tax Cuts and Jobs Act enacted in December 2017. Maryland was one of several states searching for ways to help residents mitigate the impact of the SALT cap. The law applies as from July 1, 2020, and the election for PTEs applies to tax years beginning on or after January 1, 2020.

Significantly, on November 9, 2020, the IRS released Notice 2020-75 to announce that the IRS and Treasury intend to issue proposed regulations to clarify that state and local income taxes imposed on and paid by (which the IRS has coined “Specified Income Tax Payments”) a PTE on its income may be deducted by the PTE in computing its non-separately stated taxable income or loss for the taxable year of payment.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.