Q&A: PPP Forgiveness Answers for S Corporation Owner-Employees
Tax law definitions do not apply to much of the PPP, making it new ground for owners of S corporations. Here are answers to four questions of concern to many S corporation owners.
1. Spouse Owns S Corporation
Question. My wife owns 100 percent of the S corporation. She has a full-time job and does no work for the S corporation. I am the sole worker in the S corporation.
Am I treated as:
• a “non-owner employee” of the S corporation; or
• an “owner-employee” subject to the limits?
Answer. The PPP guidance does not address the situation you describe. From what we know, you are a non-owner employee, which means you are not stuck with the owner-employee limits. In tax law, you would have to consider “attribution rules” that would make you own what your wife owns because
Tax-Saving Tips
of your marital relationship. (Yes, in tax law you both would own 100 percent.) But the PPP guidance to date contains no such rules.
According to the latest from the Small Business Administration (SBA), you may rely on the laws, rules, and guidance available at the time of your PPP loan application. As we write, the latest guidance is from over a month ago, on June 25, 2020.
2. S Corporation Owner-Employee with No W-2
Question. I submitted my PPP loan application before the guidance disallowing independent contractor payments was published. And at the time of submission, I had not yet started paying myself a salary. Now I have the PPP money from the bank but cannot get it forgiven through contractor payments. If I pay myself on a W-2, I lack the look-back period of 2019 payroll. Am I out of luck? Should I go on payroll and hope for the best?
Answer. Under the rules, you are out of luck. Your loan forgiveness is based on the lower of your 2019 W-2 (zero) or your 2020 W-2.
3. S Corporation Loan Based on K-1
Question. I operate my business as an S corporation with two W-2 employees other than me (I don’t receive a W-2). I applied for the PPP loan and obtained it based on my K-1. A few weeks later the lender told me that the money I received was not available to be forgiven. This doesn’t seem fair. My profit is my income. Is there any workaround for this?
Answer. No—no workaround. But in your case, likely no PPP loan forgiveness problem either. But first, let’s think about taxes. You operate as an S corporation, and you take no salary. (That’s incorrect and likely a tax problem if the IRS audits your tax return.)
Now, let’s get to the PPP. Your lender granted you the PPP loan based on the K-1 and ignored your employees. That shows how confusing the PPP has been. But let’s ignore the right and wrong of that and get to the heart of the issue.
Can you obtain forgiveness?
Yes, your S corporation’s forgiveness begins with what you pay your W-2 employees during the 24-week covered period, including what you pay in health insurance and retirement on their behalf. In addition, you may include some or all of your payments for business interest, rent, and utilities during the 24 weeks beginning with receipt of the loan.
Example. Let’s say you received a $100,000 loan. If your payroll during the 24 weeks is $63,000 and the rent and utilities total $37,000, you would qualify for 100 percent forgiveness. If you achieve this in 20 weeks, you could apply for forgiveness then.
Observation. The fact that the lender based your loan on your profits is simply a mistake by the lender. It does not affect forgiveness, which is based on your using the money for the intended PPP purposes such as payroll.
4. S Corporation with Home Office
Question. You recommend that the S corporation owner use an expense report to submit home-office expenses to the business for reimbursement and then classify the reimbursement in the tax return as an office expense. How would we classify this as mortgage interest and utilities under the PPP loan forgiveness guidelines? We
have the same question for partnerships where an item is claimed as an unreimbursed partner expense.
Answer. The reimbursed expense won’t work for the PPP, but here’s the solution: choose the 24-week program, and you will achieve full forgiveness with only the payroll in as little as 10.8 weeks.
Tax Issues of Converting Your Residence into a Rental Property
Tax Issues of Converting Your Residence into a Rental Property The simple maneuver of converting your personal residence to a rental property brings with it many tax rules, mostly good when you know how they work. The first question that arises when you convert a...
How to Deduct Assisted Living and Nursing Home Bills
How to Deduct Assisted Living and Nursing Home Bills” Watch your wallet: the median cost in 2018 for an assisted living facility was $48,000 and over $100,000 for nursing home care. If you could deduct these expenses, you’d substantially reduce your income tax...
Know Whether Your Trip Is a Deductible Business Expense
Know Whether Your Trip Is a Deductible Business ExpenseTo help you understand business travel, consider this: You planned a personal trip to Los Angeles, arriving on Friday afternoon and leaving on Sunday afternoon. About a week later, you learn that a vendor you need...
Want to know more? Have some tax questions of your own? Get in touch with us and we’ll guide you thru the tax and accounting process.
Lock Down Vehicle Deductions with a Home Office
Using Children’s IRAs to Pay for College
Update: 2018 Health Insurance for S Corporation Owners
Create Cash by Using Antiques in Your Business
Cashing Out Real Estate Profits without Section 1031
Tax Reform and Rental Real Estate Deductions
Rental Property as a Business Yields Big Benefits
Home Office with More Than One Business
Tax Reform Creates Taxes on Employee Fringe Benefit for Bicycles
Tax Reform Provides New 20% Deduction
The new 2018 Section 199A tax deduction that you can claim on your IRS Form 1040 is a big deal. There are many rules (all new, of course), but your odds as a business owner of benefiting from this new deduction are excellent.
How the 20% Deduction Works for a Specified Service Provider
Phaseout for New 20% Deduction
Preserve the Deduction with an S Corporation
Will your business operation create the 20 percent tax deduction for you? If not, and if that is due to too much income and a lack of (a) wages and/or (b) depreciable property, a switch to the S corporation as your choice of the business entity may produce the tax savings you are looking for.
Tax Reform Cuts Deductions for Employee Meals to 50 Percent
Tax Reform Destroys Entertainment Deductions for Businesses
Tax Reform Allows 100 Percent Deductions for Presentation Expenses
Tax Reform Allows Bigger Vehicle Deductions
Does Tax Reform Dislike Your Reputation or Skill?
Tax Reform Update on Business Meals with Clients and Prospects
Divorce? Alimony? Tax Reform Says Get Divorced Now—Don’t Wait!
Tax Reform: Planning for Your New 20 Percent Deduction
Avoid Being an IRS Target When Your Business Loses Money
How to Deduct Your Legal Fees after Tax Reform
Your Personal Home Is Not Your Tax Home
Reduce Self-Employment Taxes by Renting from Your Spouse
Hiring Your Children to Work on Your Rental Properties
Tax Planning for Snowbirds
Tax Reform Destroyed State and Local Tax Deductions—Fight Back
IRS Rules for Deducting Your Business Gym
Reduce Your Taxes by Making Your Spouse a Business Partner
Tax Reform Expands Your Section 179 Deduction Privilege
How the 90-Day Mileage Log Rule Works for You
Will Renting Your Home Destroy Your $250,000 Exclusion?
Be Alert to the TCJA Tax Reform Attack on IRA Recharacterizations
Tax Reform Changes Affecting Partnerships and LLCs and Their Owners
Changes to Your Tax-Free Supper Money
Convert Your Personal Vehicle to Business and Deduct up to 100 Percent
How Cost Segregation Can Turn Your Rental into a Cash Cow
Retirement Plan and IRA Rollover Advice
Tax Time Bomb: Passive Foreign Investment Companies
How to Find Your Section 199A Deduction with Multiple Businesses
Help Employees Cover Medical Expenses with a QSEHRA
Does Your Rental Qualify for a 199A Deduction?
New IRS 199A Regulations Benefit Out-of-Favor Service Businesses
Take Money Out of Your IRA at Any Age Penalty-Free
Drive Time Increases Odds of Deducting Rental Property Losses
Changes to Net Operating Losses After Tax Reform
IRS Says TCJA Allows Client and Prospect Business Meal Deductions
Tax Reform and the Cannabis Industry
Defining “Real Estate Investor” and “Real Estate Dealer”
Avoid the 1099 Prepaid-Rent Mismatch
Answers to Common Section 199A Questions
Avoiding the Kiddie Tax after Tax Reform
Tax Reform’s New Qualified Opportunity Funds
IRS Issues Final Section 199A Regulations and Defines QBI
IRS Clarifies Net Capital Gains in Final 199A Regulations
IRS Creates a New “Safe Harbor” for Section 199A Rental Properties
IRS Updates Defined Wages for New Section 199A Tax Deductions
Good News: Most Rentals Likely Qualify as Section 199A Businesses
How to Reimburse Medicare When You Have Fewer Than 20 Employees
What Can I Do If My K-1 Omits 199A Information?
Terminating Your S Corporation Election
Backdoor Roth IRA Opportunities Still Available After TCJA
Combine Home Sale with the 1031 Exchange
Know These Tax Rules If Your Average Rental Is Seven Days or Less
If you own a condominium, cottage, cabin, lake or beach home, ski lodge, or similar property that you rent for an “average” rental period of seven days or less for the year, you have a property with unique tax attributes.
Can the IRS Require Odometer Readings with the Mileage Rate?
Do you claim your business miles at the IRS optional rate? If so, imagine you are now being audited by the IRS for your business mileage. The IRS has requested odometer readings for your vehicle. You might wonder if the IRS can do this…
New Individual Coverage HRA Allows You to Reimburse Employees for Health Insurance
How to Deduct Assisted Living and Nursing Home Bills
Tax Issues of Converting Your Residence into a Rental Property
Congress Reinstates Expired Tax Provisions
The big five tax breaks that most likely impact your
Form 1040
Eight Changes in the SECURE Act You Need to Know
Kiddie Tax Changes
On December 19, 2019, Congress passed a bill that the president signed into law on December 20, 2019 (Pub. L. 116-94). The new law repeals the kiddie tax changes from the TCJA and takes you back to the old kiddie tax rules, even retroactively if you so desire.
Solo 401(k) Could Be Your Best Retirement Plan Option
What are My Self-Employed Tax Obligations?
New Stimulus Law Grants Eight Tax Breaks for 1040 Filers
2020 Year-End Tax Strategies for Marriage, Kids, and Family
Starting a New Business? Get Up to $100,000 in Tax-Free Money
Tax Code Offset Game
“Deduct 100 Percent of Your Business Meals under New Rules”
Last Minute 2020 Biz Deductions
The purpose of this post is to get the IRS to owe you money.
Of course, the IRS is not likely to cut you a check for this money (although in the right circumstances, that will happen), but you’ll realize the cash when you pay less in taxes.
Here are seven powerful business tax deduction strategies that you can easily understand and implement before the end of 2020.
Last Minute Year End Deductions for Married or Divorced people – Tax Strategies – Kiddie Tax
Last Minute Year End Deductions for Married or Divorced people – Tax Strategies – Kiddie Tax –
If you are thinking of getting married or divorced, you need to consider December 31, 2020, in your tax planning.
Here’s another planning question: Do you give money to family or friends (other than your children, who are subject to the kiddie tax)? If so, you need to consider the zero-taxes planning strategy.
#taxplanning #CPA #businessaccountant
Tax Implications of Investing in Precious Metal Assets
These days, some IRA owners and investors may be worried about being overexposed to equities. That could be you.
But the safest fixed income investments (CDs, Treasuries, and money-market funds) are still paying microscopic interest rates.
For example, when this was written, the 10-year Treasury was yielding about 1.92 percent. Ugh!
Meanwhile, the pandemic might or might not be coming to an end, the economy might or might not be okay, and inflation might or might not be controlled. Who knows?
In this uncertain environment, investing some of your IRA money in gold or other precious metals such as silver and platinum may be worth considering. Ditto for holding some precious metal assets in taxable form. This article explains the federal income tax implications. Here goes.