2021 Tax Calendar

The 2021 tax season is upon us, and to help ensure important 2021 deadlines are not missed, Yeo & Yeo has provided a summary of due dates for various tax-related forms, payments and other actions.

Please review the tax calendar and let us know if you have questions about the deadlines or would like assistance in meeting them. It is important to note that these dates are accurate as of January 26, 2021, and are subject to change. We recommend bookmarking this article, which will be updated if changes occur.

View the 2021 Tax Calendar

Important dates to review

• March 15: S corporations tax filing deadline

• April 15: Individual, corporate, trust and estate tax filing deadline

• May 17: Tax-exempt Form 990 filing deadline

• June 15: If you live outside the United States, file a 2020 individual income tax return, Form 1040 or Form 1040-SR, or file for a four-month extension, Form 4868.

• September 15: Calendar-year S corporations file a 2020 income tax return Form 1120S and pay any tax, interest, and penalties due if an automatic six-month extension was filed.

• November 15: For exempt organizations, file a 2020 calendar-year information return Form 990, Form 990-EZ, or Form 990-PF and pay any tax, interest, and penalties due, if a six-month extension was previously filed.

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Many business owners generate financial statements, at least in part, because lenders and other stakeholders demand it. You’re likely also aware of how insightful properly prepared financial statements can be — especially when they follow Generally Accepted Accounting Principles.

But how can you best extract these useful insights? One way is to view your financial statements through a wide variety of “lenses” provided by key performance indicators (KPIs). These are calculations or formulas into which you can plug numbers from your financial statements and get results that enable you to make better business decisions.

Learn about liquidity

If you’ve been in business for any amount of time, you know how important it is to be “liquid.” Companies must have sufficient current assets to meet their current obligations. Cash is obviously the most liquid asset, followed by marketable securities, receivables and inventory.

Working capital — the difference between current assets and current liabilities — is a quick and relatively simple KPI for measuring liquidity. Other KPIs that assess liquidity include working capital as a percentage of total assets and the current ratio (current assets divided by current liabilities). A more rigorous benchmark is the acid (or quick) test, which excludes inventory and prepaid assets from the equation.

Accentuate asset awareness

Businesses are more than just cash; your assets matter too. Turnover ratios, a form of KPI, show how efficiently companies manage their assets. Total asset turnover (sales divided by total assets) estimates how many dollars in revenue a company generates for every dollar invested in assets. In general, the more dollars earned, the more efficiently assets are used.

Turnover ratios also can be measured for each specific category of assets. For example, you can calculate receivables turnover ratios in terms of days. The collection period equals average receivables divided by annual sales multiplied by 365 days. A collection period of 45 days indicates that the company takes an average of one and one-half months to collect invoices.

Promote profitability

Liquidity and asset management are critical, but the bottom line is the bottom line. When it comes to measuring profitability, public companies tend to focus on earnings per share. But private businesses typically look at profit margin (net income divided by revenue) and gross margin (gross profits divided by revenue).

For meaningful comparisons, you’ll need to adjust for nonrecurring items, discretionary spending and related-party transactions. When comparing your business to other companies with different tax strategies, capital structures or depreciation methods, it may be useful to compare earnings before interest, taxes, depreciation and amortization (EBITDA).

Focus in

As your business grows, your financial statements may contain so much information that it’s hard to know what to focus on. Well-chosen and accurately calculated KPIs can reveal important trends and developments. Contact us with any questions you might have about generating sound financial statements and getting the most out of them.

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If you have a traditional IRA or tax-deferred retirement plan account, you probably know that you must take required minimum distributions (RMDs) when you reach a certain age — or you’ll be penalized. The CARES Act, which passed last March, allowed people to skip taking these withdrawals in 2020 but now that we’re in 2021, RMDs must be taken again.

The basics

Once you attain age 72 (or age 70½ before 2020), you must begin taking RMDs from your traditional IRAs and certain retirement accounts, including 401(k) plans. In general, RMDs are calculated using life expectancy tables published by the IRS. If you don’t withdraw the minimum amount each year, you may have to pay a 50% penalty tax on what you should have taken out — but didn’t. (Roth IRAs don’t require withdrawals until after the death of the owner.)

You can always take out more than the required amount. In planning for distributions, your income needs must be weighed against the desirable goal of keeping the tax shelter of the IRA going for as long as possible for both yourself and your beneficiaries.

In order to provide tax relief due to COVID-19, the CARES Act suspended RMDs for calendar year 2020 — but only for that one year. That meant that taxpayers could put off RMDs, not have to pay tax on them and allow their retirement accounts to keep growing tax deferred.

Begin taking RMDs again

Many people hoped that the RMD suspension would be extended into 2021. However, the Consolidated Appropriations Act, which was enacted on December 27, 2020, to provide more COVID-19 relief, didn’t extend the RMD relief. That means if you’re required to take RMDs, you need to take them this year or face a penalty.

Note: The IRS may waive part or all of the penalty if you can prove that you didn’t take RMDs due to reasonable error and you’re taking steps to remedy the shortfall. In these cases, the IRS reviews the information a taxpayer provides and decides whether to grant a request for a waiver.

Keep more of your money

Feel free to contact us if have questions about calculating RMDs or avoiding the penalty for not taking them. We can help make sure you keep more of your money.

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There’s a new IRS form for business taxpayers that pay or receive certain types of nonemployee compensation. Form 1099-NEC must be furnished to recipients and IRS by February 1, 2021. After sending the forms to recipients, taxpayers must file the forms with the IRS by March 1 (March 31 if filing electronically).

The requirement begins with forms for tax year 2020. Payers must complete Form 1099-NEC, “Nonemployee Compensation,” to report any payment of $600 or more to a recipient. February 1 is also the deadline for furnishing Form 1099-MISC, “Miscellaneous Income,” to report certain other payments to recipients.

If your business is using Form 1099-MISC to report amounts in box 8, “substitute payments in lieu of dividends or interest,” or box 10, “gross proceeds paid to an attorney,” there’s an exception to the regular due date. Those forms are due to recipients by February 16, 2021.

1099-MISC changes 

Before the 2020 tax year, Form 1099-MISC was filed to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee (in other words, an independent contractor). These payments are referred to as nonemployee compensation (NEC) and the payment amount was reported in box 7.

Form 1099-NEC was introduced to alleviate the confusion caused by separate deadlines for Form 1099-MISC that reported NEC in box 7 and all other Form 1099-MISC for paper filers and electronic filers.

Payers of nonemployee compensation now use Form 1099-NEC to report those payments.

Generally, payers must file Form 1099-NEC by January 31. But for 2020 tax returns, the due date is February 1, 2021, because January 31, 2021, is on a Sunday. There’s no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions. 

When to file 1099-NEC

If the following four conditions are met, you must generally report payments as nonemployee compensation:

• You made a payment to someone who isn’t your employee,
• You made a payment for services in the course of your trade or business,
• You made a payment to an individual, partnership, estate, or, in some cases, a corporation, and
• You made payments to a recipient of at least $600 during the year.

We can help

If you have questions about filing Form 1099-NEC, Form 1099-MISC or any tax forms, contact us. We can assist you in staying in compliance with all rules.

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Businesses and not-for-profit entities capitalize machines, furniture, buildings, and other property, plant and equipment (PPE) assets on their balance sheets. Here’s a refresher on some common questions about how to properly report these long-lived assets under U.S. Generally Accepted Accounting Principles (GAAP).

What’s included in book value?

PPE is reported on the balance sheet at historical cost. This includes the amount of cash or cash equivalents paid for an asset. Historical cost also may include costs to relocate the asset and bring it to working condition. Examples of capitalized costs include the initial purchase price, sales tax, shipping and installation costs.

Costs incurred during an asset’s construction or acquisition that can be directly traced to preparing the asset for service also should be capitalized. In addition, costs incurred to replace PPE or enhance its productivity must be capitalized. However, repairs and maintenance costs may be expensed as incurred.

GAAP doesn’t prescribe a dollar threshold for when to capitalize an asset. But, for simplicity, management may set a capitalization threshold as long as it doesn’t materially affect the financial statements. PPE below that threshold may be written off as incurred.

How long is the useful life?

Useful life is the period over which the asset is expected to contribute directly or indirectly to future cash flow. When estimating the useful life of an asset, management should consider all relevant facts and circumstances, such as:

• The asset’s expected use,
• Any legal or contractual time constraints,
• The entity’s historical experience with similar assets, and
• Obsolescence or other economic factors.

What’s the right depreciation method?

Depreciation is meant to allocate the cost of an asset (less any salvage value) over the period it’s in use. GAAP provides the following four depreciation methods:

1. Straight-line,
2. Sum-of-the-years-digits,
3. Units-of-production, and
4. Declining-balance.

For simplicity, many small businesses deviate from GAAP by using the same depreciation method for tax and financial statement purposes. The IRS prescribes specific recovery periods for different categories of PPE and provides accelerated depreciation methods.

Under current tax law, instead of using the standard Modified Accelerated Cost Recovery System (MACRS) depreciation method, certain entities currently may choose to immediately deduct a qualified PPE purchase under Section 179 or the bonus depreciation program, thus minimizing taxable income in the years the asset is placed in service. The use of these accelerated depreciation methods may create a large spread between the value of PPE on the balance sheets and the assets’ fair market values.

For more information

Reporting PPE is a gray area in financial reporting that relies on subjective estimates and judgment calls by management. We can help you report these assets in a reliable, cost-effective manner.

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The U.S. Small Business Administration released an updated one-page simplified loan forgiveness application for businesses that received Paycheck Protection Program loans of $150,000 or less. This application applies to both PPP1 and PPP2 loans, but forgiveness for each round must be applied for separately.

Recipients of loans of $150,000 or less will apply for forgiveness using Form 3508S. They will need to disclose the loan amount, the loan disbursement date and covered period dates, number of employees as of the time of the loan application and as of the time of forgiveness, and amount of funds spent on payroll costs. They must also disclose the requested amount of loan forgiveness.

Applicants will not be required to submit any supporting documentation to their lender or the SBA with their forgiveness application; however, they are required to maintain any payroll, nonpayroll or other documents in their records. 

Access the instructions for completing the PPP Loan Forgiveness Application Form 3508S.

Reach out to your Yeo & Yeo professional about your situation. Visit Yeo & Yeo’s COVID-19 Resource Center for ongoing updates and resources available to assist you further.

Yeo & Yeo CPAs & Business Consultants is committed to helping the next generation of leaders maximize their careers. In line with this philosophy, the firm is excited to announce that Jennifer Tobias, CPA, recently graduated from Upstream Academy’s Emerging Leaders Academy.

This three-year leadership development program is a course for accounting firm professionals who show outstanding promise as future firm leaders. The program helps them put their hands on the steering wheel of their careers by giving them the tools, training and resources they need to excel. As part of the program, Jen completed yearly goals, attended Leadership conferences, and tackled a challenging project during each year of the program. 

Jen is the co-leader of Yeo & Yeo’s Death Care Services Group and a member of the Agribusiness and Construction Services Groups. Her areas of expertise include tax planning and preparation, state and local tax research, agribusiness taxation and credits, and preparation of Prepaid Cemetery and Funeral Home Sales Act annual reports. She is a Certified QuickBooks ProAdvisor and a senior manager in the firm’s Kalamazoo office.

Jen is a member of the Michigan Funeral Directors Association’s Suppliers Sales Club, Michigan Farm Bureau – Barry County, and the Farm Financial Standards Council.

In the community, she serves as the 4-H Advisory Council co-treasurer and the Small Animal Sale clerk and committee treasurer for Barry County. She also volunteers for the Western Michigan Home Builders’ Charity Truck Pull and Home Expo.

A new year has arrived and, with it, a fresh 12 months of opportunities to communicate with customers and prospects. Like every year, 2021 brings distinctive marketing trends to the table. The COVID-19 pandemic and resulting economic challenges continue to drive the conversation in most industries. To get more for your marketing dollars, you’ll need to tailor your message to this environment.

Continue to invest in digital

There’s good reason to remind yourself of digital marketing’s continuing value in our brave new world of daily videoconferencing and booming online shopping. It’s affordable and allows you to communicate with customers directly. In addition, it provides faster results and better tracking capabilities.

Consider or re-evaluate strategies such as regularly updating your search engine optimization so your website ranks highly in online searches and more people can find you. Adjust your use of email, text messages and social media to communicate with customers and prospects.

For instance, craft more dynamic messages to introduce new products or special events. Offer “flash sales” and Internet-only deals to test and tweak offers before making them via more expansive (and expensive) media.

Seek out better deals

During boom times, you may feel at the mercy of high advertising rates. In the current uncertain and gradually recovering economy, look for better deals. The good news is that there are many more marketing/advertising channels than there used to be and, therefore, much more competition among them. Paying less is often a matter of knowing where to look.

Track your marketing efforts carefully and dedicate time to exploring new options. For example, podcasts remain enormously popular. Could a marketing initiative that exploits their reach pay dividends? Another possibility is shifting to smaller, less expensive ads posted in a wider variety of outlets rather than engaging in one massive campaign.

Excel at public relations

When the pandemic hit last year, every business had to address current events in their marketing messaging. This stood in stark contrast to decades previous, when companies generally tended to steer clear of the news. Nowadays, public relations is a key component of marketing success. Your customers and prospects need to know that your business is aware of the current environment and adjusting to it.

Ask your marketing department to craft clear, concise but exciting press releases regarding your newest products or services. Then distribute these press releases via both traditional and online channels to complement your marketing efforts. In this manner, you can disseminate trustworthy information and maintain a strong reputation — all at a relatively low cost.

Strengthen ROI

Your company’s marketing dollars need to provide a return on investment just as robust as its budget for production, employment and other key areas. Our firm can help you evaluate your marketing efforts from a financial perspective and identify ways to make those dollars go further.

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The IRS announced it is opening the 2020 individual income tax return filing season on February 12. (This is later than in past years because of a new law that was enacted late in December.) Even if you typically don’t file until much closer to the April 15 deadline (or you file for an extension), consider filing earlier this year. Why? You can potentially protect yourself from tax identity theft — and there may be other benefits, too.

How is a person’s tax identity stolen?

In a tax identity theft scheme, a thief uses another individual’s personal information to file a fraudulent tax return early in the filing season and claim a bogus refund.

The real taxpayer discovers the fraud when he or she files a return and is told by the IRS that the return is being rejected because one with the same Social Security number has already been filed for the tax year. While the taxpayer should ultimately be able to prove that his or her return is the legitimate one, tax identity theft can be a hassle to straighten out and significantly delay a refund.

Filing early may be your best defense: If you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.

Note: You can get your individual tax return prepared by us before February 12 if you have all the required documents. It’s just that processing of the return will begin after IRS systems open on that date.

When will you receive your W-2s and 1099s?

To file your tax return, you need all of your W-2s and 1099s. January 31 is the deadline for employers to issue 2020 Form W-2 to employees and, generally, for businesses to issue Form 1099s to recipients of any 2020 interest, dividend or reportable miscellaneous income payments (including those made to independent contractors).

If you haven’t received a W-2 or 1099 by February 1, first contact the entity that should have issued it. If that doesn’t work, you can contact the IRS for help.

How else can you benefit by filing early? 

In addition to protecting yourself from tax identity theft, another benefit of early filing is that, if you’re getting a refund, you’ll get it faster. The IRS expects most refunds to be issued within 21 days. The time is typically shorter if you file electronically and receive a refund by direct deposit into a bank account.

Direct deposit also avoids the possibility that a refund check could be lost, stolen, returned to the IRS as undeliverable or caught in mail delays.

If you haven’t received an Economic Impact Payment (EIP), or you didn’t receive the full amount due, filing early will help you to receive the amount sooner. EIPs have been paid by the federal government to eligible individuals to help mitigate the financial effects of COVID-19. Amounts due that weren’t sent to eligible taxpayers can be claimed on your 2020 return.

Do you need help?

If you have questions or would like an appointment to prepare your return, please contact us. We can help you ensure you file an accurate return that takes advantage of all of the breaks available to you.

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The State of Michigan has allocated $55 million to implement the Michigan Small Business Survival Grant Program to support the needs of businesses that have been impacted by COVID-19. Eligible businesses can receive grants of up to $20,000 if they were completely closed, or up to $15,000 if they were partially closed, as a result of the November 2020 and December 2020 Gatherings and Face Mask Order, need working capital to cover business-related expenses and can demonstrate an income loss.

The grant application will open at 9:00 a.m. on Tuesday, January 19, 2021, and close on Friday, January 22, at noon. 

The application will be available here: https://www.michiganbusiness.org/survival

Eligibility Requirements

To be eligible for funding under this program, small businesses must be a for-profit or nonprofit company and meet all criteria below.

• 1 to 100 employees (including full-time, part-time and owner/employees) worldwide as of November 17, 2020.
• Is in an industry that demonstrates it is affected by the Order.
• Needs working capital to support payroll expenses, rent, mortgage payments, utility expenses, or other similar expenses.
• Demonstrates an income loss due to the Order as determined by the Economic Development Organization (EDO) in which an eligible business is located.
• Is not a live music and entertainment venue that is eligible for funds under section 401 of Senate Bill No. 748: Michigan Stages Survival Grant Program.

Industries Affected by the Order

Eligible businesses disproportionately impacted by COVID-19 and the Gatherings and Mask Order will largely fall into one of the categories below. However, businesses in other industries may be considered if they can demonstrate they meet the eligibility, at the EDO’s discretion, particularly if the Gatherings and Mask Order impacted them. 

• Food service establishments (such as restaurants and bars, coffee, bakeries, catering, breweries, distilleries, wineries, tea shops, banquet facilities, and other food and beverage service providers)
• Retail (such as boutiques, bookstores, hardware, anything being sold that is not food)
• Exercise facilities (such as gyms, studios, pool facilities, ice skating rinks, organized sports)
• Entertainment venues or live event venues that are not eligible for the Michigan Stages Survival Grant as defined in SB 748
• Recreational facilities and places of public amusement (such as bowling alleys, arcades, bingo halls)
• Nonprofits (such as libraries, museums, churches, religious centers, advocacy organizations)
• Personal care services (such as hair, nail, tanning, massage, spa)
• Schools
• Childcare and camps
• Transportation (such as limo services)
• Other (applicant must specify in the application)

Program Overview

Grant funding has been distributed to 15 local or nonprofit economic development organizations (EDO). Each local EDO will review submitted applications from businesses located in their area and provide grants to eligible small businesses that need working capital to support payroll expenses, rent, mortgage payments, utility expenses, or other similar expenses. EDOs will be responsible for accepting, reviewing and approving applications, and ultimately, awarding and disbursing grant funds to the selected businesses.

Visit https://www.michiganbusiness.org/survival for the list of local EDOs, funding allocations and contact information.

How to Prepare to Apply

Please review the following documents to help prepare for the application.

• Frequently Asked Questions
• MEDC Press Release (1/14/21)
• A business may create an account in Connect Space in advance of the application opening or already have an account. Visit https://pmbc.connect.space and click “Sign Up Now” to create an account. A Connect Space account is required to apply, and only applications submitted online will be accepted. Physical or emailed copies of the application will not be accepted.

Grant Timeline

• The application period will open on Tuesday, January 19, at 9:00 a.m. and close at noon on Friday, January 22.
• All applications will be reviewed and scored beginning on Monday, January 25.
• January 29 – February 28: Funds disbursed
• If the EDOs do not disburse any funds by February 28, funds will be returned to the Michigan Strategic Fund for reallocation to one or more EDOs for disbursement to eligible businesses by April 30, 2021.

Please visit https://www.michiganbusiness.org/survival for complete program details and a video to help you prepare. Contact your Yeo & Yeo professional if you need assistance.

Yeo & Yeo CPAs & Business Consultants is pleased to announce the promotion of two associates.

Andrew Matuzak, CPA, PFS, has been promoted to Senior Manager. Matuzak joined Yeo & Yeo in 2011 and is co-leader of the Trust/Estate/Gift Tax Services Group and the Death Care Services Group. He provides tax planning and preparation services for individuals, trusts and estates. He helps clients consider tax implications, wealth transfer options and family concerns to create plans that will provide for their lifetime needs. He holds a Bachelor of Professional Accountancy from Saginaw Valley State University. In the community, Matuzak serves as president-elect of the Rotary Club of Saginaw Valley and as treasurer of the Thomas Township Business Association. He is also a member of the Saginaw Valley State University Advisory Board Committee and the Saginaw Valley Young Professionals Network.

Sophia Alexander, CPA, has been promoted to Manager. Alexander has more than six years of public accounting experience. Her areas of expertise include audits for school districts, nonprofits and for-profit businesses, as well as nonprofit tax returns. She holds a Master of Science in Accounting and a Bachelor of Science in Business Administration from Eastern Michigan University. She is a member of the American Institute of Certified Public Accountants, the Michigan Institute of Certified Public Accountants and the North Carolina Association of Certified Public Accountants.

Auditing standards require a year-end risk assessment. One potential source of risk may be a small business’s reliance on the owner and other critical members of its management team. If a so-called “key person” unexpectedly becomes unable to perform their duties or dies, it could disrupt day-to-day operations, alarm customers, lenders and suppliers, and drain working capital reserves.

Common among small businesses

Turnover is a normal part of operations and no one is indispensable. But filling the shoes of a founder, visionary or rainmaker who unexpectedly leaves a business can be challenging. These risks are usually associated with small businesses, but they can also impact nonprofits and large multinational organizations.

Consider the stock price fluctuations that Apple experienced following the death of innovator Steve Jobs. Fortunately for Apple and its investors, it possessed a well-trained, innovative workforce, a backlog of groundbreaking technology and significant capital to continue to prosper. But other businesses aren’t so lucky. Some small organizations take years to fully recover from the sudden loss of a key person.

Factors to consider

Does your business rely heavily on key people, or is your  management team sufficiently decentralized? The answer requires an evaluation of your management team. Key people typically:

• Handle broad duties,
• Possess specialized training,
• Have extensive experience, or
• Make significant contributions to annual sales.

Other factors to consider include whether an individual has signed personal guarantees in relation to the business and the depth and qualification of other management team members. Generally, companies that sell products are better able to withstand the loss of a key person than are service businesses. On the other hand, a product-based company that relies heavily on technology may be at risk if a key person possesses specialized technical knowledge.

Personal relationships are also a critical factor. If customers and suppliers deal primarily with one key person and that person leaves the company, they may decide to do business with another company. It’s easier for a business to retain customer relationships when they’re spread among several people within the company.

Ways to lower your risk

Your auditor’s risk assessment can help determine accounts and issues that may require special attention during audit fieldwork. The assessment can also be used to help you shore up potential vulnerabilities.

Training and mentoring programs can help empower others to take over a key person’s responsibilities and relationships in case of death or a departure from the business. Likewise, a solid succession plan can help smooth the transition.

Also consider external replacement options. This exercise can help you understand how much it would cost to hire someone with the same knowledge, skills and business acumen as the key person. In addition, a key person life insurance policy can help the company fund a search for a replacement or weather a business interruption following the loss of a key person.

We can help

Key person risks are a real — and potentially significant — possibility, especially for small businesses with limited operating history and charismatic, innovative leaders. Contact us to help identify key people and brainstorm ways to lower the risks associated with them.

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For more information about blockchain, listen to Episodes 10 and 11 of our Everyday Business Podcast.

The term and concept known as “blockchain” is hardly new. This technology surfaced more than a decade ago. Bitcoin, the relatively well-known form of cryptocurrency, has gotten much more attention than blockchain itself, which is the platform on which Bitcoin is exchanged.

One might be tempted to think that, having spent so many years in the shadows, blockchain has missed its opportunity to become widely accepted by businesses. Yet its promise persists, and more and more uses of blockchain might begin to make further inroads into your industry — if it hasn’t already.

A shared ledger

In simple terms, blockchain is a distributed, shared ledger that’s continuously copied and synchronized to thousands of computers. These so-called “nodes” are part of a public or private network.

The ledger isn’t housed on a central server or controlled by any one party. Rather, transactions are added to the ledger only when they’re verified through established consensus protocols. Third-party verification makes blockchain highly resistant to errors, tampering or fraud. The technology uses encryption and digital signatures to ensure participants’ identities aren’t disclosed without permission.

In addition, blockchain has seen increasing usage as an internal means of managing data, logistics, and supply chains. Technology of an internal blockchain is not necessarily shared with the general public but still can create a ledger system for internal needs.

Smart contracts

Blockchain’s ability to produce indelible, validated records establishes trust without the need for intermediaries to settle or authenticate transactions. So, the technology lends itself to a wide variety of uses.

Perhaps the most talked-about functionality of blockchain is smart contracts. These allow parties to create and execute contracts directly using blockchain, with less involvement by lawyers or other intermediaries.

For example, under a simple lease agreement, a business might lease office space through blockchain, paying the deposit and rent in Bitcoin or another cryptocurrency. The system automatically generates a receipt, which is held in a virtual contract between the parties. It’s impossible for either party to tamper with the lease document without the other party being alerted.

The landlord provides the lessee with a digital entry key, and the funds are released to the landlord. If the landlord fails to provide the key by the specified date, the system automatically processes a refund.

Legal protection

Business owners may also encounter blockchain when looking to exercise, secure or defend their legal rights. In litigation, demonstrating that “service of process” has been completed or attempted can be a challenge. Some companies are using blockchain to address this issue.

Process servers in the field use an app to post metadata — such as GPS coordinates, timestamps and device data — to a blockchain, which generates a unique identification code. Lawyers, courts and other interested parties can use the blockchain ID to access service of process data and confirm that information in physical affidavits or other records hasn’t been altered.

Stay tuned

Blockchain continues to beckon forward-thinking business owners with its ability to provide highly efficient and secure transactions — particularly for companies that do business internationally. We can assist you in identifying whether this or other technologies may enable you to better manage your company’s finances.

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For many nonprofits, the Paycheck Protection Program (PPP) loan was much-needed relief received during the fiscal year as they tried to manage the ups and downs of the COVID-19 pandemic. The Small Business Administration offered these loans through lenders participating in the program. If the funds are spent on allowable expenditures and other requirements are met, then the loans are likely eligible for forgiveness. 

While these funds were undoubtedly helpful to nonprofits, the methods to account for them often add question and confusion. Nonprofits have two methods to choose from when recording the loans: 1) debt or 2) conditional contribution. 

Debt method

The debt method is the most straightforward approach. This method requires the loan to be recorded as long-term debt on the books like any other note payable or loan. The loan remains as a liability on the books until the forgiveness is granted, not just filed. Also, accrued interest must be recorded from the loan start date until payments begin. Due to the deferral period of payments (24 weeks + 10 months), the nonprofit may need to develop an amortization schedule based on the loan terms that starts payments after that period. The schedule will determine the amount of principal owed in future years to correctly classify the debt between current and long-term in the financial reports.

Once forgiveness is received, the nonprofit may relieve the loan liability account and record the revenue as grant income. If the entire loan is not forgiven, then the remaining amount will remain as a liability. A new amortization schedule will be created to identify future payments according to the loan terms.

Contribution method

Another method for recording the loan is to consider it a conditional contribution. A contribution is considered conditional if it 1) has a right of return or release and 2) has a barrier. The barrier for this loan is all the forgiveness criteria that must be met. When the nonprofit can adequately prove and support that those barriers or criteria have been met, typically by completing their forgiveness application, the nonprofit is allowed to recognize the loan amount as grant revenue. 

When the loan is received, it is still set up as a liability like the debt method. However, this method allows for the revenue to be recognized before forgiveness, unlike the debt method. Please keep in mind that if the 24-week period has not yet ended at year-end, the support and calculations to confirm that the criteria have been met can be quite complicated. While the method is still allowed if the forgiveness filing has not taken place, this is not the recommended method. The calculation must be done for 24 weeks and will result in FTE reductions if done early, meaning the revenue will never equal the expenses. Also, changes to the PPP loan regulations are not necessarily complete and could change the barriers, thus changing the calculation on the financial statements.

If you have questions regarding your PPP loan recording, please contact us.

• Our client-friendly portals make it easy to transfer information safely and securely. For new users, the setup period may take up to one business day.
• If you need to drop off or pick up documentation, please coordinate that in advance with your Yeo & Yeo professional or local office. Some Yeo & Yeo offices have different procedures in place due to varying office complex restrictions. For drop-offs, consider using our drop box or slot where available. You may also mail documents to our offices, though again, please consider using our portals to transfer information.
• We encourage your Yeo & Yeo professional to send documents for your signature electronically. You may pick up documents or have required documents mailed to you upon request. Please coordinate pick-up with your Yeo & Yeo professional or local office.
• Our professionals are available via email, phone, online meetings and video conferencing. If an in-person meeting is necessary, your Yeo & Yeo professional will work to accommodate it safely.

Attending college is one of the biggest investments that parents and students ever make. If you or your child (or grandchild) attends (or plans to attend) an institution of higher learning, you may be eligible for tax breaks to help foot the bill.

The Consolidated Appropriations Act, which was enacted recently, made some changes to the tax breaks. Here’s a rundown of what has changed.

Deductions vs. credits

Before the new law, there were tax breaks available for qualified education expenses including the Tuition and Fees Deduction, the Lifetime Learning Credit and the American Opportunity Tax Credit.

Tax credits are generally better than tax deductions. The difference? A tax deduction reduces your taxable income while a tax credit reduces the amount of taxes you owe on a dollar-for-dollar basis.

First, let’s look at the deduction

For 2020, the Tuition and Fees Deduction could be up to $4,000 at lower income levels or up to $2,000 at middle income levels. If your 2020 modified adjusted gross income (MAGI) allows you to be eligible, you can claim the deduction whether you itemize or not. Here are the income thresholds:

• For 2020, a taxpayer with a MAGI of up to $65,000 ($130,000 for married filing jointly) could deduct qualified expenses up to $4,000.
• For 2020, a taxpayer with a MAGI between $65,001 and $80,000 ($130,001 and $160,000 for married filing jointly) could deduct up to $2,000.
• For 2020, the allowable 2020 deduction was phased out and was zero if your MAGI was more than $80,000 ($160,000 for married filing jointly).

As you’ll see below, the Tuition and Fees Deduction is not available after the 2020 tax year.

Two credits aligned

Before the new law, an unfavorable income phase-out rule applied to the Lifetime Learning Credit, which can be worth up to $2,000 per tax return annually. For 2021 and beyond, the new law aligns the phase-out rule for the Lifetime Learning Credit with the more favorable phase-out rule for the American Opportunity Tax Credit, which can be worth up to $2,500 per student each year. The CAA also repeals the Tuition and Fees Deduction for 2021 and later years. Basically, the law trades the old-law write-off for the more favorable new-law Lifetime Learning Credit phase-out rule.

Under the CAA, both the Lifetime Learning Credit and the American Opportunity Tax Credit are phased out for 2021 and beyond between a MAGI of $80,001 and $90,000 for unmarried individuals ($160,001 and $180,000 for married couples filing jointly). Before the new law, the Lifetime Learning Credit was phased out for 2020 between a MAGI of $59,001 and $69,000 for unmarried individuals ($118,001 and $138,000 married couples filing jointly).

Best for you

Talk with us about which of the two remaining education tax credits is the most beneficial in your situation. Each of them has its own requirements. There are also other education tax opportunities you may be able to take advantage of, including a Section 529 tuition plan and a Coverdell Education Savings Account.

© 2021

The new Consolidated Appropriations Act (CAA) permits certain smaller businesses who received a PPP loan to take out a Second Draw PPP loan. The PPP funds are also available to first-time applicants. The applications for the second round of Paycheck Protection Program (PPP) loans have opened.

The SBA issued two new Interim Final Rules on January 7, 2021, that finally address PPP loans for farmers.

• A farmer who filed Schedule F and showed less than $100,000 of net profits in 2019, and had no employees, was originally limited to a PPP loan based on net profits. The new law changed the calculation retroactively to be based on gross income instead.
• This means that a farmer may be eligible for an increased loan amount for Round 1. The SBA could recalculate and provide the additional loan amount to the farm through the lending institution. The increase applies only to PPP loans that have not been forgiven.
• A farmer would potentially be eligible for a larger loan amount in Round 2 of PPP based on these new criteria.
• The calculation for the increased loan eligibility becomes more complicated if the Schedule F farmer had W-2 employees. We can help with those calculations if that is your situation. 

We have not received clarification whether those who had a net loss and therefore were ineligible for Round 1 could now apply for Round 2; currently, it appears you had to apply and receive a loan during the first round.

Initially, only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11, and Second Draw PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly after that.

Read more about the loan terms, the simplified application, loan forgiveness and expense deductibility for the second draw PPP loan. Also, see the Small Business Administration’s Paycheck Protection Program page for loan applications and additional information.

We encourage you to apply early because we anticipate funds will run out. The last day to apply will be March 31, 2021. Please contact your SBA lender with questions. If you do not have an SBA lender, you may search for one on this list.

Reach out to your Yeo & Yeo professional if you need help preparing the application or with loan forgiveness.

COVID-19 has shut down many businesses, causing widespread furloughs and layoffs. Fortunately, employers that keep workers on their payrolls are eligible for a refundable Employee Retention Tax Credit (ERTC), which was extended and enhanced in the latest law.

Background on the credit 

The CARES Act, enacted in March of 2020, created the ERTC. The credit:

• Equaled 50% of qualified employee wages paid by an eligible employer in an applicable 2020 calendar quarter,
• Was subject to an overall wage cap of $10,000 per eligible employee, and
• Was available to eligible large and small employers.

The Consolidated Appropriations Act, enacted December 27, 2020, extends and greatly enhances the ERTC. Under the CARES Act rules, the credit only covered wages paid between March 13, 2020, and December 31, 2020. The new law now extends the covered wage period to include the first two calendar quarters of 2021, ending on June 30, 2021.

In addition, for the first two quarters of 2021 ending on June 30, the new law increases the overall covered wage ceiling to 70% of qualified wages paid during the applicable quarter (versus 50% under the CARES Act). And it increases the per-employee covered wage ceiling to $10,000 of qualified wages paid during the applicable quarter (versus a $10,000 annual ceiling under the original rules).

Interaction with the PPP

In a change retroactive to March 12, 2020, the new law also stipulates that the employee retention credit can be claimed for qualified wages paid with proceeds from Paycheck Protection Program (PPP) loans that aren’t forgiven.

What’s more, the new law liberalizes an eligibility rule. Specifically, it expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility.

We can help

These are just some of the changes made to the ERTC, which rewards employers that can afford to keep workers on the payroll during the COVID-19 crisis. Contact us for more information about this tax saving opportunity.

© 2021

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• What is blockchain (1:35)
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In September 2020, the Families First Coronavirus Response Act (FFCRA) was revised to implement the paid sick leave and expanded family and medical leave provisions. Under FFCRA, school districts must provide their employees sick pay for specified reasons related to COVID-19.

View a recording of our webinar for in-depth guidance on:
• Administering sick pay
• Administering family and medical leave
• Managing COVID-19 revenue sources, including ESSER funds, CRF, and FEMA funds.
• Q&A Throughout

View the Presentation Slides

We are pleased to provide resources to help your school district navigate these complex issues. Contact Yeo & Yeo if you need assistance.

This webinar has concluded.