2020 has been an unusual year with the COVID crisis. In addition, there are many new developments that affect businesses.
Business have ten months after the end of their 8- or 24-week forgiveness period to apply for forgiveness. Expenses used to support the forgiveness of the PPP loan are not deductible under current guidance. We expect Congress to change the rule to allow deduction of these expenses, but passage is uncertain. See Appendix II.
Gift and Estate Tax
The gift and estate tax exemption amount is increased until December 31, 2025. The gift tax exclusion for 2020 is $11.58 million. In 2026 the exemption will be cut by about half. The incoming Biden administration has indicated that they want to drastically cut the lifetime exclusion. Taxpayers with large estates should take advantage of the higher exclusion when it is still available.
New 1099 Form
The IRS has created a new Form 1099-NEC. This form should now be used instead of the 1099-MISC for any payments that were previously reported in the non-employee compensation box on the 1099-MISC. Businesses will need to revise their procedures for issuing 1099s to use the correct forms.
The media has focused on the California ballot initiative that fixes the independent contractor issue for Uber and Lyft. However, this initiative only fixes the issue for drivers. Other California workers who perform a function that is within the usual course of the company’s business are still required to be treated as employees. A common example is a consulting company that contracts with remote workers to provide the consulting services. Other states are likely to also enact rules that mimic the California rule. See Appendix I for more information. If a company has employees in California under this rule, that company is also subject to other California tax and reporting requirements (See Appendix I).
Foreign Bank Accounts
The federal government requires special reporting of foreign bank accounts and some financial interests. The law imposes significant penalties (starting at $10,000) for failure to properly report these accounts. If you have any non-US financial interests including foreign bank accounts or if you have signature authority on a foreign bank account for a business or other party, contact us so we can prepare that reporting.
Many rental properties now qualify for a 20% deduction against the income from the property. In order to meet an IRS safe harbor for qualifying for the deduction, taxpayers need to maintain a written log of time spent on the rental activity. We recommend any clients who have income from real estate investments other than properties related to their businesses maintain a log.
Sales & Use Tax Changes
Businesses should keep a watch on the sales and use tax rates. There are frequent changes to these rates and businesses may need to update their POS system to collect the proper taxes.
Unemployment Tax Rate Changes
Employers should make sure they update their payroll providers with unemployment tax rate changes. With all the COVID related activity to the unemployment system, the changes for this year-end are likely to be more significant than most years.
Form W-2s and 1099s
W-2s and 1099s must be issued and filed with the IRS by January 31. Some fringe benefits including personal use of company vehicles must be included in wages. It is important to review the W-2 information in early December to avoid costly payroll re-runs before sending out W-2s. See Appendix III for a summary of year-end payroll issues to address and share the information with your payroll person. You should get a W-9 form from each 1099 vendor and maintain a file of them. See Appendix III for more detail on payroll issues and Appendix IV for 1099 issues. If you would like WhippleWood CPAs to prepare the Form 1099’s for your business, please provide the required information to our office by January 14, 2021.
Click here to view the appendices for the 2020 Year-End Tax Information. If you have any questions about Forms W-2, 1099, or other tax matters feel free to call us. We would be happy to help you.