News Articles

  • Treasury, IRS provide guidance on tax relief for deductions for food or beverages from restaurants
  • New Round of Funding for the Paycheck Protection Program
  • Tax Implications of Expenses Paid with a Forgiven Paycheck Protection Program (PPP) Loan
  • Tax Talk from Leonard J. Miller and Associates, Chartered
  • Maryland Pass-Through Entity Tax Enacted to Overcome State and Local Tax Deduction Limitation
  • Centers of Influence Awards
  • Exit This Way
  • Leonard J. Miller named one of Top 50 CPAs in the Area
  • Recognition By SmartCEO
  • MACPA House Bill 186
  • SmartCEO PodCast

Treasury, IRS provide guidance on tax relief for deductions for food or beverages from restaurants



Businesses can temporarily deduct 100% beginning Jan. 1, 2021

The Treasury Department and the Internal Revenue Service issued Notice 2021-25 on April 8, 2021, providing guidance under the Taxpayer Certainty and Disaster Relief Act of 2020. The Act added a temporary exception to the 50% limit on the amount that businesses may deduct for food or beverages. The temporary exception allows a 100% deduction for food or beverages from restaurants.

Beginning Jan. 1, 2021, through Dec. 31, 2022, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided and the expense is not lavish or extravagant under the circumstances.

Where can businesses get food and beverages and claim 100%?

Under the temporary provision, restaurants include businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption. However, restaurants do not include businesses that primarily sell pre-packaged goods not for immediate consumption, such as grocery stores and convenience stores.

Additionally, an employer may not treat certain employer-operated eating facilities as restaurants, even if these facilities are operated by a third party under contract with the employer.

These changes impact all businesses. Please reach out with any questions you may have.

New Round of Funding for the Paycheck Protection Program

As the impact of COVID-19 continues to be felt across our personal and professional lives, we continue to work hard to support our clients during these unprecedented times and provide timely and relevant updates.

The IRS states in Rev. Rul. 2020-27 that a taxpayer has On December 27, 2020, the president signed the Consolidated Appropriations Act of 2021 (referred to as the “COVID-19 Relief Bill”). This is the latest round of stimulus legislation and is quite possibly the largest piece of legislation ever passed, totaling over 5,000 pages. While there are many key provisions under this omnibus legislation that are designed to provide much-needed relief to small businesses, many of them are in fact legislative efforts to revamp the Paycheck Protection Program (“PPP”). The COVID-19 Relief Bill provides $284 billion to the U.S. Small Business Administration (“SBA”) for both first- and second-draw PPP forgivable small business loans. In addition to PPP funding, it also allocates $20 billion to provide additional Economic Injury Disaster Loan (“EIDL”) grants to businesses in low-income communities.

On January 6, 2021, the SBA issued two interim final rules providing some initial guidance on the PPP-related changes introduced by the COVID-19 Relief Bill. Although it will take considerable time to sort through the legislation’s provisions and relief measures, we are sending you this communication to provide you with some key highlights of the significant PPP-related provisions that may be of interest to you:

Clarifies That Business Expenses Paid with Forgiven PPP Loans Are Tax-Deductible for Federal Tax Purposes

The COVID-19 Relief Bill resolves the tax-deductibility issue for federal income tax returns as it brings them in line with Congress’s intent when it created the original PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). This provision is significant as it supersedes the November 2020 IRS guidance in Revenue Ruling 2020-27, in which the IRS concluded that the expenses paid with PPP loan proceeds are not deductible on a federal income tax return if the loan was forgiven or if at the end of the tax year the taxpayer had a reasonable expectation that the loan would be forgiven. However, while this provision is good news overall, not all states have conformed to the tax-deductible treatment for expenses paid with forgiven PPP loans. Therefore, in states that have not conformed to this federal law, taxpayers will need to reduce their deductions on those state returns.

Provides a New Round of Funding for First-Time PPP Borrowers

Eligible small businesses who were not able to receive a PPP loan in the first round of funding before that program expired on August 8, 2020, will again have an opportunity to apply for a PPP loan. PPP loans for new applicants are expected to be subject to many of the program rules that were in place in the two initial rounds of funding. Subject to availability of funds, PPP loans will be available through March 31, 2021.

Creates a Second-Draw Option on PPP Loans for Eligible Small Businesses

Small businesses that previously received a PPP loan may be eligible for a second-draw PPP loan if the business used all of its first-round PPP funds. Second-draw PPP loans cannot exceed $2,000,000 and are limited to small businesses with 300 or fewer employees and that can demonstrate a loss of 25% of gross receipts in any quarter during 2020 when compared to the same 2019 quarter.

Expands What Is Considered Eligible and Forgivable Expenses

In addition to payroll, rent, utilities, and interest on mortgages that are permitted expenses under the CARES Act, the COVID-19 Relief Bill allows for small businesses to use PPP proceeds for additional expenses such as personal protective equipment for employees; costs associated with outdoor dining; supplier costs; costs associated with software and cloud computing; other human resources and accounting needs; and property damage costs due to public disturbances that occurred during 2020 that are not covered by insurance.

Provides Greater Flexibility with the Loan Forgiveness Covered Period

The COVID-19 Relief Bill changed the loan forgiveness covered period from either an 8- or 24-week period to a covered period between 8 and 24 weeks at the election of the PPP borrower.

Creates a Simplified Forgiveness Process for PPP Loans Under $150,000

Under the terms of the COVID-19 Relief Bill, the SBA is to create a simplified application form within 24 days of the bill’s enactment date.

Permits PPP Borrowers to Claim the Employee Retention Credit

Under the CARES Act, a business that took a PPP loan did NOT qualify for the Employee Retention Credit, which was a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis. Under the COVID-19 Relief Bill, PPP loan recipients will now be allowed to claim the Employee Retention Credit.

Repeals the Provision Under the CARES Act That Reduced PPP Forgiveness by the Amount of Any EIDL Advances

The Paycheck Protection Program has already gone through several significant updates and changes since its inception in March 2020. From a small business perspective, the COVID-19 Relief Bill provides increased PPP funding and eligibility to small businesses hit hard by the impacts of COVID-19. However, with the increased funding and eligibility comes added complexity, as many of the new PPP provisions are nuanced and contain exceptions or modifications applicable only to certain businesses. As such, the SBA will need to issue new forms, as well as provide further guidance and clarification on many aspects of the above referenced PPP-related provisions contained in this relief bill.

It is important to note as well that the COVID-19 Relief Bill also contains a multitude of tax provisions designed to provide added relief to small businesses that are beyond the scope of this communication. Given the legislative guidance currently available as of the date of this communication there may be limitations associated with the availability of certain economic and tax relief provisions to your business.

Take Action Now!

The economic and tax relief provisions of the COVID-19 Relief Bill are complex and need to be applied to specific factual situations. We strongly encourage you to take immediate action to review your business situation and financing needs carefully as some of the options available to your company are time sensitive.

We recognize that these are difficult times and remain committed to supporting you. If you would like our assistance with evaluating certain tax and/or economic relief measures under the COVID-19 Relief Bill, please contact us.

Regards,
Leonard J. Miller & Associates, Chartered
425 Saint Paul Place, Baltimore, MD 21202
Telephone: (410) 539-4600

Tax Implications of Expenses Paid with a Forgiven Paycheck Protection Program (PPP) Loan

The Internal Revenue Service (IRS) recently issued Revenue Ruling 2020-27 which provides that expenses paid with Paycheck Protection Program (PPP) loan proceeds are not deductible in the tax year paid or incurred, if at the end of the tax year the taxpayer has a “reasonable expectation of forgiveness.” As a result, many calendar-year taxpayers that received a PPP loan will have additional income to report on their 2020 tax return if they wish to be in accord with IRS guidance.

The IRS states in Rev. Rul. 2020-27 that a taxpayer has a reasonable expectation of forgiveness if he/she intends to apply for loan forgiveness. Therefore, unless a taxpayer has decided not to file for loan forgiveness, the taxpayer is presumed to have a reasonable expectation of forgiveness.

Subsequent to the IRS’s ruling, several members of Congress have expressed concern with the IRS’s position and have made it clear that the congressional intent in the CARES Act was to ensure that PPP loan recipients whose loans are forgiven are not required to treat the proceeds as taxable income. Thus, they are strongly encouraging the IRS to reconsider its position on the deductibility of these expenses, and the timing of those deductions, to provide relief to the small businesses that need it most. In addition, there may be state income tax implications as many states have not conformed to the federal government’s tax treatment of PPP loans or related forgiveness.

Although there is a possibility that congressional action could reverse the IRS position, its likelihood remains uncertain. Given the potential of penalties for underpayment of estimated tax because of the disallowance of the related expenses, our firm believes impacted taxpayers should take proactive action. In order to avoid underpayment of estimated tax penalties, taxpayers should increase their withholding or estimated tax payments to satisfy the prior-year tax safe harbor rules (100% / 110% of 2019).

If you have applied, intend to apply, or are undecided as to whether to apply for PPP loan forgiveness, then, absent further guidance, you should consider the following options for the filing of your 2020 federal income tax return:

  • Extend your tax return to allow additional time for congressional action in opposition to the IRS position.
  • File your tax return based on Notice 2020-32 and Revenue Ruling 2020-27 guidance by NOT deducting expenses paid with forgiven PPP loan proceeds. If the current IRS position is reversed, you can file an amended return to claim these deductions.
  • File your tax return taking a deduction for expenses but disclose (i.e., file IRS Form 8275) a position that is contrary to current IRS guidance. Disclosure helps to avoid the imposition of penalties if the IRS ultimately disagrees with the position but likely increases the taxing authority’s scrutiny of your return.
  • Choose not to apply for the PPP loan forgiveness and deduct the expenses as usual.
  • Immediate Action Required
    Given the uncertainty that exists with the conflict between the current tax guidance as promulgated by the IRS and the congressional intent of the PPP, we strongly encourage you to reach out to us as soon as possible for some tax planning guidance to help minimize your risk for the potential underpayment of estimated tax penalties because of the disallowance of the related PPP expenses. Again, to avoid underpayment of estimated tax penalties, you may need to increase your estimated tax payments for the 2020 tax year as soon as possible to satisfy the prior-year tax safe harbor rules.

    If you have any questions regarding this communication or if you need assistance in determining the impact of these rules to your specific tax situation, please contact us at 410-539-4600. We recognize that these are difficult and uncertain times, and we remain committed to supporting you.

    Regards,
    Leonard J. Miller & Associates, Chartered
    425 Saint Paul Place, Baltimore, MD 21202
    Telephone: (410) 539-4600

    Tax Talk from Leonard J. Miller and Associates, Chartered

    If you have your supply of masks and you keep a social distance when in public, you are taking measures to provide for your and your family’s wellbeing. But is that enough? Are there other things you can do to plan for your future? The answer is a resounding Yes.

    Given the current uncertain political and economic environment, here are some of the things to be considering:

    1. Your retirement plan distributions – Due to the pandemic, required minimum distributions from IRAs and defined contribution plans like 401(k)s and 403(b)s are suspended for 2020. If you have taken a distribution but decide it was not prudent, you can put it back into your account. You can also roll it over to another qualified retirement plan account. The deadline to do this is the later of August 31, 2020 or 60 days after the distribution was taken.

    With this rule in mind, the next step is to determine if it makes sense to refrain from taking a retirement plan distribution or to put it back if you already took it. Factors to consider:

  • You need the money to live. If this is the case, putting the money back is not a good option unless you can find the money elsewhere.
  • Your tax bracket for 2020. Is your income expected to be lower in 2020? Will that mean that you are in a lower tax bracket? The retirement plan withdrawal requirement is suspended for 2020 but that means future years’ withdrawals will be higher than they otherwise would be. So consider your tax bracket for 2020 compared to future years.
  • No one has a crystal ball but many concur that future tax rates will be higher, maybe much higher, than they are today. So might it be better to pay the taxes on withdrawal at a lower rate in 2020 rather than at a higher rate later?
  • 2. Your estate plan – With elections slated for November, burgeoning federal and state deficits, and a national sentiment moving toward equalizing opportunities, estate taxes may increase. What can you do now to protect yourself?

  • Review your estate plan, including wills, trusts, and retirement plan designations. The federal estate tax exemption is currently $11,580,000. Does your estate plan make the best use of the exemptions? What if Congress lowers it to $5,000,000? To $3,500,000? Are there things you can be doing now to protect yourself?
  • The gift tax exemption is the same as the estate tax exemption for 2020. Does it make sense to give some of your assets away now? If yes, should they be placed in trust to protect them? Should they be placed in trusts to which you have access?
  • Are your powers of attorney up to date? Does the appropriate person have control over your assets in the event of your disability or illness? Are your health care powers of attorney up to date naming the one you trust to make health care decisions for you?
  • Please contact Myrna Mitnick or Len Miller. We are available to discuss these matters and much more.

    Regards,
    Leonard J. Miller & Associates, Chartered
    425 Saint Paul Place, Baltimore, MD 21202
    Telephone: (410) 539-4600

    Maryland Pass-Through Entity Tax Enacted to Overcome State and Local Tax Deduction Limitation

    With other headlines grabbing your attention this May, you may have missed an important tax development that could benefit you in 2020 and in future years.

    On May 8th, 2020, a new Maryland law was enacted to allow a Pass-Through Entity (PTE) such as an S-corporation, partnership, or multi-member LLC to pay Maryland income taxes on its taxable income on behalf of its Maryland resident owners. If an entity elects to pay those taxes, the individual owners can claim a credit on their Maryland income tax returns as an offset to their Maryland tax liability.

    In enacting this law, Maryland joins several other states in helping its residents obtain the benefit of a deduction for state and local income taxes, without being limited to $10,000 per year cap on the deduction.

    Key facts and implications:

  • Entities can elect to pay MD income tax on behalf of owners
  • Unless challenged by the IRS, provides a full deduction of taxes on entity’s federal return
  • Individuals may claim a credit on their MD return for taxes paid by entity
  • Effective date: July 1, 2020
  • Applicable to all tax years beginning after Dec. 31, 2019
  • Each situation will need to be evaluated to see if and how law can benefit you
  • Entity owners may be able to reduce or eliminate 2020 MD estimated tax payments
  • We are currently awaiting the Comptroller’s issuance of regulations to provide more details on the mechanics of this new law. Once there is clarification, we will be better able to advise you.
    Please contact us with any questions on how this might apply to you.

    Regards,
    Leonard J. Miller & Associates, Chartered
    425 Saint Paul Place, Baltimore, MD 21202
    Telephone: (410) 539-4600

    Centers of Influence Awards

    Baltimore SmartCEO celebrated Baltimore’s top advisors at the 2016 Centers of Influence Awards, which took place on Oct. 25, 2016 at The Grand. The Centers of Influence Awards program honors the leadership, innovation, impact and success of the Baltimore region’s most enterprising accountants, attorneys and bankers. This year’s honorees average more than 22 years of experience in their professions and work for firms that employ more than 100,000 individuals. Leonard J. Miller was recognized as a Center of Influence honoree. Additionally, the 2016 Centers of Influence Award honorees were profiled in the September/October issue of Baltimore SmartCEO magazine.

    Exit This Way

    Whether you plan to exit your business now or 25 years from now, We’ve assisted small family businesses with transition and large Fortune 500 companies with valuation and sale. We are among a very select group of Certified Business Exit Consultants. Make sure your adviser is certified to provide you the most experience and training with your plans. Call us today for guidance! All accounting firms can give you answers…we give you ideas.®

    Leonard J. Miller named one of Top 50 CPAs in the Area

    Leonard J. Miller is one of the few accountants to be three times selected by SmartCEO magazine as a SMART CPA. He was one of the top 50 CPAs in 2006 and one of the top 40 in 2008 in the Baltimore-Washington area. According to the magazine, "Winners were chosen based on their leadership, their innovation and their impact on the community and profession, their accomplishments and their years of service." Thousands of extraordinary certified public accountants work in the Greater Baltimore-Washington Area, but the SmartCPA award in Baltimore Smart CEO magazine recognizes the "top go-to professionals in the field" The magazine sent an official ballot to CPAs in the region asking them to identify the names of peers they consider to be the best of the best at their craft. Hundreds of ballots were counted and winners were selected based on their expertise, leadership, innovation, accomplishments and relationship development. The winners are highlighted in special SmartCPA report in the July 2006, September 2008 and September 2012 issue of Baltimore Smart CEO and Washington Smart CEO magazine. Len was also recently recognized as a Baltimore 2011 and 2012 five star wealth manager in Baltimore Magazine.

    Recognition By SmartCEO

    John F. Eikenberg Jr. is one of the few accountants to be recognized by SmartCEO magazine as a SMART CPA. John is listed in the September 2012 issue as one of the Greater Baltimore Region's Top Accountants as selected by SmartCEO readers. According to the magazine, "These CPA superstars have the traits necessary for success, for themselves and for those they advise: an ethical foundation, attention to detail and a rational, objective point of view in advising clients. Once our readers find a CPA who clicks for their company, they often stay with them for years - and even decades - to come." Thousands of certified public accountants work in the Greater Baltimore-Washington Area, but the SmartCPA Readers' Choice award in Baltimore Smart CEO magazine recognizes the top go-to professionals in the field. "These advisors with a knack for numbers have made huge impacts, not only on their own industry but in the lives of the region's top business executives, by helping them grow their companies year after year.

    MACPA House Bill 186

    Myrna Mitnick, CPA, MBA, PFS, of Leonard J. Miller & Associates, Chtd., testified before the House Ways and Means Committee on behalf of the MACPA in support of House Bill 186, “Estate Tax: Recoupling with Federal Law,” sponsored by Del. Susan Krebs. The MACPA has long supported efforts to recouple the estate tax in Maryland.

    SmartCEO PodCast

    As a generation of CEOs approach retirement age, many are seeking advice on the best way to exit their businesses. SmartCEO gathered Baltimore’s veteran CEOs and exit planning advisers to discuss how to align your exit strategy with your goals, maximize the value of your business and ensure a smooth transition to new leadership. Listen to the podcast, or read more in Baltimore SmartCEO’s April 2013 issue. Roundtable hosted in partnership with HighTower’s Kelly Wealth Management.