2023- Last-Minute Year-End General Business Income Tax Deductions

Dear Client:

The purpose of this letter is to reveal how you can get the IRS to owe you money.

Of course, the IRS will not likely 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 six powerful business tax deduction strategies you can easily understand and implement before the end of 2023.

1. Prepay Expenses Using the IRS Safe Harbor

You just have to thank the IRS for its tax-deduction safe harbors.

IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS.

Under this safe harbor, your 2023 prepayments cannot go into 2024. This makes sense, because you can prepay only 12 months of qualifying expenses under the safe-harbor rule.

For a cash-basis taxpayer, qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.

Example. You pay $3,000 a month in rent and would like a $36,000 deduction this year. So on Friday, December 29, 2023, you mail a rent check for $36,000 to cover all of your 2024 rent. Your landlord does not receive the payment in the mail until Tuesday, January 2, 2024. Here are the results:

  • You deduct $36,000 this year (2023—the year you paid the money).
  • The landlord reports $36,000 as rental income in 2024 (the year he received the money).

You get what you want—the deduction this year.

The landlord gets what he wants—next year’s entire rent in advance, eliminating any collection problems while keeping the rent taxable in the year he expects it to be taxable.

2. Stop Billing Customers, Clients, and Patients

Here is one rock-solid, straightforward strategy to reduce your taxable income for this year: stop billing your customers, clients, and patients until after December 31, 2023. (We assume here that you or your corporation is on a cash basis and operates on the calendar year.)

Customers, clients, and insurance companies generally don’t pay until billed. Not billing customers and clients is a time-tested tax-planning strategy that business owners have used successfully for years.

Example. Jake, a dentist, usually bills his patients and the insurance companies at the end of each week. This year, however, he sends no bills in December. Instead, he gathers up those bills and mails them the first week of January. Presto! He postponed paying taxes on his December 2023 income by moving that income to 2024.

3. Buy Office Equipment

Increased limits on Section 179 expensing now enable 100 percent write-offs on most equipment and machinery, whereas bonus depreciation enables 80 percent write-offs. Either way, when you buy your equipment or machinery and place it in service before December 31, you can get a big write-off this year.

Qualifying Section 179 and bonus depreciation purchases include new and used personal property such as machinery, equipment, computers, desks, chairs, and other furniture (and certain qualifying vehicles).

4. Use Your Credit Cards

If you are a single-member LLC or sole proprietor filing Schedule C for your business, the day you charge a purchase to your business or personal credit card is the day you deduct the expense. Therefore, as a Schedule C taxpayer, you should consider using your credit card for last-minute purchases of office supplies and other business necessities.

If you operate your business as a corporation, and if the corporation has a credit card in the corporate name, the same rule applies: the date of charge is the date of deduction for the corporation.

But suppose you operate your business as a corporation and are the personal owner of the credit card. In that case, the corporation must reimburse you if you want the corporation to realize the tax deduction, which happens on the reimbursement date. Thus, submit your expense report and have your corporation make its reimbursements to you before midnight on December 31.

5. Don’t Assume You Are Taking Too Many Deductions

If your business deductions exceed your business income, you have a tax loss for the year. With a few modifications to the loss, tax law calls this a “net operating loss,” or NOL.

If you are just starting your business, you could very possibly have an NOL. You could have a loss year even with an ongoing, successful business.

You used to be able to carry back your NOL two years and get immediate tax refunds from prior years, but the Tax Cuts and Jobs Act (TCJA) eliminated this provision. Now, you can only carry your NOL forward, and it can only offset up to 80 percent of your taxable income in any one future year.

What does this all mean? Never stop documenting your deductions, and always claim all your rightful deductions. We have spoken with far too many business owners, especially new owners, who don’t claim all their deductions when those deductions would produce a tax loss.

6. Deal with Your Qualified Improvement Property (QIP)

QIP is any improvement made by you to the interior portion of a building you own that is non-residential real property (think office buildings, retail stores, and shopping centers)—if you place the improvement in service after the date the building was placed in service.

The big deal with QIP is that it’s not considered real property that you depreciate over 39 years. QIP is 15-year property, eligible for

  • immediate deduction using Section 179 expensing, and
  • 80 percent bonus and MACRS depreciation.

To get the QIP deduction in 2023, you need to place the QIP in service on or before December 31, 2023.

I trust that you found the six ideas above worthwhile. If you want to discuss any of them, please call me on my direct line (510-417-7050).

Sincerely,

Safwat Said, CPA

2023 Last-Minute Year End Retirement Deductions

2023 Last-Minute Year End Retirement Deductions

Dear Client:

The clock continues to tick. Your retirement is one year closer.

You have time before December 31 to take steps that will help you fund the retirement you desire. Here are five things to consider.

1. Establish Your 2023 Retirement Plan

First, a question: Do you have your (or your corporation’s) retirement plan in place? 

If not, and if you have some cash you can put into a retirement plan, get busy and put that retirement plan in place so you can obtain a tax deduction for 2023.

For most defined contribution plans, such as 401(k) plans, you (the owner-employee) are both an employee and the employer, whether you operate as a corporation or as a sole proprietorship. And that’s good because you can make both the employer and the employee contributions, allowing you to put a good chunk of money away.

2. Claim the New, Improved Retirement Plan Start-Up Tax Credit of up to $15,000

By establishing a new qualified retirement plan (such as a profit-sharing plan, 401(k) plan, or defined benefit pension plan), a SIMPLE IRA plan, or a SEP, you can qualify for a non-refundable tax credit that’s the greater of

  • $500 or
  • the lesser of (a) $250 multiplied by the number of your non-highly compensated employees who are eligible to participate in the plan, or (b) $5,000.

The law bases your credit on your “qualified start-up costs.” For the retirement start-up credit, your qualified start-up costs are the ordinary and necessary expenses you pay or incur in connection with

  • the establishment or administration of the plan, and
  • the retirement-related education of employees for such plan.

3. Claim the New 2023 Small Employer Pension Contribution Tax Credit (up to $3,500 per Employee)

The SECURE 2.0 passed in 2022 added an additional credit for your employer retirement plan contributions on behalf of your employees. The new up-to-$1,000-per-employee tax credit begins with the plan start date.

The new credit is effective for 2023 and later.

Exception. The new $1,000 credit is not available for employer contributions to a defined benefit plan or elective deferrals under Section 402(g)(3).

In the year you establish the plan, you qualify for a credit of up to 100 percent of your employer contribution, limited to $1,000 per employee. In subsequent years, the dollar limit remains at $1,000 per employee, but your credit is limited to:

  • 100 percent in year 2
  • 75 percent in year 3
  • 50 percent in year 4
  • 25 percent in year 5
  • No credit in year 6 and beyond

Example. You establish your retirement plan this year and contribute $1,000 to each of your 30 employees’ retirement. You earn a tax credit of $30,000 ($1,000 x 30).

If you have between 51 and 100 employees, you reduce your credit by 2 percent per employee in this range. With more than 100 employees, your credit is zero.

Also, you earn no credit for employees with 2023 wages in excess of $100,000. In future years, the $100,000 will be adjusted for inflation.

4. Claim the New Automatic Enrollment $500 Tax Credit for Each of Three Years ($1,500 Total)

The first SECURE Act added a non-refundable credit of $500 per year for up to three years, beginning with the first taxable year (2020 or later) in which you, as an eligible small employer, include an automatic contribution arrangement in a 401(k) or SIMPLE plan.

The new $500 auto-contribution tax credit is in addition to the start-up credit and can apply to both newly created and existing retirement plans. Further, you don’t have to spend any money to trigger the credit. You just need to add the auto-enrollment feature (which does contain a provision that allows employees to opt out).

5. Convert to a Roth IRA

Consider converting your 401(k) or traditional IRA to a Roth IRA.

You first need to answer this question: How much tax will you have to pay to convert your existing plan to a Roth IRA? With this answer, you now know how much cash you need on hand to pay the extra taxes caused by the conversion to a Roth IRA.

Here are four reasons you should consider converting your retirement plan to a Roth IRA:

  1. You can withdraw the monies you put into your Roth IRA (the contributions) at any time, both tax-free and penalty-free, because you invested previously taxed money into the Roth account.
  2. You can withdraw the money you converted from the traditional plan to the Roth IRA at any time, tax-free. (But if you make that conversion withdrawal within five years of the conversion, you pay a 10 percent penalty. Each conversion has its own five-year period.)
  3. When you have your money in a Roth IRA, you pay no tax on qualified withdrawals (earnings), which are distributions taken after age 59 1/2, provided you’ve had your Roth IRA open for at least five years.
  4. Unlike with the traditional IRA, you don’t have to receive required minimum distributions from a Roth IRA when you reach age 72—or to put this another way, you can keep your Roth IRA intact and earning money until you die. (After your death, the Roth IRA can continue to earn money, but someone else will be making the investment decisions and enjoying your cash.)

If you would like my help with any of the above, please call me on my direct line at 510-417-7050.

Sincerely,

Safwat Said,CPA

Section 1031 Exchange VS. Qualified Opportunity Zone Funds: Which is Better?

Dear Client:

Have you sold, or are you planning to sell commercial or rental property?

To avoid immediately paying capital gains tax on your profit, you have options:

  • Deferring the capital gains tax using a Section 1031 exchange
  • Deferring the capital gains tax using a qualified opportunity zone fund

With a Section 1031 exchange, you sell your property and invest all the proceeds in

another like-kind replacement property of equal or greater value.

With a qualified opportunity fund, you don’t acquire another property. Instead, you invest in a corporation, partnership, or LLC that pools money from investors to invest in property in areas designated by the government as qualified opportunity zones. Most qualified opportunity funds invest in real estate.

Which is better? It depends on your goals. There is no one right answer for everybody.

A Section 1031 exchange is preferable to a qualified opportunity fund investment if your goal is to hold the replacement property until death, when your estate will transfer it to your heirs. They’ll get the property with a basis stepped up to current market value, and then they can sell the property immediately, likely tax-free.

In contrast, your investment in a qualified opportunity fund requires that you pay your deferred capital gains tax with your 2026 tax return. That’s the bad news (only four years of tax deferral).

The good news: if you hold the qualified opportunity fund for 10 years or more, there’s zero tax on the appreciation.

In contrast, if you sell your Section 1031 replacement property, you pay capital gains tax on the difference between the original property’s basis and the replacement property’s sale amount.

And if you’re looking to avoid the headaches and responsibilities that come with ownership of commercial or rental property, the qualified opportunity fund does that for you.

If you’re looking for liquidity, the qualified opportunity fund gives you that because you need to invest only the capital gains to defer the taxes. With the 1031 exchange, you must invest the entire sales proceeds in the replacement property to avoid any capital gains tax.

Of course, you want your investment to perform. Make sure to do your due diligence, whatever your choice.

If you want to discuss Section 1031 exchanges or opportunity funds, please call me on my direct line at 10-417-7050.

Sincerely

Safwat Said, CPA

Section 1202 QSBC

Dear Client:

Section 1202 allows you to sell a qualified small business corporation (QSBC) on a tax-free basis.

Now, add to this no-tax-on-sale benefit to the 21 percent corporate tax rate from the Tax Cuts and Jobs Act, and you have a significant tax planning opportunity.

Imagine this: You sell your C corporation. The sale produces a $6 million capital gain to you.

Your federal income tax bite on the $6 million of gain is zero. Yes, you are awake. You are reading this correctly. The tax bite is zero.

Internal Revenue Code Section 1202 establishes the rules for the zero tax bite. To get to zero, you need to operate your business as a tax code-defined QSBC.

You may already have a tax code-defined small business corporation, or you may be thinking of starting a new business as a small business corporation. Paying zero taxes on the sale of your business stock is a big incentive.

100 Percent Gain Exclusion Break (Tax-Free Capital Gains)  

To qualify for tax-free capital gains, you must acquire your QSBC stock after September 27, 2010.

More Than Five Years

Of course, there’s more than one rule. You must hold your QSBC stock for more than five years to qualify for the tax-free treatment.

Limitations on Excludable Gains

Your beloved lawmakers impose limits on your tax-free capital gains from the sale of a particular QSBC. In any taxable year, the tax limits on your eligible gain exclusion may not exceed the greater of

  • 10 times the aggregate adjusted basis in the QSBC stock you sell, or
  • $10 million reduced by the amount of eligible gains that you’ve already taken into account in prior tax years from sales of this QSBC stock ($5 million if you use married filing separate status).

Example 1: $10 Million Limitation

You are a married joint filer. You invested $100,000 when you started your C corporation in 2012.

Now, in 2019 (more than five years after the start), you sell the stock in the C corporation for $6.1 million. You have tax-free capital gains equal to the greater of

  1. $1 million (10 x $100,000), or
  2. $6 million (because it’s less than $10 million).

You have $6 million of tax-free capital gains.

Example 2: 10-Times-the-Basis Limitation

You are an unmarried individual. You invest $2 million in a single QSBC stock this year.

In 2025, more than five years from now, you sell this stock for $24 million, resulting in a total gain of $22 million ($24 million – $2 million). The tax code limits your tax-free gain to the greater of

  • $20 million (10 times the basis of the stock), or
  • $10 million.

In 2025, you have $20 million in tax-free capital gains and $2 million in taxable capital gains. You have to be smiling.

Definition of QSBC Stock

To be eligible for the QSBC gain exclusion, the stock you acquire must meet the requirements set forth in Section 1202 of our beloved Internal Revenue Code. Those requirements include the following:

  • You generally must acquire the stock upon original issuance or through gift or inheritance.
  • You must acquire the stock in exchange for money, other property (not including stock), or services.
  • The corporation must be a QSBC at the date of the stock issuance and during substantially all the period you hold the stock.

Next, you have to look at the rules that apply to the corporation. To qualify as a QSBC, the following rules apply.

Rules for the Corporation

The corporation must be a domestic C corporation.

The corporation must satisfy an active business requirement. That requirement is deemed satisfied if at least 80 percent (by value) of the corporation’s assets are used in the active conduct of a qualified business.

Beware. Qualified businesses do not include

  • the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any other business where the principal asset is the reputation or skill of one or more of its employees;
  • banking, insurance, leasing, financing, investing, or similar activities;
  • farming (including raising or harvesting timber);
  • production or extraction of oil, natural gas, or other natural resources for which percentage depletion deductions are allowed; or
  • the operation of a hotel, motel, restaurant, or similar business.

The corporation’s gross assets cannot exceed $50 million before the stock is issued and immediately after the stock is issued (which considers amounts received for the stock).

I did not cover all the rules that apply. But I wanted to give you a good handle on how this planning opportunity can work to your benefit. If you would like to spend some time with me going over the possibilities for you, please call me on my direct line at 510-417-7050.

Sincerely,

Safwat Said,CPA

2022 Last-Minute Section 199A Reduction Strategies

Dear Client:

Remember to consider your Section 199A deduction in your year-end tax planning. If you don’t, you could end up with an undesirable $0 for your deduction amount.

Here are three possible year-end moves that could, in the right circumstances, simultaneously (a) reduce your income taxes and (b) boost your Section 199A deduction.

First Things First

If your taxable income is above $170,050 (or $340,100 on a joint return), your type of business, wages paid, and property can increase, reduce, or eliminate your Section 199A tax deduction.

If your deduction amount is less than 20 percent of your qualified business income (QBI), then consider using one or more of the strategies described below to increase your Section 199A deduction.

Strategy 1: Harvest Capital Losses

Capital gains add to your taxable income, which is the income that

  • determines your eligibility for the Section 199A tax deduction,
  • sets the upper limit (ceiling) on the amount of your Section 199A tax deduction, and
  • establishes when you need wages and/or property to obtain your maximum deductions.

If the capital gains are hurting your Section 199A deduction, you have time before the end of the year to harvest capital losses to offset those harmful gains.

Strategy 2: Make Charitable Contributions

Since the Section 199A deduction uses your Form 1040 taxable income for its thresholds, you can use itemized deductions to reduce and/or eliminate threshold problems and increase your Section 199A deduction.

Charitable contribution deductions are the easiest way to increase your itemized deductions before the end of the year (assuming you already itemize).

Strategy 3: Buy Business Assets

Thanks to 100 percent bonus depreciation and Section 179 expensing, you can write off the entire cost of most assets you buy and place in service before December 31, 2022.

Bonus depreciation can help your Section 199A deduction in two ways:

  1. The big asset purchase and write-off can reduce your taxable income and increase your Section 199A deduction when it gets your taxable income under the threshold.
  2. The big asset purchase and write-off can contribute to an increased Section 199A deduction if your Section 199A deduction currently uses the calculation that includes the 2.5 percent of unadjusted basis in your business’s qualified property. In this scenario, your asset purchases increase your qualified property, which in turn increases your Section 199A deduction.

The Section 199A deduction can get confusing. If you would like my help, please call me on my direct line at 510-417-7050.

Sincerely,

Safwat Said,CPA

Slash your Self-Employment Taxes

Dear Client:

What happens when lawmakers enact a new tax?

It starts small.

It looks easy.

In 1935, the self-employment tax topped out at $60. Those 1935 lawmakers must be twirling in their graves with the new rules for 2021, which levy the following taxes:

  • A self-employment tax of up to $21,848, which comes from the 15.3 percent rate that applies to self-employment income of up to $142,800.
  • A 2.9 percent tax that applies to all self-employment income in excess of the base amount.

Beware

Do you know the expression “Don’t let the camel’s nose get under the tent”? It applies here.

Look at what has happened to self-employment taxes since they first came into being in 1935, assuming you earn at the base amount:

  • $60 in 1935
  • $60 in 1949
  • $3,175 in 1980
  • $7,849 in 1990
  • $14,413 in 2006
  • $21,848 in 2021

To put the rates in perspective, say you are single and earn $150,000. On the last dollar, you earned—dollar number $150,000—how much federal tax did you pay? The answer in round numbers—39 cents (14 cents in self-employment and 24 cents in federal income taxes).

Wow! That’s a lot. Then, if you live in a state with an income tax, add the state income tax on top of that.

Tax Planning

Two things to know about tax planning:

  1. Your new deductions give you benefits starting at your highest tax rates.
  2. In most cases, the return on your planning is not a one-time event. Once your plan is in place, you reap the benefits year after year. Thus, good tax planning is like an annuity.

Checklist

Here is a short checklist of some tax-planning ideas. Review these ideas so you can identify new business deductions for your tax return. You want business deductions because business deductions reduce both your income and your self-employment taxes.

  • Eliminate the word “friend” from your vocabulary. From now on, these people are sources of business, so start talking business and asking for referrals over meals and beverages.
  • Hire your children. This creates tax deductions for you, and it creates non-taxable or very low taxed income for the children. Also, wages paid by parents to children are exempt from payroll taxes.
  • Learn how to combine business and personal trips so that the personal side of your trip becomes part of your business deduction under the travel rules (for example, traveling by cruise ship to a convention on St. Thomas).
  • Properly classify business expansion expenses as immediate tax deductions rather than depreciable, amortizable, or (ouch!) non-deductible capital costs.
  • Properly identify deductible start-up expenses ($5,000 up-front and the balance amortized) rather than letting them fall by the wayside (a common oversight).
  • Correctly classify business meals that qualify for the 100 percent deduction rather than the 50 percent deduction.
  • Know the entertainment facility rules so your vacation home can become a tax deduction.
  • Identify the vehicle deduction method that gives you the best deductions (choosing between the IRS mileage method and the actual expense method).
  • Correctly identify your maximum business miles, so you deduct the largest possible percentage of your vehicles.
  • Qualify your office in your home as an administrative office.
  • Use allocation methods that make your home-office deductions larger.
  • If you are married with no employees, hire your spouse and install a Section 105 medical plan to move your medical deductions to Schedule C for maximum benefits.
  • Operate as a one-person S corporation to save self-employment taxes.
  • If you are single with no employees, operate as a C corporation and install a Section 105 medical plan so you can deduct all your medical expenses.

If you would like my help implementing any of the ideas above, please don’t hesitate to call me on my direct line at 510-417-7050.

Sincerely,

Bitcoin Taxation

Bitcoin Taxation

Dear Client:

Are you considering accepting bitcoins as payment? If so, you should know the tax implications of accepting bitcoins in your business and the major pros and cons of doing so. I’m going to use an example to explain this.

Example. Carol is a freelance consultant. In exchange for her $1,500 invoice to a client, she receives 1.5 bitcoins. The bitcoin exchange rate at that time is $1,000 per bitcoin. Her payment processor charges 0.8 percent, up to a maximum of $8 per bitcoin transaction.

Two years later, Carol buys a $1,000 computer using 0.5 bitcoins. The exchange rate at the time is $2,000 per bitcoin.

Initial receipt. Carol receives property worth $1,500 in exchange for her services. The $1,500 value of the bitcoins is ordinary income to Carol (and subject to self-employment tax, since she received it in her trade or business).

Carol’s adjusted basis in the bitcoins received is the fair market value of $1,500 plus the $8 transaction fee, or $1,508. Because bitcoins are a capital asset (property), the transaction fee is added to its capital basis.

Computer purchase. Carol exchanged 0.5 bitcoins for the computer. Carol’s gain or loss on the transaction is the fair market value of the property received less her adjusted basis in the bitcoins.

Carol received a computer valued at $1,000 and gave up bitcoins with an adjusted basis of $503 (one-third of $1,508). Carol has a taxable gain of $497 and an adjusted basis of $1,005 in her remaining bitcoins.

The $497 gain is a tax-favored, long-term capital gain to Carol because she held the bitcoin property for more than a year.

Pros and Cons

Pro: Capital losses deductible. If you recognize a loss on a bitcoin transaction, then it is deductible from your other income, subject to the limitations applicable to capital losses. And if you are a noncorporate taxpayer, then you can carry forward any losses that you can’t use in the current year.

Pro: Taxable capital gains. Your bitcoins can appreciate in value, causing you to both gain extra income and pay taxes on that income. If you recognize a gain on a bitcoin transaction, then you have a short- or long-term capital gain on which you have to pay taxes. You may also have to pay the 3.8 percent net investment income tax on this gain. In cash transactions, you don’t have the possibility for profit or the complications of paying taxes.

Pro: Lower transaction fees. Stripe, a large third-party payment processor, processes bitcoin transactions for 0.8 percent of the gross amount, up to a maximum of $8 per transaction, compared with 2.9 percent plus $0.30 for credit card transactions (with no maximum).

If you receive a $2,000 payment for services rendered, your potential transaction costs are

  • $8.00 for a bitcoin transaction, and
  • $53.80 for a credit card payment.

Con: Basis tracking. Cash is cash and requires no special tracking. With bitcoin, you need to track the adjusted basis in your bitcoins and account for basis changes due to fractional sales.

Con: Liquidity. Once you get bitcoins, you may find it difficult to find others to transact with to use your bitcoins for goods and/or services.

You now have the big picture of how transacting business with bitcoins works. If you want to discuss virtual currency with me, please don’t hesitate to contact me.

Sincerely

PPP Loan Forgiveness update

PPP Loan Forgiveness update

Dear Client:

The Payroll Protection Program (PPP) rules—they keep a-changin’.

During the past month, the Small Business Administration (SBA) issued a new set of frequently asked questions (FAQs) and a new interim final rule, which in combination create the following good news for the Payroll Protection Program (PPP):

  • More forgiveness. The $20,833 cap on corporate owner-employee compensation applies to cash compensation only. It’s not an overall compensation limit as the SBA had stated in its prior interim guidance. Under this new rule, the owner-employee can add retirement benefits on top of the cash compensation, creating a new higher cap.
  • Escape owner status. You are not an owner-employee if you have less than a 5 percent ownership stake in a C or an S corporation. Therefore, the cap on forgiveness for this newly defined non-owner-employee is not $20,833 but rather $46,154.

The new rules override prior guidance and have significance for PPP loan forgiveness today—and perhaps for obtaining additional loan monies retroactively (if Congress reinstates the PPP along with a new second round for businesses that suffered a big drop in revenue).

Here’s one example of how the new rules benefit John, an S corporation owner.

Example. John, the sole owner and worker, operates his business as an S corporation. His 2019 W-2 shows $140,000 in Box 1, of which $20,000 is for health insurance. In addition, the S corporation pays state unemployment taxes of $500 on John’s income and contributes $20,000 to his pension plan.

Based on the facts in the example, the corporation is eligible for up to $25,000 of PPP loan forgiveness, as follows:

  • $20,833 on John’s salary (the cap), which the corporation pays to John at his regular rate in less than 10 weeks during the covered period;
  • $4,167 on John’s retirement ($20,000 x 20.83%); and
  • zero on the unemployment taxes because they were paid out in January, before the covered period began.

Advantage. Prior guidance limited forgiveness to $20,833. John’s S corporation gains $4,167 in additional forgiveness thanks to the new FAQs, assuming that the S corporation’s loan amount is $25,000 or more (which is possible).

The good news in the new guidance is that the corporate retirement contributions on behalf of owner-employees now count for additional forgiveness when the owner-employee has cash compensation greater than $100,000. And with the C corporation, the new guidance allows health insurance for the owner-employee.

Remember, I am always here for you. If you would like to discuss your PPP with me, don’t hesitate to call me on my direct line at 510-417-7050.

Sincerely,