By now most of you have heard of the Payroll Protection Program (PPP), and I am sure many of you have taken advantage of this great opportunity. However, there are a few things you need to know about how these loans are going to affect your taxes.
You probably know these loans will be forgiven if the loan proceeds are used for the purposes outlined by the government. Sounds like a great deal, right? Tax free money from the government!
Not so fast. Although it is technically true the loan forgiveness income is not taxable, what you may not know is the expenses you paid with the PPP funds are NON-DEDUCTIBLE. Let me say it again, any qualifying expenses you paid with PPP funds are NON-DEDUCTIBLE for tax purposes. (As of the date of this article)
For example, let’s say you received $80,000 in a PPP loan. Through June, say your business had gross income of $100,000 and expenses of ($150,000), resulting in a loss of ($50,000), so no tax due.
However, included in your expenses were ($80,000) of payroll which was paid for with PPP funds. This ($80,000) is NON-DEDUCTIBLE, so your tax-deductible expenses are only ($70,000) (original $150,000 less the $80,000 non-deductible). You now have $30,000 of taxable income.
Estimate Federal Income Taxes at 20%, and you owe $6,000 in Federal Taxes, and an estimate of 5% for State Income Taxes, you now owe $1,500, in State taxes. In this scenario, the tax free PPP money resulted in a total increase in taxes of $7,500 ($6,000 Federal and $1,500 State).
The previous calculation is just an example, and EVERYONE’s situation will be different. A worst case scenario on the above $80,000 PPP loan, all of the expenses paid could be taxable and an estimate of 20% Federal Income Taxes you would owe $16,000 and an estimate of 5% State Income Taxes you would owe $4,000 in State Taxes, for a total tax liability of $20,000 on your tax free PPP loan forgiveness!
Key take away—before you spend all of your PPP money, consult with your tax advisor and see if you are going to owe additional taxes. If you will owe additional taxes, consider making an estimated tax payment with whatever PPP cash you may have left before you are out of cash and have a large tax bill.
If you need assistance or need information regarding PPP loans, the related forgiveness and tax implications, please come see us at Meinershagen & Co.
To learn more about Meinershagen & Co., visit their website at www.mccpa.com.
With the merriment of the holiday season behind us, the start of a new year brings less festive realities for businesses and individuals, including tax preparation and planning.
Lorne Meinershagen, CPA, Managing Member of Meinershagen & Co., brought some practical advice and levity regarding business tax issues to the Grain Valley Partnership’s January luncheon.
Meinershagen reviewed how the structuring of a business (sole proprietorship, partnership, corporations, etc.) can impact a business owner’s liability as well as issues related to taxes. Meinershagen emphasized the importance of reaching out to and establishing a relationship with a trusted tax advisor, preferably prior to setting up a business, to ensure the business is structured in a way to best protect the owner from liability and ensure proper tax planning.
Meinershagen & Co. provides tax planning and preparation for businesses and individuals, preparation of financial statements, consulting on business start-up needs, payroll services, accounting software support, and assistance with business and personal tax problems.
To schedule an appointment, call 816-847-0536 or visit www.floydmeinershagenandco.com.
The Partnership’s February luncheon will be held Tuesday, February 4th. For more information about the Grain Valley Partnership and their upcoming events, visit www.growgrainvalley.org.
Lorne Meinershagen, CPA, Managing Member of Meinershagen & Co., spoke to Grain Valley Partnership members about tax tips and strategies for businesses at the Partnership’s January 7th luncheon.
Photo credit: Diana Luppens, Switch Focus Studios
by Lorne Meinershagen, Floyd, Meinershagen, & Co.
Nobody looks forward to estimated tax payments, but paying more than necessary is even worse. When freelancers and business owners miss or underestimate their tax liability, the IRS charges them interest and penalties.
The penalty for estimated tax underpayment is calculated and assessed separately for each payment period. Therefore, taxpayers may owe a penalty for a previous period even if they later pay enough estimated tax to make up for the previous underpayment.
As a reminder, estimated tax is the method used to pay tax on income that is not subject to withholding. This income includes earnings from self-employment, interest, dividends, pensions and alimony. Estimated taxes are required when your total year-end liability is greater than $1,000. To avoid IRS penalties, most self-employed taxpayers must ensure all four estimated tax payments add up to the lesser of these two amounts:
Understanding your tax liability can be complicated, since you have to take into account fluctuating income, peak business seasons, planned equipment purchases, employee bonuses, new benefits plans and other variables that affect taxes.
Tax experts recommend reassessing your finances in the third quarter before making the last two estimated payments for the year – due September 15, 2019, and January 15, 2020 – to gauge any income variations since your last payment or changes that could affect the amount of taxes you will owe for 2019.
If your CPA or tax advisor has not contacted you about a tax-planning session, be proactive and schedule time to discuss how to minimize the amount of taxes you will owe on April 15.
A good accountant can help you determine whether the best way to achieve your financial goals is to accelerate, defer or reduce your taxable income for this year. Keep these tips in mind as you prepare to make the last two estimated tax payments for 2019:
For expert advice on how to lower your tax liability in a free initial consultation, please contact Floyd, Meinershagen & Co. in Grain Valley at 816-847-0536, or visit www.floydmeinershagenandco.com to schedule an appointment.