COVID-19 Financial Relief CARES Act: PPP Loans Q&A

What is the Paycheck Protection Loan Program?

The Paycheck Protection Program (PPP) is a brand-new loan program structured around the SBA’s existing 7(a) loan program and will fund loans to qualifying small businesses.

Who is eligible for the Paycheck Protection Program?

A business, including a qualifying nonprofit organization, is eligible for PPP loans if it (a) meets the applicable North American Industry Classification System (NAICS) Code-based size standard or other applicable 7(a) loan size standard, both alone and together with its affiliates; or (b) has an employee headcount that is lower than the greater of (i) 500 employees or (ii) the employee size standard, if any, under the applicable NAICS Code. Businesses that fall within NAICS Code 72, which applies to accommodations and food services, are also eligible if they employ no more than 500 people per physical location. Sole proprietorships, independent contractors, and self-employed individuals are also eligible. More information on the NAICS-Code-based size standards can be found here.

How do business affiliates affect borrower eligibility for PPP loans?

Applicants typically must include their affiliates when applying size tests to determine eligibility. However, the CARES Act waives the affiliation requirement for the following applicants:
Businesses within NAICS Code 72 with no more than 500 employees;
Franchises with codes assigned by the SBA, as reflected on the SBA franchise registry; and
Businesses that receive financial assistance from one or more small business investment companies (SBIC).Who can make PPP loans?

Who can make PPP loans?

Banks that are currently approved SBA 7(a) lenders and other banks that get approved by the SBA and the Treasury Department to specifically become PPP lenders. PPP lenders will be delegated authority to make and approve PPP loans, with no additional SBA approval required. Search the SBA lender tool.

What underwriting standards will PPP lenders use?

PPP lenders will only be required to consider whether an applicant was in operation on February 15, 2020, and either had employees for whom it paid salaries and payroll taxes or paid independent contractors. Applicants will not be required to demonstrate repayment ability.

What is the maximum loan amount for a PPP loan?

The maximum PPP loan available to any business is 2.5 times the average monthly payroll costs of the business over the year prior to the date of the PPP loan, excluding the prorated portion of any annual compensation above $100,000 for any person. There are some adjustments for seasonal employers and an overall maximum loan amount of $10 million.

How can PPP loan proceeds be used?

  • PPP loan proceeds can be used for:
  • Payroll costs;
  • Group healthcare benefit costs and insurance premiums;
  • Mortgage interest (but not prepayments or principal payments) and rent payments; and Interest on debt that existed as of February 15, 2020.

What is considered a payroll cost for PPP loan purposes?

“Payroll costs” include vacation, parental, family, medical and sick leave; allowances for dismissal or separation; payments for group health care benefits, including insurance premiums; and retirement benefits. Calculations vary slightly for seasonal businesses and businesses that were not in operation between February 15 and June 30, 2019.

Will PPP loans be forgiven?

PPP loans can be forgiven to the extent that the loan proceeds have been used for payroll costs and the following:
Certain utilities, including electricity, gas, water, transportation, and phone and Internet access for service that began before February 15, 2020; and
Additional wages paid to tipped employees.
These costs must be incurred and paid during the eight weeks after the loan is made.
The amount forgiven will be reduced based on failure to maintain the average number of full-time equivalent employees versus the period from either February 15, 2019, through June 30, 2019, or January 1, 2020, through February 29, 2020, as selected by the borrower.
The amount forgiven is also reduced to the extent that compensation for any individual making less than $100,000 per year is reduced by more than 25 percent measured against the most recent full quarter.
Reductions in the number of employees or compensation occurring between February 15, 2020, and 30 days after enactment of the CARES Act will generally be ignored if the action (layoff or salary reduction) is reversed by June 30, 2020.
Forgiven amounts will not be considered cancellation of indebtedness income for federal tax purposes.

What are the primary terms of the PPP loans?

Any amount not forgiven as described above will bear interest at a maximum rate of 4 percent and mature no later than 10 years after the amount of forgiveness is applied.

When will payments begin on PPP loans?

Payments on PPP loans will be deferred for 6 to 12 months.

What are the terms of the deferral on PPP loans?

SBA will issue guidance on the terms of the deferral period.

Do PPP loans have collateral or personal guaranty requirements?

PPP loans have no collateral or personal-guarantee requirements. There will be no recourse to owners of borrowers for nonpayment, except to the extent proceeds are used for an unauthorized purpose.

Are PPP loans guaranteed by the government?

PPP loans are backed by a 100 percent guaranty from SBA.

What fees will have to be paid to the SBA on PPP loans?

The SBA has waived prepayment penalties, guaranty fees and the annual fee applicable to other 7(a) loans.

2011 – News on the tax front

I like to keep my clients aware of major tax changes that may be on the horizon.  Below I have outlined some changes which I have gathered from a variety of sources which relate to the Budget Control Act.  For some people these changes will not directly influence them, but for those clients that it does influence we make sure to be aware of the changes and make adjustments as necessary.

Budget Control Act of 2011 signed into law; Future tax changes are left to bipartisan committee

After a bitter partisan battle, on August 2 Congress passed and the President signed into law S. 365, the “Budget Control Act of 2011.” The initial $1 trillion round of deficit reduction over fiscal years 2012 through 2021 doesn’t include revenue hikes, but the second, $1.5 trillion round of deficit reduction over the same years may feature fundamental tax changes as part of the work-product of the bill’s newly established Joint Select Committee on Deficit Reduction (JSC).   So what’s in store for taxpayers, what exactly will the JSC be looking at to achieve these goals, and who is going to be staffing the JSC?

JSC’s Mandate

The JSC’s goal is to reduce the deficit by an additional $1.5 trillion over fiscal years 2012 through 2021, and in finding these savings, its duties are to “provide recommendations and legislative language that will significantly improve the short-term and long-term fiscal imbalance of the Federal Government.” The Administration’s interpretation of the JSC’s mandate is that everything is on the table, including tax reform. Without contesting the point, Republican lawmakers, no doubt looking at the composition of the committee (see below), believe that in the framework of the compromise legislation it will be “impossible” (in House Speaker John Boehner’s words) to use the deal to hike taxes.

Possible Tax Changes

It is hard to say what, if anything, the JSC might recommend by way of tax changes. But looking to past proposals:

… Businesses may have to give up costly tax breaks, such as accelerated depreciation under Code Sec. 168 , the domestic production activities deduction under Code Sec. 199 , and the election under Code Sec. 472 to use the last-in, first-out (LIFO) inventory accounting method. Industries (such as oil and gas) may have to give up some of their tax preferences. In return, corporations may wind up with a modestly lower top rate.  In order to stimulate the economy over the past two years, congress had been increasingly liberal in expanding the capability for businesses to get immediate tax advantages by use of the Code Sec. 179 expensing limits and including leasehold improvements in the qualifying property for the SDA  (50% Special Depreciation Allowance for newly acquired assets). The JSC may have to analyze just how much stimulus has occurred as a result of raising those limits.

… In the international arena, a territorial tax regime may be adopted, there may be a repatriation holiday to induce multinationals to bring home overseas profits, and there may be crackdowns on transfer pricing tax strategies.

… There could be a new round of loophole closers, such as a crackdown on “carried interest.”  Carried interests or “sweetheart deals” are typically prevalent in granting partnership ownership interests in the real estate and the oil & gas industries..

… Individuals may find cutbacks in key tax breaks, such as the mortgage interest deduction, in exchange for flattened and lowered tax rates.

Other issues the JSC will have to deal with include: the post-2012 expiration of the Bush-era income tax cuts (including the current rate schedules, and low tax rates for long-term capital gains); and the expiration of the Bush-era rules for estate and gift taxation, and the transfer tax rules in the 2010 Tax Relief Act, effective for estates of decedents dying, gifts made, or generation-skipping transfers made after Dec. 31, 2012.

In remarks after he signed the Budget Control Act of 2011 into law, President Obama reiterated his call for a balanced plan that includes revenue changes as well as spending cuts. He said that “since you can’t close the deficit with just spending cuts, we’ll need a balanced approach where everything is on the table. Yes, that means making some adjustments to protect health care programs like Medicare so they’re there for future generations. It also means reforming our tax code so that the wealthiest Americans and biggest corporations pay their fair share. And it means getting rid of taxpayer subsidies to oil and gas companies, and tax loopholes that help billionaires pay a lower tax rate than teachers and nurses …. Everyone is going to have to chip in. It’s only fair. That’s the principle I’ll be fighting for during the next phase of this process.”  I’m wondering if that also includes a look at the 50% of the population that pays no income tax at all – including those eligible for the Earned Income Credit, i.e., the “reverse income tax” that became widely popular in the Clinton era and has been hanging on ever since?

In their August 2 press releases about the Budget Control Act of 2011, neither House Speaker Boehner (R-OH) nor Senate Republican Leader Mitch McConnell (R-KY) mentioned the possibility of tax reform as part of the deficit reduction package, but I suspect that’s going to be another hard fought battle.

Statutory Timelines

The Budget Control Act of 2011 carries extremely aggressive targets that Congress and the JSC are supposed to meet. Here’s a summary of what has to be done and when:

  • No later than Aug. 16, 2011 (14 days after the enactment date), the 12 members and the co-chairs of the JSC must be appointed by the majority and minority leaders of the Senate, and the Speaker and minority leader of the House, who each must appoint three members. The Speaker and the majority leader of the Senate must each appoint one member to serve as co-chair from among the JSC members.  As soon as we find out the names, we’ll try to get an update in place.
  • No later than Sept. 16, 2011 (45 days after the enactment date), the JSC is to hold its first meeting.
  • No later than Oct. 14, 2011, House and Senate committees may transmit to the JSC their recommendations for law changes necessary to meet the goal of JSC.
  • No later than Nov. 23, 2011, the JSC must vote on a report containing the findings, conclusions, and recommendations of the committee, as well as the estimates provided by the Congressional Budget Office (CBO), and legislative language in support of those recommendations, which must also contain a statement of the deficit reduction achieved over fiscal years 2012 through 2021. A majority of JSC members must approve the report and accompanying legislative language, and the text of the report and accompanying legislative language must be made public promptly after the vote on adoption of those matters. Any JSC member may file additional, supplemental, or minority views within 3 calendar days if the member provides notice of this intention at the time of final vote on adoption of the report and legislative language.
  • No later than Dec. 2, 2011, if a majority of the JSC approves a report and the legislative language, they must be transmitted to the President, Vice President, the Speaker of the House, and the majority and minority leaders of the House and Senate.
  • No later than Dec. 23, 2011, if the JSC approves a report and legislative language, it must be voted on by both the Senate and the House of Representatives. No amendments will be considered.

Because time is so short, the JSC may lean heavily on earlier tax proposals, such as those made earlier this year by the President’s Fiscal Commission, the Debt Reduction Task Force, or the bipartisan “Gang of Six.”

If the JSC Fails to Approve a Report

If a majority of the JSC members fail to approve a report and legislative language, a sequestration process (i.e., across-the-board reductions) must be implemented, with annual cuts starting in 2013. The cuts will be split 50-50 between defense and domestic spending. Sacred cows might not be spared according to some reports.

The Administration has said that if the JSC doesn’t approve a report, or if Congress fails to pass the JSC’s recommendation, nearly $1 trillion of deficit reduction would be achieved anyway, by letting the Bush-era tax cuts expire at the end of 2012. The threat of a Presidential veto of an extension of the Bush-era tax cuts would, according to the Administration, help force a balanced deficit reduction (i.e., with tax increases and spending cuts) .  If that happens, 2012 is shaping up to be a real circus since the election process will absorb much of our focus.

Tax Planning Implications

In 2010, businesses and individuals weren’t certain what tax rules would apply to them for 2011 and 2012 until December 17, when the 2010 Tax Relief Act was signed into law. That pattern of uncertainty until the very last minute is highly likely to be repeated again this year, making year-end tax planning, and tax planning for a longer horizon, a guessing game at best until at least the end of this year.

If the JSC approves recommendations that include comprehensive tax reform, they are not likely to begin to go into effect until 2013. If that’s the case, Congress will still need to address the host of tax breaks set to expire at the end of this year under current law (such as the Code Sec. 41 research credit, the Code Sec. 51 work opportunity tax credit, and the Code Sec. 222 above-the-line deduction for qualified tuition and related expenses). Also, without yet another “patch,” the higher alternative minimum tax (AMT) exemptions and ability to offset AMT with personal credits will both expire at the end of this year.

If the JSC can’t report out a recommendation, or Congress doesn’t pass it, then the extenders would still have to be dealt with late this year or early the next. And in 2012, there would be yet another bruising battle over the Bush-era tax cuts that are scheduled to expire at the end of 2012 under current law.

Highlights of ARRA 2009

Highlights of the American Recovery

and Reinvestment Act of 2009

INDIVIDUALS

Economic Recovery Payments: $250 Payments to Recipients of Federal Program Benefits

  • Eligible recipients receive a one-time economic recovery payment of $250 in 2009 or 2010.
  • These payments are not considered gross income for tax purposes
  • Must meet both of the following eligibility requirements:
  1. During November 2008, December 2008, or January 2009, you must have been entitled to a benefit payment under a qualifying program – Social Security, Railroad Retirement, Veterans compensation or pension benefits, or supplemental security income (SSI) benefits.
  2. Your current address of record under the qualifying program must be in one of the 50 states, the District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa or the Northern Mariana Islands.
  • If you are eligible for benefits under more than one of the qualifying programs, you will receive only one economic recovery payment.
  • If you are also eligible for the new Making Work Pay Credit, the amount of that credit is reduced by the amount of your economic recovery payment.

$250 Credit for Certain Government Retirees

  • Certain government retirees can claim a refundable $250 tax credit for their first tax year eginning in 2009 or $500 on a joint return if both spouses are eligible.
  • To be eligible, you must meet all the following tests:
  1. During your first tax year beginning in 2009, you must receive some amount a a pension or annuity for service performed in the employ of the United States, any state or any instrumentality thereof, that is not considered employment for Federal Insurance Contribution Act purposes.
  2. You must not receive an economic recovery payment during the tax year.
  3. Your tax return must include your social security number of at least one of the spouses.

Making Work Pay Credit

  • In both 2009 and 2010, many individuals are eligible for a refundable credit equal to either (1) $400 ($800 for married taxpayers filing jointly) or (2) 6.2 percent of earned income, whichever is less.
  • The credit is not included in taxable income.
  • Credit is not available to nonresident aliens, individuals that can be claimed as dependents by any other taxpayer, or estates or trusts.
  • Credit is phased out at a rate of 2 percent of modified adjusted gross income (MAGI) above $75,000 ($150 for join filers), and is totally eliminated if you have a MAGI of $95,000 or greater ($190,000 for joint filers).
  • If you receive the $250 economic recovery payment as a veteran, recipient of social security, and certain other individuals, or the $250 special credit to government retirees, that payment of credit reduces the Making Work Pay Credit.
  • Earned income is defined as it is for purposes of the earned income credit, with two modifications:
  1. It includes combat pay excluded from income, even for taxpayers that do not elect to include it in income for the earned income tax credit.
  2. It does not include net earnings from self-employment that are not taken into account in computing taxable income, such as a parsonage allowance.

Refundable Child Tax Credit Increased

  • If you have children younger than 17, you may be eligible for a larger child tax credit for 2009 and 2010.
  • Currently, you can claim $1,000 for each child, but this amount is decreased if you make more than $75,000 and are single or $110,000 and file a joint return.
  • New law increases the amount of the credit that is refundable to you if the credit exceeds your tax liability.
  • For 2009 and 2010, the credit is refundable to the extent of the 15 per cent of your earned income in excess of $3,000.
  • Unless Congress changes the law, the refundable portion of the child tax credit is set to disappear after 2010, and the amount you can claim per child is set to decrease to $500.

Credit for First-Time Homebuyers Extended and Expanded

  • If you bought a house before December 1, 2009, you may be eligible for the newly expanded First-Time Homebuyers Credit.
  • Credit has been extended through November 30, 2009.
  • You can claim $8,000 or 10% of the purchase price whichever is lower.
  • Credit is phased out for taxpayers with adjusted gross income over $75,000 or $150,000 for married taxpayers filing jointly.
  • Credit is not treated as a zero-interest loan that must be paid back over 15 years as was the case on the original First-Time Homebuyers Credit available in tax year 2008.
  • Credit must be paid back only if you sell the home or stop using it as your principal residence within 36 months of purchasing the home.
  • You can claim the credit on your 2008 return even if purchased in 2009.

American Opportunity Tax Credit

  • Provides a temporarily enhanced Hope scholarship credit for 2009 and 2010.
  • Enhanced credit is available for higher amount of tuition.
  • Is available for up to the first four years of post-secondary education and related expenses.
  • The amount of the credit is allowed on the first 100% of qualified tuition and related expenses up to $2,500 a year.
  • Prior to this change, the credit only allowed 100% of the first $1,200 of qualified tuition and related expenses and 50% of the next $1,200 for a maximum credit per student of $1,800.
  • Expenses for room and board are not included in qualified tuition and related expenses.
  • The Hope scholarship is phased out starting with adjusted gross income of $50,000 or $100,000 for joint returns.
  • A taxpayer claiming the credit can receive a refund greater than the amount of tax liability, as 40% of the credit is refundable, except in the case of a child whose income is subject to tax at the parent’s income tax rate.

Tax on Purchase of New Vehicle

  • Starting on February 17, 2009, both itemizers and non-itemizers are allowed a deduction for sales and excise taxes incurred on the purchase of a new motor vehicle, motorcycle, or motor home during 2009.
  • If you itemize, the deductible taxes include state or local sales or excise taxes imposed on the purchase of the vehicle regardless of your election to deduct state and local sales taxes in lieu of state income taxes.
  • Limitations of the deduction:
    • Limited to the first $49,500 of the purchase price
    • For a car, truck, SUV, or motorcycle, the gross vehicle weight rating must not exceed 8,500 pounds
    • Deduction is phased out for taxpayers with adjusted gross income between $125,000 and $135,000 ($250,000 and $260,000 for joint return)
    • The increased standard deduction is not available if you make the election to deduct sales tax rather than income taxes for the year

Qualified Tuition Programs (Section 529 Accounts)

  • Distributions for qualified tuition programs are tax-free if they are used to pay a beneficiary’s qualified educational expenses.
  • Qualified educational expenses are tuition, fees, books, supplies and equipment required for enrollment at an eligible educational institution and room and board expenses for students enrolled at least half time.
  • For 2009 and 2010, the law expands expenses to include the purchase of computer technology or equipment, internet access and related services if used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is enrolled at an eligible educational institution.
  • Does not apply to expenses for software designed for sports, games, or hobbies unless it is primarily educational in nature.

Unemployment Compensation

  • Is included in gross income for federal tax purposes.
  • If unemployment compensation is received during 2009, $2,400 can be excluded from gross income.

AMT RELIEF

Increased Exemption Amounts for 2009

  • $70,950 for married individuals filing a joint return and surviving spouses
  • $46,700 for unmarried individuals
  • $3,5475 for married individuals filing a separate return
  • Unchanged for corporations, estates and trusts
  • Unless the AMT is extended, the exemption amounts for 2010 will be:
  1. $45,000 for married individuals filing a joint return and surviving spouses,
  2. $33,750 for unmarried individuals, and
  3. $22,500 for married individuals filing a separate return

BUSINESS

DEPRECIATION and EXPENSING

Increased Section 179 Deduction

  • In lieu of depreciation, can elect to write off the cost of a limited amount of property for the year it is placed in service.
  • For 2008 and 2009, the amount has been increased to $250,000, phased out to the extent the total amount of property placed in service exceeds $800,000.
  • Section 179 property is depreciable tangible personal property that is purchased for the use in the active conduct of a trade or business.
  • Off-the-shelf computer software placed in service in tax years beginning before 2010 is also treated as Section 179 property.

Bonus Depreciation

  • The 50% first-year bonus depreciation deduction for qualified property placed in service in 2008 is extended to property placed in service in 2009.
  • Allowance is available for property whose original use begins with the taxpayer and
  1. Is depreciable under MACRS and has a recovery period of 20 years or less,
  2. Is MACRS water utility property,
  3. Is off-the-shelf computer software depreciable over three years, or
  4. Is qualified leasehold improvement property.
  • Property that must be depreciated using the alternative depreciation system (ADS) does not qualify, nor does listed property (e.g. passenger automobile) that is used 50% or less for business and intangible property.
  • Time requirements with respect to use and acquisition are:
  1. Original use of property must commence after December 31, 2007 and before January 1, 2010, or
  2. Acquired by the taxpayer as a result of a written binding contract entered into after December 31, 2007, and before January 1, 2010.

ENERGY

INDIVIDUAL ENERGY PROVISIONS

Credit for Residential energy Property Extended and Modified

  • Under the old law, the credit was limited to 10% of certain costs and to a fixed amount of other costs.
  • New provision allows for a credit of 30% of the cost of installing energy efficient improvements and energy efficient property, such as certain insulation materials, windows, exterior doors, metal roofs, circulating fans, boiler, heat pumps, air conditioners, and heaters.
  • The amount of the credit that can be claimed by any taxpayer is limited to a total of $1,500 for 2009 and 2010.
  • The new law requires that:
    • Heat pumps, central air conditioners, and insulation meet certain energy standards in effect for 2009
    • Water heaters have an energy factor of at least 0.82 or a thermal efficiency of at least 90%
    • The 0.75 thermal rating of wood stoves be measured using a lower heating value
    • Natural gas furnaces and propane furnaces have an annual fuel utilization efficiency rate of not less than 95
    • Gas hot water boilers, propane hot water boilers, oil furnaces, and oil hot water boilers have an annual fuel utilization rate of not less than 90
    • Exterior windows and doors are required to have a U-factor at or below 0.30 and a seasonal heat gain coefficient (SHGC) at or below 0.30
  • If you hit the previous $500 lifetime maximum in 2006 and/or 2007, you can now incur additional qualifying property costs in 2009 and/or 2010 and be eligible for a credit of up $1,500 over both years.

Credit for Residential Energy Efficient Property Increased

  • From 2006 through 2016, you can claim a credit for 30% of the cost of installing solar electric property or fuel cell power plant to generate electricity for your home, or for installing solar water heating property to heat water in your home.
  • From 2008 through 2016, you can claim the credit for 30% of the cost of installing a small wind turbine to generate electricity for hour home or for installing a geothermal heat pump system to heat or cool your home.
  • New law remove caps effective for 2009 except for fuel cells which remains limited to $500 with respect to each 0.5 kilowatt of capacity ($1,667 with respect to each 0.5 kilowatt in the case of a house that is jointly occupied and used by multiple people).

Plug-in Electric Drive Motor Vehicles

  • Starting in 2009, you can claim a credit for the purchase of new plug-in electric drive motor  vehicles.
  • Beginning in 2010, it also adds a new credit for two-wheeled, three-wheeled, and low-speed plug-in electric vehicles.
    • Low-speed vehicle is one that has four wheels, a maximum speed no more than 25 miles and hour on paved level surface and a gross weight of less than 3,000 pounds
    • Vehicle must be made by a manufacturer
    • The original use must begin with the taxpayer
    • Vehicle must be manufactured primarily for use on public streets, roads, and highways
    • Must have a gross vehicle weight rating of less than 14,000 pounds
    • Vehicle must be propelled to a “significant extent” by an electric motor drawing power from a battery that can be recharged from an external source
  • And in 2010, it adds a credit for conversion kits.
    • Conversion credit is equal to 10% of the cost of converting the vehicle, up to $40,000, for a maximum credit of $4,000
    • Credit is available for property placed in service after February 17, 2009, but will not apply to conversions made after December 31, 2011
    • The vehicle for which the conversion credit is claimed must satisfy the qualifying plug-in electric drive motor vehicle requirements that are in effect during the tax year the credit is being claimed, expect the original use of the vehicle begin with the taxpayer and be made by a manufacturer do not apply to the plug-in conversion credit

HEALTH

COBRA Premium Assistance

  • The Act enhances COBRA continuation coverage by offering a premium subsidy for eligible individuals who are involuntarily terminated from their employment.
  • An eligible individual is treated as having paid the premium required for coverage if the individual pays 35% of the premium.
  • The individual is provided with a 65% reduction in premiums for the first 9 months for which COBRA coverage is required.
  • The employer is reimbursed for the premium not paid in the form of a credit against payroll taxes

Why you need a competent CPA

There are some simple tax and accounting issues can be taken care without the help of a CPA.  If you are preparing a 1040EZ form, there is no need to consult me.  However if your return is complex in that it involves business income, investment income with rentals and net operating loss/profit, or any special situation is it advisable to get a competent professional to plan and prepare your taxes.   The following are a couple of examples of common mistakes.   There are hundreds of others that can occur for a variety of reasons. Let us help you with your particular situation.

Example of mistake – Double counting of tax due to exercise of stock options:

In over 25 years as an accountant you see many interesting and surprising things.  One example that reflects the importance of proper tax planning and preparation is the case of individuals paying taxes on their stock option twice, thereby doubling the taxes they pay on their income.

On multiple occasions I have seen that people have paid tax due from the exercise of nonqualified stock options and then also paid capital gains on the same amount!  This happens because they don’t recognize that the stock option gain is included on their W-2 total compensation.  They then incorrectly use Schedule D to calculate a gain which results in an overpayment of tax.

Example of mistake -Incorrect allocation of tax payment:

I had a case recently that involved a couple of hundred thousand dollars of misallocated payments.  The client had unintentionally sent payment for their dividend withholding taxes as a payment toward employee taxes.  This issue took months to resolve.  Attention to the correct detail would have avoided that headache for the business owner.

It is important to have a competent professional for any tax situation that is not simple.  You never know when you are missing something.  Please call us with any questions you may have.