PPP Update for January 2021

BY Admin

Here is an update for businesses on the new Paycheck Protection Program (“PPP”) Loan package (“PPP Round 2”) in light of the passage of the Consolidated Appropriations Act of 2021.

  • Expenses Financed with PPP Loans are Deductible. The new law specifically allows for the deduction of expenses financed with PPP loans. The IRS had previously said that expenses related to tax free, forgiven PPP loans would not be deductible.
  • Borrowers with PPP loans of $150,000 or less can use a simpler loan forgiveness form.
  • PPP Round 2. The new law also provides for the ability to apply for a second forgivable PPP loan.
    • In general, you can apply for a second PPP loan of up to 2.5 times the average monthly payroll costs in the 12 months prior to the loan or the calendar year 2019, capped at a maximum loan of $2MM
      • A borrower can use the calendar year 2020 instead of the 12 months preceding the loan
      • Borrowers in the hospitality or food services industries (NAICS code 72) may receive a second PPP loan of up to 3.5 times average monthly payroll costs.
      • PPP Round 2 funding may open as early as January 11. Please contact your banker for more details and their application form/process
        • The PPP Round 2 application period is open until March 31, 2021
    • To qualify for a second PPP loan you need to have:
      • 300 or fewer employees.
      • Used or will use the full amount of your first PPP loan.
        • It appears only a certification from the borrower on the loan application will be needed – that the funds from the first PPP loan will be used before the 2nd PPP loan is disbursed to the borrower. Forgiveness of the first loan by the time of the second application does NOT appear necessary.
      • A 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
        • As an alternative, a borrower that was in operation for all four quarters of 2019 can submit copies of its annual tax forms that show a reduction in annual receipts of 25% or greater in 2020 compared with 2019.
    • Under PPP Round 2, first time PPP borrowers can get a loan of up to 2.5 times the average monthly payroll costs in the one year prior to the loan (2020) or the calendar year 2019, capped at a maximum loan of $10MM
    • As with PPP round 1, borrowers need to spend at least 60% of the PPP money on payroll and payroll related benefits
    • Borrowers can choose any covered period between 8 and 24 weeks – covered period meaning the period of time you have to spend the proceeds of the loan in order to qualify for forgiveness.
    • More non payroll expenses (in addition to rent, mortgage interest and utilities) can be used towards the non-payroll part of loan forgiveness:
      • Covered worker protection and facility modification expenditures, including personal protective equipment (PPE), to comply with COVID-19 federal, state or local government health and safety guidelines.
        • This includes PPE, physical barriers that were put in place (like sneeze guards,) expansion of indoor/outdoor space, ventilation or filtration systems and drive-through windows.
      • Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
        • Generally, these are costs due under a contract in effect before the covered period or contracts for perishable goods at any time during the covered period.
      • Covered operating costs such as software and cloud computing services that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses
    • Documentation needed the with PPP Round 2 loan applications (SBA Form 2483-SD – 2nd PPP loan draw; Form 2483 – 1st PPP loan draw)
      • Generally, the same as PPP Round 1 – quarterly payroll tax reports for the proper period and evidence of retirement and health insurance contributions.
      • PPP loan applications for less than $150,000 do not need to submit evidence of the 25% revenue reduction with the application but DO have to provide it with the PPP forgiveness application.

US Treasury Webpage with PPP Guidance and Forms

Business Tax Update and the Individual Tax Update

BY Admin

2020 Business Tax Updates and Year End Planning Reminders

2020 has been an eventful year in many ways, including on the income tax front. We wanted to communicate several important business provisions and changes to you prior to the end of this year. Please contact your Bauman tax professional if you have any questions or would like further guidance on how these provisions and changes affect your unique tax situation.

Paycheck Protection Program (“PPP”) Loan Forgiveness and Expenses Funded with the Loan

  • When a PPP loan is forgiven, the forgiveness is not taxable.
  • The IRS has recently published an opinion that expenses paid with PPP funds are not deductible even if forgiveness has not yet been applied for or granted.
  • The IRS opinion does not appear to be what Congress intended. It may be best to wait to apply for forgiveness until
  • 2021 as Congress may address the issue in late 2020 or early 2021.

Net Operating Losses (“NOL”) – changes for 2018, 2019 & 2020 only

  • An NOL carryback of up to 5 years is now allowed (previously, there was no carryback.)
  • The carryforward deduction can be up to 100% of taxable income for losses carried from 2018, 2019 and 2020 (previously limited to 80% of taxable income.)

Fixed Asset Additions – Bonus Depreciation and Section 179 Deduction

  • 100% Bonus depreciation is allowed (for federal tax purposes.)
  • Section 179 asset expensing limits increased to $1.04 million for 2020.

Qualified Improvement Property (“QIP”) Depreciation

  • QIP generally means improvements added to real estate after the original construction.
  • The depreciation life for QIP was reduced to 15 years from 39 years. So, QIP is now eligible for 100% bonus depreciation.
  • Affected taxpayers can amend prior year returns or file for a change in accounting method.

New Tax Form for 2020 – 1099-NEC

  • The 1099-NEC replaces Form 1099-MISC for payments for services.
  • The form is due to recipients by Feb. 1; The form needs to be filed with the IRS by March 1 (paper) or March 31 (e-filed.)

Wisconsin Entity Level Tax Election

  • Allows electing Wisconsin S corporations and partnerships to pay state income taxes at the entity. level instead of at the owner level. The election effectively avoids the $10,000 Schedule A limit on state and local taxes, for taxes related to S corporation or partnership income.
  • The IRS recently ruled in favor of this potential tax saving election.
  • Generally, the election benefits higher income taxpayers so it is best to evaluate the costs/benefits before making the election.

2020 Planning Ideas

  • Consider setting up and funding a retirement plan. New rules allow for setting up a plan after year end but before a tax return is filed for the year.
  • Consider purchases of equipment prior to year-end.
  • Consider accelerating payments of expenses/delaying collections of receivables if you are on the cash basis;
  • Consider year-end bonuses.
  • Employee retention credits could apply to employers who did NOT receive PPP loans.
  • Consider implementing Individual Coverage Health Reimbursement Arrangements (ICHRAs) for 2021.
  • Consider a cost segregation study for real property used in a business. This can allow you to catch up on depreciation deductions for parts of the building classified as shorter-lived assets.

2020 Individual Tax Updates and Year End Planning Reminders

2020 has been an eventful year in many ways, including on the income tax front. We wanted to communicate several important individual provisions and changes to you prior to the end of this year. Please contact your Bauman tax professional if you have any questions or would like further guidance on how these provisions and changes affect your unique tax situation.

Charitable Contributions

  • There is a new $300 “above the line” deduction even if you do not itemize your deductions.
  • Just a reminder, you need a written acknowledgement from a charity for any donation of $250 or greater.
  • If you don’t itemize deductions and are age 70 1/2 or older, consider contributions to a charity directly from your IRA account (a qualified charitable distribution or “QCD”.)

2021 Elections for Employer Flexible Spending Accounts and Health Savings Account Contributions

  • Consider expenses you may have coming up in 2021 (health care, dental work, etc.)

Required Minimum Distributions (“RMD”)

  • The age to start taking RMDs changed from 70 1/2 to age 72.
  • RMDs are not required for 2020.
  • Consider converting any previously scheduled RMDs for 2020 into a Roth IRA.

Traditional IRA Contributions

  • Individuals of any age can now make contributions to a traditional IRA.

Retirement Plan Withdrawals – 10% Penalty Exceptions

  • Up to $5,000 in distributions can be taken penalty free for expenses related to the birth or adoption of a child.
  • The 10% early withdrawal penalty does not apply to Coronavirus related retirement plan or IRA distributions of $100,000 or less in 2020. The distributions are generally taxable but there are favorable provisions to allow for the tax on the distributions to be paid over a three year period.

Stimulus Payments (Also Called Economic Impact Payments or “EIP”)

  • The payments received in 2020 are not included in gross income.
  • There is a Recovery Rebate Credit available if the maximum payment was reduced due to using a taxpayer adjusted gross income amount from 2018 or 2019.

Miscellaneous Items and Extender Provisions for 2020

  • If you receive 1099 forms for services you provide to others, you may receive a new form 1099-NEC (nonemployee compensation) this year.
  • Section 529 education savings plans can now be used as a source of funds to pay up to $10,000 per year of student loan payments.
  • Several exclusions and deductions have been extended for 2020:
    • Exclusion from gross income for discharge of debt income from qualified principal residence
    • Tuition and fees deduction for higher education expenses
    • Nonbusiness energy property credit
    • If you itemize deductions:
      • Medical expense deduction calculated based on 7.5% of adjusted gross income
      • Deduction for mortgage insurance premiums

Wisconsin Grants Available for Small Businesses – Starting October 19

BY Admin

The state of Wisconsin has announced a second round of small business grants – “We’re All In – Small Business Grant Phase 2”

The application period starts October 19th and runs through November 2nd.  Businesses must apply online. The application will be available at revenue.wi.gov on October 19 at 8:00 a.m. If a business cannot apply online, they may request assistance by calling the Wisconsin Department of Revenue (DOR) at (608) 266-2772.

Businesses can apply even if they received a grant in Round 1 – as long as they meet the criteria for round 2 (see below)

View more information.

FAQ #7 – Who is eligible to apply?

A business may apply if all the following criteria are met:

  • The business started operating prior to January 1, 2020, operated in 2020, and suffered an economic loss as a result of the COVID-19 pandemic
  • The business filed their 2019 federal and Wisconsin income or franchise tax return (certain exceptions apply for fiscal-year filers – see Question #14 below)
  • The business has more than $0 and less than $1 million in annual revenues (gross receipts less returns and allowances) shown on their federal tax return, specifically:
    • Line 1c of 2019 Form 1065
    • Line 1c of 2019 Form 1120
    • Line 1c of 2019 Form 1120-S
    • Line 3 of 2019 Schedule C (Form 1040 or 1040-SR)
  • The business had 1 to 50 full-time equivalent (FTE) employees in 2019. A sole proprietor counts as one employee for these criteria. Seasonal businesses should use the highest total FTEs employed during the season. One full-time equivalent (FTE) is one or more employees working a total of 40 hours per week. For example, if you have two employees each working 20 hours per week, then you have one FTE.
  • At least 75% of the business’s value of real and tangible personal property owned or rented and used by the business in 2019 is located in Wisconsin. For this criteria, real and tangible personal property owned by the business is valued at its original cost, and real and tangible personal property rented by the business is valued at an amount equal to the annual rental paid by the business, less any annual rental received by the business from sub-rentals, multiplied by 8.
  • At least 75% of the amount of the business’s labor costs in 2019 paid to individuals is for services performed in Wisconsin. For these criteria, labor costs include amounts paid to a professional employer organization or a professional employer group, but do not include profits earned or distributed to a sole proprietor.
  • The owner or business must not be on one of the following lists:
  • The business must not be a governmental unit or primarily engaged in any of the following North American Industry Classification System (NAICS) codes beginning with:
    • 111XXX – Crop Production
    • 112XXX – Animal Production or Aquaculture
    • 5311XX – Lessors of Real Estate
    • 813XXX – Nonprofit Organizations

Postponing Withheld Social Security Taxes – What a Business Owner Needs to Know

BY Admin

The President recently issued an Executive Order (August 8,2O2O) allowing employers to postpone the
normal 6.2% Social Security tax withheld from certain employees’ paychecks paid from September 1,
2020 through December 31,2020. The IRS released Notice 2020-65 (“Notice”) on Friday, August 28,
2020 to explain how the postponement or “deferral” works for employers and employees.

Learn More

Dinner with Bauman

BY Bauman Associates

 Students, don’t miss out on a free Dinner with Bauman!

Contrary to popular belief, there IS such a thing as a FREE dinner! Join accounting professionals from Bauman Associates on Thursday, May 2nd for pizza, door prizes and a unique opportunity to find out what it is like to work in a public accounting firm. Students will also learn about the employment opportunities Bauman Associates offers and network with leaders in the field. This event will take place at UW-Eau Claire in Davies Center, Dulany Inn (Room 122)  from 4:00 – 6:30 pm. Space is limited and applications are due May 1st, so submit yours today. We look forward to seeing you there!

Click here to access the Application Form

Planning Ahead: 2017 Health Savings Account Limits

BY Chad Ryder

The Internal Revenue Service (IRS) has released the annual contribution limitations for health savings accounts (HSAs) and the minimum deductible amounts and maximum out-of-pocket expense amounts for high-deductible health plans. These limitations are updated annually to reflect cost-of-living adjustments. Business owners should inform employees of the HSA contribution limits increase for 2017.

Employers commonly offer employees HSA contributions as part of their healthcare benefit packages. HSAs are a popular option because of its dual purpose. Employees can utilize HSAs to save for the future or pay for qualified medical expenses tax free.

Under Sec. 223 of Rev. Proc. 2016-28, individuals who participate in a health plan with a high deductible are permitted a deduction for contributions to HSAs set up to help pay their medical expenses. To be eligible to contribute to an HSA you must participate in a high deductible health plan.

The following chart summarizes the contribution and out-of-pocket limits for HSAs and high-deductible health plans for 2017. There was only one minor change between 2016 and 2017.

  2016 2017 Change
HSA contribution limit Self: $3,350

Family: $6,750

Self: $3,400

Family: $6,750

Self: $50

Family: No Change

HSA catch up contribution (age 55+) $1,000 $1,000 No Change
HDHP minimum deductible Self: $1,300

Family: $2,600

Self: $1,300

Family: $2,600

No Change
HDHP maximum out of pocket Self: $6,550

Family: $13,100

Self: $6,550

Family: $13,100

No Change

Employers should remind employees who are contributing to or using their HSA:

  • They have until April 15, 2018 to make contributions for the 2017 tax year.
  • Withdrawing from their HSA for nonqualified purposes is subject to income tax.
  • Nonqualified withdrawals are also subject to a 20% tax penalty unless an exception applies.

The professionals in our office can clarify any questions you may have on HSAs. Call on us today.

2017 Standard Mileage Rates Announced for Business, Charitable, Medical and Moving Purposes

BY Justin Koppa

The Internal Revenue Service recently issued the 2017 optional standard mileage rates to be used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

As of January 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) are:

  • 53.5 cents per mile for business miles driven (54 cents for 2016)
  • 14 cents per mile driven in service of charitable organizations (14 cents for 2016)
  • 17 cents per mile driven for medical or moving purposes (19 cents for 2016)

It is important to remember that a taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. For more information, please contact one of our professionals today.

New Form I-9 for Employment Eligibility Verification, Effective 1/22/2017

BY Bernie Hull

Congress passed the IRCA (Immigration Reform and Control Act) in 1986, which required the use of the Form I-9 to verify identity and employment authorization for all new employees, including U.S. citizens hired after November 6, 1986. New hires are required to complete this form within three (3) business days of the date of hire. Employers are required to retain the completed Forms I-9 for all employees, as long as the individuals work for the employer and until one year after the date the employment is terminated or three years after date of hire, whichever is later.

On November 14, 2016, USCIS (U.S. Citizenship and Immigration Services), published a revised version of the Form I-9. Employers must begin using the new version by January 22, 2017.  The form has been modified to make it easier to complete on a computer, including prompts to ensure information is entered correctly and drop down lists and other enhancements.

You may obtain a copy of the new form (paper version and fillable PDF version) and a copy of the Handbook for Employers—Guidance for Completing Form I-9 (publication M-274) at the official website www.uscis.gov/i-9.  There is no fee to obtain these forms via this website.

Preparing Your Business for the New 2017 Filing Deadlines

BY Brittany Gerth

This is a reminder to employers and small businesses of the new January 31 filing deadline for Form W-2.  A new federal law, aimed at making it easier for the IRS to detect and prevent refund fraud, will accelerate by a month the W-2 filing deadline for employers from February 28 to January 31.

The Protecting Americans from Tax Hikes (PATH) Act, enacted last December, includes a new requirement for employers. They are now required to file their copies of Form W-2, submitted to the Social Security Administration, by January 31. The new January 31 filing deadline also applies to certain Forms 1099-MISC reporting non-employee compensation such as payments to independent contractors. As it relates to Form 1099-MISC, the new filing deadline will only impact filers that report nonemployee compensation payments in box 7.

In the past, employers typically had until the end of February, if filing on paper, or the end of March, if filing electronically, to submit their copies of these forms. Also, there are changes in requesting an extension to file the Form W-2. Only one 30-day extension to file Form W-2 is available, and this extension is not automatic. If an extension is needed, a Form 8809 Application for Extension of Time to File Information Returns must be completed as soon as you know an extension is necessary, but by no later than January 31.

The new accelerated deadline is intended to help the IRS improve its efforts to spot errors on taxpayer filed returns. Receiving W-2s and 1099s earlier will make it easier for the IRS to verify the legitimacy of tax returns and properly issue refunds to taxpayers eligible to receive them. According to, the IRS it will make it easier to release tax refunds more quickly.  The January 31 deadline remains unchanged and has long applied to employers furnishing copies of these forms to their employees.

We anticipate the new deadline will increase your businesses workload. To minimize stress, we recommend the following steps:

  • Verify your employee filing status and confirm their mailing addresses before December 31, 2016.
  • Verify form W-9 information (for your 1099-Misc contractors) is completely up-to-date and accurate.
  • Collect all the necessary information to ensure your forms are “good-to-go” on or about Monday, January 2, 2017.

The professionals in our office can answer any questions you may have about the new filing deadlines and how they will impact your business, call us today.