Month: May 2021

Tax

IRS Defines Real Property for Section 1031 Like-Kind Exchanges

Do you own business or investment property that has gone up in value? Would you like to acquire new property? 

If you sell the old property, you’ll have to pay tax on your profits. Don’t do that. Instead, do a tax-deferred Section 1031 transaction.

With a properly constructed Section 1031 transaction, you

  1. sell your old property,
  2. buy the replacement property, and
  3. pay no taxes.

To make this work, your first step is to engage a Section 1031 intermediary.

Second, you need to buy a replacement property of equal or greater value than the property you sell.

You may have noted that I left out the word “exchange” when introducing Section 1031. I did that on purpose, because to exchange means to trade. In the Section 1031 exchanges I’m familiar with, it’s never a swap of properties. Instead, it’s a sale and purchase using the Section 1031 rules to defer the taxes. 

The Section 1031 exchange rules are complex and include strict deadlines for identifying and acquiring the property involved. To do this right, you need a qualified intermediary, which can be a bank, a lawyer, or a Section 1031 company.

In the past, Section 1031 allowed both personal property and real property exchanges. The Tax Cuts and Jobs Act eliminated personal property exchanges, such as trading in your vehicle for a replacement. 

But real property exchanges remain. They are true tax-saving machines. And the new IRS regs make it clear that a Section 1031 transaction does not get in the way of cost segregation—a method used to speed up depreciation on real property.

If you would like to discuss the possible use of a Section 1031 transaction to upgrade your rental or business property portfolio, please call me on my direct line at 408-778-9651. 

Tax

Helicopter View of Meals and Entertainment (2021-2022)

Have you missed partying and having business meals with your prospects, customers, and employees?

Well, get ready to start again. Soon, COVID-19 will behind us. It could be just a few short months away.

To help you get ready, check the table below for what you can do in 2021 and 2022 as the law stands now:


Amount Deductible for Tax Years 2021-2022
Description100%50%Zero
Restaurant meals with clients and prospectsX

Entertainment such as baseball and football games with clients and prospects

X
Employee meals for convenience of employer, served by in-house cafeteria
X
Employee meals for required business meeting, purchased from a restaurantX

Meal served at chamber of commerce meeting held in a hotel meeting roomX

Meal consumed in a fancy restaurant while in overnight business travel statusX

Meals cooked by you in your hotel room kitchen while traveling away from home overnight
X
Year-end party for employees and spousesX

Golf outing for employees and spousesX

Year-end party for customers classified as entertainment

X
Meals made on premises for general public at marketing presentationX

Team-building recreational event for all employeesX

Golf, theater, or football game with your best customer

X
Meal with a prospective customer at the country club following your non-deductible round of golf X

If you have any questions on this chart, please call me on my direct line at 408-778-9651.

Tax

Self-Employed During the Pandemic? Washington Did Not Forget You

In our files, we show that you have a self-employed business that you file on Schedule C of your Form 1040. 

As you likely know, in times of economic dislocation such as the COVID-19 pandemic, the self-employed get no special government help. For example, you generally do not receive benefits that employees get, such as unemployment and paid sick leave.

But this time it’s different. Because of the COVID-19 pandemic, you can qualify for the following seven benefits:

1. PPP monies. Self-employed individuals with no employees can obtain forgivable first- and second-draw PPP monies of up to $20,833 for each draw, or $41,666 in total. 

These monies are available through May 31. Apply now if you haven’t already done so. If you already received a PPP loan, you may qualify for a second-draw loan if your 2020 income for any quarter declined by 25 percent compared with the same 2019 quarter.

2. EIDLs. These 3.75 percent interest loans of up to $500,000 are available to the self-employed and are not forgivable. You can borrow up to $25,000 without any collateral.

3. Prior EIDL Advances. The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, enacted on December 27, 2020, eliminates the rules that required reducing your PPP forgiveness by the amount of your EIDL Advance and requires the SBA to refund your advance if your loan forgiveness has been previously reduced.

4. New Targeted EIDL Advances. You might qualify for a Targeted EIDL Advance of up to $10,000 if (a) your business is located in a low-income community, and (b) you suffered a 30 percent reduction in revenue during an eight-week period beginning March 2, 2020, or later. Unlike EIDLs, Targeted EIDL Advances need not be paid back. They are tax-free government grants.

5. Sick and family leave tax credits. If you’re unable to work due to COVID-19, or if you need to care for a family member, you can qualify for refundable sick leave and family leave tax credits of up to $15,511 in 2020 and $17,511 in 2021. You can get up to $511 per day for 10 days if you’re sick. You can get up to $200 per day for 70 days if you need to care for others. These credits last through September 30, 2021.

6. ACA premium tax credits. Congress removed the subsidy cliff (400 percent of the federal poverty level) for 2020 and 2021. During these years, you need pay no more than 8.5 percent of your household income for ACA coverage. You are entitled to premium tax credits to the extent midlevel silver ACA coverage exceeds this amount. 

7. Unemployment for the self-employed. For the first time ever, self-employed individuals may receive unemployment benefits. The Pandemic Unemployment Assistance program has been extended to September 6, 2021. You’ll qualify for unemployment only if you’re earning little or no income.

If you have any questions or need my assistance, please call me on my direct line at 408-778-9651.

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