Author: Leon Clinton

Members of the tax community struggle with the “solo corporate owner” qualification for the employee retention credit (ERC).

The IRS in one of its answers to frequently asked questions explains the rule as follows:

59. Are wages paid by an employer to employees who are related individuals considered qualified wages?

No. Wages paid to related individuals, as defined by section 51(i)(1) of the Internal Revenue Code (the “Code”), are not taken into account for purposes of the Employee Retention Credit. A related individual is any employee who has any of the following relationships to the employee’s employer who is an individual:

• A child or a descendant of a child;
• A brother, sister, stepbrother, or stepsister;
• The father or mother, or an ancestor of either;
• A stepfather or stepmother;
• A niece or nephew;
• An aunt or uncle;
• A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.

In addition, if the Eligible Employer is a corporation, then a related individual is any person that bears a relationship described above with an individual owning, directly or indirectly, more than 50 percent in value of the outstanding stock of the corporation.

If the Eligible Employer is an entity other than a corporation, then a related individual is any person that bears a relationship described above with an individual owning, directly or indirectly, more than 50 percent of the capital and profits interests in the entity.

If the Eligible Employer is an estate or trust, then a related individual includes a grantor, beneficiary, or fiduciary of the estate or trust, or any person that bears a relationship described above with an individual who is a grantor, beneficiary, or fiduciary of the estate or trust.

Our take. Since the corporation is not going to have a daughter-in-law, the IRS created a reference to the individual who owns more than 50 percent of the corporation. The IRS does not single out the corporate owner and makes no reference to the spouse. Using this information, the solo corporate owner qualifies for the ERC.

If you have questions on qualifying for the ERC, please don’t hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• April 9, 2021

This is likely it—your last chance to obtain first- and second-draw Paycheck Protection Program (PPP) monies. 

A new law, the PPP Extension Act of 2021, extends the expiration date to the later of May 31 or when the money runs out. Note the phrase “when the money runs out,” and be forewarned that this can happen within weeks. So don’t procrastinate—not even for one day.

If you qualify for the first-draw PPP money, complete your application now. The money is going to run out fast—and once it’s gone, so is the PPP. Legislatively, the new round for the PPP ends on May 31. The clock ticks.

You qualify for the PPP if any of the following are true:

• You file your taxes on Schedule C of your tax return. Businesses that file on Schedule C include independent contractors (often called “1099 folks”), single-member LLCs, proprietorships, and statutory employees, such as life insurance salespeople.
• You file your taxes on Schedule F (ranchers and farmers).
• You are a general partner in a partnership, but the partnership asks for and receives the money based on your and the other partners’ combined self-employment incomes, as adjusted.
• You operate as an S corporation.
• You operate as a C corporation.
• You are the only worker in the business.
• You have employees whom you pay on a W-2.

If you qualify, you want the PPP. It’s a much-needed, tax-free cash infusion. It’s called a loan, but it’s not. You have to repay loans. The PPP does not have to be repaid—it’s forgiven.

Plus, expenses paid with this forgiven PPP loan are tax-deductible.

If you need my help with either the first-draw or second-draw PPP, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• April 9, 2021

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted on December 27, 2020, deals with the annual tax extenders. Congress made some of them permanent, while others got short- or long-term extensions. 

These are the big five Form 1040 tax breaks that were scheduled to expire on December 31, 2020:

1. Exclusion from income for cancellation of acquisition debt on your principal residence (up to $2 million)
2. Deduction for mortgage insurance premiums as residence interest
3. 7.5 percent floor to deduct medical expenses (instead of 10 percent)
4. Above-the-line deduction for tuition and fees
5. Non-business energy property tax credit for energy-efficient improvements to your principal residence

Here is what Congress did with each of these five provisions:

1. Cancellation of debt. Extended through tax year 2025, but with a reduced maximum exclusion from $2 million to $750,000 for discharges of indebtedness after December 31, 2020.
2. Mortgage insurance premiums. Extended through tax year 2021 only.
3. 7.5 percent floor for itemized medical deductions. This provision is now permanent!
4. Tuition and fees deduction. Eliminated, but the lifetime learning tax credit phase-out limit was increased to $80,000 (or $160,000 on a joint return) to increase access to this tax benefit.
5. Principal home energy tax credit. Extended through tax year 2021 only.

Of course, Congress extended dozens and dozens of other extenders. If you would like to discuss the extenders, please don’t hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• March 3, 2021