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Details And Analysis Of President Joe Biden’s Tax Proposals: Highlights

Key Findings President Joe Biden’s tax plan he released before the election, would enact several policies that would increase taxes on individuals with income above $400,000. This includes raising individual income, payroll taxes, and capital gains. He would also increase corporations’ taxes by imposing a corporate minimum book tax and increasing the corporate income tax rate. Biden’s plan would increase tax revenue by $3.3 trillion over the next decade on a conventional basis. The project would collect about $2.8 trillion the next decade when accounting for macroeconomic feedback effects. It is lower than we initially estimated due to the coronavirus pandemic and economic downturn’s revenue effects and new tax credit proposals introduced by the Biden campaign. The Biden tax plan would lessen GDP by 1.62 percent over the long term, according to the Tax Foundation’s General Equilibrium Model. Regularly, the Biden tax plan by 2030 would take to about 7.7% less after-tax income for the top 1% of taxpayers and about a 1.9% decline in after-tax income for all taxpayers on average. Details of the Plan On income earned above $400,000, imposed 12.4% on Survivors, Old-Age, and Disability Insurance (Social Security) payroll tax, and divided equally between the employees and employers. It would create a “donut hole” in the current Social Security payroll tax, where compensations are not taxed salaries between $137,700, the current wage gap, and $400,000. Reverts the highest tax rate on individual income from 37% to the taxable incomes above $400,000 to the pre-tax reform and jobs Act standard of 39.6% on personal income above $400000 under the new legislation. Taxes long-term capital gains and eligible dividends at the usual income tax rate of 39.6% on compensations above $1 million and eliminates step-up in basis for capital gains taxation. Caps the tax benefit of the itemized deductions

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Important Things You Need to Know: Tax Season 2021

What changed for the 2021 tax season? 2021 Tax Season Income Brackets and Rates Increased Standard Deductions for 2020 The standard deduction goes up marginally for the tax year 2020 to compensate for inflation. Standard Deduction Tax Season 2021 – Deductions and Credits For your 2020 tax return, here are some exemptions and credits you might be entitled to claim: 1. Charitable Deductions The CARES Act requires you to reduce up to 100% of your adjusted gross income (AGI), which is the total income excluding other deductions you have already taken from eligible charitable contributions.  A new “above-the-line” deductions were introduced under the CARES Act to help you write off up to $300 in charitable donations you made in cash. 2. Medical Deductions  You can deduct all medical expenses above 7.5 percent of your adjusted gross income (AGI), which is your net income minus other deductions you have already taken. So, to pay off those costs on your tax return, you have to itemize your deductions. 3. Business Deductions You can take many exemptions on your tax return if you are self-employed, including travel costs, and if you’re a portion of your home to do business, you can also include a home office deduction. 4. Earned Income Tax Credit This credit is to support low and middle income taxpayers. If you have earned income, you could be eligible to claim this credit. 5. Child Tax Credit If you have children, the tax credit for households will be entitled to receive up to $2,000 per eligible child (the income caps for this credit are $200,000 for single parents and $400,000 for married couples). Refundable credit, up to $1,400 per child, can be obtained as a refund from your family. THINGS TO REMEMBER: Stimulus Checks Your stimulus check is not going to register as taxable revenue. Instead, for 2020, it is being handled

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New Changes to 1099-MISC; Do I Need to File Both 1099-MISC and 1099-NEC?

What is New? In filing the year 2020, IRS has created a new form 1099-NEC, it is for businesses who made payment to individuals, non-employees, independent contractors, freelancers, and vendors who are LLCs that you paid $600 or more in 2020.Before 2020, it was reported on Box 7 of 1099-MISC, which is the total amount of non-employee compensation. This information is now reported on the 1099-NEC.If you filed 1099-MISC with only Box 7 in the past, you should most likely choose Box 1 – Non-employee Compensation on the 1099-NEC. It is the most common situation and the only box most businesses will need to select for payment types. If you have other payment types, you’ll need to file both 1099-MISC and 1099-NEC forms. 1099-NEC FORM Filing Dates and Methods Note: The tax filing due dates are different for each of these forms. 1. Form 1099-NEC due date is February 1, 2021, by paper or electronically.2. Form 1099-MISC due date is March 1, 2021, by paper, or March 31, 2021, if you file electronically QuickBooks Online Users: You can file 1099-NEC or/and 1099-MISC on QuickBooks online. If you have any questions about setting up QB for e-filing 1099 forms or other concerns, please consult us by setting up an appointment. Here is a link to our calendar: https://calendly.com/dhuang-2/new-client-phone-call. 

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SBA And Treasury Announce PPP Re-Opening; Issue New Guidance

The U.S. Small Business Administration (SBA), in consultation with the Treasury Department, announced today that the Paycheck Protection Program (PPP) will re-open the week of January 11 for new borrowers and certain existing PPP borrowers. To promote access to capital, initially, only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11, and Second Draw PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly thereafter. Updated PPP guidance outlining Program changes to enhance its effectiveness and accessibility was released on January 6 in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. Please click this link for more information https://www.sba.gov/article/2021/jan/08/sba-treasury-announce-ppp-re-opening-issue-new-guidance?utm_medium=email&utm_source=govdelivery If you have any questions, please don’t hesitate to contact us for a free consultation. Just book a time that works for your best and we will be more than happy to assist you.

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Do I Qualify for the First or Second Draw of the PPP Loan?

The SBA released the new guidelines last Friday on the second round of PPP. Basically, the second round of PPP follows similar terms as the first round with a few changes.  Loan amount The loan amount will be calculated equal to 2.5 times your average monthly salary in 2019 or 2020. The Loan can be forgiven if you used the proceeds for payroll and operating expenses such as rent, interest, utility, paying supplies. The screening criteria There is no credit check or collaterals, or personal guarantee required by SBA. Quick Step 1 and 2 self-assessment: DHH has a quick two-steps process for you to evaluate if you may qualify for either the first or second round of PPP loans.  Please review Step 1 and Step 2, and see if you may qualify. If the results show that you may be eligible, please schedule a consultation with us as soon as possible by visiting our calendar https://calendly.com/dhuang-2/zoom-meeting. We will further review more details of your situation and help you to apply for the PPP program. For First time PPP Loan: Step 1: Your business was operational before February 15, 2020, and still open and operating now. You have less than 500 employees. Step 2: You paid payroll in 2019 if you are an S corp or C corp. You have self-employment income, and you filed Schedule C for 2019 taxes. You have K-1 income if you are a partnership or LLC for 2019 taxes. For Second time PPP loan: Step1: You have used up your first PPP loan. Your business is open and operational. Your company has less than 300 employees. Your gross revenue in 2020 any quarter is 25% less than the corresponding quarter in 2019 or Your whole year 2020 gross sales are 25% less than in 2019. Step2:

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Do you Want to Apply for the Second Round of PPP Loan?

The COVID-19 relief bill signed by President Donald Trump consists of $285 billion available for the Paycheck Protection Program. Here are the most Frequently Asked Questions to help you: Am I qualified for a second round? Before being qualified for a loan (first or second), the legislation says that you must be able to prove the following: 1. The organization has a workforce of less than 300. 2. The company operated prior to February 2020, 3. Your gross income must have declined 25 percent or more from any quarter of 2019 to 2020. The small business must certify that they have had a 25% or more substantial sales loss and will have to equate their 2020 quarterly revenue (aka gross receipts) with their 2019 1st, 2nd, and 3rd quarters of revenue. Compared to the same quarter in 2019, a borrower must display a decrease in sales of 25% or more from at least one quarter of 2020 to qualify for a second draw PPP credit. I have already received a loan in the last round. Am I allowed to apply for a second PPP loan? Yes. You can always reapply for another as long as you follow the requirements. When is the deadline for applications? The deadline for applications for this new round is March 31, 2021. In the end, DHH recommends getting the 2020 bookkeeping done to qualify for the 25 %lower gross revenue test to be eligible to apply for the second round of PPP loans by the deadline of March 31, 2021, or when the funds are used up. Please don’t hesitate to contact us if you have any inquiries will be more than happy to help you out.

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Tax Deductions: What You Should Know

BUSINESS-RELATED TAX REDUCTIONS When we talk about taxes, you should think about the amount left over after deducting certain expenses, not the revenue you take in. That will determine your tax profit. Business costs are deductible; however, there may be limits on the amount or the timing for claiming the deduction. Business expenses can be an “ordinary expense” (one that is common and accepted in your trade or business) or a “necessary expense” (one that is helpful and appropriate in your trade or business). Business expenses are specifically addressed on the tax return and its line to put deductible amount. HERE ARE THE VARIOUS DEDUCTIONS RELATED TO A BUSINESS’S ASPECTS (SOME COSTS ARE DEDUCTIBLE, BUT SOME ARE NOT): CAPITAL EXPENDITURES These are recorded as an asset and may not be immediately deductible. As the term implies, “capitalized.” A sample of this is when a business buys a building, the building’s cost is capitalized. Capital expenditures can be deducted through depreciation. The basis is usually the cost of the capital asset, which can be written off. To calculate capital expenditures, you’ll need your company’s financial documents for the past two years. Subtract the fixed asset. Subtract the accumulated depreciation. Add total depreciation. capital expenditures = PP&E (current period) – PP&E (prior period) + depreciation (current period) COSTS THAT QUALIFY FOR A TAX CREDIT Tax credit is an amount of money that taxpayers can subtract directly from taxes owed to their government. It reduces the actual amount of tax owed. Some expenditures may enable you to have a tax credit rather than a deduction. A credit is a dollar-for-dollar cutback of your tax bill. COST OF GOODS SOLD COGS refers to the direct costs of producing the goods sold by a company or business. These are the costs of the materials and

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Year-End Tax-Planning Opportunities Created By The CARES Act

CARES (Coronavirus Aid, Relief, and Economic Security) Act is financial assistance to businesses and individuals affected by COVID -19. Here are some Tax provisions that may help lower your future tax bills.  Net operating losses  Loss is generated in a period when a company’s allowable tax deductions are more significant than its taxable revenues. In 2018, TCJA disallowed the carryback of losses and limited carryforwards so they can only be applied to 80% of a business’s future income.  The CARES act allowed NOLs in 2018-2020 to be carried back five years to offset taxable income during those years. It also allows carrying forward to offset 100% of taxable income in 2019 and 2020. The 80% carryforward limitation is restored in 2021.  Retirement distributions The CARES Act provides three special rules for retirement distributions taken in 2020. 1. Withdraw up to $100,000.00 without incurring the 10% early withdrawal penalty can be made under 59½ of age.   2. The distribution will be included in taxable income in equal installments for three years.  3. If the distribution is repaid within three years, then the tax consequences can be undone. *This distribution is available to anyone who has been diagnosed with COVID-19 or has family members diagnosed with COVID-19. It is also open to anyone who has suffered adverse financial consequences due to COVID-19. *Employers are allowed to opt-out of this plan. So employees with 401(k) s will need to get their employer’s authorization before obtaining this distribution. Employment tax deferral provisions Businesses with workers can take advantage of tax deferral opportunities. The CARES Act permits businesses to pay in installments of Social Security and Medicare Taxes’ business part.  The primary portion of the deferred amount must be repaid by December 31, 2021. The other half should before December 31, 2022.  But businesses can’t

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