Kevin M. Sayed, J.D., LL.M., is available to answer your tax related questions. Please call 252-321-2020 to schedule your consultation. The following materials were originally published by the IRS.
Announcement 2020-12 provides that lenders who make PPP loans that are later forgiven under the CARES Act should not file information returns or furnish payee statements to report the forgiveness.
This announcement notifies lenders that they should not file information returns or furnish payee statements under section 6050P of the Internal Revenue Code (Code) to report the amount of qualifying forgiveness with respect to covered loans made under the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA), in consultation with the Department of the Treasury, under Title I of the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136, 134 Stat. 281 (March 27, 2020), as amended by the Paycheck Protection Program Flexibility Act of 2020, Pub. L. No. 116-142, 134 Stat. 641 (June 5, 2020) (collectively, CARES Act). Section 1102 of the CARES Act established the PPP, which allowed qualifying small businesses (eligible recipients) to obtain loans guaranteed by the SBA under section 7(a)(36) of the Small Business Act (15 U.S.C. § 636(a)(36)) (covered loans). Under section 1106 of the CARES Act, an eligible recipient is eligible for forgiveness of indebtedness for all or a portion of the stated principal amount of a covered loan if certain conditions are satisfied (qualifying forgiveness). Under section 1106(i) of the CARES Act, for purposes of the Code, any amount that (but for section 1106(i)) would 2 be includible in gross income of the eligible recipient by reason of the qualifying forgiveness is excluded from gross income. Generally, section 6050P of the Code and §§ 1.6050P-1 and 1.6050P-2 of the Income Tax Regulations require an applicable entity (as defined in section 6050P(c)(1) of the Code) that discharges at least $600 of a borrower’s indebtedness to file a Form 1099-C, Cancellation of Debt, with the Internal Revenue Service (IRS), and to furnish a payee statement to the borrower. For purposes of this reporting requirement, § 1.6050P-1(c) provides that “indebtedness” means any amount owed to an applicable entity, including stated principal, fees, stated interest, penalties, administrative costs, and fines. When all or a portion of the stated principal amount of a covered loan is forgiven because the eligible recipient satisfies the forgiveness requirements under section 1106 of the CARES Act, an applicable entity is not required to, for federal income tax purposes only, and should not, file a Form 1099-C information return with the IRS or provide a payee statement to the eligible recipient under section 6050P of the Code as a result of the qualifying forgiveness. The filing of such information returns with the IRS could result in the issuance of underreporter notices (IRS Letter CP2000) to eligible recipients, and the furnishing of such payee statements to eligible recipients could cause confusion. This announcement is intended to prevent any such confusion. The principal author of this announcement is Marshall French of the Office of the Associate Chief Counsel (Procedure & Administration). For further information 3 regarding this announcement, contact Marshall French at (202) 317-5411 (not a toll-free call).
If you have tax related questions, please call Kevin M. Sayed, J.D., LL.M., at 252-321-2020. The following materials were originally published by the IRS.
Whether it’s something they’ve been doing for years or something they just started to make extra money, taxpayers must report income earned from hobbies in 2020 on next year’s tax return.
What the difference between a hobby and a business? A business operates to make a profit. People engage in a hobby for sport or recreation, not to make a profit.
Here are nine things taxpayers must consider when determining if an activity is a hobby or a business:
• Whether the activity is carried out in a businesslike manner and the taxpayer maintains complete and accurate books and records.
• Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.
• Whether they depend on income from the activity for their livelihood.
• Whether any losses are due to circumstances beyond the taxpayer’s control or are normal for the startup phase of their type of business.
• Whether they change methods of operation to improve profitability.
• Whether the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.
• Whether the taxpayer was successful in making a profit in similar activities in the past.
• Whether the activity makes a profit in some years and how much profit it makes.
• Whether the taxpayers can expect to make a future profit from the appreciation of the assets used in the activity.
The IRS has many resources to help taxpayers report their income correctly. See the more information section below for additional guidance.
Publication 17, Your Federal Income Tax
Publication 525, Taxable and Nontaxable Income
Publication 535, Business Expenses
Publication 334, Tax Guide for Small Business, For Individuals Who Use Schedule C
Share this tip on social media — #IRSTaxTip: Earning side income: Is it a hobby or a business? https://go.usa.gov/xfSMK
If you have elder law questions or need assistance with estate planning, contact Charlotte-Anne Alexander with Colombo Kitchin Attorneys at 252-321-2020.
Elder law attorneys routinely help families with the many legal and logistical entanglements when loved ones lose the ability to manage their own financial affairs or otherwise need to hand over responsibilities. Too often, we elder law attorneys work with families when there is a crisis, for instance, when someone is admitted to a hospital or when caring for a loved one has become overwhelming and finances are in jeopardy. While many people are hesitant to consider that, one day, they might not be able to manage their own financial needs, the failure to make plans can be financially devastating and incredibly stressful for loved ones, minimizing some helpful options. Estate planning should be a basic, smart part of everyone’s plan for their future. Working with an experienced elder law attorney to create legally correct documents that reflect your personal wishes not only gives you peace of mind but can be a tremendous help to the loved ones who must manage your financial affairs when and if you cannot. The following Wall Street Journal article nicely illustrates, in real-life terms, why families need to have clear communication about finances and work with their attorneys to ensure that all necessary legal documents are completed before there is a crisis. As the saying goes, an ounce of prevention really is worth a pound of cure.
As an elder law attorney, I help clients manage their specific legal needs. But, we also discuss the “big picture,” to put in place a sensible plan that anticipates future events and helps ease the effects of the aging process on the older adult and their families. Naturally, much of this planning involves legal solutions, but there are practical elements to my advice, as well. For instance, I work with a lot of clients who are “downsizing.” I also help families administer estates after a person has died. In each situation, it can be a tremendous source of stress and disagreement to divide the tangible personal property, such as furniture, collectibles, jewelry, photos, tools and so forth. Sometimes, Items we love and treasure may not hold the same special place in the hearts—or homes—of our loved ones.
I encourage clients to live with loved and sentimental items as long as they wish and not be pressured to give away these items until they are ready to do so. However, if an individual is ready to give items to a loved one or donate items to charity, that may be a wise idea. Planning ahead can save older adults and their families the stress of a rapid, unexpected downsize (whether to a smaller home or to some sort of long term care facility) or minimize the task of distributing items from an estate once a loved one dies. And whereas our treasured belongings may mean a great deal to us, they be worth far less, financially, than we realize. For an interesting story on this topic, I encourage you to read the following from the Public Broadcasting System’s NewsHour program.