Passage of Second Covid-19 Relief Bill

Passage of Second Covid-19 Relief Bill 

President Trump has signed the second COVID-19 relief legislation coined the Consolidated Appropriations Act, 2021 (CAA2021) that is now effective.

The new legislation also brings notable relief for businesses with PPP loans that now legislates approved tax deductibility on qualifying expenses covered from round one of PPP loan proceeds. This is a Holiday Gift from Trump for businesses with PPP loan proceed tax planning. This legislation supersedes IRS Rev. Rul. 2020-27 whereby taxpayers could not deduct  expenses covered with PPP loan proceeds.

Key tax provisions in the second COVID-19 relief bill include:

  • A second round on taxpayer relief payments of $600 for individuals earning up to $75,000 per year and; $1,200 for married couples earning up to $150,000 per year; $600 additional payment for each dependent.
  • Small businesses relief with a Round Two of PPP business loans;
  • $300 per week unemployment aid for qualifying individuals until the middle of March 2021.

To support the restaurant industry, the new relief bill also allows a 100% business expense deduction for business meals provided from a restaurant. This legislation is only effective for expenses incurred after Dec. 31, 2020, until December 31, 2022.

The bill also modifies the above the line charitable deduction for 2020 from increasing from $300 to $600 for married filing jointly tax payers, and extends the charitable deduction to the 2021 tax year.

The new relief bill also provides a second round of PPP loans to both newly qualified applicants and, also for businesses that participated in the initial round of PPP loan proceeds. Prior PPP applicants can now apply for a second PPP loan with the following parameters. A) the business has 300 or fewer employees B) the business has extinguished or plan to extinguish all initial PPP proceeds; and C) the business demonstrates a 25% sales volume reduction in any 2020 quarter compared to that quarter in 2019. Second Round expenses include payroll, rent, mortgage interest, and utilities on PPP proceeds. As in round one of business PPP proceeds, qualifying loan applicants can obtain a round two PPP loan up to 2.5x average monthly payroll costs.

The bill simplifies forgiveness for all PPP loans of less than $150,000. Also relief is now available for expenses paid with PPP loans as tax-deductible, bringing a holiday benefit to businesses tax planning with 2020 PPP proceeds.

This is not to be construed as tax, or legal advice. Please contact your trusted advisor to discuss any specifics of this legislation or tax provisions for your business or individual tax planning, before making any decisions with regards to the provisions in this Covid-19 relief bill.

2020 Form 1099 Filings Revisions with Form 1099-NEC Reporting

2020 Form 1099 Filings Revisions with Form 1099-NEC Reporting

For the 2020 tax year, former IRS 1099-MISC filers will need to comply with new 1099 reporting rules. Form 1099-NEC, Non-Employee Compensation has been refurbished and brought back to the showroom floor and is intended to replace Form 1099-MISC for nonemployee compensation.

While Form 1099-MISC will still be part of the 1099 filing tradition for certain payments, for the 2020 tax year non-employee compensation payments for independent contractors and other business services from non-employees now 1099 reporting will be on the Form 1099-NEC.

The newly revised Form 1099-NEC payments include:

      • services performed (including parts and materials), as well as certain payments to an attorney,
      • cash payments for fish or other aquatic life or business of catching fish,
      • reporting includes oil and gas payments for a working interest (whether or not services are performed), and
      • include expenses incurred for the use of an entertainment facility that you treat as compensation to a nonemployee.

The IRS rules that trades or businesses need to issue a Form 1099-NEC if the following four conditions are met:

      • You made the payment to someone who is not your employee;
      • You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);
      • You made the payment to an individual, partnership, estate, or, in some cases, a corporation;
      • You made qualifying payments to the payee of at least $600 during the year.

The Form-1099 NEC is being reintroduced to prevent room for tax fraud with EITC and ACTC refunds.

State 1099 Filings

In addition, the IRS has not coordinated the Form 1099-NEC with individual state revenue agencies. Hence for filing 1099s for recipients that reside in states that require submission of Form 1099 information, you should submit a separate state filing Form applicable as required.


The IRS also has made revisions to Form 1099-MISC and rearranged box numbers for certain payment reporting with the addition of Form 1099-NEC. Form 1099-MISC is required to be filed with the IRS by February 28 of the following calendar year, but it must be filed with the IRS by January 31 if nonemployee compensation is reported in box 7 for payments made before 2020.

The 2020 tax year changes to reporting on Form 1099-MISC include:

      • Payments made for direct sales of $5,000 or more (checkbox) in box 7,
      • Crop insurance proceeds are reported in box 9,
      • Payments to an attorney are reported in box 10,
      • Section 409A deferrals are reported in box 12,
      • Nonqualified deferred compensation income is reported in box 14, and
      • Boxes 15, 16, and 17 report state taxes withheld, state identification number, and amount of income earned in the state, respectively.

If you have any questions with regards to your 2020 1099 filings please contact us.

Merry Christmas & Happy New Year

Wishing you a Merry Christmas & Happy New Year

As the Holiday Season arrives, we find ourselves reflecting on the past year and the blessing to once again celebrate Christmas time. It’s been quite a year for us all. Now, as we approach the New Year, may God prosper your journey in the years ahead. 

Merry Christmas  & Happy New Year!

Sauder & Stoltzfus, LLC


Merry Christmas! A Holiday Gift for Our Blog Readers

A Christmas Gift for Our Blog Readers: Merry Christmas!

Today I’m excited to share a gift for you during this Holiday Season on behalf of a corporate sponsor that’s completely free to our blog readers. Our firm now has unlimited access to RightNow Media @ Work—a streaming library of leadership videos, and professional business development training! This extensive library has more than 20,000 videos from leaders like Patrick Lencioni, John Maxwell, and Liz Bohannon. And it’s available on all major streaming devices so you can access content anywhere, anytime.

In addition to, business, leadership and career development resources, RightNow Media @ Work has videos for everyone from Business Basics including the renowned Venture Academy series to a complete toolkit of business leadership training tools. As an organization, we’re always looking for ways to help you grow and develop your business. If you’re interested in an e-learning forum of video business training, the resources at Right Now Media @ Work are worth your attention.

To get your free holiday gift of business education, simply forward an email to with the Subject: #Right Now Media @ Work.

Merry Christmas  & Happy New Year!

From Sauder & Stoltzfus and our Alliance Partners.


Why Your Last Will Might Not Accomplish What You Want

Why Your Last Will Might Not Accomplish What You Want

By Nevin Beiler, Attorney

A large part of my law practice is preparing Wills and sometimes Trusts for people of all ages. Young couples are often concerned about having a plan for guardianship of minor children, or that ownership of a business would pass to a surviving spouse if one spouse would die. Older people are usually more concerned about appointing executors and ensuring the fair and orderly distribution of their assets after they pass away. Whatever stage of life we are in, having a current Will is a good idea.

What many people don’t think about, however, is that Wills have limitations. People often think that whatever their Will says is what will happen to their stuff after they die. However, that is not always true.

I recently observed a situation (with which I was unable to assist because of the distance from my office) that illustrates how things can go wrong even when a person’s Will appears to say what the person wants to happen after they die. I have substantially changed some of the facts of the following story to protect confidentiality, but the illustration is true to life.

The Story

There was a middle-aged man who was an only child, and who was in charge of settling his father’s estate after the father died. The father owned a duplex property jointly with his younger sister (the son’s aunt). When they originally bought the duplex, the father thought that he’d like his sister to get the whole duplex if he and his wife died before the sister did.

The sister had never married, and she lived in half of the duplex. Some years later, after his wife had died, the father decided that he wanted his son to receive his share of the duplex when he died, so he wrote a will that directed that his share be given to his son, not his sister. He did not inform his sister of this. The trouble was, the deed for the duplex included the words “joint tenants, with right of survivorship.”

Also, the father wanted to leave a portion of his IRA account, which totaled a little over $200,000, to his sister, and the rest to his son. The father told this to his IRA custodian, who helped him sign a beneficiary designation that directed that when he died 25% of the IRA should go to his sister, and the rest to his son. The father also later told his attorney that he wanted $50,000 to go to his sister, with the intention that it come from his IRA account, so the attorney wrote in the father’s Will, “I give $50,000 to my sister. This amount may be withdrawn from my IRA account.” In addition to the duplex and the IRA account, the father died with about $90,000 in his checking account.

As far as the father was concerned, his plan was clear and exactly how he wanted it. The Will stated that the son would get half of the duplex, and both the IRA beneficiary designation and the Will indicated that the father’s sister would get $50,000, to be paid from the IRA account. The son would get everything else. But as we’ll soon see, things were not going to work out as the father had planned.

The Problems

What many people don’t realize, or perhaps just fail to think about, is that a Will does not necessarily direct what happens to everything that a person owns. Actually, there are many things that people commonly own that might not pass according to the direction of their Will when they die.

For example, a house that is jointly owned with a right of survivorship automatically passes to the surviving owner when one owner dies. This is what happened in our story, meaning that the sister automatically became the owner of the whole duplex, instead of the son getting half of it like the father’s Will stated. The duplex was simply not subject to the directions of the Will. Instead, it passed automatically based on the language in the deed.

Another example is an IRA account, and some other types of investment accounts. These often are transferred by a beneficiary designation that an account owner signs, rather than by the account holder’s Will. In our story, the father signed a beneficiary designation that left 25% of his IRA account to his sister. This was not necessarily a wrong thing to do. In fact, naming beneficiaries of an IRA account can sometimes be a good thing for tax purposes. However, the father also stated in his Will that his sister should get $50,000 from his estate, with only a suggestion that the funds could come from the IRA account. This was likely a mistake in drafting the Will.

The son thought, and I agreed with him, that the father probably meant to leave just a total of $50,000 to the sister, not 25% of the IRA account plus $50,000 through his Will. However, the way things were written, the sister appeared to be legally entitled to both 25% of the IRA and $50,000 from the Will.

To make matters worse, the Will contained a generic tax clause that stated that all inheritance taxes owed by the estate, including for transfers not affected by the Will, must be paid from the residue of the estate. This meant that all the tax due on half the value of the duplex, and all the money going to the sister, was to be paid from the portion of the estate that the son was supposed to receive.

Now for the math. The value of the duplex was $220,000, meaning that the taxable portion (50%) was $110,000. The $50,000 gift stated in the Will and 25% of the IRA account totaled about $100,000, meaning that the total value going to the sister was about $210,000. The inheritance tax rate for transfers to siblings in Pennsylvania is 12%. Multiplying $210,000 times 12% equals $25,200. Plus, the son needed to pay taxes on his $150,000 share of the inherited IRA account and his $40,000 share of the father’s checking account, which at the 4.5% rate for children, would be about $8,000. From the $90,000 in the father’s checking account, the estate was expected to pay $50,000 to the sister (to satisfy the gift written in the Will) and about $33,000 in taxes. After funeral costs and estate administration expenses, there wasn’t going to be anything left for the son other than his $150,000 share of the inherited IRA account, which would also be subject to income taxes if he chose to withdraw any of it.

In total, the father’s sister would be receiving value of about $210,000, while the son would be receiving value of about $150,000. But from all the evidence, it appears that the father’s intent was for his sister to receive $50,000, and for his son to receive the rest, which would have been assets worth about $321,000 for the son. The son was not too pleased when he discovered this. He shared with me about how his father had been determined to make things clear and simple for his heirs by writing a Will that expressed his final wishes. Unfortunately, the father’s goal would not be accomplished.

The son tried to explain the situation to his aunt and propose an alternate settlement arrangement, but their relationship was not very close, and was sometimes cold. She was on a limited income, and was very reluctant to give up anything that she thought she was technically entitled to receive. Plus, she had all along been expecting to receive the father’s half of the duplex if she lived longer than him, because of the right of survivorship in the deed. And even if she agreed to give half of the duplex to the son, the higher tax rate (12% instead of 4.5%) would still apply, as well as real estate transfer taxes.

The Lesson

There is a lesson you can learn from this story, even if the unique facts do not apply directly to you. Where the father (and his attorney) messed up was failing to coordinate his Will with the ownership and beneficiary designations of his assets. The father should have owned the duplex as “tenants in common” with his sister if he wanted to be able to pass on his half of the property to his son through his Will. Also, he should have listed the $50,000 gift to his sister in just his Will or just his IRA (not both the way he did). Or, he should have made it clear in his Will that if he left money to his sister in his IRA that the gift to her in the Will should be disregarded or reduced.

When you have your Will prepared, it is important to understand which assets will be directed by your Will, and which assets will be directed by another means, such as by right of survivorship or a beneficiary designation. When these issues are known, your overall estate plan can address them properly. For this reason, it is important that your estate planning attorney knows the following information:

  • How your real estate is titled. For example, whether you own property individually, jointly with your spouse, jointly with someone else, etc.
  • Whether you have any financial accounts that are owned jointly with any person other than your spouse.
  • Whether you have any financial accounts (such as IRAs or other investment accounts) that have beneficiary designations.

By paying attention to which assets pass according to the directions of your Will, and which assets are directed in other ways, you and your heirs can avoid the disappointment and confusion faced by the son in our story. Otherwise, your Last Will might not accomplish what you want.

Nevin Beiler is an attorney licensed to practice law in Pennsylvania (no other states). He practices primarily in the areas of wills & trusts, settling estates, and business formations & agreements. Nevin and his wife Nancy are part of the conservative Mennonite community, and Nevin previously served as the in-house accountant for Anabaptist Financial before leaving to become an attorney. Nevin’s office is located at 105 S Hoover Ave, New Holland, PA, and he can be contacted by email at or by phone at 717-287-1688. More information can be found at

 Disclaimer: This article is general in nature and is not intended to provide specific legal or tax advice. Please contact Nevin or another attorney licensed in your state to discuss your specific legal questions.

To Group or not to Group

Preface: If you are starting a new business, and you already have an existing business, then consult with your tax accountant regarding whether the businesses should be grouped for improved tax attributes.

To Group or not to Group

By Jacob M. Dietz, CPA

Are you a business owner? If so, how many different enterprises do you own? Frequently the owner of a business owns or partially owns more than one business activity. The other business activity or activities may be large or small.

In some of these situations, the owner may want to group these activities together to avoid passive treatment. If you own multiple activities, have you considered grouping them?

Passive Activities

First, the IRS may consider a business activity to be passive if the taxpayer does not “materially participate.” The full complexities and the details of passive activities are beyond the scope of this article, but generally the IRS will not allow the deduction of passive losses unless there is offsetting passive income of an equal or greater amount, or the activity is entirely disposed. There could be exceptions, however.

For an example of how the passive activity rules could work, let us imagine John owns two businesses. Business A is a restaurant, and John works full-time in the restaurant. Business B is a bakery across the street from the restaurant, and the bakery provides the restaurant with food. John hired an able manager for the bakery named Charlie, so John hardly does any work in that business. If the bakery and the restaurant were treated as separate activities, then John would be active in the restaurant but may be passive in the bakery. If the restaurant made money and the bakery lost money, then John might not be able to deduct the bakery’s loss until future years if he had no other passive income.

Depending on John’s taxes for the year, he may end up writing a large tax check to pay for his restaurant business while he is also investing more personal funds into the bakery to keep the money-draining bakery afloat.   Such a scenario would not please John.

Grouping of Activities

The IRS, however, does allow grouping of activities that form an “appropriate economic unit.” If the bakery and the restaurant had been grouped into one, then John’s work in the restaurant would count as material participation for the entire activity, thereby making the bakery’s loss nonpassive and potentially offsetting that loss against the restaurant’s income.

What constitutes an “appropriate economic unit?” There is some discretion in making this determination, but below are some factors from IRS Reg. 1.469-4 detailing some of the considerations.

“(i) Similarities and differences in types of trades or businesses;

(ii) The extent of common control;

(iii) The extent of common ownership;

(iv) Geographical location; and

(v) Interdependencies between or among the activities….”


Do you think John’s bakery and restaurant form an appropriate economic unit? The answer may not be 100% clear and involves some discretion, but John could probably honestly answer “Yes.” First, they both involve the business of food for human consumption. Second, John exercises control of both businesses, although he delegated daily responsibilities of managing the bakery to the able manager Charlie. Third, both companies have 100% common ownership by John. Fourth, the businesses are very close geographically since they are across the street from each other. Fifth, the operations of the bakery and restaurant are interdependent because the restaurant purchases baked goods from the bakery. John should have a strong case for grouping.

If John and his accountant had appropriately grouped the restaurant and bakery, then John might write a smaller tax check because the bakery loss would help offset the restaurant income.

Why Group?

As demonstrated in the hypothetical example about John, some taxpayers will want to group to offset losses against income. An entrepreneur that runs multiple businesses may find it hard to prove material participation in each venture to avoid the passive loss rules limiting passive losses to passive income. That same entrepreneur might be able to prove material participation in one venture. If appropriately grouped, then the entrepreneur materially participated in the whole group.

An entrepreneur might also group to avoid Net Investment Income Tax (NIIT) on the income. The NIIT was enacted as part of the tax changes that came with the Affordable Care Act. It charges a 3.8% tax on investment income for certain taxpayers.

Passive activities are classified as net investment income. Therefore, passive income from a second business could be subject to the NIIT. Let us go back to John’s bakery and restaurant. Now, assume that John did not group the bakery and restaurant, and assume that both businesses are profitable. In this hypothetical scenario, John now owes NIIT on the bakery income, which could be classified as passive. John may wish that he had grouped with the bakery, in which he materially participates, to possibly avoid the NIIT.

Why Not Group?

These groupings are permanent per the IRS regulations unless “a taxpayer’s original grouping was clearly inappropriate or a material change in the facts and circumstances has occurred that makes the original grouping clearly inappropriate.” Taxpayers should therefore exercise thought when considering grouping. It cannot be lightly changed.

One reason a taxpayer may wish to avoid grouping is if they already have an enterprise generating passive losses, and they want passive income generation. Remember the hypothetical bakery and restaurant owned by John? Now let us assume that the bakery and restaurant have been in business for several years, and they are not grouped. The bakery is passive, the restaurant is active. The bakery generates losses, but it is slowly moving towards profitability. Suppose John starts a new business, a coffee shop, that generates profits. It is run by a manager named George with little time from John.

John could potentially choose, in that first year, to group the coffee shop with the restaurant to make the coffee shop income active. John might choose, however, to let the coffee shop remain passive so that the passive loss from the bakery can be netted against the passive income from the coffee shop.

Timing of the Grouping

If you are starting a new business, and you already have an existing business, then consult with your accountant regarding whether the businesses should be grouped. If you fail to group them now, and later try to group them, the IRS might disallow that grouping. There is an exception to the regrouping rule which allows taxpayers to regroup the first time the taxpayer is subject to the net investment income tax.

Although there can be exceptions available to group later, do not simply count on an exception being available for businesses to group when desired. No entrepreneur has perfect knowledge of the future. The unknowns could make the decision difficult to group or not to group, but the entrepreneur could benefit if they consider in the first year whether to group.

Disclosure of the Grouping

In Rev. Proc. 2010-13, the IRS lists disclosure requirements regarding tax groupings. If the original grouping was made before Rev. Proc. 2010-13 was effective, then no disclosure may be required until a change is made. New groupings or regroupings after that date must be disclosed. If there is no disclosure, the IRS can generally treat them as separate activities.

What if it is discovered that a grouping has not been disclosed? The IRS does have a method that might work to remedy the failure to disclose. Contact your accountant if you think you may have some undisclosed groupings on your tax return which should be disclosed.

Even when the disclosure has already been made, the taxpayer may want to continue to disclose that grouping in each tax return. If done correctly, this may help inform the taxpayer and future accountants that there is a grouping in effect.

Are your business activities grouped? Should they be grouped? If you do not know, consider calling your accountant to discuss. If this is the first year for a new activity and you already have an existing activity, then think especially hard on the grouping decision.

This article is general in nature, and it does not contain legal advice. Contact your advisors to discuss your specific situation.

Minimizing Tax on the Sale of Your Business or Commercial Real Estate in 2021 – Preliminary Sale to a Non-grantor Trust

Preface: Should you sell your business in 2020 to a non-grantor irrevocable trust?  Such a sale will be taxed in 2020 at the current top federal capital gains rate of 20%.

Minimizing Tax on the Sale of Your Business or Commercial Real Estate in 2021 – Preliminary Sale to a Non-grantor Trust

Credit: Donald S. Feldman, CExP™, CPA, CVA, MBA

For the last two years, whenever anyone asked me about saving taxes on the sale of a business, I had a stock piece of advice: “Sell before the end of 2020”. We are living in a historically low tax environment in which we are also experiencing record government budget deficits. Even before the pandemic and the multiple trillion-dollar bailouts, the handwriting was on the wall. Higher taxes were on the way.

Now here we are near the end of 2020 and you haven’t yet sold your business. Perhaps the pandemic and the resulting freeze-up of the M & A markets prevented you from selling. Perhaps you finally have a deal to sell your commercial real estate but it won’t close until 2021. The immediate political outlook is uncertain. Biden campaigned on a platform of a 39.6% capital gains tax rate for gains greater than $1 million, compared to the current top rate of 20%. This would be an extraordinarily high tax hit on the once in a lifetime sale of your most valuable asset. But in order to have a working majority in the Senate (with VP Harris casting the deciding vote in a 50-50 Senate), the Democrats will need to win both Senate run-offs in Georgia. The January 5, 2021 Georgia Senate elections are attracting a tsunami of political money. It has already been dubbed the Super Bowl of political fundraising. In what would otherwise be a relatively low turnout special election, with so much at stake and both parties geared up, anything can happen. Even without a working majority, the Democrats might be able to pry loose a Republican or two to vote in favor of higher taxes.

Any new tax law in 2021 will almost certainly be retroactive to January 1, 2021. Considering that the sale of your business or commercial real estate is likely to be the biggest financial transaction of your life and on which your future financial security depends, the question you need to ask yourself is, “Do I feel lucky about 2021 tax rates”?

As it happens there is actually something you can do to lock in gains on the sale of your business or commercial real estate at 2020 tax rates – sell your business in 2020 to a non-grantor irrevocable trust. Such a sale will be taxed in 2020 at the current top federal capital gains rate of 20%. The business in the hands of the trust will have the higher basis of the sale price so that any sale in 2021 from the trust to a third-party will result in a nominal gain (or loss). A non-grantor irrevocable trust is essentially a trust that you, the business owner, do not control. “Nongrantor” is a term of art in the tax code. The “grantor” is the person (sometimes referred to as the trust “settlor”) who establishes the trust and contributes assets to it. Certain sections of the Tax Code (IRC 671-679) define the elements of control that makes a trust a “grantor” or “non-grantor” trust.

For example, if the grantor has the right to the income from the trust, or can designate who receives the income, or is entitled to a so-called “reversionary interest” (i.e. trust assets revert to the grantor on the happening of certain events) then the trust is deemed to be a “grantor” trust. If the trust has “grantor” status, then for tax purposes the trust is treated as identical to the grantor; the sale of the business to the grantor trust won’t be recognized because it is essentially a sale to yourself. Only if the trust has “non-grantor” status will the sale be recognized so you can lock in the maximum 20% tax rate.

So how do you get paid? The sale to a non-grantor trust in 2020 will be for a promissory note. When the trust sells the business in 2021, the trust will have the cash to pay off the note.

Sale of the business via a note means that you are eligible for federal tax purposes to use the installment method of reporting the sale – i.e. recognize gains based on the actual receipt of payments on the note. However, using the installment method will defeat the purpose of the tax planning, because taxes are likely to be higher in 2021 when you receive the cash proceeds. However, you can elect out of the installment method and choose to recognize all of the gain in 2020. You need to make this election no later than the extended due date for filing your 2020 tax return – October 15, 2021.

The downside risk here is if you execute a sale to a non-grantor trust in 2020 but fail to sell it to a third party in 2021, you might be stuck paying tax without getting cash. However, you can probably unwind the transaction in 2021. If you don’t sell in 2021, you can refrain from electing out of installment sale treatment and if the trust doesn’t have the cash to make payment on the note and defaults, you can get the business back.

Forming an appropriate non-grantor trust and documenting the transaction is complex. Be sure you are dealing with an attorney who is expert in trusts. Don’t try this one by yourself.

This article is general in nature, and it does NOT contain legal nor tax advice. Please contact your accountant or trusted advisor to see what applies in your specific situation.

“Don Feldman’s success as an Exit Planner rests on three essential elements. (1) Don “gets” the needs of business owners. (2) He has created and constantly adds to a tool box chock full of proven planning strategies and ideas. (3) His ability to deconstruct, demystify and explain complicated tax and valuation issues in a way that owners–and even attorneys like me!–can understand.”— John Brown, Founder, Business Enterprise Institute, Denver, CO