June 30, 2020

What Documents Do I Need to Apply for PPP Loan Forgiveness?

Now that Paycheck Protection Program (PPP) loan forgiveness applications are released; many businesses are wondering what exactly they need to compile to be able to apply. Below we dig into exactly what is needed from applicants, whether you apply using the EZ or standard forgiveness form.

Getting Started

Before you decide which application to use or start collecting documents, below is a list of standard information needed to begin the process.

  • Business Legal Name (“Borrower”) DBA or Tradename, if applicable
  • Type of Tax Return
  • Business Address
  • Business TIN (EIN, SSN)
  • Business Phone
  • Primary Contact E-mail Address
  • SBA PPP Loan Number
  • Lender PPP Loan Number
  • PPP Loan Amount
  • PPP Loan Disbursement Date
  • Employees at Time of Loan Application
  • Employees at Time of Forgiveness Application
  • Economic Injury Disaster Loan (EIDL) Advance Amount
  • Economic Injury Disaster Loan (EIDL) Application Number
  • Payroll Schedule
  • Covered Period
  • Alternative Payroll Covered Period, if applicable

Ready to start the process? Complete our PPP Forgiveness Information Request Form.

Documentation Needed Based on Application Type

Standard PPP Loan Forgiveness Application

If you’re using the standard PPP loan forgiveness form, here is what you will need to submit, according to the SBA:

Payroll:

Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period consisting of each of the following:

  • Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
  • Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
    • Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
    • State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state
  • Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount (PPP Schedule A, lines (6) and (7)).

FTE:

Documentation showing (at the election of the Borrower):

  • The average number of FTE employees on payroll per week employed by the Borrower between February 15, 2019 and June 30, 2019;
  • The average number of FTE employees on payroll per week employed by the Borrower between January 1, 2020 and February 29, 2020; or
  • In the case of a seasonal employer, the average number of FTE employees on payroll per week employed by the Borrower between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive 12-week period between May 1, 2019 and September 15, 2019.

The selected time period must be the same time period selected for purposes of completing PPP Schedule A, line 11. Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. Documents submitted may cover periods longer than the specific time period.

Nonpayroll:

Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the Covered Period.

  • Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
  • Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
  • Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.

Form 3508 EZ PPP Loan Forgiveness Application

If you’re using the EZ PPP loan forgiveness form, here is what you will need to submit, according to the SBA:

Payroll:

Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period consisting of each of the following:

  • Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
  • Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
    • Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
    • State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
  • Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount.
  • If you checked only the second box on the checklist on page 1 of these instructions, the average number of full-time equivalent employees on payroll employed by the Borrower on January 1, 2020 and at the end of the Covered Period.

Nonpayroll:

Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the Covered Period.

  • Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
  • Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
  • Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments

Please note that these requirements came directly from the instructions for each application provided by the SBA. Download the EZ application instructions or view the EZ application. Download the standard forgiveness application instructions or view the standard forgiveness application.

Ready to start the process? Complete our PPP Forgiveness Information Request Form.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential business impacts and benefits. Visit our COVID-19 Resource Center for more insights or contact Anders below to discuss how we can help you along the PPP loan forgiveness process.

All Insights

June 30, 2020

MLS and MLS4TheLou Push Forward Amongst Pandemic

The outbreak of COVID-19 has been an unprecedented, worldwide event that has affected every aspect of our lives, including sports. Like everyone else, Major League Soccer was not immune from the outbreak. The league barely kicked off their 25th season before sports came screeching to a halt across the globe.

MLS is Back

It has been a little over three months since MLS suspended operations, but the league is ready to get back on the field in Florida. From July 8th to August 11th, the “MLS is Back” tournament will be played in Orlando with all 26 clubs participating. The tournament will feature a World Cup format with a group stage followed by knockout rounds. After the tournament is completed, the league is hopeful it will be able to play out the rest of the season and crown an MLS Cup champion before the end of the year.

Tax Benefits of Playing in Florida

From a tax perspective, players will be playing in a no income tax state during the tournament. This could provide players with large state income tax savings compared to their normal home states that they are accustomed to. For example, MLS star Carlos Vela, plays for LAFC and pays one of the highest state income tax rates in the country for the club’s home games in California. Although players had to take reduced salaries in the updated Collective Bargaining Agreement to get MLS back on to the field, playing in Florida offers some mitigation of financial loss by not paying any state income tax for the games played there.

Updates on MLS4TheLou

On the St. Louis home front, the MLS4TheLou ownership group continues to push forward to be ready for the club’s inaugural season in 2022. The ownership group continues to progress on their 22,500-seat state-of-the-art soccer specific stadium in Downtown West, as part of their vision for the first soccer district of its kind in the US. The district will also feature a training facility and team headquarters across Market Street. Since stadium construction is still in an early phase, construction has continued because social distancing practices can still be safely maintained.

The ownership group was expected to announce the team’s name, crest, and identity in the Spring, but the potential announcement has been pushed back indefinitely due to the ongoing pandemic. The branding unveil is still expected to occur before the end of 2020. The group has other priorities to take care of including appointing front office executives and building out the roster for kickoff in a few years.

The Anders Sports, Arts & Entertainment Group will continue to monitor the ongoing developments for both the return of MLS and the MLS4TheLou ownership group’s continuous expansion team progress.

All Insights

June 25, 2020

Is My Business Eligible to Claim the Employee Retention Tax Credit?

Qualified businesses can now take advantage of the employee retention tax credit as a COVID-19 relief option. For business operations that have been impacted by the pandemic, or simply experienced a significant decline in gross receipts compared to prior year, this credit is a great option. Below is a summary of the legislation updated June 15th, 2020.

Employee Retention Tax Credit Benefits

Qualified employers are allowed a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee.

Eligible Employers

  • All employers are eligible for the employee retention credit, including tax-exempt organizations.  However, if an employer receives a Small Business Interruption Loan under the Paycheck Protection Program authorized under the CARES Act, then the employer is not eligible for the Employee Retention Credit.
  • To qualify for the tax credit, eligible employers must be either:
    • An employer whose business is fully or partially suspended by a government order related to COVID-19; or
    • An employer with gross receipts that are less than 50% for the same quarter in the prior year.

Qualifying Wages

  • Qualifying wages are based on the average number of employees in 2019.
    • All wages paid qualify for the credit for employers with 100 or fewer employees.
    • Restrictions apply for employers with more than 100 employees.

Limitations

  • Qualified wages, including health care costs, are capped at $10,000 per employee regardless of the number of employees.
  • Qualifying wages cannot include wages that the employer received a credit for paid sick leave or paid family leaver under the Families First Coronavirus Reponses Act (FFCRA).
  • An employer must repay its PPP loan by the safe harbor deadline to be eligible.

Effective Date

Qualified employers can claim this refundable payroll tax credit for qualified wages paid to employees after March 12, 2020, and before Jan. 1, 2021.

This is a brief summary of the employee retention credit. Contact an Anders advisor for more details on how to claim the credit.  Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential business impacts and benefits. Visit our COVID-19 Resource Center for more news, tools and insights you need to know in these uncertain times.

All Insights

June 25, 2020

Paycheck Protection Program (PPP) Loan Forgiveness Calculators and Tools

Tracking expenses is an important part of maximizing PPP loan forgiveness. Once you identify which expenses are eligible for PPP forgiveness, it’s time to start keeping track of these expenses and calculate your potential forgiveness amount. The Anders CARES Act Research and Response Team put together tracking tools you can use to make it easier when it comes time to start the loan forgiveness process.

Please note: these calculators provide an estimate based on our interpretation of the current guidelines, and actual loan forgiveness may differ when the SBA and banks release the loan forgiveness reporting forms.

Download the PPP Loan Forgiveness Calculator.

Download the 8-Week Full Time Equivalent (FTE) Calculator.

Download the 24-Week Full Time Equivalent (FTE) Calculator.

Download the Information Checklist to Apply for PPP Loan Forgiveness.

Updated 6/25/2020

Visit our COVID-19 Resource Center for other insights and tools surrounding the CARES Act.

All Insights

June 24, 2020

Anders Announces 2020 Promotions

2020 promotions were announced at the Anders virtual firm meeting on June 24th. Those promoted include Auditors Brad Soderstrom, Brian Loose and Kailey Johnson. Tax promotions include Ryan Huff, Jane Maddox, Nathan Stonner, Pam Ditch, Valerie Fohne, Erin Mueller, Adam Bauer, Chrysa Cousley, Claire Rogers, Darin Winkelman and Dalton Zieser. In Outsourced Accounting, Sam Burton and Skylar Trankle were promoted. Tyler Kaberline, Alex Grosse, Rob Kotsybar, Cory Gegg, Jon Ciembronowicz, Brett Hodges, Kris Nye and Michael Mitchell from Anders Technology received promotions. Ally Bruening in Marketing, Gretchen Best in Finance and support staff member Jen Bettag were also promoted. Click on the individual’s name below in blue to read more.

Jennifer O. Bettag has been promoted to Facilities Coordinator.


Samantha N. Burton, MBA has been promoted to Senior + Outsourced Accounting.


Skylar E. Trankle has been promoted to Senior + Outsourced Accounting.


Kailey M. Johnson, CPA has been promoted to Senior + Audit and Assurance.


Adam T. Bauer, CPA has been promoted to Senior + Tax.


Chrysa A. Cousley, CPA has been promoted to Senior + Tax.


Dalton R. Zeiser, CPA has been promoted to Senior + Tax.


Darin L. Winkelman has been promoted to Senior + Tax.


Brett M. Hodges has been promoted to Senior Systems Administrator + Technology.


Jon M. Ciembronowicz, MBA has been promoted to Senior Systems Administrator + Technology.


Kris R. Nye has been promoted to Senior Systems Administrator + Technology.


Michael C. Mitchell, CCNP has been promoted to Senior Systems Engineer + Technology.


Gretchen A. Best, CPA has been promoted to Accounting Supervisor + Finance.


Stephen S. Kohler, CPA has been promoted to Supervisor + Audit and Assurance.


Ally L. Bruening has been promoted to Marketing Manager.


Brian C. Loose, CPA has been promoted to Manager + Audit and Assurance.


Erin E. Mueller, CPA has been promoted to Manager + Tax.


Pam E. Ditch, CPA has been promoted to Manager + Tax.


Valerie S. Fohne has been promoted to Resource Manager + Tax.


Alex P. Grosse, VMTSP has been promoted to IT Manager of Infrastructure and Security + Technology


Tyler A. Kaberline, CHSP, VCP-DTM has been promoted to IT Manager of Applications and Customer Service + Technology.


Rob A. Kotsybar, MCTS, MCP, MCSA has been promoted to Service Manager + Technology.


Cory N. Gegg has been promoted to Service Desk Manager + Technology.


Bradley R. Soderstrom has been promoted to Senior Manager + Audit and Assurance.


Jane M. Maddox, CPA has been promoted to Senior Manager + Tax.


Nathan P. Stonner, CPA has been promoted to Senior Manager + Tax.


Ryan M. Huff, CPA has been promoted to Senior Manager + Tax.


All Insights

June 23, 2020

Paying Too Much in Taxes? Here are Common Expense Deductions Startups Miss

Many profitable companies, including startups, are paying more in taxes than they should solely because they are not accounting for all expenses that they are legally allowed to deduct, including home office, internet, cell phone and car expenses. Understanding how to properly record and categorize expenses, and differentiate between business and personal expenses is key to minimizing tax liability.

Record Expenses When They Occur

Keeping track of what your business spends money on is hard enough, so do not wait until the end of each month or even the end of the year to try and go back and remember what you spent and when. In the end, you will probably end up forgetting about many expenses that were incurred.

If you are unable to record the expenses right away, at a minimum, you should at least save the receipts so they can be used to help you go back and record your transactions. With online banking making it easier to access transactions, many times we can see where we purchased something, but we need the underlying receipt to give us more details on the transactions. Additionally, under audit, the IRS will ask for receipts to support the expenses you are taking. Then at the end of each month, make sure you reconcile your cash account to your bank statement to make sure there are not any discrepancies.

Categorize Expenses

Being able to categorize expenses into categories can save you time and money in the long run. If you give all the receipts that your company had over the year, and ask your CPA to prepare your taxes, it is going to take them a lot longer than if you had them categorized. Once all the expenses are sorted into different categories your CPA will review and determine if all the expenses are deductible. One thing to note: if there are expenses that you are not sure how to categorize, most accounting systems have an “Ask your accountant” account which could be used as a placeholder until you can discuss those transactions in more detail with your advisor.

Know What Expenses Can be Taken

Having an understanding as to what expenses you can take in your business is also very important. Almost all expenses that occur in a business for it to function can be used as an expense, but your CPA can determine whether these expenses are fully, partially, or completely non-deductible under current tax law. Many people understand the basic ideas of what can and what cannot be taken against their company’s income, such as advertising, employee wages and compensation, rent, repairs, legal services, supplies, taxes and more, but there are many other expenses that are overlooked each year. A few of these expenses are listed below.

Home Office

There are a few different ways to calculate your home office deduction using the simplified or regular method, but under each method there are a few things you do need to make sure you have documented in order to take a deduction:

  1. You must regularly use part of your home exclusively for conducting business and not for personal use.
  2. This area in your home must also be considered your “regular” place of business. What this means, is that you cannot have another office/workspace that you could go to in order to perform your work. If you do have a space at the office, that automatically excludes you from this deduction.

Internet/WIFI

If you have internet or WIFI in your office building, you can write off this expense. In addition, if you use your home internet for your business and for personal use, you can potentially take the percentage of internet used for business as an expense, but you do need to determine how much of that expense relates to personal use.

Cell Phones

The same rules that apply to your internet/WIFI, also apply to cell phones. If it is used exclusively for business, then all expenses can be deducted. If it is only used partially for business and the rest for personal, the percentage that is used for business purposes can be taken as an expense.

Car/Auto Expenses

Any vehicles used/purchased for business can also be deducted against your income. Similar to the home office deduction, there are two methods in order to take a vehicle deduction: the mileage and actual methods. Your CPA can review and evaluate which deduction will be best for you given your individual situation, but in order for them to determine that, you should keep track of the following information:

  1. Fuel cost
  2. Business miles driven
  3. Personal miles driven
  4. License fees
  5. Insurance
  6. Repairs
  7. Anything else that is used to keep the vehicle running for your business

Travel

When traveling for business, it is important to keep track of all expenses that you have. A wide variety of expenses during travel are deductible to a business, anywhere from how you got there, such as bus, flight or train, to what you ate, to what means of transportation you used while you were there could all potentially be deductible on the business level.

As we discussed, the key to deducting expenses is to make sure you are keeping receipts and recording transactions in a timely manner, so you do not miss anything. You want to make sure you over document and ask questions if there are any expenses you are not sure about. If you have any questions about if something qualifies as a deductible business expense, contact an Anders advisor

All Insights

June 23, 2020

New Easier PPP Forgiveness Applications Are Here – But Are They Easy Enough?

The topic of Paycheck Protection Program (PPP) loan forgiveness has been a popular one over the past couple of months as businesses prepare to apply for forgiveness. After much anticipation, the SBA recently released two new forgiveness applications. One is a general application, the other is a simpler version known as “Form 3508EZ”. We dive into the details and differences of the two forms below.

Can I Use the EZ Form?

Businesses can use the simpler, EZ form if they meet one of the following criteria:

  • You are self-employed and have no employees; or
  • You had employees, but did not reduce their salaries or wages during the covered period by more than 25% AND did not reduce the number of hours worked by employees (essentially meeting what’s come to be known as the FTE employee rule); or
  • You had employees, but did not reduce their salaries or wages during the covered period by more than 25%, AND due to complying with essentially shelter-in-place laws during the covered period, you were unable to operate during the covered period at the same level of business that existed before February 15, 2020.

What Do I Need to Consider Before Applying?

It is important to note that the actual applications and the instructions are separate documents on the US Treasury website. The original application was a single document that included application and instructions combined. There is certainly value in the newly minted applications especially if you can use the EZ app. With being said, there are still plenty of questions that remain. Here are additional application points to consider:

  • If the business meets any of the three requirements listed above, they can use the EZ form.
  • For S-Corporations wondering where they fit, if the owner is the only employee, then by definition they still would have employees and thus qualify under #2 or #3 above, and need to fill out the sections of the EZ App listing the owner as the only employee.
  • Decide if you are going to apply under the 8-week covered period or the 24-week period (not to exceed December 31, 2020). Only borrowers that receive loans before June 5 can choose between the 8 or 24-week period.
  • Personal compensation is limited before the owner can add to it other employee payroll costs, rent, lease payments, utilities and mortgage interest. Personal compensation is the maximum of the following:
    • $15,385 if you choose the 8-week period.
    • $20,833 if you choose the 24-week period.
  • Payroll costs for S-Corp owners do not include health insurance premiums for themselves, but only the premiums for their employees can be included in the definition of payroll costs. This may be confusing because when you applied for the PPP loan, S-Corp owner/employees were allowed to include this in their calculations for loan, but not on the forgiveness app.

The purpose of the new applications was to simplify the process. Did it go far enough? Many business owners would emphatically say “no”.  However, it appears to be a step in the right direction.  Frankly, it might be the only direction we get.

Download the EZ application instructions or view the EZ application.

Download the full forgiveness application instructions or view the full forgiveness application.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential business impacts and benefits. Visit our COVID-19 Resource Center for more news, tools and insights you need to know in these uncertain times.

All Insights

June 22, 2020

Anders to Merge in Cummings, Ristau & Associates

Effective June 30, 2020, Cummings, Ristau & Associates, a public accounting firm based in St. Louis County, Missouri, will combine its practice with Anders CPAs + Advisors. Partners David J. Ristau, CPA and Mark H. Cummings, CPA, along with 19 staff members will join Anders, bringing the firm’s total partners and staff to 230 with revenues of approximately $41.5 million.

Formed in 1996, Cummings Ristau carved out a unique and strong expertise in serving the banking industry in Missouri and Illinois. The partnership will provide the opportunity for Anders to add a new niche and expand the firm’s financial institution footprint. Cummings Ristau partners and staff will move to the Anders downtown office this summer.

“Adding a strategic partner with an established niche unique to our industry offerings, is important to our vision for growth, and we found a great match with Cummings Ristau,” said Robert J. Minkler, Jr., CPA/CGMA, Anders managing partner. “Given the current environment and the increasing relationship between clients, accountants and their bankers as a result of the Paycheck Protection Program (PPP) and other parts of the CARES Act, the timing of this merger will add value and expertise for clients from both firms. The role community banks and financial institutions will play in the recovery and growth of our economy has never been greater and we welcome the opportunity to provide them with the services and information they will require.”

Cummings Ristau provides audit, tax, regulatory compliance and loan review services to banks and credit unions. In addition, the firm also provides agreed upon procedures, IT audits, bank directors’ examinations, employee benefit plan audits and internal control reviews. “We are excited to join Anders and become a part of this diverse and expanding firm,” said Ristau, who has more than 30 years of Big 4 and banking experience including his time at Cummings Ristau.  Anders resources will provide a new line of advisory services as well as enhanced tax and audit capabilities to our clients, along with great administrative, human resources and marketing support for our team.”

While Anders has served the broker/dealer and financial services industries since the firm’s inception, Minkler says the depth of experience Cummings Ristau brings to Anders “will provide us the ability to serve these clients at a deeper level and bring our expertise in technology, systems, best practices and other services to these banking clients.”

Cummings, who has served as a Big 4 partner and bank executive vice president, CFO and director concluded, “we have been searching for the right partner for some time and have found one in Anders.  Our values of providing clients with personal attention, making a difference to their bottom line and being committed to developing long-term relationships is exactly in step with Anders mission, vision and core values.  We look forward to be a part of the firm’s growth and strategic plan for the future.”

All Insights

June 19, 2020

Anders Ranks #5 on St. Louis’ Largest Accounting Firms

Anders is ranked #5 on the St. Louis Business Journal’s largest accounting firms list by number of professionals. With 93 CPAs as of January 2020, Anders is ranked #6 in St. Louis on total number of local CPAs.

View the largest St. Louis accounting firms ranked by CPAs.
View the largest St. Louis accounting firms ranked by local professionals.

All Insights

June 18, 2020

How Low Stock Values and Interest Rates Can Work in Your Benefit for Estate Tax Planning

COVID-19 has changed the entire world, including how we do business, see loved ones, or even go to the store. But it has also inadvertently affected the world of estate planning. There are now many ways individuals can advance their estate planning and save tax money in the long term. Stock values are down, and interest rates are lower than they have been in years, making now the perfect opportunity to use some of the below estate tax planning strategies.

Roth Conversions

If you have a traditional IRA that is taxed upon withdrawal, it might make sense to convert to a Roth IRA that is taxed at initial investment and tax-free upon withdrawal. Currently, the market is down, so converting these now could result in a lower tax amount paid in the long run. Tax rates are also relatively low and other income may be down this year due to the economy, which may allow you to convert at lower tax rates than you would pay in retirement.

Say your traditional IRA was valued at $2 million, and now has dropped to $1 million. Because this will likely rebound back to the $2 million or even higher later, now is the time to convert some or all of this to a Roth IRA. If you convert the whole IRA, yes you will pay tax now, but you will only pay tax on the $1M Million current value, but then this will grow tax free. In comparison, if you leave it in a traditional IRA, and it rebounds to $3M, you could be paying 3x the tax when you finally withdraw from the account.

Gifting Opportunities

This is also a great time to gift to the next generation. Each year there is an annual gift exclusion, it is currently $15,000 for individuals and $30,000 for couples in 2020. Taxpayers can gift up to this amount to an individual without using any of their lifetime Estate Tax Exemption.

Stocks

Since stock values are down, gifting these depreciated stocks now to the next generation before they regain their value is a great gifting tool.

Family-Owned Businesses

This is a great time to gift family-owned businesses or family limited partnerships to the next generation as well, depending on the valuation of the company. Assuming the value is down, you can gift a larger percentage now rather than when the company is valued higher.

Loans

Intra-family loans are now a greater tool than before, due to the low interest rates. The AFR rate is at a historical low and presents an opportunity to loan to family members for very low interest.

Property

It could also be a great time to sell property, that’s expected to appreciate, to an intentionally defective grantor trust. As long as the property appreciates faster than the interest rate set by the trust at setup, then this property appreciation will be a tax-free transfer for gift and estate tax purposes.

The Estate Tax Exemption of $11.58 Million is set to revert to the old amount in 2025 and be half of the current exemption. If your estate would be in this range of concern, above $5.5 million per person, this is a great time to do some estate tax planning. Once 2025 is here, or earlier depending on the political environment, you could lose half of your gifting opportunity.

GRATs (Grantor Retained Annuity Trusts)

Due to historically low AFR rates, this is the perfect time to consider using a GRAT for your estate planning. In order to create a GRAT, an individual must transfer assets into the trust. The individual has the right to receive the trust annuity payments from the trust for the length of the term. The payments are set based on the AFR rate, which is currently very low. The individual receives these payments for the remainder of the term, and upon the end, the remaining assets pass to the beneficiaries with no estate tax exemption used.

In order for a GRAT to be successful, appreciation of the assets and the income earned from the assets must exceed the IRC Section 7520 rate.  For June 2020, this rate is only 0.6%!  With asset values down right now, it could allow for a lot of asset appreciation to be transferred with no or very low estate tax exemption used.

Contact an Anders advisor to discuss any of these estate tax planning opportunities or other personalized Family Wealth and Estate Planning.

All Insights

Keep up with Anders

Want to keep up with all the latest insights from Anders? Subscribe and receive the information that matters to you.

  • This field is for validation purposes and should be left unchanged.