Florida is the only state that imposes sales tax on the lease of commercial real property. Over the last several years, this tax rate has been reduced in increments from 6.0% to 5.5%. Under recently enacted legislation, this rate will be further reduced to 2.0%. However, this rate reduction will not go into effect until two months after Florida’s Unemployment Compensation Trust Fund is replenished to pre-pandemic levels. Depending upon future unemployment claims, Florida economists estimate this may occur in 2024 or 2025. The 3.5% reduction is estimated to save commercial tenants approximately $1.2 billion annually. The local sales tax portion of the commercial rent tax is not changed by the new legislation.
Business Attorney Liz Stamoulis and Estate Planning Attorney Rose-Ann Frano will join a panel hosted by BMO to discuss strategies to begin, and continue, meaningful conversations regarding estate planning for the future with your spouse and those most impacted by your decisions. The panel will consider how to foster compassionate dialog and strengthening lines of communication on even the most difficult of subjects. Additionally, the fundamental estate planning documents will be reviewed and discussed. Join us to learn how to begin those difficult conversations.
Wednesday, April 28, 2021
4:00-5:30 p.m. Eastern Standard Time
Click here to register.
On April 19, 2021, Florida Senate Bill 50 was enacted into law. The legislation modernizes Florida’s sales and use tax system and imposes tax collection obligations on remote sellers and marketplace providers. Among the many reforms in the new legislation is the imposition of sales tax on “remote sales” and requiring tax collection by sellers lacking a physical presence in Florida. Remote sellers (seller with no physical presence in Florida) are required to collect Florida tax if they have in excess of $100,000 of retail sales for delivery into Florida in the previous calendar year. The new legislation also extends these sales tax collection obligations to marketplace providers that facilitate and collect payment for sales made by remote sellers utilizing their platform. In such instances, the marketplace provider, rather than the remote seller, would collect and remit Florida sales tax. These remote seller and marketplace provider obligations become effective July 1, 2021.
The new legislation also provides a “safe harbor” from potential past Florida tax liability. A remote seller required to collect and remit Florida tax under the new legislation will be relieved from liability for tax, penalty, and interest due on remote sales made before July 1, 2021, if they register with the Florida Department of Revenue before October 1, 2021. A similar safe harbor is provided for marketplace providers.
The deadline to file a 2021 Florida Annual Uniform Business Report for your Corporation, Limited Liability Company, Limited Partnership, or Limited Liability Limited Partnership to maintain its active status with the State of Florida is May 1, 2021. A late fee of $400 will be added to the State’s filing fee for entities that file their Florida Annual Report after this deadline. Failure to file a 2021 Florida Annual Report for an entity will result in the administrative dissolution or revocation of the entity in September 2021.
If you have specific questions regarding filing your annual report, you can speak to someone with the Florida Secretary of State’s Division of Corporations by calling 850-245-6000. The Florida Secretary of State also answers a number of commonly asked questions about filing annual reports here: https://dos.myflorida.com/sunbiz/manage-business/efile/annual-report/.
If Williams Parker’s affiliate, Cross Street Corporate Services, LLC, serves as your registered agent, when you file the annual report on www.sunbiz.org, please be sure that the fields relating to the name and address of the Registered Agent are completed as follows:
- Registered Agent Name: This field should remain blank. Do not list an individual attorney or Williams Parker here.
- Business to Serve as Registered Agent: Please list Cross Street Corporate Services, LLC, in this field.
- Street Address of Registered Agent: Please list 200 South Orange Avenue, Sarasota, FL 34236 in this field.
If you are changing your registered agent to Cross Street please type your name and “as Agent” in the signature field.
Please let us know if there is anything we can do to assist you in filing your entity’s annual report.
The Consolidated Appropriations Act, 2021 (the “CAA”), signed into law by President Donald Trump on December 27, 2020, provides further relief for individuals both related and unrelated to COVID-19. Such relief includes an extension of the charitable deduction allowances granted under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and new retirement plan benefits related to “qualified disasters.”
As a continued benefit from the CARES Act, the CAA allows an above-the-line deduction up to $300 for individuals who do not itemize deductions and who contribute cash to most qualified charitable organizations (not including certain supporting organizations or donor advised funds). In addition to this continued benefit, joint filers are allowed to take an above-the-line deduction up to $600 for such contributions in 2021 and in future years.
It is important to note that an overstatement of the charitable deduction attributable to this provision on your income tax return could result in the imposition of an accuracy-related penalty equal to 50% of the underpayment resulting from the overstatement.
The CAA also extended the CARES Act’s increase to the allowable charitable deduction for taxpayers who itemize deductions (discussed in our prior blog post) through 2021.
Dissimilar to the charitable deduction provisions, the CAA does not extend the CARES Act provisions related to retirement plan coronavirus-related distributions or loan benefits. The CAA does, however, provide that in service withdrawals from money purchase pension plans may be eligible to be treated as coronavirus-related distributions (discussed in our prior blog post). Such provision is retroactive to the enactment of the CARES Act, and the relevant coronavirus-related distribution provisions of the CARES Act expired on December 30, 2020.
Instead of extending the COVID-19 related relief, the CAA provides disaster-relief provisions unrelated to COVID-19, which are similar to disaster-relief provisions previously enacted. The CAA provides that the early withdrawal penalty generally imposed on individuals under the age of 59½ will not be imposed on a “qualified disaster distribution” taken within 180 days of the enactment of the CAA. Generally, a qualified disaster distribution is a distribution from certain retirement plans to an individual who lives in a qualified disaster area and has suffered economic loss due to the qualified disaster. A qualified disaster must be federally declared disaster, must meet other requirements set forth in the CAA, and does not include a disaster only by reason of COVID-19.
The total amount for the year that may be treated as a qualified disaster distribution is the excess of $100,000 over prior year’s amounts treated as qualified disaster distributions. The rules regarding repayment and the election for ratable inclusion are similar to the rules under the CARES Act for coronavirus-related distributions described in our prior blog post. The CAA also provides special rules related to recontributions of withdrawals for home purchases.
Finally, the CAA increases the amount that certain retirement plans may loan to a qualified individual (i.e. an individual who lives in a qualified disaster area and has suffered economic loss due to the qualified disaster) if the loan is made within 180 days of the enactment of the CAA. The amount of the loan may not exceed $100,000 (instead of the usual $50,000) or the present value of the individual’s vested account balance. The CAA also includes provisions related to individuals affected by more than one disaster, loan repayment, and various other special rules.
There is a myriad of tax-related provisions in the CAA. If you would like to review your particular circumstances in light of the broad-reaching CAA, we would be glad to help you determine if there are provisions which may benefit you and your family.
Last week, the Internal Revenue Service (“IRS”) issued two pieces of guidance—Revenue Procedure 2020-51 and Revenue Ruling 2020-27—reiterating its position that taxpayers cannot claim a deduction for any otherwise deductible expense if the payment of the expense results in forgiveness of a Paycheck Protection Program (“PPP”) loan and clarifying the tax treatment for business expenses where a PPP loan is not forgiven in the year received. The IRS describes the guidance as follows:
- Revenue Procedure 2020-51 provides a safe harbor allowing a taxpayer to claim a deduction in the taxpayer’s 2020 tax year (or the subsequent year) for certain otherwise deductible eligible 2020 expenses if (1) the taxpayer incurred eligible PPP expenses in 2020 and, after applying for PPP loan forgiveness, the taxpayer is denied that forgiveness, in whole or in part, in a subsequent year or (2) the taxpayer decides not to request PPP loan forgiveness in a taxable year after 2020. In those situations, the taxpayer can deduct some or all of the expenses on (1) a timely filed (including extensions) original tax or information return for the 2020 tax year, (2) an amended 2020 return or administrative adjustment request, or (3) a timely filed original tax or information return for the subsequent tax year; and
- Revenue Ruling 2020-27 provides that a taxpayer that received a PPP loan and that paid or incurred certain otherwise deductible expenses cannot deduct those expenses in the tax year in which the expenses were paid or incurred if, at the end of that tax year, the taxpayer reasonably expects to receive forgiveness of the covered loan based on the otherwise deductible expenses. This includes situations where the taxpayer (1) has applied for loan forgiveness but has not been informed by the lender by the end of 2020 whether the loan will be forgiven and (2) has not applied for loan forgiveness by the end of 2020 but has satisfied all requirements for forgiveness and knows the amount of expenses that qualify for loan forgiveness.
These two pieces of guidance follow IRS Notice 2020-32, released this past late April, in which the IRS first announced that no deduction is allowed for an expense if the payment of that expense results in forgiveness of a PPP loan. As we have said before, we disagree with the IRS’s position, in part because it obviates the “tax free” forgiveness of the loan.
More than one-third of the United States Senate has co-sponsored a bill that would make clear that deductions for ordinary business expenses (and other tax attributes) are unaffected by PPP loan forgiveness, but Congress has not enacted any clarifying legislation into law.
Last Thursday, October 8, the Small Business Administration (“SBA”) released a simplified application form (Form 3508S) and instructions for Paycheck Protection Program (“PPP”) loans of $50,000 or less. Any qualifying PPP borrower that uses the new two-page application is exempt from any reductions in the borrower’s loan forgiveness amount based on reductions in full-time equivalent employees or reductions in employee salary or wages that would otherwise apply. Accordingly, the new Form 3508S application “does not require borrowers to show the calculations” supporting the requested loan forgiveness amount, though the SBA reserves the right to request information to review the borrower’s calculations.
Borrowers using the Form 3508S application must still submit documentation to verify employee cash compensation and non-cash benefit payments and nonpayroll expenses. The instructions include examples of appropriate documentation. Borrowers must also retain all documents supporting their PPP loan application, their forgiveness application, and their compliance with PPP requirements for six years after the date their loan is forgiven or repaid in full.
A borrower with affiliates (defined by the SBA here) may not use Form 3508S if the borrower, together with its affiliates, received PPP loans totaling $2 million or more.
There has been a lot of discussion about the impact that the upcoming election might have on federal gift and estate tax law. In light of this, we feel that it would be helpful to provide an update of the current situation and a brief summary of some of the planning opportunities that may be beneficial in the current environment. We also want to highlight the recent passage of the SECURE Act and discuss the impact this new law might have on your estate plan.
The current available estate and gift tax exemption is $11.58 million. Generally speaking, this is the amount that can be transferred during lifetime (by gift) or at death before transfer tax is imposed. Under current law, this exemption amount is tied to the rate of inflation and is therefore likely to gradually increase through 2025. If Congress does not act in the interim, then on January 1, 2026, the estate and gift tax exemption will reduce to $5 million, as indexed for inflation.
The Internal Revenue Service issued final Treasury regulations confirming that taxable gifts made between 2017 and 2026, in excess of the exemption amount available on the date of death, will not be “clawed back” into the gross estate for federal estate tax purposes. In other words, if a taxable gift of $11 million is made this year, and in the year of the transferor’s death the exemption amount is $5 million, the transferor’s estate will not pay transfer tax on the excess $6 million that was gifted when the exemption amount was $11 million. The anti-clawback regulations provide unique tax planning opportunities to lock in the temporary increase in the exemption via gifting prior to its reversion.
Since the upcoming elections may yield a political shift in both the executive and legislative branches, the estate and gift tax exemption might be adjusted prior to January 1, 2026. There is also discussion that such a political shift could lead to the imposition of an additional tax on unrealized appreciation upon the transfer of assets by gift or at death and an increase in both marginal gift and estate tax rates. Obviously, we do not know what the upcoming election holds, and we do not know what legislation might be passed in the coming years. Regardless, it seems prudent for those who potentially might have a taxable estate to monitor the situation and consider whether they wish to avail themselves of any planning opportunities before any possible changes are made.
Given the current situation, most people are drawn to strategies that allow them to make a gift in a manner that will (1) lock in the current $11.58 million exemption amount; (2) remove assets, and the appreciation thereon, from their gross estate; and (3) retain some use of the gifted assets after the gift. Some popular strategies that meet these criteria are as follows:
Spousal Lifetime/Limited Access Trust (SLAT): A SLAT is an irrevocable trust established by someone for the benefit of his or her spouse. The general concept is that the gifted SLAT funds remain available for the spouse (and possibly children) during the spouse’s lifetime. A SLAT is structured so that it does not qualify for the marital deduction; thus it utilizes the transferor spouse’s exemption. During the beneficiary spouse’s lifetime, the beneficiary spouse retains use of the funds. When the beneficiary spouse dies, however, such access is lost, and the trust assets are distributed or held in further trust for designated beneficiaries.
Many people like to maximize this strategy by having both spouses create SLATs for the benefit of each other. This is permitted; however, such SLATs must be carefully structured to include enough differences so as not to be deemed reciprocal trusts.
Grantor Retained Annuity Trust (GRAT): A GRAT is an irrevocable trust that is established for a specific term of years. During the term, the grantor retains the right to receive an annual payment from the trust. The term of the GRAT and the amount of the payment can be modified based on how much of the exemption the grantor wishes to utilize. As long as the assets in the GRAT appreciate greater than the Section 7520 rate (currently only 0.4 percent), then there will be assets that can pass to beneficiaries tax-free at the end of the term. A grantor who wishes to utilize a larger portion of his or her exemption through a GRAT would reduce the size of the annual payment that comes back during the term of the GRAT.
Qualified Personal Residence Trust (QPRT): A QPRT is an irrevocable trust funded with the grantor’s personal residence (or secondary home) in which the grantor retains the right to use the residence for a term of years. Upon the expiration of such term (if the grantor survives the term), the ownership of the property will pass to the remainder beneficiaries, either outright or subject to continuing trust.
The establishment of a QPRT will be deemed a taxable gift of the remainder interest to the trust beneficiaries. The value of the taxable gift will be the overall fair market value of the transferred property reduced by the value of the retained interest (i.e., the term of years selected). This allows the grantor to transfer the full value of the residence using only the exemption equal to the value of the remainder interest. After the term of the QPRT ends, the grantor may lease the property back from the remainder beneficiaries for fair market value.
The federal income tax consequences of the aforementioned trusts should also be considered. Each of the trusts, at least for a period of time, is structured as a “grantor trust,” which means that the grantor is taxed on all the income earned by the trust during such time period. This may be beneficial because the income taxes paid by the grantor serve as an additional transfer of wealth to the beneficiaries, free of transfer tax. Another important income tax consequence is that when a gift is made during life, the recipient of the gift receives a “transferred basis” in the asset. This means that the recipient of the gifted asset has the same basis in the asset that the transferor held. Alternatively, if an asset is transferred upon death, the recipient’s basis would be adjusted to the asset’s fair market value, which is generally more desirable for income tax purposes. Therefore, the specific assets utilized for any gifting strategy must be carefully considered.
This is not an exhaustive list of options. For example, those who do not care to retain any interest in the gifted assets can continue to utilize outright gifting directly to a beneficiary or to a trust for the benefit of one or more beneficiaries. The gifted assets could consist of closely held business interests, which might qualify for a valuation discount. If you have previously loaned money to a beneficiary, you might consider forgiving the note and thereby triggering a gift. Some clients are also looking to refinance existing loans at lower current applicable rates. You should speak with your estate planning attorney to determine which techniques are appropriate for you. There are a multitude of options, depending on your intent, family structure, asset holdings, and market outlook.
The SECURE Act and Its Impact
In addition to the possible changes to the transfer tax rules, the recent passage of the SECURE Act has caused a major change in how many retirement plans can be administered and distributed following the account owner’s death. Many of such plans are now subject to a 10-year payout requirement after the death of the account owner. Previously, such accounts could generally be paid out over the life expectancy of the named beneficiary. For many plans, this change will result in an acceleration of the income tax liability following the account owner’s death. Therefore, we also suggest that you review your retirement accounts and the named beneficiaries of such accounts to ensure that the treatment of such assets after your death is consistent with your intent.
If you would like to review the options available in further detail, or if you simply feel that it may be beneficial to review your estate plan in light of the SECURE Act or our uncertain political and estate tax environment, please feel free to contact us. We will be happy to help you protect your intent and preserve your estate for you and your family.
The deadline to file a 2020 Florida Annual Uniform Business Report for your Corporation, Limited Liability Company, Limited Partnership, or Limited Liability Limited Partnership to maintain its active status with the State of Florida was June 30, 2020. If you have not already filed a Florida Annual Report for your entity for 2020, you may still do so to avoid the administrative dissolution of the entity by filing the report by the close of business on Friday, September 18, 2020, and paying a $400 late fee in addition to the standard filing fee. Failure to file a 2020 Florida Annual Report by Friday, September 18, 2020, for an entity will result in the entity’s administrative dissolution or revocation on September 25, 2020. Entities that are administratively dissolved or revoked may be reinstated; however, such reinstatement will require the submission of a reinstatement application, as well as the payment of a reinstatement fee and the standard annual report fee.
Even if a third party, like Cross Street Corporate Services, LLC, serves as your entity’s registered agent, it is your responsibility to file the Annual Report with the State of Florida. Annual Reports should be electronically filed at the Florida Department of State’s website: www.sunbiz.org. If you need assistance, please contact us.
You may disregard this notice if your entity was formed in 2020 or has already filed a Florida Annual Report for 2020.
On Friday, August 28, the Treasury Department (“Treasury”) released guidance implementing President Trump’s executive directive to defer the employee portion of social security tax. As part of the continued response to the COVID-19 pandemic, Notice 2020-65 allows employers to make this deferral during the period of September 1, 2020 through December 31, 2020 for employees earning below a threshold amount of $4,000 during a bi-weekly pay period. This threshold is to be determined on a per-pay period basis rather than as an annualized amount. While not clearly stated in the Notice, both Treasury and the Internal Revenue Service (“IRS”) have framed the deferral as optional for employers.
For those employers who do choose to defer the employee share of social security tax, these amounts will be postponed until the period beginning on January 1, 2021 and ending on April 30, 2021. This could mean that absent further legislation affording permanent forgiveness of these amounts, employees would be obligated to make increased payroll payments for that four-month period. If employers fail to withhold and deposit any deferred amounts by May 1, 2021, the Notice states that they will be on the hook for penalties and interest—again, assuming Congress fails to enact legislation that says otherwise.
What remains unclear is whether employees may choose to opt out of an employer’s choice to defer and how employers should treat the deferred taxes of employees who are terminated before these amounts are fully repaid in 2021. The Notice does, however, state that “[i]f necessary, the [employer] may make arrangements to otherwise collect the total Applicable Taxes from the employee,” suggesting that an employer could, for example, deduct any deferred tax owing from an employee’s final paycheck to the extent permitted by the Fair Labor Standards Act.
The IRS has released a draft update of Form 941, Employer’s Quarterly Federal Tax Return, on which employers may take into account employee social security withholding that is deferred. The key change appears to be on page 3, line 24, which asks for the “Deferred amount of the employee share of social security tax included in line 13b.”
We hope to see more concrete guidance from Treasury in the coming weeks.