NH Healthcare System Relief Fund Application Is Due 8/13/20

Practice owners with offices in New Hampshire (NH) should be aware that they only have until August 13th to complete the online application to tap New Hampshire?s COVID-19 Emergency Healthcare System Relief Fund (CEHSRF).? Info is available at: https://www.goferr.nh.gov/covid-expenditures/healthcare-system-relief-fund. According to that website:

The Governor has authorized the allocation and expenditure of a total of $100 million in emergency funding from the CARES Act Coronavirus Relief Fund (?flex funds?) to support Healthcare providers with COVID-19 related expenses and lost revenues from March 1, 2020, to December 30, 2020. Of the $100 million in allocated funds, $70 million is dedicated for programs for Healthcare Providers and $30 million is dedicated for programs for Long Term Care Providers.

On July 30, 2020, Governor Sununu announced that the third round of grant applications is open for Healthcare Care Providers, as well as a second-round for Long Term Care Providers. Applications must be submitted through the web portal by the deadline of August 13, 2020.

Are Scholarships and Fellowships taxable?

I recently received an interesting question from a client that I know many of you may have as well:

The Question:

“My son-in-law is doing a PhD and has an NSF Fellowship from the government.? Interestingly, the government does not take out taxes nor provide a W2 or 1099 form.? I presume that the income is taxable but the government site says “it may be taxable income”.? Are there any situations when this income would not be taxable?”

My answer:

It?s my understanding that this income is subject to federal and state income taxes, but is not subject to Social Security or Medicare taxes.? A lot of people receiving these grants don?t think the income is taxable since no tax form is provided.? Grants and scholarships are taxable to the extent that the money received exceeds tuition paid.

Here are the rules from the IRS:

Scholarships and Fellowships

A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. The student may be either an undergraduate or a graduate. A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Generally, whether the amount is tax free or taxable depends on the expense paid with the amount and whether you are a degree candidate.

A scholarship or fellowship is tax free only if you meet the following conditions:

  • You are a candidate for a degree at an eligible educational institution.
  • You use the scholarship or fellowship to pay qualified education expenses.

Qualified Education Expenses

For purposes of tax-free scholarships and fellowships, these are expenses for:

  • Tuition and fees required to enroll at or attend an eligible educational institution.
  • Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses.

Expenses that Don?t Qualify

Qualified education expenses do not include the cost of:

  • Room and board.
  • Travel
  • Research
  • Clerical help
  • Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.

This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. Scholarship or fellowship amounts used to pay these costs are taxable.

2017 and 2018 Tax Facts – Side by Side

  • For 2017, the standard deduction for a single individual is $6,350 and for a married couple is $12,700. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses. The Standard Deduction jumps to $12k for single individuals and $24k for married couples in 2018.
  • For 2017, the personal exemption is $4,050. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. Personal Exemptions are eliminated starting in 2018.
  • The?maximum earnings subject to?social security taxes is $128,700 for 2018,?up from $127,200 in 2017.
  • The?standard mileage rate?is $.545 per business mile?as of January 1, 2018, up from $.535 for 2017.
  • The?maximum annual salary deferral?into a?401(k) plan?or a?403(b) plan?is $18,500 in 2018, up from $18,000 in 2015, 2016 and 2017.? And if you’ll be 50 or older by December 31st, you can contribute an extra $6,000 into your 401(k) or 403(b) account this year.
  • The?maximum annual contribution?to your?IRA?is?$5,500 for 2015 through 2018.? And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.? You have until April 15, 2019 to make your 2018 IRA contributions.

The New Section 199A Qualified Business Income Deduction

By Yuling Liu, CPA, Schwartz & Schwartz CPAs

What is Qualified business income deduction?

Section 199A qualified business income deduction is available from 2018 to 2025. Taxpayers may deduct 20% of Qualified Business Income from partnerships, S Corporations, Sole Proprietorships (Schedule C’s) and Real Estate Rental Activities (Schedule E’s). This deduction was enacted to help pass-through entities who didn’t receive the benefit of 21% C-corporation tax rate.

A sole proprietor with net Schedule C income of $100k can now take a tax deduction of $20k on his or her personal tax return, subject to income limitations discussed below.

Calculation of Section 199A deduction

The deduction is a function of the taxpayer’s taxable income, net business income, and the wages paid and/or property owned by the business, and is generally based on the following:

  • 20% of taxpayer’s qualified business income.
  • The greater of 50% of the business’s W-2 wages or 25% of the business’s W-2 wages plus 2.5% of the original cost of all qualified property.

Full QBI deduction for Single taxpayers with taxable income below $157,500 and Married Couples with joint income below $315,000

For the single taxpayer with total taxable income below $157,500 ($315,000 for married filing jointly), the W-2 wages limit does not apply. Instead, the deduction will be limited to the lesser of 20% of the qualified business income or 20% of the total taxable income. It does not matter what kind of trade or business the taxpayer has.

Fully phased-out QBI deduction for Single taxpayer with taxable income exceeding $207,500 and Married Couples with joint income in excess of $415,000

Once the single taxpayer’s taxable income exceeds $207,500 ($415,000 for MFJ), taxpayer’s section 199A deduction is limited to the lesser of 20% of taxpayer’s qualified business income or the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of depreciable property.

But a specified service business is no longer eligible for this deduction.

A specified service trade or business means any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, including investing and investment management, trading, or dealing in securities, partnership interests, or commodities.

Partially phased-out QBI deduction for Single taxpayer with taxable income between $157,500 to $207,500 and Married Couples with joint income between $315k to $415k

When a single taxpayer’s taxable income exceeds $157,500 ($315,000 for MFJ), the W-2 limitation is phased in. The deduction is limited to the lesser of 20% of taxpayer’s qualified business income or the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of depreciable property. The qualified business income should be adjusted by an exclusion amount.

For example: An individual has taxable income of $177,500, QBI of $100,000. Base is $157,500. Top range is $207,500. The difference is $50,000.? Amount over base is $20,000. Percentage that should be excluded from QBI: $20,000/$50,000=40%. So, the exclusion amount is $40,000. Adjusted QBI is $60,000. Deduction is $30,000 ($60k*20%).

Dental Practice Overhead Figures – Watch Our Webinar

Please check out the recorded Webinar presented by Andrew Schwartz CPA (which was originally presented live on Wednesday July 25, 2018) about Understanding a Dental Practice’s Overhead. Andrew based this presentation on 2017 data collected from more than 150 general dental practices located primarily in the Greater Boston area.

“With a correlation in excess of 90% between “non-doctor’ overhead and practice collections for the 155 dental practices in our sample, this video details how much the average practice pays for staff expenses, facility expenses, lab fees, dental supplies, advertising and promotion, and other expenses as a percentage of collections,” explains Schwartz.

You can view this 37-minute recorded webinar at:?https://youtu.be/RqKj99AQEBM

Two Practical Personal Finance Lessons for College Students

By Andrew D. Schwartz, CPA

(Originally written for the September 2016 newsletter.)

Last week, my wife and I dropped off our older child at college to start his freshman year.? He is eager to spend the next four years taking classes in a variety of interesting subjects while working towards his degree.

A lot of what college kids learn, however, is learned outside the classroom.? My wife (who is a Certified Financial Planner) and I feel we already planted the seeds for a few practical personal finance lessons as part of our son’s preparation for his freshman year.

Budgeting Basics:

Sticking to a budget is helpful for businesses as well as for households.? While some people put together very detailed budgets each year, my son opted for a much simpler alternative to track whether he will end up sticking to his budget each semester.

Earlier this summer, my son opened his own checking account along with a companion savings account, and then deposited all of his paychecks from his summer job, plus any graduation gifts he received, into his new savings account.? He feels he earned enough during the summer to have built a sufficient stash in his savings account to cover his books and spending money for the entire freshman year.

Here is the step that will help him learn about budgeting basics.? In order to make this pool of money last through both semesters, he only transferred enough money from his savings account into his checking account to cover one semester’s projected spending.? Doing so lets him easily monitor his spending as compared to his budget.

If there is any money left over in his checking account at the end of the first semester, then he successfully met his budget.? Alternatively, if he ends up dipping into his savings before Semester One ends, he knows he’ll need to increase his budget for the second semester, which means he’ll probably need to get a job over winter break and/or work on campus when he returns to school in January in order to meet his second semester spending needs.

Begin to Establish a Credit History

My son is also taking this opportunity to begin to establish his own credit history.? At the same time that he opened his companion checking and savings account, he also applied for a low-limit credit card connected to these accounts.? I believe the limit for his credit card is just $800.

Each month, he plans to make a few purchases using his credit card.? To make sure he won’t miss making the monthly credit card payment (which would end up hurting his credit score), he already set up for the full balance of the credit card to be? “autopaid” out of his checking account prior to the card’s due date.

Establishing a consistent history of utilizing credit and then paying off the balance due in a timely fashion is a great way to establish a credit history and build up one’s credit rating.? Graduating with 48 months of consistently good credit history will be very valuable to someone entering the work force, looking to purchase or lease a vehicle, hoping to rent an apartment, or doing anything else that would require someone to pull a credit report.

(Check out our recorded presentation: Financial Cleanup: Your Credit Report.)

Two Great Lessons:

Learning how to budget and taking steps to establish and improve one’s credit are two practical personal finance lessons that my son won’t be taught in the 40 or so college classes he’ll be taking over the next four years.? Instead, he has already begun to learn these two useful lessons as part of his college experience before even stepping foot into his first undergrad class.