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Some Highlights from the CARES Act

 

by Nhit Hernandez  nhernandez@bvcocpas.com

 

 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in March 2020, provides financial relief to individuals, businesses, state and local governments during the COVID-19 health crisis. Below are some of the provisions related to businesses and self-employed individuals. Consult with your local banker and check SBA.GOV for updates on funding options.

Paycheck Protection Program (PPP)

The $349 billion appropriated to the PPP was depleted within the first two weeks. Congress passed a bill on April 23, 2020 for an additional $320 billion infusion.

i.   Forgiveness is based on employee retention or rehiring and maintaining salary levels similar to prior periods.

Economic Injury Disaster Loan (EIDL) and Emergency Advance

Employee Retention Credit

i.   A business is disqualified if it has received the PPP loan. Self-employed persons are also not eligible.

i.   Employers can claim up to $5,000 of credit per employee.

ii. Businesses with 100 or fewer employees can claim wages paid to working or non-working employees. Employers with more than 100 employees can claim the tax credit for wages paid to employees currently not working.

Deferral of Employment Tax Deposits and Payments

 

The information above does not constitute tax advice. It is intended for information only. Please consult with your professional tax advisor for questions regarding the CARES Act and its potential tax impact.

 

 

By Bill Saylor, CPA    bsaylor@bvcocpas.com

 

Two major pieces of legislation were finalized and signed on December 20, 2019 and are effective now. Specifically, the tax extender provisions were covered in the previous article Late December Tax Changes are Effective Now – and Retroactively! The SECURE Act provides significant changes for retirement accounts for both individuals and businesses. Major changes are noted below.

 

Individual provisions

  1. Required minimum distributions (RMDs): Individuals under 70 ½ years old at December 31, 2019 may defer RMDs until the year they turn 72. If you turned 70 ½ years in 2019, you can still take the RMD until April 1, 2020.
  2. Individuals who are working, including self-employment, may continue to make IRA contributions. Those over 70 ½ years who make such contributions may have a reduced qualified charitable contribution limit.
  3. Non-tuition fellowship and stipend payments paid to graduate and postdoctoral students are now considered compensation for determining eligibility to make IRA contributions. There is a similar provision for foster care “difficulty of care” payments in the law.
  4. Directed investments that are no longer allowed based on amended plan rules may now be distributed as a nontaxable qualified distribution.
  5. Long-term part-time workers can now participate in 401k plans as long as they work at least 500 hours per year for at least 3 consecutive years.
  6. The 10% penalty for distributions is waived for births or adoption expense up to $5,000 per individual (so $5,000 for each spouse if applicable.)
  7. Section 529 accounts can now cover registered apprenticeships.
  8. Inherited retirement plans and IRAs must generally be paid out within 10 years of the death of the account owner. Exceptions apply for surviving spouses, child beneficiaries who have not reached their majority, chronically ill beneficiaries, etc.
  9. Changes to the kiddie tax added under the Tax Cuts and Jobs Act in 2017 are repealed going forward or taxpayers can elect to apply the repeal retroactively to 2018 or 2019.

Business provisions

  1. Multiple employer reporting and Form 5500 filing requirements are reduced and a new pooled employer plan option is defined.
  2. Auto enrollment safe harbors for 401k increased with default rates allowed as high as 15.
  3. 401k plans making nonelective contributions to non-highly compensated employees (non HCE) no longer has to provide a safe harbor notice.
  4. Employers may take a credit of the lesser of $500 or 50% of qualified startup costs for starting a new qualified retirement plan, SIMPLE IRA plan or SEP that covers at least one non HCE.
  5. There is an additional credit up to $500 for new plans that include an automatic enrollment provision.
  6. 403b plans that are terminating can now convert employees to individual accounts.
  7. Qualified plans can now be adopted until the due date including extensions of the tax return for the year.
  8. Failure to file penalties for 5500 returns and related returns increased.

If you have any questions, please talk to your tax preparer or business advisor.

 

 

by Erika Hoppe  ehoppe@bvcocpas.com

 

 

Every year, the IRS provides annual inflation adjustments for various tax provisions, such as tax rate schedules and the standard deduction. Here are some of the key tax items that have changed for the 2019 tax year (these amounts will be used in 2020 to prepare your 2019 tax return):
Tax rates – Similar to 2018, there are seven tax rates, ranging from 10% to 37%. The rates apply in the following manner:

Standard deduction – The standard deduction amounts increase slightly from 2018. For 2019, they are $12,200 for single and married filing separately; $24,400 for married filing jointly and surviving spouse; and $18,350 for head of household. The additional standard deduction for those over 65 or blind remains at $1,300 for married filing jointly. For single taxpayers (not surviving spouse), however, the additional standard deduction increases to $1,650.

Medical and dental expenses – For 2019, qualified medical expenses must exceed 10% of AGI to be deductible. This increased from 7.5% of AGI in 2018.

Standard mileage rates – For 2019, the standard mileage rate is 58 cents per mile driven for business (up from 54.5 cents per mile in 2018) and 20 cents per mile driven for medical or moving purposes (up from 18 cents per mile in 2018). The standard mileage rate for charitable purposes remains the same at 14 cents per mile driven.

Shared Responsibility Payment – Under the Affordable Care Act, all taxpayers and their dependents were required to have health insurance that provided minimum essential coverage for tax years before 2019. Taxpayers who did not have health insurance would either qualify for an exemption or would have to pay a penalty. Beginning in 2019, the penalty for not having health insurance has been eliminated.

These are just a few of the changes that will affect the 2019 tax year. Additional changes and inflation adjustments can be found in Revenue Procedure 2018-57.

By Jared Streshley   jstreshley@bvcocpas.com

 

Did your company have more net income in 2019 than you were expecting? Are some of your business use assets outdated and could use replacement? If so, this simple tip can help your company for future years.

Typically, when you purchase an asset for your use by your company, this asset will depreciate over the period of time that it will be useful. By using bonus depreciation, you can fully expense the purchase of an asset in the first year of use to substantially reduce your company’s taxable income. This election was originally expected to phase out in 2020, but has been extended through the 2022 tax year.

There are a few rules to follow under bonus depreciation

This election to take full 100% of the assets value as depreciation in the first year of an assets use will begin to phase out after the year 2022. Meet with our CPAs to discuss the optimal plan you can take to effectively take advantage of this election and plan an update of your assets in the most advantageous way for your business.

 

 

By Teela McCullar   tmccullar@bvcocpas.com

 

Now that business owners have had some time to digest the impacts of the 2017 Tax Act, some may be wondering if changing to a C corporation would give them a greater tax benefit with the reduced flat tax of 21%. Owners of an S corporation or partnership could potentially be taxed as high as an effective tax rate of 29.6% on their pass-through business income.

However, there are still some downsides to being a C corporation that should be considered.

One of the biggest downsides to a C Corp is double taxation. Though the impact is not as severe as it once was with the reduced tax rate, there is no getting around having the earnings of the corporation taxed twice: once within the corporation and again should the owner decided to take a dividend. Right now, for someone at the highest individual tax bracket, the maximum combined effective federal income tax they would pay on dividends received by their C Corporation would be 39.8%. Under the prior tax law this could have been as high as 50.47%.

Additionally, C Corps are not the best entity choice for a business that expects to incur losses. A C Corp cannot deduct losses and while they do carry forward, other entity types such as an S Corp or a partnership do allow owners to deduct losses in certain circumstances.

C Corps also are not a good entity type for any business that is holding assets that are likely to appreciate like real estate or intangibles (such as a patent or software). Again, this is due to double taxation. Should the corporation sell these appreciated assets, they will pay tax on the gain at the C Corp level and the owner will pay tax if they desire to pull out some of the proceeds.

Finally, though the C Corp tax rate reduction to 21% was considered “permanent”, there is already talk that the corporate tax rate will be on the chopping block should the office of the presidency switch parties in 2020. While a complete rollback of the 2018 tax law is unlikely, some of the Democratic presidential candidates have suggested increasing the corporate rate gradually to at least 28%. This rate would be even higher than it was prior to the tax law change where the minimum corporate tax rate started at 15% and went up from there.

All of these factors should be considered along with having your CPA running the numbers to see if a C Corporation makes sense for you.

 

By Brittany Capurro   bcapurro@bvcocpas.com

 

 

Receiving an IRS notice can be stressful. The most important thing to do is not to panic, and to read the entire notice before taking any action. There are a number of different reasons one might receive a notice, so make sure you understand exactly why you received the notice. You also need to verify that the notice is legitimate and not a scam to get your personal information or money from you.

According to the IRS website, the IRS sends notices and letters for the following reasons:

 

Your notice will explain why you received it and instruct you on the steps you need to take to handle the issue. Keep a copy of all IRS correspondences with your tax records. If you are unsure about the information in the notice contact your accountant for help.

Do not ignore the notice or wait to take action. These are usually time sensitive with potentially severe consequences if nothing is done in response to a notice. If your notice or letter requires a response by a specific date be sure to comply with this to minimize any additional interest and penalty charges and to preserve your appeal rights if you don’t agree.

The IRS website is a good resource to help you determine if the IRS notice you received is real or if it is scam. The IRS will not initiate contact with a tax payer to request personal or financial information, so if this what the notice is requesting, it is probably a scam.

 

 

 

By David Schaper, CPA  dschaper@bvcocpas.com

 

 

 

Do you have a large capital gain and don’t want to pay tax on this income immediately? Investing in an opportunity zone can be advantageous and the Reno CPAs at Barnard Vogler & Co. can help you with this process.

An opportunity zone is a designated area that has been certified by the U.S. Treasury Department as a low-income community that could benefit from private investment. A map to these areas in Nevada can be found at http://www.diversifynevada.com/programs/opportunity-zones/. An investor can go through a certification process by filing Form 8996 if they own property within this zone that they are planning to develop. An investor can also roll the proceeds of their capital gain, whether stock, business property, or property in California into a corporation or partnership that has already been certified, has property in an opportunity zone anywhere in the country, and is seeking private capital.

The mechanics of the gain and tax deferral are quite simple. If you have a capital gain then these are ordinarily taxed at 15% to 23.8%. If you put any portion of these gains into an eligible opportunity zone investment within 180 days, then the tax is deferred until December 31, 2026 at which time 85% of the deferred gain’s tax is due. If the investment is continued to be held after this date then the remaining gain is not taxable. This is a huge benefit as long as you have cash to pay the 85% of the tax on the original gain in 2026. Do you have any other questions on potential pitfalls or fine print of opportunity zone investments? Then a Nevada CPA at Barnard Vogler & Co is here to help. Call us at (775) 786-6141 or contact us at information@bvcocpas.com.

 

 

By Leslie C. Daane, CPA   ldaane@bvcocpas.com

 

Under the recently passed Tax Cuts and Jobs Act (TCJA), all miscellaneous itemized deductions that were subject to the two-percent floor were eliminated. Some of the deductions eliminated that fall under this category include unreimbursed employee expenses, investment fees, and tax preparation fees to name just a few that may impact you individually.

 

One such deduction that you may not be as familiar with is the excess deductions allowed a beneficiary on termination of an estate or trust. This deduction typically arises when an estate or trust is terminated and in the year of termination expenses are in excess of income. This “excess deduction” is then passed out to the beneficiary to report on their individual income tax return. Under the TCJA this deduction appears to have been eliminated.

The AICPA has provided a letter of comment to the IRS in response to Notice 2018-61 concerning this specific issue. These excess deductions can include expenses that are not limited to the two-percent floor on the estate or trust return but are “above the line” deductions. These include fiduciary fees, attorney fees, and accountant fees. Many times these are not paid until the final year thus resulting in the deductions exceeding the income in the final year. The AICPA’s position is that the beneficiaries should be allowed to deduct these expenses in the same manner as the trust or estate would have, “above the line.”

Treasury and the IRS intend to issue regulations to clarify if trusts and estates may continue to deduct these “above the line” deductions. However, it is unclear as to the outcome on the deductibility of “excess deductions” at the individual level.

As we launch into tax season, there are still many areas of the TCJA that have not been adequately addressed to date. I expect this will result in more extensions and possibly more amended returns once they get around to addressing the questions still unresolved.

 

by Keelie Bishop     kbishop@bvcocpas.com

 

As the Federal Government has now officially been shut down for the longest length of time in U.S. history and the Tax Cuts and Job Acts is one of the largest tax reforms in 30-years, many challenges are expected for the upcoming tax filing season. Accountants are still waiting on the final word from the IRS for certain regulations of the Tax Cuts and Jobs Act that would affect clients’ 2018 returns, including the 20 percent qualified business income deduction. Yet, due to the government shutdown, answers aren’t likely to come in time for at least the beginning of the 2019 filing season.

About 70,000 IRS employees – roughly 88% of the workforce — have been furloughed. In preparation for the upcoming filing season, the Trump Administration has announced that it is planning to recall a significant portion of the IRS workforce without pay. With this recall, the IRS is expecting to only be able to answer 60 to 70 percent of phone calls. This has also created a lack of training for the IRS employees regarding the Tax Cuts and Jobs Act as employees have been furloughed during crucial times for the IRS. It is unsure whether the IRS will be able to actually provide answers to those searching for tax assistance.

To top it off, the National Treasury Employees Union has filed a lawsuit alleging the administration is violating the Fair Labor Standards Act (FLSA) by requiring federal employees to work without pay during the partial government shutdown. This includes the IRS employees that are being recalled to assist with the upcoming tax filing season.

Regardless, the IRS will be open the individual filing season on January 28, 2019 and, as of the date of this post, have announced that all deadlines will remain the same, and refunds will be processed.

 

  By David Schaper, CPA     dschaper@bvcocpas.com

 

There have long been campaign promises of simplifying the federal tax code, with pledges of ultimately filing personal taxes on a postcard. To be amenable to this, the IRS recently released the draft 1040 tax return for individuals to take into consideration all of the tax changes that are effective for 2018. The size of this 1040 has been dwindled to 2 half-pages and eliminated more than 50 lines compared to the 2017 version.

Does this mean that your taxes have been simplified and will require fewer pages, time, and effort to file? Most likely the answer is no, especially if you are a business owner. Various income and deductions items have been moved to an additional schedule, Schedule 1, which must be attached to the 1040. This schedule includes lines for alimony, business income, capital gains, farm income, real estate, pass-through activity from partnerships and S corporations, health savings account deductions, and IRA deductions, among others. So instead of these tax items being on the front of the 1040, they have simply been shifted to a separate schedule that must be attached to the 1040.

The new 1040 also summarizes other information that must be detailed on a separate schedule, which was previously on the 1040. This information includes a form to detail the various types of tax liabilities, a form to detail various nonrefundable credits and a form to detail other federal tax payments and refundable credits.

The 1040 has become simpler to file for 2018 if you only have wage income, interest income, and do not own a home. Otherwise, it has not become simpler to file as many politicians have promised, they have merely put this information onto other forms that must be included in your tax filing. Combine these separate schedules with new complex tax laws for qualified business income deductions and many other changes and a Reno CPA may still be needed to assist you in your filings.





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