by Nhit Hernandez firstname.lastname@example.org
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.
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.
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.
By Bill Saylor, CPA email@example.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.
If you have any questions, please talk to your tax preparer or business advisor.
By Bill Saylor, CPA firstname.lastname@example.org
Two major pieces of legislation were finalized and signed on December 20, 2019 and are effective now. Specifically, the Taxpayer Uncertainty and Disaster Tax Relief Act of 2019, part of omnibus spending legislation, extends more than 30 tax provisions that have previously languished since the passage of the Tax Cuts and Jobs Act in December 2017 and the SECURE Act which changes the rules for retirement accounts. The SECURE Act changes will be covered in a separate article.
Extender legislation is generally effective retroactively for tax years beginning after December 31, 2017 and through the 2020 year. Exceptions are noted below in the specific provision.
If you are eligible for any of the above for 2019 please let your tax preparer know when you drop off your taxes. And, if you were eligible in 2018, please discuss the details with your tax preparer at that time; it may be worth amending your 2018 return to take advantage of these changes.
by Erika Hoppe email@example.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 firstname.lastname@example.org
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 email@example.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 Keelie Bishop firstname.lastname@example.org
Many individuals, regardless of generation, face the overwhelming question as to if they will ever be able to afford to retire. Too often many people do not save enough to retire. According to a U.S. Government Accountability Office review, about 48% of households had no retirement savings in 2016 and even when people are saving, their retirements won’t last very long (10-20 years). In response, Congress has made it a point to focus on retirement legislation.
For the first time in over a decade, lawmakers are working on passing comprehensive retirement reform. For example, on May 23, 2019 the U.S. House of Representatives passed the SECURE (Setting Every Community Up for Retirement Enhancement) Act by a margin of 417 to 3. This is legislation that aims to encourage retirement savings by increasing access to retirement plans.
The changes currently include: making it easier for small businesses to band together to offer 401(k) plans, requiring businesses to let long-term, part-time workers become eligible for retirement benefits and repealing the maximum age for making contributions to traditional individual retirement accounts (right now, the age is 70½), and changing the required minimum distribution age to 72 for certain retirement accounts.
The bill is intended to increase the amount of tax credit that the government will give to small businesses for having plans up to a maximum of $5,000 per year, from $500 per year. For businesses that automatically enroll employees, the maximum is $5,500.
This particular bill is now in the Senate, but is not the only bill aiming towards retirement reform. In addition there is also the RESA (Retirement Enhancement and Savings Act) bill and the Social Security 2100 Act currently being worked on. As a result it is expected that there will be significant changes to come.
By Brittany Capurro email@example.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 Leslie C. Daane, CPA firstname.lastname@example.org
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 Tony Carolla email@example.com
Taxpayers face uncertainties regarding the effect that the Tax Cuts and Jobs Act will have on their 2018 return. The IRS has acknowledged this with the release of Notice 2019-11, Relief from Addition to Tax for Underpayment of Estimated Income Tax by an Individual.
To avoid an underpayment penalty prior to the 2018 tax year, an individual’s combined withholdings and estimated payments would need to be greater than or equal to the lesser of 90% of the current years tax or 100% of the preceding years tax. (110% if the individual’s adjusted gross income in the previous year exceeded $150,000). With the release of Notice 2019-11, the IRS has allowed a taxpayer to waive the underpayment penalty on those who have paid at least 85% of their tax liability by January 15, 2019.
This waiver is not automatically applied to your 2018 return. To request the waiver taxpayers must file Form 2210 – Underpayment of Estimated Tax by Individuals, Estates, and Trusts. Individuals will need to determine their eligibility for the waiver and if the waiver applies, check the waiver box and include the statement “85% Waiver” with the return.
While this waiver is good news for individuals, the AICPA has recommended that the IRS and Department of the Treasury do more to assist tax payers. On January 28, 2019 the AICPA made recommendations to lower the threshold of underpayment penalty relief to 80%, make the relief process automatic, establish a process to grant taxpayers penalty relief for reasonable cause, and extend the penalty relief to businesses and other entities.
The AICPA letter addressed concerns with taxpayers’ inability to accurately determine their tax liability due to the substantial uncertainties and lack of guidance. The AICPA explained that it could be unreasonably burdensome for taxpayers to rely on prior year tax liability in situations where there was a significant increase in prior year income. The AICPA also addressed the need to apply for penalty relief, and felt it more appropriate to have the relief granted automatically. The AICPA also recommended that a process for penalty relief be established for those who do not meet the requirements but have reasonable cause, and to extend the relief to all tax paying entities.