Find an Accountant
Tax TipsVolume 10 Issue 6For distribution 9/7/20; publication 9/10/20
Business Owners—Taking Money Out of a Business
When taking money out of a business, transactions must be carefully structured to avoid unwanted tax consequences or damage to the business entity. If the loan and repayments are not set up and processed properly, the IRS can reclassify the funding as nondeductible capital contributions and classify the repayments as taxable dividends, resulting in unexpected taxation. A weak loan structure can also create a danger zone where a court can “pierce the corporate veil,” resulting in personal liability for the business owner.
Intermingling Funds
One of the most dangerous financial mistakes a business owner can make is to intermingle funds, such as paying personal expenses from the business checking account, or paying business expenses from the owner’s personal account. This behavior can leave openings for the IRS or courts to question the integrity of the business entity. Failure to maintain complete financial separation between a business and its owners is one of the major causes of tax and legal trouble for small businesses.
Sole Proprietorships
A sole proprietor is taxed on self-employment income without regard for activity in the business bank account. A sole proprietor should never pay himself or herself wages, dividends, or other distributions. A sole proprietor may take money out of the business bank account with no tax ramifications.
Taking Money Out - Wages
One way for a business owner to take money out of a corporation is through wages for services performed. Wages are appropriate only for C corporations and S corporations, not for sole proprietorships or partnerships.
Reasonable Wages
Both C corporations and S corporations are required by law to pay “reasonable wages,” which approximate wages that would be paid for similar levels of services in unrelated companies. In a C corporation, wages are deductible by the corporation but dividends are not, creating incentive for a C corporation shareholder to inflate the wages for higher deductions. In an S corporation, wages are subject to payroll taxes but flow-through income is not, creating an incentive for artificially low wages.
Guaranteed Payments
Guaranteed payments to partners are the partnership counterpart to corporate wages. With guaranteed payments, there is no withholding for payroll taxes or income tax. These amounts are computed and paid on the partner’s individual Form 1040.
Dividends
Dividends are generally the means by which a C corporation distributes profits to shareholders. Amounts up to the C corporation’s “earnings and profits” are taxable to the shareholder.
Flow-Through Income—S Corporations and Partnerships
Income from S corporations and partnerships flow through to the shareholder or partner’s individual tax return. Distributions of cash to an S corporation shareholder or partner are not taxable to the individual until the person’s cost basis reaches zero.
Loans
A corporation or partnership can receive loans from shareholders or partners, and can give loans to shareholders or partners. There is generally no taxable event when a corporation or partnership repays a loan from a business owner, and no taxable event when a corporation or partnership makes a bona-fide loan to a shareholder or partner.
Limited Liability Companies (LLCs)
A single-member LLC owned by an individual is considered a “disregarded entity” and is taxed as a sole proprietorship by default. If the LLC makes an election to be taxed as a corporation, either C corporation or the S corporation rules apply. An LLC owned by more than one individual is taxed as a partnership by default. As with a single-owner LLC, a multiple-owner LLC may make an election to be taxed as a corporation.
***
Tweets
Insert a link to your newsletter, web site or blog before you post these:
Our latest blog: Business Owners—Taking Money Out of a Business. Subscribe here: [link]
Need to take money out of your business? Be careful! Transactions must be carefully structured to avoid unwanted tax consequences or damage to the business entity. Find out more: [link]
Tax Tip: One of the most dangerous financial mistakes a business owner can make is to intermingle funds. Keep your personal and business funds separate! [link]
Failure to maintain complete financial separation between a business and its owners is one of the major causes of tax and legal trouble for small businesses. [link]
A sole proprietor should never pay himself or herself wages, dividends, or other distributions. A sole proprietor may take money out of the business bank account with no tax ramifications. [link]
If you are a business owner, you can take money out of your corporation (applicable to S corporations or C corporations only) through wages for services performed. Find out more here: [link]
Wondering how you can take money out of a business as a business owner without triggering tax consequences or damage to your business entity? Find out in our latest blog post: [link]
Sign up for our newsletter: Business Owners—Taking Money Out of a Business. [link]
Tax TipsVolume 10 Issue 5For distribution 8/24/20; publication 8/27/20
Installment Agreements: What Should You Do If You Can’t Pay Your Taxes
If you can’t pay your taxes, don’t panic.
Here’s what to do first:Make sure to file your tax return on time—failure to file is a much higher penalty than failure to pay. Pay as much as possible when you file your tax return, as every dollar you pay at tax time reduces the late payment penalty and reduces the interest charges associated with the outstanding balance.
If paying in full is not realistic, consider applying for an Installment Agreement through the IRS.
Applying for an installment agreement can be done by your tax preparer in conjunction with the filing of your tax return, or it can be initiated online by the taxpayer through the IRS website: https://www.irs.gov/payments/online-payment-agreement-application
Short-Term Payment Plans
If you are able to pay the balance you owe the IRS in 120 days or less, there is no setup fee for an installment agreement. Penalties and interest will continue to accrue until the balance is paid in full.
Payment options include automatic debit from bank account, paying online through the IRS website, initiating a payment over the telephone via the Electronic Federal Tax Payment System, or mailing a check or money order to the IRS.
Long Term Payment Plans
If you can’t pay your IRS debt, that fast, here are your log-term options.
1. $10,000 or less owed: The IRS generally approves all installment agreement requests for balances in this range. The repayment period must be completed within three years, but there is no specific minimum monthly payment required. 2. $10,000 to $25,000 owed: No additional financial information is required to approve this agreement, but acceptance isn’t guaranteed. Repayment must be completed within 72 months. Minimum payments are required and are equal to your balance owed divided by the 72-month repayment period. 3. $25,001 to $50,000 owed: In addition to completing the Installment Agreement request, you will need to provide supplemental income and expense information on Form 9465-FS. Repayment must be completed within 72 months. Minimum payments are required and are equal to your balance owed divided by the 72-month repayment period. 4. Greater than $50,000 owed: Form 433-A must be completed, which is a comprehensive accounting of your investments, assets, income, and bank accounts. Repayment length and monthly payment will be determined based on your specific circumstances.
Installment Agreement Fees for Long Term Payment Plans
Offer in Compromise
After you have considered the above payment options, you may find that you cannot pay your tax debt or that doing so will create financial hardship. An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe.
Generally, the IRS will not accept an offer if you can pay your tax debt in full via an installment agreement or a lump sum payment. In order for the IRS to consider your Offer in Compromise, you must be current with all tax filing and payment requirements and may not be in any open bankruptcy proceedings.
Our latest blog: Installment Agreements: What Should You Do If You Can’t Pay Your Taxes. Subscribe here: [link]
Can’t pay your taxes? Don’t panic! Find out what an installment agreement is and how you can apply for one in our latest blog post: [link]
Tax Tip: If you are able to pay your balance owed in 120 days or less, there is no setup fee for an installment agreement. [link]
Taxpayers who owe more than $50,000 in taxes and want to apply for a long-term payment plan will need to complete Form 433-A, which is a comprehensive accounting of your investments, assets, income, and bank accounts. [link]
Setting up your payment method online for long-term payment plans will save you a lot on setup fees. [link]
Depending on the amount of taxes owed, the repayment period and minimum monthly payment for long-term payment plans via installment agreements varies. Find out more here: [link]
Are you panicking because you can’t pay your taxes? Stay calm! You may be able to apply for an installment agreement. Find out more: [link]
Sign up for our newsletter: Installment Agreements: What Should You Do If You Can’t Pay Your Taxes. [link]
Tax TipsVolume 10 Issue 4For distribution 8/10/20; publication 8/13/20
CARES Act: Charitable Giving Changes Due to COVID-19
COVID-19 has presented unique opportunities for charitable giving for the 2020 tax year, which has been addressed in the new Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Under the new guidelines, which apply to the 2020 tax year only, taxpayers can donate 100 percent of their adjusted gross income to charity and have it fully offset their taxable income. Previously, this deduction was capped at 60 percent of adjusted gross income.
For example, a taxpayer has $100,000 of taxable income and wants to make a $100,000 donation to a qualified charity in 2020. The taxpayer will have reduced their taxable income to zero and won’t owe any taxes on their income. In prior years under the 60 percent rule, using the same income and charitable contribution amount, a taxpayer would have only been able to reduce their taxable income by $60,000.
What happens if you donate more than 100 percent of your adjusted gross income?
If a taxpayer wants to donate more than 100 percent of their adjusted gross income, they can do so without the fear of losing out on the deduction. Any charitable contribution that exceeds their adjusted gross income can be carried forward for the next five years, but will be subject to the 60 percent AGI limit in subsequent years.
Consider this: a taxpayer has $100,000 of taxable income and wants to make a $300,000 donation to a qualified charity in 2020. Not only will their taxable income for the current tax year have been reduced to zero, but they will have a $200,000 charitable contribution carryforward available, subject to the 60 percent AGI limit, to offset their income for the next five years.
What happens if I don’t itemize my deductions?
To incentivize taxpayers to make contributions to qualified charitable organizations, Congress included a notable provision in the CARES Act that applies to taxpayers who claim the standard deduction, rather than itemizing their deductions, on their tax return. For the 2020 tax year, donors can take a deduction for up to $300 in charitable contributions even if they claim the standard deduction.
Other ways to harness the CARES Act charitable giving provision
If a taxpayer is in the position to make a sizeable charitable contribution, with the goal of fully offsetting their taxable income, this could be the perfect opportunity to consider other ways of increasing their adjusted gross income. This can be accomplished by selling an asset that has significantly increased in value and will be subject to either ordinary income taxes or capital gains taxes, or they could initiate a Roth IRA conversion. This can be an effective tax planning strategy for someone who is actively trying to reduce their tax burden through philanthropic means.
Our latest blog: CARES Act: Charitable Giving Changes Due to COVID-19. Subscribe here: [link]
Are you wondering how the CARES Act has changed charitable giving? Find out more here: [link]
Tax Tip: For the 2020 tax year, donors can take a deduction of up to $300 in charitable contributions even if they claim the standard deduction. [link]
Under the new CARES Act guidelines, taxpayers can donate 100 percent of their adjusted gross income to charity and have it fully offset their taxable income. This only applies to the 2020 tax year. [link]
Any charitable contribution made in the 2020 tax year that exceeds the taxpayer’s adjusted gross income can be carried forward for the next five years. However, it will be subject to the 60 percent AGI limit in subsequent years. [link]
There are other ways to harness the CARES Act charitable giving provision and utilize them to create effective tax planning strategies. Find out more here: [link]
Looking to make a donation to a qualified charity during these uncertain times? Be sure to familiarize yourself with the CARES Act charitable giving provision and the unique opportunities it presents: [link]
Sign up for our newsletter: CARES Act: Charitable Giving Changes Due to COVID-19. [link]
Tax TipsVolume 10 Issue 3For distribution 7/27/20; publication 7/30/20
Reporting Requirements for Virtual Currency
As cryptocurrency continues to evolve as a valuable commodity, the IRS has issued guidance on the reporting requirements associated with the acquisition and sale of it.
What is cryptocurrency?
Cryptocurrency, also known as digital or virtual currency, is a digital asset that is secured by encryption techniques and is able to be distributed across a large number of computers. Because cryptocurrency is not generally issued by a central authority, it has been able to exist outside the control of the government.
How does the IRS treat cryptocurrency?
Virtual currency is treated as property that has tax consequences that may result in a tax liability. When selling virtual currency for real currency, a taxpayer must recognize any capital gain or loss on the sale.
How is a gain or loss determined?
Traditional capital gains tax treatment applies; if the virtual currency was owned for less than one year, any gain or loss would be short term. If the virtual currency was owned for greater than one year, any gain or loss would be recognized as long term. The holding period begins on the day after the virtual currency is received. Short term gains are subject to taxation at the taxpayer’s ordinary income tax rate, whereas long term gains are subject to the more favorable capital gains tax rate. The amount of capital gains tax assessed is dependent upon the taxpayer’s tax bracket; currently, the capital gains tax rates are either 0, 15, or 20 percent.
How do I determine my basis in virtual currency?
If someone pays me with virtual currency for services I’ve performed, is it taxable?
The answer is yes. Regardless of whether you are an employee or act as an independent contractor, any time you receive payment in the form of cryptocurrency for services rendered or work performed, you must recognize that as ordinary income (which is subject to taxation at your tax bracket) regardless of whether you convert the virtual currency to real currency or not.
Recordkeeping is key
Since virtual currency is still a relatively new type of asset with very little government oversight, it is critical to keep detailed, specific records associated with its receipt, sale, and exchange.
Familiarize yourself with IRS Notice 2014-21 in order to be aware of all of the situations that trigger a reporting requirement. And, if you have questions, feel free to reach out any time.
Our latest blog: Reporting Requirements for Virtual Currency. Subscribe here: [link]
Do you own or trade cryptocurrencies? Are you familiar with the reporting requirements for virtual currency? Find out more here: [link]
Tax Tip: Virtual currency is treated as property that has tax consequences that may result in a tax liability. [link]
Any time you receive payment in the form of cryptocurrency for services rendered or work performed, you must recognize that as ordinary income regardless of whether you convert the virtual currency to real currency or not. [link]
It’s critical to keep detailed, specific records associated with the receipt, sale, and exchange of any virtual currency. [link]
If you own or trade virtual currency, be sure to familiarize yourself with IRS Notice 2014-21 in order to be aware of all of the situations that trigger a reporting requirement. [link]
Have questions about virtual currency and reporting requirements? Our latest article may have the answers you’re looking for: [link]
Sign up for our newsletter: Reporting Requirements for Virtual Currency. [link]
Tax TipsVolume 10 Issue 2For distribution 7/13/20; publication 7/16/20
Failure to File: COVID-19 Update
Due to COVID-19, the IRS extended the tax return filing and payment deadline to July 15, 2020. If you are unable to file your return by this date, you may request an extension which will give you until October 15, 2020 to submit your tax return. However, an extension only gives you extra time to file your tax return; your payment is still due no later than July 15, 2020.
When a taxpayer has not filed a tax return by the extension deadline of October 15th, the IRS will gather all of the tax documents that have been transmitted to them and create a substitute return. If their data shows that you are owed a refund, nothing further will be done. If the data shows that you owe money, the IRS will begin sending out collection letters.
Overpayment of Taxes
If you qualify for a refund and wait more than 3 years to file your return, the IRS will take that refund away because the statute of limitations will have expired. Don’t expect them to send you a reminder letter!
Penalties Assessed If You Owe
There is interest due on taxes you owe, but that’s not the biggest penalty. For every month that your tax return remains unfiled, a five percent failure-to=file penalty applies, up to 25 percent of the tax due.
For example, let’s say you owe $1000. It could cost you a penalty of $250 per month for not filing, but only a $5 penalty for not paying. Don’t forget that in addition to the penalties listed above, the IRS will continue to charge interest on any unpaid balance.
Increased Audit Risk
In addition to the penalties and interest you are charged when you don’t file a timely return, you also increase your chances of being audited. When you file on time, you have a three percent chance of an audit. If you don’t file on time, your chance of being audited increases to 50 percent.
The general rule is to file by the extension due date since the consequences are harsher for not filing than not paying the tax due. However, be proactive to pay any tax due by the deadline, not the extension deadline.
You Can No Longer Hide from the IRS
You might think that the IRS will never find you, but you would be mistaken. Advances in technology have made it easier than ever before for the IRS to find you.
If you have a driver’s license, passport, bank account, social media account, address, social security number, or any other database record, the IRS has access to it and will see that you have not filed.
Take Action Now
Don’t put yourself in a position of grief. Even if you are not ready to file, file something and you can amend the return later.
Our latest blog: Failure to File: COVID-19 Update. Subscribe here: [link]
What happens if you don’t file a tax return by the October 15th extension deadline? Find out here: [link]
Tax Tip: Be proactive about paying any taxes due by the regular deadline, not the extension deadline. [link]
If you don’t file your tax return on time, your chance of being audited increases to 50%. [link]
When a taxpayer has not filed a tax return by the extension deadline, the IRS will gather all of the tax documents that have been transmitted to them and create a substitute return. [link]
If you qualify for a refund and wait more than 3 years to file your return, the IRS will take that refund away because the statute of limitations will have expired. [link]
What are the consequences if you don’t file your tax return and make your tax payments on time? Find out in our latest article: [link]
Sign up for our newsletter: Failure to File: COVID-19 Update [link]
Tax TipsVolume 10 Issue 1For distribution 6/29/20; publication 7/2/20
Inherited IRAs and the SECURE Act of 2019
At the end of 2019, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) was signed into law, modifying required minimum distribution (RMD) rules for inherited IRAs and retirement accounts.
Under the SECURE Act, inherited IRAs and retirement accounts must be distributed and taxed within 10 years of the original owner’s death.
Prior to the SECURE Act, inherited IRAs were frequently referred to as “stretch” IRAs, as they allowed non-spouse beneficiaries to take relatively small distributions over the course of the beneficiary’s life. The benefit to this was the ability to keep the bulk of the investment in a tax deferred or tax free (Roth IRA) environment.
By capping the lifespan of the inherited IRA at 10 years, the IRA beneficiary’s ability to grow the account over decades in either a tax-free or tax-deferred environment has been significantly impacted. Additionally, the new rules put a burden on beneficiaries in the form of tax acceleration by greatly increasing a beneficiary’s taxable income--especially in situations where the beneficiary has income of their own—resulting in a higher tax rate.
Exceptions to the SECURE Act
Luckily, there are some exceptions to the SECURE Act’s requirements:
Positive Changes
There are some positive aspects to the new law:
Our latest blog: Inherited IRAs and the SECURE Act of 2019. Subscribe here: [link]
Do you know about how the SECURE Act modified the RMD rules for inherited IRAs and retirement accounts? [link]
Tax Tip: Under the SECURE Act, inherited IRAs and retirement accounts must be distributed and taxed within 10 years of the original owner’s death. [link]
There are some exceptions to the SECURE Act’s new rules. For example, the 10-year period for inherited IRAs and retirement accounts does not apply to surviving spouses—they can treat the inherited IRA as if it were their own. [link]
The SECURE Act allows workers of any age to contribute to a retirement account. [link]
Disabled beneficiaries are exempt from the 10-year RMD limit for inherited IRAs and retirement accounts. [link]
What are some positive changes that the SECURE Act has made to inherited IRAs and retirement accounts? Find out in our latest article: [link]
Sign up for our newsletter: Inherited IRAs and the SECURE Act of 2019 [link]
Tax TipsVolume 9, Issue 26For distribution 6/15/20; publication 6/18/20
Paycheck Protection Loan Forgiveness
When the CARES Act was signed into law, it created the Paycheck Protection Program (PPP), which is a new loan designed to help small businesses pay employee wages and other critical expenses. Proceeds from this loan can be forgiven if certain criteria are met.
Once the PPP proceeds are deposited to your account, the original guidance stated that businesses must spend those funds within an eight-week period in order to be assured maximum loan forgiveness.
Loan proceeds must be used on payroll costs, mortgage interest incurred before February 15th, 2020, rent (lease agreement must be in force before February 15, 2020), and utilities (for which service began before February 15, 2020.)
Payroll costs are defined as:
Examples of Situations That Would Reduce Loan Forgiveness
Requesting Loan Forgiveness
Comprehensive recordkeeping is imperative! To request loan forgiveness, the borrower must contact the lender that is servicing the loan and submit the completed SBA Form 3508. The lender has 60 days to make a determination on whether or not the borrower qualifies for loan forgiveness.
What Happens If My Loan Is Not Forgiven?
For any portion of the PPP loan that is not forgiven, interest is charged at a rate of 1%. Payments are deferred for 6 months and full repayment of the loan is due in 2 years.
Our latest blog: Paycheck Protection Loan Forgiveness. Subscribe here: [link]
What criteria need to be met for forgiveness of the proceeds from the Paycheck Protection Program loan? Find out here: [link]
Tax Tip: Once the Paycheck Protection Program proceeds are deposited to your account, the business has to spend those funds within an eight-week period in order to be assured maximum loan forgiveness. [link]
For any portion of the PPP loan that is not forgiven, interest is charged at a rate of 1%. [link]
Decreasing the number of full-time employees will reduce Paycheck Protection Loan Forgiveness. [link]
What situations might cause your Paycheck Protection loan forgiveness to be reduced? Find out here: [link]
Sign up for our newsletter: Paycheck Protection Loan Forgiveness [link]
Tax TipsVolume 9 Issue 25For distribution 6/1/20; publication 6/4/20
Advance Payments of Employer Credits Due to COVID-19
In conjunction with the CARES Act, the IRS has released form 7200, Advance Payment of Employer Credits Due to COVID-19, which allows eligible businesses to claim an advance of refundable tax credits used to help cover the cost of keeping employees on payroll, even if they’ve been furloughed or are working reduced hours.
Who is a Qualified Employer?
Two types of employers will qualify—those who fall within the Families First Coronavirus Response Act (FFCRA) guidelines and those who fall within the CARES Act guidelines.
Under the FFCRA, eligible employers are businesses and tax –exempt organizations that have fewer than 500 employees and are required to pay sick and family leave wages. Under the CARES Act, employers are eligible if their operations were fully or partially suspended due to COVID-19 or if gross receipts are less than 50% of gross receipts for the same calendar quarter in 2019.
Important:an employer is not eligible to receive the tax credit if they’ve already taken out an SBA Loan!
How Much Is the Credit Worth and How Long is it Available?
An employer would receive a 50% credit for the first $10,000 of wages/benefits paid per employee. This would be a maximum credit of $5,000 per employee.
For businesses that have fully or partially closed, the credit is available until the business reopens. If a business qualifies because their revenues have dropped by more than 50%, the credit is available until the first calendar quarter after revenues have recovered to at least 80% of the prior year amounts.
How is the Credit Claimed?
Using the information contained on the quarterly payroll tax return (941, 943, 944), the employer (or their designated representative) will complete IRS Form 7200. Employers are allowed to hold onto payroll taxes that they would normally have to deposit with the IRS, in anticipation of the credit. That way, a business owner doesn’t have to make deposits if they expect the credit will cover all of the taxes they would normally pay.
Our latest blog: Advance Payments of Employer Credits Due to COVID-19. Subscribe here: [link]
Do you know about the IRS’s new form 7200, Advance Payment of Employer Credits Due to COVID-19?[link]
Tax Tip: An employer is not eligible to receive the advance of refundable tax credits from form 7200 if they’ve already taken out an SBA Loan. [link]
An employer can claim a maximum credit of $5,000 per employee under form 7200, “Advance Payment of Employer Credits Due to COVID-19”. [link]
For businesses that have fully or partially closed, the credit from form 7200 is available until the business reopens. [link]
Employers who fall within the Families First Coronavirus Response Act (FFCRA) guidelines or within the CARES Act guidelines are qualified to claim the advance credits from the IRS’s new form, “Advance Payment of Employer Credits Due to COVID-19.”[link]
Need help covering the cost of keeping employees on payroll? Find out more about Form 7200, and this tax credit might be able to help you: [link]
Sign up for our newsletter: Advance Payments of Employer Credits Due to COVID-19 [link]
Tax TipsVolume 9, Issue 24For distribution 5/18/20; publication 5/21/20
How the New Tax Law, CARES, Impacts Individuals
IRS and Congress have given individuals a number of ways to build up their cash reserves and/or pay less in taxes. Here are a few opportunities for taxpayers.
Stimulus checks from the IRS
Many of you received stimulus checks in the last month as a result of new laws designed to help you weather the economic downturn. These Economic Impact Payments are not treated as income and you will not owe taxes on your payment.
If you were eligible for a larger payment than what was received, the IRS will provide an opportunity on your 2020 return (filed in 2021) to make an adjustment to get any additional money you were due. Conversely, if the IRS finds that someone received a larger payment than what they should have, the taxpayer will not be required to pay it back.
Dipping into retirement
Taxpayers have the ability to withdraw up to $100,000 from retirement accounts without paying the 10 percent penalty if the distribution is COVID-19 related (you need it to care for spouse and dependents or you experience adverse effects of quarantine/not allowed to work) from January 1, 2020 through December 31, 2020. Income is included over a three-year period, unless the taxpayer elects otherwise. If the amount is repaid, it is treated as a trustee-to-trustee rollover.
Not dipping into retirement
Required Minimum Distributions (RMDs) for retirement accounts have been suspended. If you are normally required to take a minimum distribution from your retirement account, you can skip it during the 2020 year.
IRS payments for back taxes
If you are on a payment plan with the IRS for back taxes, you can suspend payments between April 1st and July 15th. Interest on the amount due will continue to accrue.
Tax payments for 2020 taxes
Payment due dates for Q1 (normally due on 4/15) and Q2 (normally due on 6/15) estimated tax payments have been adjusted to July 15, 2020.
Deadlines
Since retirement contributions are tied to the tax return due date, the deadline for making a contribution to your IRA for 2019 has also been extended to July 15, 2020.
HSA and Archer MSA contributions for 2019 must be made no later than July 15, 2020.
Student loans
Federal student loan payments are suspended through September 30, 2020 and will not accrue interest during this time period.
Employers can offer to pay an employee’s student loans and other educational assistance up to $5250 without the benefit being taxable to the employee.
Charitable contributions
Charitable contribution deductions will be reported differently on the 2020 tax return. In the past, a taxpayer would have to itemize their deductions in order to get a tax break from making a charitable contribution. For 2020, you can deduct up to $300 in cash donations without having to itemize your deductions. Additionally, the maximum limit of how much a taxpayer can deduct has been eliminated.
Our latest blog: How the New Tax Law, CARES, Impacts Individuals. Subscribe here: [link]
Do you have questions about the new CARES Act? Check out our FAQ: [link]
Tax Tip: Economic Impact Payments are not treated as income and you will not owe taxes on your payment. [link]
Taxpayers have the ability to withdraw up to $100,000 from retirement accounts without paying the 10% penalty if the distribution is COVID-19 related from January 1, 2020 to December 31, 2020. [link]
If you are on a payment plan with the IRS for back taxes, you can suspend payments between April 1st and July 15th. However, interest will continue to accrue on the amount due. [link]
Federal student loan payments are suspended through September 30, 2020 and will not accrue interest during this time period. [link]
Is your head spinning in circles just thinking about the CARES Act? Don’t worry! Our blog, How the New Tax Law, CARES, Impacts Individuals, will help you sort things out: [link]
Sign up for our newsletter: How the New Tax Law, CARES, Impacts Individuals [link]
Tax Tips Volume 9, Issue 23 For distribution 5/4/20; publication 5/7/20
Options for the Business Owner During COVID-19 Pandemic
Many businesses are expected to see significant revenue losses due to COVID-19 and many individuals and business owners are overwhelmed with the choices of what they should do. In addition to considering Disaster Loan Assistance (EIDL) through the SBA and the Paycheck Protection Program through your bank, here are some options to consider related to payroll and staffing:
Employee Layoffs
Layoffs may be unavoidable for small businesses that are also employers. This is where an employee’s job is terminated from the company they have been working for. For the final paycheck to the employee, the employer needs to include their vacation pay and any severance package that they provide.
A layoff is permanent. An employer could rehire a laid off worker, but there is no obligation to do so. The employer will have to hire new employees once their business picks up again.
Furloughs
Furloughs might be a good alternative to laying off team members. In a furlough, this is a temporary, unpaid leave for employees. This option might give the employer time to weather the storm by reducing payroll costs, but also allows employers to bring back the furloughed worker where they left off. At the time of furlough notification, the team member can file for unemployment.
Reduce Hours or Pay Cuts
Before any hasty decision is made, an employer may want to consider reducing staff hours or cutting pay, if needed. Employers are allowed to cut employee pay during a business or economic shut down up to 25%. One option could be to reduce hours for hourly employees and have the team member file for unemployment to make up for the hours not worked. For example, if you are an hourly employee working 40 hours a week, you can work 25 hours at your current job, but file for unemployment for the remainder of the 15 hours not worked.
Unemployment
If you lay off, or reduce hours for any team members, please encourage them to file for unemployment immediately following the notification. Unemployment is now also available for the 1099 worker, where it was not available to independent contractors before now. Unemployment can also be filed by the one-person S-Corp owner. The best news about unemployment is that employees will receive what they normally qualify for PLUS an additional $600/week. Unemployment is for 26 weeks, and an additional 13 weeks of pandemic emergency unemployment compensation through December 31, 2020 is available.
Refundable Payroll Tax Credit
Employers that did not receive a Paycheck Protection Program loan can get a payroll tax credit of 50% of wages paid to employees if their operations were partially or fully suspended or their gross sales declined by more than 50% when compared to the same quarter in the prior year. Credit is provided up to $10,000 per employee.
There are also many more ways to boost cash and reduce taxes in your small business. Give us a call or email us to find out more about the full list of options available to your business.
Our latest blog: Options for the Business Owner During COVID-19 Pandemic. Subscribe here: [link]
Overwhelmed about what to do about your business’s significant revenue losses during the COVID-19 pandemic? Here are some options: [link]
Tax Tip: Employers are allowed to cut employee pay during a business or economic shut down up to 25%. [link]
Layoffs may be unavoidable during uncertain times. When a layoff is communicated to the employee, the employer needs to pay out their vacation pay. [link]
You can get a payroll tax credit of 50% of wages paid to employees if your operations were partially or fully suspended or your gross sales declined by more than 50% when compared to the same quarter in the prior year. [link]
If you lay off workers, or reduce hours for any team members, please encourage them to file for unemployment immediately following the notification! [link]
Not sure what the options are for employers are during this COVID-19 pandemic? Here are some options you may want to consider: [link]
Sign up for our newsletter: Options for the Business Owner During COVID-19 Pandemic. [link]
