Dear Gamburg CPA Client,
I hope that each and every one of you are staying safe and healthy during these unprecedented times. This pandemic has managed to impact normal life for all of us, and hopefully, it will be over soon.
If anyone needs to speak to us regarding this email, please email me with your questions, or you can email me to schedule a call. While the tax deadline has been postponed, it is a very busy time for the firm as we handle the new legislation, and working to complete tax returns with refunds
Here are the most recent updates.
NEW 2019 TAX AND PAYMENT DEADLINES
The IRS and the following 37 states: AL, AR, AZ, CA, CO, CT (only for individuals), DC, DE, GA, IL, IN, KS, KY, LA, MA, ME, MD, MI, MN (only for individuals), MO, MT, NC, ND, NE, NM, NY, OH, OK, OR, PA, RI, SC, TN UT, VT, WI, WV, and District of Columbia have extended the 2019 tax filing and payment deadline to July 15th.
NYC unincorporated business tax return for individuals and single member LLCs has not been postponed yet, and due on April 15th.
The only major state we service that is missing from this list is NJ. NJ has passed legislation to extend the deadline to July 15th, but it wasn’t signed by the governor yet. It means that until it is signed, the deadline is still April 15th. I do expect that the legislation will be signed, as the governor indicated his intention to do so.
NEW 2020 ESTIMATED TAXES DEADLINES
The IRS has postponed the first-quarter estimate from April 15th, to July 15th. The second-quarter estimate remains due on June 15th, 3rd quarter and 4th quarter remain the same- September 15th, and January 15th.
Most states have followed the IRS on the 2020 estimated tax deadlines. Some states went a step further and postponed all payments to July 15th, including the 2nd quarter.
The act itself is almost 900 pages long, and I have seen firms that summarize it in 20-30 pages. I will keep this as short and informative as possible, and only cover the major items related to taxes. The act also addresses evictions, foreclosures, mortgage freezes on government loans, and student loan freezes on governmental loans. Those I feel are outside the taxation world and should be discussed directly with your lender. Additional items in the act that are not tax-related are: items to support the America Health Care system, and loans to certain distressed sectors like passenger air carriers, cargo air carriers, and etc.
RELIEF FOR INDIVIDUALS:
Individual Tax Credit: IRS will direct deposit a stimulus check of $1,200 for a single taxpayer and $2,400 for joint filers, and $500 per dependent child under the age of 17. Single taxpayers with income below $75,000, head of households with income below $112,500, and joint filers with income below $150,000 will receive the full stimulus payment. This will be based on 2019 taxes, if they were filed. If 2019 taxes weren’t filed, then it will be based on 2018 taxes. Unfortunately, this will not apply to most of you, as the credit is phased out completely at the following income levels: $99,000 for single taxpayers, $136,500 for the head of household, and $198,000 for joint filers.
Unemployment Insurance: if you are unemployed due the COVID-19, you can receive an additional $600 per week in unemployment benefits through July 31, 2020, and unemployment benefits are extended from 26 to 39 weeks.
Retirement plans: if a person is affected by the crisis, they can withdraw up to $100,000 from their retirement plan without the 10% early distribution penalty for a taxpayer below the age of 59½. Taxpayers can split the income recognition on this for three tax years, or return the funds to the plan account over the three years without tax due. Retirement account loans are increased to the lesser of $100,000, or 100% of the vested account balance. Participants can also delay the receipt of the required minimum distributions for 2020.
Charitable deduction: individual taxpayers who don’t itemize their deductions can take up to a $300 charitable deduction directly against their income on the 2020 tax return (this is only for 2020 taxes, not current returns for 2019).
RELIEF FOR FREELANCERS:
The act provides special relief to freelancers in a form of unemployment eligibility due to COVID-19. Freelancers historically were not covered by traditional unemployment, now can file for unemployment based on their 1099 income prior to the crisis.
RELIEF FOR BUSINESSES (INCLUDING SELF-EMPLOYED PERSONS):
As far as I understand the act, and based on all the materials that I read, it seems that you cannot double-dip on the business benefits. A business can either get the business loans, which include the grant; or get the payroll tax credit and deferral.
Please remember, it is one of the following two benefits, not both:
- Congress has apportioned about $350 billion for low interest, no fee loans, which also offer a repayment deferral for at least six months. This is limited to $10M per business, and applicable to businesses with up to 500 employees.
- The covered period for the loans is from February 15, 2020 to June 30, 2020.
- Allowable uses of the loan include: payroll costs (not for owners), rent payments or mortgage interest payments for the business, utility payments for the business, health insurance for the employees, and insurance premiums.
- Borrowers will have to show that their business is affected by economic conditions, created due to COVID-19, which might be hard for some businesses to prove.
- The borrower has to keep the employment level the same as before the crisis.
- There is loan forgiveness on amounts paid within the first eight weeks after the origination date of the loan for: payroll costs, rent payments or mortgage interest payments, and utilities. The obligation for those expenses must have incurred before February 15th, and the wages cannot exceed $100,000 per employee. The loan forgiveness has a lot of rules to qualify, including restriction on reducing employees and wages, before June 30th.
Observation: if you can only get debt forgiveness on eight weeks of salary payments since loan origination date, but must keep same employment levels thru June 30th, you will be out of pocket if the loan is issued before May 5th, 2020.
- Assuming a business qualifies for loan forgiveness, the amount of debt forgiveness isn’t taxable (generally debt forgiveness is taxable, but the act specifically exempts it from taxation). The forgiveness is also on the interest expense associated with qualified debt, but it cannot exceed the principal amount of the loan. A lot of information will be required by the lender, to prove that costs are eligible for forgiveness, before they are forgiven.
- Loan maturity is can be only up to 10 years, and maximum interest rate of 4%.
- Loan applicants can receive a grant of up to $10,000 to cover immediate payroll, rent or mortgage interest, and other specified operating costs. The grant doesn’t need to be repaid, even if low application is denied.
Please note, I was asked a lot about these loans already, but I only can provide the tax rules on them. I don’t know what the exact qualifications that the lender is looking for (apart from proving business loss or closure due to COVID-19), and I am not sure on where to obtain those loans. I suggest that you speak to your lender directly regarding these loans.
Payroll Tax Credit and Deferral:
- This applies to businesses that experience full or partial shutdowns (generally defined by a drop in 50% in revenue).
- The payroll tax credit is for wages paid from March 13, 2020 thru December 31, 2020, and is up to $10,000 for wages paid and health insurance costs. The credit is against payroll taxes, and cannot exceed the payroll tax liability.
- Eligible employers can defer employment taxes after any applicable credits, from March 27 thru December 31, 2020; with 50% of the payroll taxes paid on 12/31/2021, and the other 50% on 12/31/2022.
- This credit and deferral does not apply to business owners on a W-2 wages.
TAX LAW CHANGES IN THE ACT
- The act temporarily permits net operating losses that incurred in 2018, 2019, and 2020; to be carried back up to five years. The 2018 Tax Cuts and Jobs act, only allowed carryforward of net operating losses.
Observation: corporations that were taxed at 35% prior to the 2018 tax law change (2017 tax years, and earlier), can really benefit from carrying back the losses, versus keeping them against the current 21% corporate tax rate.
- The act temporarily permits use of net operating losses that incurred in 2018, 2019, and 2020; to offset against 100% of income in future years. The 2018 Tax Cuts and Jobs act, only allowed up to 80% of net operating losses arising in 2018 and future years, to offset against current year taxable income.
- The act loosens the restrictions for large businesses on interest deductions, which were limited under the 2018 Tax Cuts and Jobs act.
- The act deferred net operating loss limitation for non-corporate taxpayers until 2021. The 2018 Tax Cuts and Jobs act, limited net operating losses for non-corporate taxpayers to $250,000 for single taxpayers and $500,000 for married taxpayers per tax year, effective with the 2018 tax year.
- The act corrects a technical error in the 2018 Tax Cuts and Jobs act allowing qualified improvements in non-residential properties to be depreciated over 15 years, instead of 39 years. The qualified improvements will be eligible to the 100% bonus depreciation.
Thank you for choosing our firm to service you, and stay safe!