Axley & Rode, LLP

A new law signed by President Trump on March 27 provides a variety of tax and financial relief measures to help Americans during the coronavirus (COVID-19) pandemic. This article explains some of the tax relief for individuals in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Individual cash payments Under the new law, an eligible individual will receive a cash payment equal to the sum of: $1,200 ($2,400 for eligible married couples filing jointly) plus $500 for each qualifying child. Eligibility is based on adjusted gross income (AGI). Individuals who have no income, as well as those whose income comes entirely from Social Security benefits, are also eligible for the payment. The AGI thresholds will be based on 2019 tax returns, or 2018 returns if you haven’t yet filed your 2019 returns. For those who don’t qualify on their most recently filed tax returns, there may be another option to receive some money. An individual who isn’t an eligible individual for 2019 may be...

On March 27, President Trump signed into law another coronavirus (COVID-19) law, which provides extensive relief for businesses and employers. Here are some of the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  Employee retention credit The new law provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis. Employer eligibility The credit is available to employers with operations that have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers that have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. The credit isn’t available to employers receiving Small Business Interruption Loans under the new law. Wage eligibility   For employers with an average of 100 or fewer full-time employees in 2019, all employee wa...

As many Americans are forced to stay home to help stop the spread of the coronavirus (COVID-19), businesses are losing revenue and having to lay off employees. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes provisions to help businesses survive, including a new employee retention tax credit; deferral of the employer portion of payments of certain payroll taxes; a modification of the net operating loss rules by providing a five-year carryback and temporarily removing the 80% limitation for carryforwards; changes to the business interest deduction; and an expansion of the ways the Small Business Administration can help small businesses. Contact us for details.

You probably know by now that, due to the coronavirus (COVID-19) pandemic, the IRS has announced that taxpayers have until July 15 to file their 2019 federal tax returns (rather than April 15) and to make payments that would otherwise be due on April 15. But to qualify for that relief, do you have to be directly affected by COVID-19? The answer is no. Specifically, the IRS says “you do not have to be sick, or quarantined, or have any other impact from COVID-19 to qualify for relief.” You only need to have a tax return or payment due on April 15. Keep in mind, this relief doesn’t apply to federal income tax returns and payments due on any other date. Here’s more: https://bit.ly/2WJx0Sj

Congress passed and the president signed into law the Families First Coronavirus Response Act on March 18. The law allows employees time to care for themselves or loved ones and includes provisions for new tax credits to offset employers’ costs. But the immediate need to pay employees on leave may still be difficult for organizations struggling with revenue losses. Immediate time off The law affects employers with fewer than 500 employees. Under specified circumstances, these organizations must provide 80 hours of paid sick leave for full-time employees. Part-time employees need to be provided paid sick leave for the average number of hours worked over a two-week period. An employee qualifies for the leave when he or she is unable to work — or telework — because of circumstances related to the coronavirus. These include: Experiencing symptoms and pursuing medical treatment, Being subject to a quarantine/isolation order or advisement, Caring for someone under a quarantine/...

Does your health insurance plan include a tax-smart health savings account (HSA) or perhaps an Archer Medical Savings Account (MSA)? If so, you may be aware that for prior years, you could continue making tax deductible contributions to your account up to the date you file your return or April 15, whichever is later. Due to the coronavirus (COVID-19) outbreak, the filing and tax paying deadline for 2019 federal tax returns has been moved to July 15. That means you now also have until July 15 to contribute to your HSA or MSA. For more information contact us, or see question 21 on this list of frequently asked questions from the IRS:  https://bit.ly/2WJx0Sj

Late on March 25, the U.S. Senate passed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) by a vote of 96-0. The bill, which provides $2 trillion in coronavirus (COVID-19) relief, will now move to the U.S. House of Representatives for consideration. The House is expected to vote on the bill on March 27. The proposed law contains a wide variety of relief, including small business loans, expanded unemployment aid, $100 billion for hospitals and health systems, funds for industries hit by the virus and direct cash payments to individuals under a certain income threshold. We’ll provide more information as it becomes available.

Are you a business owner with employees unable to work due to coronavirus (COVID-19)? As you may have heard, employers can begin taking advantage of two new refundable payroll tax credits created by the Families First Coronavirus Response Act. The Act was signed into law on March 18, 2020. The IRS also announced that it will release guidance on how eligible employers who pay qualifying sick or childcare leave under the new law will be able to file a request for an accelerated payment from the IRS. Contact us for assistance. For more information from the IRS:  https://bit.ly/2wzSc2c

Taxpayers now have more time to file their tax returns and pay any tax owed because of the coronavirus (COVID-19) pandemic. The Treasury Department and IRS announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020. Taxpayers can also defer making federal income tax payments, which are due on April 15, 2020, until July 15, 2020, without penalties and interest, regardless of the amount they owe. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax. They can also defer their initial quarterly estimated federal income tax payments for the 2020 tax year (including any self-employment tax) from the normal April 15 deadline until July 15. No forms to file Taxpayers don’t need to file any additional forms to qualify for the automatic federal tax filing and payment relief to July 15. However, individual taxpayers ...

Congress is getting closer to passing another massive stimulus package to alleviate the challenges Americans are facing with the coronavirus (COVID-19). As of this writing, no agreement had been reached. Among the provisions being discussed are hospitals’ equipment shortages and how to address workers’ sudden lack of income. One popular proposal involves sending economic assistance payments to individuals and families. Members of Congress have said this proposed benefit would be available to people with an individual taxpayer identification number, as well as to retirees and unemployed individuals. Stay tuned. We will continue to keep you updated.

Businesses across the country are being affected by the coronavirus (COVID-19). Fortunately, Congress recently passed a law that provides at least some relief. In a separate development, the IRS has issued guidance allowing taxpayers to defer any amount of federal income tax payments due on April 15, 2020, until July 15, 2020, without penalties or interest.  New law On March 18, the Senate passed the House's coronavirus bill, the Families First Coronavirus Response Act. President Trump signed the bill that day. It includes: Paid leave benefits to employees, Tax credits for employers and self-employed taxpayers, and FICA tax relief for employers. Tax filing and payment extension In Notice 2020-18, the IRS provides relief for taxpayers with a federal income tax payment due April 15, 2020. The due date for making federal income tax payments usually due April 15, 2020 is postponed to July 15, 2020. Important: The IRS announced that the 2019 income tax filing deadline will be mo...

Taxpayers now have an extension of time to make certain tax payments, regardless of the amount, the IRS announced March 21. The federal income tax filing due date has automatically been extended for 3 months due to the coronavirus (COVID-19) pandemic. Taxpayers can defer federal income tax payments and estimated tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax. The extension to pay was originally announced with certain limits but the IRS has eliminated the limits. (Notice 2020-18)

If you’re a parent, or if you’re planning on having children, you know that it’s expensive to pay for their food, clothes, activities and education. Fortunately, there’s a tax credit available for taxpayers with children under the age of 17, as well as a dependent credit for older children. Recent tax law changes Changes made by the Tax Cuts and Jobs Act (TCJA) make the child tax credit more valuable and allow more taxpayers to be able to benefit from it. These changes apply through 2025. Prior law: Before the TCJA kicked in for the 2018 tax year, the child tax credit was $1,000 per qualifying child. But it was reduced for married couples filing jointly by $50 for every $1,000 (or part of $1,000) by which their adjusted gross income (AGI) exceeded $110,000 ($75,000 for unmarried taxpayers). To the extent the $1,000-per-child credit exceeded a taxpayer’s tax liability, it resulted in a refund up to 15% of earned income (wages or net self-employment income) above $3,000. For taxpayers wi...

While global health and governmental agencies grapple with how best to fight the new coronavirus (COVID-19), nonprofit organizations worldwide are scrambling to figure out what steps they should take and how they can be helpful in this time of uncertainty. The U.S. Centers for Disease Control and Prevention (CDC) is taking aggressive public health measures to help protect the health of Americans and assist international partners. Leaders at nonprofit organizations can also play a pivotal role at this critical time. COVID-19 is very dangerous, and we must take comprehensive and coordinated action to address it. Today, we must be diligent in our response as the outbreak continues to spread worldwide, including in the United States, and the economic consequences that follow. What can nonprofit leaders do in this time of uncertainty and concern? I’d like to offer five steps or initiatives that leaders of all nonprofits and philanthropies can take or consider. Seek out the right information...

The U.S. Senate has passed the House’s version of the Families First Coronavirus Response Act with no changes. President Trump signed it into law on March 18. Congress is now working on more legislation intended to help deal with the spread of the coronavirus (COVID-19) and the implications for individuals and businesses. The new law provides paid leave benefits to employees, tax credits for employers and self-employed taxpayers, and FICA tax relief for employers. Specifically, among other things, the law provides paid leave benefits for employees who 1) work for employers with fewer than 500 employees, and 2) have been on the job at least 30 days. Contact us for additional details.

The IRS issued guidance on the extension for federal tax payments due April 15. In Notice 2020-17, the IRS has provided details about the previously announced tax payment extension relief for taxpayers with federal income tax payments. For affected taxpayers, the due date for making federal income tax payments usually due April 15, 2020, is postponed to July 15, 2020. The applicable postponed payment amount is up to $10 million for corporations and $1 million for other taxpayers. The payment postponement of up to $1 million applies to estimated tax payments and income tax payments due on April 15 from trusts and estates.  Important: At this time, the guidance doesn’t provide any filing date extensions.

If you have dependents who don’t qualify for the child tax credit, you may be able to claim a different credit for other dependents. The maximum credit is $500 for each dependent who is age 17 or older and has an individual taxpayer identification number. The person can be a dependent parent or other qualifying relative supported by you, or an unrelated dependent living with you. Among other requirements, you can claim this credit if you claim the person as a dependent on your return. For more information about the credit, read IRS “Publication 972, Child Tax Credit and Credit for Other Dependents:”  https://bit.ly/2I2vj9O.

If you’re a business owner, be aware that a recent tax law extended a credit for hiring individuals from one or more targeted groups. Employers can qualify for a valuable tax credit known as the Work Opportunity Tax Credit (WOTC). The WOTC was set to expire on December 31, 2019. But a new law passed late last year extends it through December 31, 2020. Generally, an employer is eligible for the credit for qualified wages paid to qualified members of these targeted groups: 1) members of families receiving assistance under the Temporary Assistance for Needy Families program, 2) veterans, 3) ex-felons, 4) designated community residents, 5) vocational rehabilitation referrals, 6) summer youth employees, 7) members of families in the Supplemental Nutritional Assistance Program, 8) qualified Supplemental Security Income recipients, 9) long-term family assistance recipients and 10) long-term unemployed individuals. Several requirements For each employee, there’s a minimum requirement that the ...

Taxpayers have more time to  pay   their 2019 tax liability. U.S. Treasury Sec. Steven Mnuchin announced that, in the wake of the coronavirus (COVID-19), the April 15 deadline to  pay   federal taxes is extended 90 days. Individuals who owe tax payments to the IRS can defer up to $1 million within the 90-day window, without penalties or interest. Corporations can defer up to $10 million of tax payments for 90 days.  The tax deadline to  file  tax returns remains April 15.    Mnuchin encouraged Americans who don’t owe to file by April 15 so they receive their refunds. Those who planned to request the automatic six-month extension to file may still do so. We’ll provide more details as they become available. Contact us with questions about your situation.

The IRS has created a coronavirus (COVID-19) web page. The special section will focus on helping taxpayers and businesses affected by the virus. As of this writing, the section only contained information about IRS Notice 2020-15, “High deductible health plans related to COVID-19.” The notice provides guidance on high-deductible health plans, Health Savings Accounts and COVID-19 costs. So far, no information has been provided on the tax return filing and paying extensions that were announced by President Trump. The IRS stated that the special section will be updated as new information is available. Visit the site:  https://bit.ly/3d4sfIF.

Individuals who have health coverage through the Health Insurance Marketplace may qualify for premium tax credits. The marketplace estimates the available credit based on the taxpayer’s application and pays the credits directly to the health plan. The taxpayer must then file Form 8962 (Premium Tax Credit) with his or her tax return, to reconcile estimated and actual data. Failing to file the form could cause a refund delay and may make the taxpayer ineligible for future advance payments. Those enrolled for 2019 should receive Form 1095-A (Health Insurance Marketplace Statement) and must use it to reconcile data even if they don’t otherwise have to file. Here’s more:  https://bit.ly/2HXw4RI

IRS: High-deductible health plans (HDHPs) can cover Coronavirus (COVID-19) costs. The tax agency announced that HDHPs can pay for COVID-19-related testing and treatment, without jeopardizing their status. And an individual with an HDHP that covers these costs may continue to contribute to a Health Savings Account. In Notice 2020-15, the IRS said that health plans that otherwise qualify as HDHPs won’t lose that status just because they cover the cost of testing for, or treatment of, COVID-19 before plan deductibles have been met. As in the past, any vaccination costs continue to count as preventive care and can be paid for by an HDHP. Read the notice:  https://bit.ly/3aT6dqx.  

The IRS has released proposed regulations that address the elimination of the deduction related to entertainment, amusement or recreation activities. The Tax Cuts and Jobs Act (TCJA) revised the rules for deducting expenditures for meals and entertainment, effective for amounts paid or incurred after Dec. 31, 2017. The TCJA also repealed the directly related and business discussion exceptions to the prohibition on deducting entertainment expenditures. The proposed regs provide guidance on how to apply the TCJA changes and determine whether an activity is considered to be entertainment. They also address the limitation on the deduction of food and beverage expenses. Contact us for details.

The IRS recently updated its principal guidance on travel per diems. These are daily amounts that, subject to periodically adjusted limits, may be used in lieu of actual expense amounts to determine nontaxable travel allowances or reimbursements, or to substantiate travel expense deductions. The rules were previously set out in IRS guidance issued years ago, but the Tax Cuts and Jobs Act (TCJA) suspended miscellaneous itemized deductions for taxable years after 2017 and before 2026. The law also generally eliminated the deduction for entertainment, amusement and recreation expenses, rendering portions of the previous IRS guidance obsolete. The TCJA didn’t affect employers’ ability to reimburse employees’ business travel expenses on a nontaxable basis under accountable plans, nor did it end the deduction for recreational, social or similar activities that are primarily for the benefit of employees who aren’t highly compensated. However, there are still some important points to keep in m...

The IRS has issued guidance for farmers who’ve elected out of certain capitalization rules and want to apply the small business taxpayer exemption in the same taxable year. Small business taxpayers are exempt from the capitalization rules under the tax code. To qualify as a small business, a farming business must have gross receipts of $25 million or less for taxable years beginning in 2018, and $26 million or less for taxable years beginning in 2019. Revenue Procedure 2020-13 details how farmers can revoke their election and apply the small business taxpayer exemption in the same taxable year. Contact us for more information.

Scams always heat up during the tax filing season. One that consistently ranks high on the IRS list the worst scams, involves fake phone calls. Criminals pose as IRS agents, hoping to steal money or personal information from those they target. The IRS reminds taxpayers that they will never: call to demand immediate payment; threaten taxpayers with law enforcement; demand payment of taxes without letting taxpayers question the amount owed; or call out of the blue about an unexpected tax refund. What should you do? The IRS advises you to “hang up immediately” and report the call. To learn more from the IRS:  https://bit.ly/2Q2jyVj  

As virtual currencies like bitcoin grow in popularity, how can the IRS ensure that people are paying the related taxes? Taxpayers must report and pay taxes on income from virtual currency transactions. But according to a recent report by the Government Accountability Office (GAO), the IRS guidance for proper reporting of this income is unclear. The IRS has led campaigns to answer questions on virtual currency income compliance. Still, a lack of clarity remains, leading the GAO to conclude that “many virtual currency transactions likely go unreported to the IRS on information returns.” To learn the steps that the GAO recommends to improve reporting, read the report:  https://bit.ly/39MZsG7  

Taxpayers who donate a conservation easement may be able to take a charitable contribution deduction, if they follow certain rules. For example, donations must be a qualified real property interest to a qualified organization, exclusively for conservation purposes. A restriction on the use of the property must be granted “in perpetuity.” In one case, a donor owned 5,000 acres of land and donated a 500-acre easement to a land trust, with use restrictions. The donor took a charitable contribution deduction for the easement. The IRS denied the deduction, and the U.S. Tax Court agreed, because the grant didn’t satisfy the perpetual restriction requirement in the tax code. (TC Memo 2020-21)

The U.S. Department of Labor (DOL) recently announced the 2020 annual adjustments to civil monetary penalties for a wide range of benefits-related violations. Legislation enacted in 2015 requires annual adjustments to certain penalty amounts by January 15 of each year. The 2020 adjustments are effective for penalties assessed after January 15, 2020, with respect to violations occurring after November 2, 2015. Here are some highlights: Form 5500 Employers must file this form annually for most ERISA plans to provide the IRS and DOL with information about the plan’s operation and compliance with government regulations. The maximum penalty for failing to file Form 5500 has increased from $2,194 to $2,233 per day that the filing is late. Summary of Benefits and Coverage (SBC) The maximum penalty for failing to provide an SBC has increased from $1,156 to $1,176 per failure. Other group health plan penalties Violations of the Genetic Information Nondiscrimination Act (...

Do you conduct your business as a sole proprietorship or as a wholly owned limited liability company (LLC)? If so, you’re subject to both income tax and self-employment tax. There may be a way to cut your tax bill by using an S corporation. Self-employment tax basics The self-employment tax is imposed on 92.35% of self-employment income at a 12.4% rate for Social Security up to a certain maximum ($137,700 for 2020) and at a 2.9% rate for Medicare. No maximum tax limit applies to the Medicare tax. An additional 0.9% Medicare tax is imposed on income exceeding $250,000 for married couples ($125,000 for married persons filing separately) and $200,000 in all other cases. Similarly, if you conduct your business as a partnership in which you’re a general partner, in addition to income tax you are subject to the self-employment tax on your distributive share of the partnership’s income. On the other hand, if you conduct your business as an S corporation, you’ll be subject to income tax, but n...

Many taxpayers make charitable gifts — because they’re generous and they want to save money on their federal tax bills. But with the tax law changes that went into effect a couple years ago and the many rules that apply to charitable deductions, you may no longer get a tax break for your generosity. Are you going to itemize? The Tax Cuts and Jobs Act (TCJA), signed into law in 2017, didn’t put new limits on or suspend the charitable deduction, like it did with many other itemized deductions. Nevertheless, it reduces or eliminates the tax benefits of charitable giving for many taxpayers. Itemizing saves tax only if itemized deductions exceed the standard deduction. Through 2025, the TCJA significantly increases the standard deduction. For 2020, it is $24,800 for married couples filing jointly (up from $24,400 for 2019), $18,650 for heads of households (up from $18,350 for 2019), and $12,400 for singles and married couples filing separately (up from $12,200 for 2019). Back in 2017, these...

Among the most common reasons employees perform below par is they don’t know precisely what they’re doing wrong. Whether dealing with an entry-level employee or a top manager, supervisors need to provide regular and specific feedback to maintain a productive workplace. Effective feedback comes often and as quickly as possible. Frontline supervisors should be trained and encouraged to give on-the-spot guidance. Annual performance reviews are still important, but reviews often occur too late to prevent costly mistakes or a breakdown in the employer-employee relationship. Here are some ways that your organization’s supervisors can elevate their feedback games: Offer praise   Simply telling employees that they’re doing a good job tends to inspire them and boost their productivity. Plus, it makes them more receptive to constructive criticism when the need arises. Be sure your supervisors don’t communicate with employees only when something is wrong. Also, advise them to beware of the “c...

The IRS is providing guidance on reporting gains from qualified opportunity fund (QOF) investments. It gives instructions on how to report the deferring of eligible gains from Section 1231 property and the inclusion of those gains when the QOF investment is sold or exchanged. Taxpayers who defer eligible gains from such property, including gains from installment sales and like-kind exchanges, by investing in a QOF must report the deferral election on “Form 8949, Sales and Other Dispositions of Capital Assets,” in the deferral tax year. And taxpayers selling or exchanging a QOF investment must report the inclusion of the eligible gain on the form. See the guidance:  https://bit.ly/2UPnMCN.  

Married couples often wonder whether they should file joint or separate tax returns. The answer depends on your individual tax situation. It generally depends on which filing status results in the lowest tax. But keep in mind that, if you and your spouse file a joint return, each of you is “jointly and severally” liable for the tax on your combined income. And you’re both equally liable for any additional tax the IRS assesses, plus interest and most penalties. This means that the IRS can come after either of you to collect the full amount. Although there are provisions in the law that offer relief, they have limitations. Therefore, even if a joint return results in less tax, you may want to file separately if you want to only be responsible for your own tax. In most cases, filing jointly offers the most tax savings, especially when the spouses have different income levels. Combining two incomes can bring some of it out of a higher tax bracket. For example, if one spouse has $75,000 of ...

What’s best for you, taking the standard deduction or claiming itemized deductions? The standard deduction changes yearly and is based on age and filing status. The Tax Cuts and Jobs Act raised the standard deduction so that more people could benefit from its simplicity. Itemizing deductions requires more work, but taxpayers can save taxes if the total exceeds the standard deduction. Eligible taxpayers may prefer to itemize if they: pay state and local income tax, mortgage interest, mortgage insurance, real estate or personal property tax; suffered a large eligible casualty loss; make significant charitable donations; and/or have high medical deductions. We can help choose your best path.

Many people like to speak to a representative on the phone rather than being directed to online resources. The IRS is now providing more help to people who have overdue tax bills and need assistance. The agency is adding 800 phone line tax collection employees to provide phone assistance to taxpayers who have past-due tax liabilities. The new employees will start in March. The IRS stressed that these phone lines can’t be used to answer general filing questions during the 2020 tax season. For help with 2020 filing questions, the IRS is encouraging taxpayers to first check IRS.gov for answers.