Tax Tips & Other Resources

CARES Act

On Friday March 27, 2020 the U.S. government passed the CARES Act aimed to boost the economy in response to the measures taken to combat COVID-19.  Below is a summary of the provisions contained within the Act along with some links to information about the Family First Coronavirus Response Act passed March 18, 2020.

Individual Tax Provisions:

Recovery Rebates/Credits:

  • Eligible individuals will receive an advance tax credit payment of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child.

  • The credit begins to phase out for taxpayers with adjusted gross income (AGI) above $150k for joint filers, $112.5k for heads of household filers, and $75k for other individuals.  The credit is completely phased out for taxpayers with AGI above $198k (joint), $146.5k (HOH), and $99k (single).

  • If an individual hasn't yet filed a 2019 income tax return, IRS will determine the amount of the rebate using information from the taxpayer's 2018 return. 

  • IRS may make the rebate electronically to any account to which the payee authorized, on or after Jan. 1, 2018, the delivery of a refund of federal taxes or of a federal payment.

  • The credit is not available to nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, and estates and trusts.

  • Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive.

Retirement Plans:

  •  Taxpayers can take up to $100,000 in coronavirus-related distributions from retirement plans without being subject to the Sec. 72(t) 10% additional tax for early distributions.

  • Eligible distributions can be taken up to Dec. 31, 2020.

  • Coronavirus-related distributions may be repaid within three years.

  • For these purposes, an eligible taxpayer is one who has been diagnosed with SARS-CoV-2 virus or COVID-19 disease or whose spouse or dependent has been diagnosed with SARS-CoV-2 virus or COVID-19 disease or who experiences adverse financial consequences from being quarantined, furloughed, or laid off, or who has had his or her work hours reduced, or who is unable to work due to lack of child care.

  • Any resulting income inclusion can be taken over three years.

  • The act also allows loans of up to $100,000 from qualified plans, and repayment can be delayed.

  • The act temporarily suspends the required minimum distribution rules in Sec. 401 for 2020.

  • The act delays 2020 minimum required contributions for single-employer plans until 2021.

Charitable Deductions:

  • The act creates an above-the-line charitable deduction for 2020 (not to exceed $300).

  • The act also modifies the AGI limitations on charitable contributions for 2020, to 100% of AGI for individuals and 25% of taxable income for corporations.

  • The act also increases the food contribution limits to 25%.

Excluded Education Payments by Employer:

  • Employee student loan repayments by an employer before January 1, 2021 are excluded from the employees gross income.

  • The limit on student loan payments and other educational assistance is $5,250 per employee.

Business Tax Provisions:

Employee Retention Credit:

  • Refundable payroll tax credit for 50% of qualified wages paid by eligible employers to certain employees

  • The credit is available to employers, including non-profits, whose operations 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 who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.

  • The credit is not available to employers receiving Small Business Interruption Loans.

  • For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed.

  • For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers' closure or reduced gross receipts are eligible for the credit.

  • The term "qualified wages" includes health benefits and is capped at the first $10,000 in wages paid by the employer to an eligible employee.

  • Wages do not include amounts taken into account for purposes of the payroll credits, for required paid sick leave or required paid family leave in the Families First Coronavirus Act, nor for wages taken into account for the employer credit for paid family and medical leave.

  • The credit applies to wages paid after March 12, 2020 and before January 1, 2021.

Delay of Payment of Employer Payroll Taxes:

  • Employers are allowed to defer paying 50% of the employer portion of social security taxes (6.2%) until December 31, 2021, with the remaining 50% due December 31, 2022.

  • Self-employment taxes follow the same dates as above.

  • The effective date begin on March 27, 2020.

Paycheck Protection Program - Small Business Loan Forgiveness:

  • Administered through the SBA

  • Loans may be used for payroll costs, rent, utilities, mortgage interest (not principal), and interest on debt existing prior to February 15, 2020.

  • Eligible entities are those with less than 500 employees.

  • The maximum loan amount is the lesser of the average monthly payroll costs times 2.5, or $10mil.

  • Average monthly payroll costs are calculated based on a 1 year period prior to the loan disbursement date.

  • Payroll costs include salaries, wages and commissions, vacation pay, sick/family leave, health insurance premiums, retirement benefits, not in excess of $100k.

  • Excluded pay includes compensation in excess of $100k, qualified sick and family leave for which a credit is allowed under the Families First Coronavirus Response Act.

  • Loans are available up to a 10-year term at 4% interest, with 6 months (and up to 1 year) deferral of principal and interest payments. 

  • Loans are available with no personal guarantees of shareholders, members, or partners, no collateral, no proving recipient cannot obtain funds elsewhere, no SBA fees (may have to pay lender processing fees), no prepayment fees.

  • Eligible entities may file applications with an SBA-approved lender. Lenders have been delegated authority to make loans without SBA review. Eligible applicants will have been in operation on February 15, 2020, and will have paid employees and payroll taxes or independent contractors.

  • Applicants will need to certify that the loan is necessary, and will be used to retain workers and pay eligible expenses. Applicants will further need to certify that no other application for a loan for the same purpose is pending and that the entity has not received any other loan for the same purposes through December 31, 2020.

  • There is potential for forgiveness of the loan and is equal to the amount actually paid for payroll costs, salaries, benefits, rent, utilities, and mortgage interest during the 8 weeks following disbursement of the loan.

  • The forgiveness of the amount is subject to reduction if there’s is a workforce reduction or a reduction in the salary or wages of an employee.

  • Reductions in workforce that occur from February 15, 20202 to April 26, 2020 will be disregarded for purposes of reducing the forgiveness amount so long as the reductions are eliminated by June 30, 2020.

  • Forgiveness must be applied for through the lender servicing the loan.

Net operating Losses:

  • The act temporarily repeals the 80% income limitation for net operating loss deductions for years beginning before 2021.

  • For losses arising in 2018, 2019, and 2020, a five-year carryback is allowed (taxpayers can elect to forgo the carryback).

Excess Business Loss Limitations:

  • The act repeals the Sec. 461(l) excess loss limitation. Sec. 461(l) was added to the Code by the law known as the Tax Cuts and Jobs Act, P.L. 115-97, and it disallows excess business losses of noncorporate taxpayers if the amount of the loss exceeds $250,000 ($500,000 for married taxpayers filing jointly).

Bonus Depreciation Technical Correction for Qualified Improvement Property:

  • The act also makes technical corrections regarding qualified improvement property under Sec. 168 by making it 15-year property.

  • Effective date is for property placed in service after December 31, 2017.

Family First Coronavirus Response Act Links::

Tax Reform

In December 2017 the U.S. government passed the Tax Cuts and Jobs Act which is the most extensive tax reform law to be passed in more than 30 years.  Below are the 2022 tax rates that will have an impact on your bottom line.  Please contact us if you have questions on how the new law will impact you.

Individuals:

RATE FOR UNMARRIED INDIVIDUALS, TAXABLE INCOME OVER FOR MARRIED INDIVIDUALS FILING JOINT RETURNS, TAXABLE INCOME OVER FOR HEADS OF HOUSEHOLDS, TAXABLE INCOME OVER
10% $0 $0 $0
12% $10,276 $20,550 $14,651
22% $41,776 $83,551 $55,901
24% $89,076 $178,151 $89,051
32% $170,051 $340,101 $170,051
35% $215,951 $431,901 $215,951
37% $539,901 $647,851 $539,901

  • The standard deduction for 2022 has been increased to $25,900 for married filing a joint return, $19,400 for head-of-household filers, and $12,950 for all other taxpayers. 

  • Personal exemptions for yourself and dependents have been suspended.

  • Itemized deduction rules have changed; The overall limitations on itemized deductions ("Pease" limitations) have been suspended.  Personal property tax along with sales tax deductions are limited to $10,000 per year.  Additionally, mortgage interest will be limited to the amount of indebtedness on a qualified residence of up to $750,000 on all new mortgage loans incurred after December 15, 2017.  The deduction for interest on home equity indebtedness has been suspended, unless used to buy, build, or substantially improve the home that is securing the related indebtedness.  All miscellaneous itemized deductions that were previously subject to 2% of AGI have been suspended.  The 50% charitable contribution limitation for cash contributions to public charities and certain private foundations has been increased to 60%.  Charitable contribution deductions have been suspended for any payments to an institution of higher education in exchange for seating at an athletic event.

  • The child tax credit has increased from $1,000 per qualifying child under the age of 17 to $2,000.

  • Alimony payments are no longer deductible by the payor nor included on the payee's return for divorce or separation agreements executed after December 31, 2018.

  • The individual mandate to carry minimum health insurance has been repealed for years beginning after December 31, 2018.

Businesses:

Depreciation and like-kind exchanges:

  • Section 179 accelerated depreciation has been increased to $1.02 million with the phase out threshold amount increased to $2.55 million, for 2019.

  • Bonus depreciation has been expanded and includes 100% first-year deduction for qualified property placed in service after September 27, 2017 and before January 1, 2023.  The bonus depreciation will begin to phase out in 2023.

  • Like-kind exchange deferral of gain treatment has been repealed for personal property...the deferral is only allowed for real property that is not held primarily for sale.  

Other tax changes:

  • The 50% deduction for amounts paid for entertainment purposes has been repealed for tax years beginning after December 31, 2017.

  • The Domestic Production Activities Deduction ("DPAD") has been repealed for tax years beginning after December 31, 2017.

  • The cash method of accounting may be used by taxpayers whose prior three-year average annual gross receipts are less than $25 million (previously $10 million).  Additionally, the requirement to use the percentage-of-completion method (PCM) to calculate taxable income for construction contractors with average annual gross receipts in the three previous years of $10 million or more has been increased to $25 million.

C-Corporations:

  • For tax years beginning after December 31, 2017 the corporate tax rate is a flat 21%.

  • Alternative Minimum Tax (AMT) has been repealed

  • The dividend received deduction has been reduced from 80% and 70%, to 65% and 50%.

  • Net Operating Losses (NOLs) arising in tax years ending after December 31, 2017 can no longer be carried back two years.  Carryovers can now be carried over indefinitely, but the deduction is limited to 80% of taxable income.

Pass-Through Businesses:

Deduction for Pass-Through Income:

  • For tax years beginning after December 31, 2017 a company who has qualified business income (QBI) is allowed to deduct:

  1. the lesser of: (a) the combined qualified business income amount of the taxpayer, or (b) 20% of the excess, if any, of the taxable income of the taxpayer for the tax year over the sum of net capital gain and the aggregate amount of the qualified cooperative dividends of the taxpayer for the tax year; plus

  2. the lesser of: (i) 20% of the aggregate amount of the qualified cooperative dividends of the taxpayer for the tax year, or (ii) taxable income (reduced by the net capital gain) of the taxpayer for the tax year. 

Limitation:

 

  • For pass-through entities, other than sole proprietorships, the deduction cannot exceed the greater of:
  1. 50% of the W-2 wages with respect to the qualified trade or business ("W-2 wage limit"), or
  2. the sum of 25% of the W-2 wages paid with respect to the qualified trade or business plus 2.5% of the unadjusted basis, immediately after acquisition, of all "qualified property." Qualified property means tangible, depreciable property which is held by and available for use in the qualified trade or business at the close of the tax year, which is used at any point during the tax year in the production of qualified business income, and the depreciable period for which has not ended before the close of the tax year.
  • The deduction begins to phase out for specified service businesses (attorneys, accountants, etc) whose taxable income exceeds $315,000 for married filing jointly or $157,500 for other individuals.

 Partnership Technical Termination:

  • The partnership technical termination rules have been repealed for tax years beginning after December 31, 2017.

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