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Tax Returns & Estimated Taxes Now Due July 15
Due to the coronavirus pandemic, the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020. Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. In addition, the payment and return-filing requirements for gift and generation-skipping transfer taxes due April 15 are now due July 15, matching postponements granted to federal income taxes and returns.
Many states have also extended their tax deadlines and payments for a number of taxes in response to COVID-19. Please call for additional information.
Who is Affected?
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.
No Need to File an Extension
Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief.
Individual taxpayers who need additional time to file beyond the July 15 deadline, should file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. Businesses who need additional time must file Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. Don't hesitate to call if you have questions or need assistance.
File Now for a Refund
Even though the filing deadline has been extended there is no need to wait to file your tax return especially if you are due a refund. Filing electronically using direct deposit is the fastest way to get a refund and most tax refunds are still being issued within 21 days.
The Stafford Act
These extended deadlines are the result of the President's emergency declaration last week and made possible by the Stafford Act. The Stafford Act, which was enacted in 1988, is a federal law designed to bring an orderly and systematic means of federal natural disaster and emergency assistance for state and local governments in carrying out their responsibilities to aid citizens.
CARES Act: Information for Individual Taxpayers
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, the stimulus bill that was signed into law on March 27, 2020, contains legislation to stabilize the economy during the coronavirus pandemic. These measures include economic recovery checks for taxpayers, as well as several other tax provisions affecting individuals.
Let's take a look at a few of the highlights:
Economic Impact Payments
Economic impact payments "recovery checks" will be sent to taxpayers in the next three weeks and will be available throughout the rest of 2020. For most people, they will be distributed automatically and no action is required. Taxpayers might have questions about economic impact payments and answers to some of these questions are provided below.
1. Who is eligible?
Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.
Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples. Parents also receive $500 for each qualifying child.
2. Where will the IRS send my payment?
Most people do not need to take any action. The IRS will calculate and automatically send the economic impact payment to those eligible.
For people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The economic impact payment will be deposited directly into the same banking account reflected on the return filed.
If the IRS does not have direct deposit information. The Get My Payment tool on IRS.gov allows taxpayers to check the status of their recovery payment. It also allows them to provide banking information once their return has been processed so that individuals can receive payments immediately as opposed to checks in the mail. Please note, however, that the Get My Payment tool does not allow people to change bank account information already on file with the IRS.
3. What if I have not filed my 2018 or 2019 tax returns yet?
Anyone with a tax filing obligation who has not yet filed a tax return for 2018 or 2019 to file as soon as they can to receive an economic impact payment and include direct deposit banking information on the return.
If you typically are not required to file a tax return. The IRS will use the information on the Form SSA-1099 or Form RRB-1099 to generate Economic Impact Payments to recipients of benefits reflected in the Form SSA-1099 or Form RRB-1099 who are not required to file a tax return and did not file a return for 2018 or 2019. Each person would receive $1,200 per person, without the additional amount for any dependents at this time and includes senior citizens, Social Security recipients (including Social Security Disability Insurance (SSDI) recipients) and railroad retirees who are not otherwise required to file a tax return.
Early Withdrawals from Retirement Plans
Taxpayers affected by the coronavirus are able to withdraw up to $100,000 and will not be subject to the 10 percent penalty for early withdrawals. Distributions can be taken through December 31, 2020. The amount withdrawn is considered income, however, and taxpayers have three years to pay the tax on the additional income and replace the funds in-kind. If you need to withdraw funds from a retirement plan, please call a tax and accounting professional to discuss how it could impact your financial situation.
Eligible taxpayer. Anyone who has been diagnosed with SARS-CoV-2 virus or COVID-19 disease or whose spouse or dependent has been diagnosed with the same. In addition, any taxpayer experiencing financial hardship from any of the following situations:
Required Minimum Distributions (RMDs)
Required minimum distributions are suspended for tax year 2020.
For tax year 2020, there is now an above-the-line charitable deduction of up to $300. In addition, the limitation on adjusted gross income (AGI) for charitable contributions (2020 tax year only) increases to 100 percent of AGI for individuals. Food contribution limits also increase to a maximum of 25 percent.
Don't hesitate to call and speak to a tax and accounting professional today.
Tax Breaks Help Small and Medium-sized Employers
Small and medium-sized employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (Act), signed into law on March 18, 2020.
Subsequent legislation, the CARES Act, includes a provision that delays payment of employer payroll taxes due in 2020 with half due December 31, 2021 and the rest due December 31, 2022.
Paid Sick Leave Credit
For an employee who is unable to work because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee's regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.
For an employee who is caring for someone with coronavirus, or is caring for a child because the child's school or child care facility is closed, or the child care provider is unavailable due to the coronavirus, eligible employers may claim a credit for two-thirds of the employee's regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Paid Leave for Workers. Employees receive up to two weeks (80 hours) of paid sick leave (either 100 percent or 2/3 of employee's pay) and expanded paid child care leave when employees' children's schools are closed or child care providers are unavailable due to COVID-19 related reasons. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional 10 weeks of expanded paid family and medical leave.
Child Care Leave Credit
In addition to the paid sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the coronavirus.
Eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee's regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed or child care is unavailable in cases where the viability of the business is threatened.
How It Works
With the goal of "fast funds," employers will receive an immediate dollar-for-dollar tax offset against payroll taxes. Payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees. Eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and December 31, 2020. If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able to file a request for an accelerated payment from the IRS.
Equivalent credits are available to self-employed individuals based on similar circumstances.
Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers can use the funds to provide employees with paid leave, either for the employee's own health needs or to care for family members. Furthermore, employers will be able to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.
Employers are required to comply with the Act within a specified period; however, there is currently in effect, a 30-day compliance period in which enforcement actions against any employer for violations of the Act are subject to 30-day non-enforcement period as long as the employer has acted reasonably and in good faith to comply with the Act. During the 30-day period, efforts will be focused on compliance assistance.
For more information about these credits and other relief, please call.
The Tax-Smart Way to Loan Money to Friends & Family
Offering to lend money to cash-strapped friends or family members during tough economic times is a kind and generous offer, but before you hand over the cash, you need to plan ahead to avoid tax complications for yourself down the road.
Take a look at this example: Let's say you decide to loan $5,000 to your daughter who's been out of work for over a year and is having difficulty keeping up with the mortgage payments on her condo. While you may be tempted to charge an interest rate of zero percent, you should resist the temptation.
When you make an interest-free loan to someone, you will be subject to "below-market interest rules." IRS rules state that you need to calculate imaginary interest payments from the borrower. These imaginary interest payments are then payable to you, and you will need to pay taxes on these interest payments when you file a tax return. To complicate matters further, if the imaginary interest payments exceed $15,000 for the year, there may be adverse gift and estate tax consequences.
Exception: The IRS lets you ignore the rules for small loans ($10,000 or less), as long as the aggregate loan amounts to a single borrower are less than $10,000, and the borrower doesn't use the loan proceeds to buy or carry income-producing assets.
As was mentioned above, if you don't charge any interest, or charge interest that is below market rate (more on this below), then the IRS might consider your loan a gift, especially if there is no formal documentation (i.e., written agreement with payment schedule), and you go to make a nonbusiness bad debt deduction if the borrower defaults on the loan--or the IRS decides to audit you and decides your loan is really a gift.
Formal documentation generally refers to a written promissory note that includes the interest rate, a repayment schedule showing dates and amounts for all principal and interest, and security or collateral for the loan, such as a residence (see below). Make sure that all parties sign the note so that it's legally binding.
As long as you charge an interest rate that is at least equal to the applicable federal rate (AFR) approved by the Internal Revenue Service, you can avoid tax complications and unfavorable tax consequences.
AFRs for term loans, that is, loans with a defined repayment schedule, are updated monthly by the IRS and published in the IRS Bulletin. AFRs are based on the bond market, which changes frequently. For term loans, use the AFR published in the same month that you make the loan. The AFR is a fixed rate for the duration of the loan.
Any interest income that you make from the term loan is included on your Form 1040. In general, the borrower, who in this example is your daughter, cannot deduct interest paid, but there is one exception: if the loan is secured by her home, then the interest can be deducted as qualified residence interest--as long as the promissory note for the loan was secured by the residence.
If you have any questions about the tax implications of loaning a friend or family member money, please contact the office.
Relief for Other Coronavirus-related Tax Issues
Relief for taxpayers facing the challenges of COVID-19-related tax issues is now available through the IRS People First initiative. The projected start date will be April 1 and the effort will initially run through July 15, 2020. During this period, to the maximum extent possible, in-person contact will be avoided; however, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations.
Some of the highlights affecting taxpayers include:
Existing Installment Agreements. For taxpayers under an existing Installment Agreement, payments due between April 1 and July 15, 2020, are suspended. Taxpayers who are currently unable to comply with the terms of an Installment Payment Agreement, including a Direct Deposit Installment Agreement, may suspend payments during this period if they prefer. Furthermore, during this period, Installment Agreements will not be defaulted on. By law, interest will continue to accrue on any unpaid balances.
New Installment Agreements. Taxpayers unable to fully pay their federal taxes can resolve outstanding liabilities by entering into a monthly payment agreement with the IRS. Please contact the office if you need assistance with this.
Offers in Compromise (OIC)
Several steps are available to assist taxpayers in various stages of the OIC process:
If you have not filed a return for tax years before 2019, it is in your best interest to file any delinquent returns as you may be owed a refund. More than 1 million households that haven't filed tax returns during the last three years are actually owed refunds and there is still time to claim these refunds. Once delinquent returns have been filed, anyone with a tax liability should consider taking the opportunity to resolve any outstanding liabilities by entering into an Installment Agreement or an Offer in Compromise with the IRS to obtain a "Fresh Start." Please call if you need help filing delinquent tax returns.
Field, Office and Correspondence Audits
During this period, generally, no new field, office and correspondence examinations will be started and the IRS will continue to work refunding claims where possible. New examinations may be started, however, where deemed necessary to protect the government's interest in preserving the applicable statute of limitations.
In-Person Meetings. In-person meetings regarding current field, office, and correspondence examinations will be suspended. Even though IRS examiners will not hold in-person meetings, they will continue their examinations remotely, where possible. Taxpayers are encouraged to respond to any requests for information they already have received - or may receive - on all examination activity during this period if they can do so.
Unique Situations. There may be instances - particularly for some corporate and business taxpayers - where the taxpayers desire to begin an examination while people and records are available and respective staff are available.
General Requests for Information. In addition to compliance activities and examinations, taxpayers are encouraged to respond to any other IRS correspondence requesting additional information during this time if possible.
Help is Just a Phone Call Away
Specific information about the implementation of these provisions is forthcoming; however, if you have any questions or if any of these situations affect you, please call.
Tax Refunds: Just the Facts
As tax-filing season gets underway, taxpayers may be anticipating receiving their refund by a certain date, especially if they plan on making major purchases or paying bills. While some tax returns are processed quickly, others may require additional review. As such, those refunds may take longer.
Just as each tax return is unique and individual, so is each taxpayer's refund. Here is what taxpayers should keep in mind as they are waiting for their refund - especially if they hear about or see that other taxpayers on social media have already received theirs.
Factors affecting refund timing
Different factors can affect the timing of a refund, among them security reviews that help protect against identity theft and refund fraud. Even though the IRS typically issues most refunds in less than 21 days, a particular taxpayer’s refund may take longer. This is because some tax returns require additional review and take longer to process than others such as when a return that has errors, is incomplete or is affected by identity theft or fraud. If more information is needed to process a return, the IRS will contact taxpayers by U.S. mail - never by email or telephone.
Year-end bonus, holiday pay and temporary job may affect refund
Some financial transactions, especially those occurring late in the year, could have an unexpected impact on taxes and any potential refund. Examples include year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds and stocks, bonds, virtual currency, and real estate or other property sold at a profit.
Because the IRS is a pay-as-you-go system, taxes must be paid as income is earned or received during the year, either through withholding or estimated tax payments. This means that if the amount of tax withheld from salaries or pensions is not enough, the taxpayer may have to make estimated tax payments.
Taxpayers whose 2019 federal income tax withholding unexpectedly falls short of their tax liability for the year, can still make a quarterly estimated tax payment directly to the IRS using Form 1040-ES, Estimated Tax for Individuals. As a reminder, the deadline for making a payment for the fourth quarter of 2019 was January 15, 2020.
Taxpayers who pay too little tax during the year, either through withholding or estimated tax payments, may be charged a penalty when they file. In some cases, a penalty may apply if their estimated tax payments are late, even if they are due a refund when they file.
Refund Offsets: Certain past-due debt reduces refunds
By law, the Department of Treasury's Bureau of the Fiscal Service (BFS) issues IRS tax refunds and conducts the Treasury Offset Program (TOP). Under TOP, BFS may reduce a taxpayer's refund and offset all or part of the refund. This is done to pay past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support or other federal nontax debts, such as student loans.
BFS will reduce the refund to pay off the debt owed and send a notice to the taxpayer if an offset occurs. Any portion of the remaining refund after the offset is issued in a check or directly deposited to the taxpayer as originally requested on the return.
Separate from the TOP, refund amounts may also be adjusted due to changes the IRS made to the tax return. When that happens, the taxpayer will get a notice explaining the changes.
E-filing and direct deposit for a faster refund
The majority of taxpayers get their refunds faster by filing electronically and using direct deposit, which is easy, safe, and most of all, secure. This is the same electronic transfer system used to deposit nearly 98% of all Social Security and Veterans Affairs benefits into millions of accounts.
Refunds should only be deposited directly into accounts that are in the taxpayer's name, their spouse's name or both if it's a joint account. No more than three electronic refunds can be deposited into a single financial account or prepaid debit card. Taxpayers who exceed the limit will receive an IRS notice and will be mailed a paper refund check. Whether a taxpayer files electronically or on paper, direct deposit gives them access to their refund faster than a paper check.
If you have any questions about tax refunds, please don't hesitate to call.
High-deductible Plans Cover Costs for Coronavirus
You can use high-deductible health plans (HDHPs) to pay for 2019 Novel Coronavirus (COVID-19)-related testing and treatment, without jeopardizing their status and you may continue to contribute to a health savings account (HSA), retroactive to January 1, 2020.
Health plans that otherwise qualify as HDHPs will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. Furthermore, as in the past, any vaccination costs continue to count as preventive care and can be paid for by an HDHP.
Finally, the CARES Act signed into law in late March of 2020, amended legislation to allow HDHPs to cover telehealth and other remote care services without charging a deductible.
Please note that this information relates only to HSA-eligible HDHPs. Employees and other taxpayers in any other type of health plan with specific questions about their plan and what it covers should contact their plan administrator.
Five Tips to Protect Against Identity Theft
Tax-related ID theft occurs when someone uses a taxpayer's stolen personal information to file a tax return claiming a fraudulent refund. Thieves then use personal information like a stolen Social Security number. While the accounting profession and IRS work hard to prevent identity theft, taxpayers also play an important role.
Here are five tips to help taxpayers protect themselves against identity theft:
1. Always use security software. This software should have firewall and anti-virus protections.
2. Use strong, unique passwords. They should also consider using a password manager.
3. Learn to recognize and avoid phishing emails, threatening calls, and texts from thieves. These scammers pose as legitimate organizations such as banks, credit card companies, and even the IRS.
4. Do not click on links in unsolicited emails or messages from unknown senders. Also, people shouldn't click on links or download attachments from emails that seem suspicious, even if they appear to be from senders they know.
5. Protect personal information and that of any dependents. For example, people shouldn't routinely carry around their Social Security cards. They should also make sure tax records are secure.
Tax-exempt Organizations Required to e-file Forms
The Taxpayer First Act enacted July 1, 2019, requires tax-exempt organizations to electronically file information returns and related forms. Those that previously filed paper forms will receive a letter from the IRS informing them of the change.
The new law affects tax-exempt organizations in tax years beginning after July 1, 2019, and applies to the following IRS forms (filing deadlines vary by form type):
Taxpayers should note that the required e-filing of Form 990-EZ has been postponed for one year, during which time optional e-filing continues to be available. Furthermore, although Forms 990-T (and 4720) will come under the e-filing requirement next year, the IRS will continue to accept these forms on paper pending conversion to electronic format.
The IRS will no longer accept paper Forms 8872 reporting on periods after 2019. Forms 8872 reporting information for periods starting on or after January 2020, will be due electronically by Section 527 organizations. These include political parties, political action committees and campaign committees of candidates for federal, state or local office.
Among other requirements, most tax-exempt political organizations have a requirement to file semiannual, quarterly or monthly reports on Form 8872. To file electronically, the organization must have the username and password it received from the IRS after electronically filing its initial notice (Form 8871). To replace a username or password, please contact the IRS, Attn: Request for 8872 Password, Mail Stop 6273, Ogden UT 84201; Fax (855) 214-7520. Organizations can file electronically using the IRS website.
Form 990 and 990-PF e-filing
Under the legislation, most e-filings won't be due before December 15, 2020, from charities and other exempt organizations that generally file Form 990 or 990-PF by the 15th day of the fifth month after the tax year-end. In other words, Forms 990 and 990-PF with tax years ending July 31, 2020, and later MUST be filed electronically. Form 990 and 990-PF filings for tax years ending on or before June 30, 2020, may still be on paper. In the case of a short tax year or certain other circumstances detailed in the 990 or 990-PF Instructions, the IRS will continue to accept paper filing as its systems are yet unable to receive these forms electronically.
Due to COVID-19, Forms 990, 990-T, and 990-PF and payment of related tax due on or after April 1, 2020, and before July 15, 2020, are automatically extended to July 15th, 2020.
Transition Relief for Form 990-EZ
For small exempt organizations, the legislation specifically allowed a postponement ("transitional relief"). For tax years ending before July 31, 2021, the IRS will accept either paper or electronic filing of Form 990-EZ, Short Form Return of Organization Exempt from Income Tax. For tax years ending July 31, 2021, and later, Forms 990-EZ must be filed electronically. Generally, Form 990-EZ is for organizations with annual gross receipts less than $200,000 and total assets at tax year-end less than $500,000.
Paper Forms 990-T and 4720
In 2020, the IRS will continue to accept paper forms that are pending conversion into electronic format. These include Form 990-T, Exempt Organization Business Income Tax Return, and Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. The IRS plans to have these returns ready for e-filing in 2021 (reporting on tax year 2020).
The Taxpayer First Act aims to expand and strengthen taxpayer rights and to reform the IRS into a more taxpayer-friendly agency. The legislation requires the agency to develop a comprehensive customer service strategy, modernize its technology and enhance its cybersecurity. More information on the Taxpayer First Act is available at IRS.gov.
As always, don't hesitate to call if you have any questions or would like more information.
Watch Out for Coronavirus-related Scams
Taxpayers should be on the lookout for calls and email phishing attempts regarding the Coronavirus, or COVID-19 that could lead to tax-related fraud and identity theft. Because criminals take every opportunity to perpetrate a fraud on unsuspecting victims during times of need, taxpayers should also be skeptical about text messages received and websites and social media attempts to request money or personal information.
Seniors should be especially careful at this time. In most cases, the IRS will deposit economic impact payments (sometimes called recovery rebates or stimulus payments) into the direct deposit account taxpayers previously provided on tax returns and taxpayers should not provide their direct deposit or other banking information for anyone to input on their behalf into the secure portal.
For retirees, the $1,200 payments are sent automatically. There is no additional action or information is needed on their part to receive this. Retirees - including recipients of Forms SSA-1099 and RRB-1099 - should also know that they will not be contacted by the IRS via phone, email, mail or in person asking for any kind of information to complete their economic impact payment.
What to Watch Out For:
Scammers use a number of techniques including:
Unsolicited emails, text messages or social media attempts to gather information that appear to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), should be forwarded to firstname.lastname@example.org.
Tax Due Dates for April 2020
Employees who work for tips - If you received $20 or more in tips during March, report them to your employer. You can use Form 4070.
Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in March.
Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in March.
Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2020. Deposit any undeposited tax. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until May 11 to file the return.
Employers - Federal unemployment tax. Deposit the tax owed through March if more than $500.
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