Financial update on coronavirus (COVID-19)

Dear valued Clients and Friends,

As the coronavirus (COVID-19) continues to affect local communities and global economies, you may have concerns about your financial well-being. Or you may be wondering about how recently passed legislation impacts you. We’re providing a high-level summary of some of the key provisions impacting individuals and recommend discussing your particular circumstances with us in more detail.

Relief available
There are several recently enacted tax changes and new or expanded benefits that might be helpful to you.

Income tax provisions:

• The IRS has provided broad relief and extended the filing and payment deadlines to July 15, 2020. However, we continue to work on filing returns as soon as possible.
• Estimated tax payments due on or after April 1, 2020 and before July 15, 2020 can wait until July 15 to make the payment without penalty.
• Most States are following the Federal guidelines. You’ll find information on state tax filing guidance at State Relief Guide (this will open up as a downloadable PDF file.)

Recovery rebates:

• Payments to individuals of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child have started  Check the status at the IRS Website Click Here for IRS Website
• The recovery rebate begins to phase out for taxpayers with adjusted gross income (AGI) above $150,000 for joint filers, $112,500 for heads of households and $75,000 for other individuals. If you’d like to estimate the amount you’ll receive, visit the AARP CARES Act stimulus calculator at AARP Stimulus Payment Calculator.
• The payment is not taxable.

Insights:
Individuals between the ages of 17 and 24 are ineligible to be claimed as a qualifying child and may be unable to claim their own independent rebate if they are eligible dependents on their parents’ tax return. Eligible dependents include children under the age of 19 or full-time students under the age of 24 who do not provide more than half of their own support and who live with the taxpayer for more than half the year.

Retirement accounts:

• Through the end of the year, individuals who are under 59 ½ years old can take up to $100,000 in coronavirus-related distributions from retirement plans without the usual 10% penalty for early distributions. The distributions may be repaid within three years and any resulting income inclusion can be taken over three years.
• If you were over 70 ½  at Dec. 31, 2019 you won’t have to take required minimum distributions (RMD) in 2020. If your retirement assets have taken a hit, not having to take an RMD may allow those assets to recover some value before you liquidate them. RMDs that have already been taken in 2020 may be rolled over within 60 days of the distribution.

Insights:
Waived RMDs do not need to be taken in subsequent years. However, any forgone RMD in 2020 will affect the account balance used to calculate the RMD in 2021 and future years. It is not known whether additional relief will be offered for individuals who took their RMD early in 2020 and are already outside the 60-day rollover window. RMDs were last waived in 2009. At that time, the IRS issued a notice stating that the 60-day rollover deadline would be satisfied if completed by a given date that year. It is possible that similar guidance will be issued this year.

Student loans:
If you have a federally-held student loan, your payments will be suspended through Sept. 30, 2020 and interest won’t accrue during this period. Note that this relief does not apply to private student loans.

Modification of Limitations on Charitable Contributions During 2020

• The CARES Act suspends the AGI limitation (was 60% of AGI) for qualifying cash contributions and instead permits individual taxpayers to take a charitable contribution deduction for qualifying cash contributions made in 2020 to the extent such contributions do not exceed the taxpayer’s AGI.
• Any excess is still carried forward as a charitable contribution in each of the succeeding five years.

Insights:
This provision benefits taxpayers who elect to itemize their deductions in 2020 and make cash contributions to certain public charities. Contributions to non-operating private foundations or donor advised funds are not eligible for the 100% AGI limitation.

Other benefits:

• Other benefits are available including expanded unemployment, emergency paid sick and family leave benefits (with some limitations and exceptions). Unemployment benefits are extended to self-employed and part-time workers.

Business Tax Incentives
Employee retention and payroll tax credits (available if haven’t taken the PPP Loan)

• A refundable tax credit has been created to assist employers in retaining employees. The credit is computed at 50% of qualified wages paid by eligible employers for up to $10,000 paid to each employee between March 13, 2020 and Dec. 31, 2020.
• Subject to limitations and exceptions, employers of less than 500 employees are required to provide mandatory sick time and paid family leave but are eligible for payroll tax credits to offset the costs. Eligible self-employed individuals also qualify for the credits. Healthcare providers and emergency responders are excluded; employers with fewer than 50 employees can be exempted.
• Employers (including self-employed individuals) will be able to postpone the employer’s share of Social Security taxes through the end of this year. The delayed payments are due in two equal payments, one due Dec. 31, 2021 and the second due Dec. 31, 2022.

Net Operating Losses

• Previously, NOLs generated beginning in 2018 were limited to 80% of taxable income computed without regard to any NOL deduction. Any unused NOL was not able to be carried back but could be carried forward indefinitely.
• The CARES Act permits individuals with NOLs generated in taxable years beginning after December 31, 2017, and before January 1, 2021, to carry back such NOLs five taxable years. Such NOLs not carried back may continue to be carried forward indefinitely. The CARES Act also eliminates the 80% taxable income limitation imposed by the TCJA for taxable years beginning before January 1, 2021.

Insights:
Taxpayers with NOLs generated in 2018 and 2019 may find it advantageous to amend returns prior to those years to carryback NOLs to years with taxable income subject to a 39.6% tax rate.

Excess Business Loss Limitations

• Beginning in 2018, net business losses in excess of $500,000 for joint filers ($250,000 for all other taxpayers) were not allowed as a current deduction against other income. These threshold amounts were indexed for inflation and, in 2020, were scheduled to be $518,000 for joint filers ($259,000 for all other taxpayers). The disallowed business losses became a net operating loss applied to subsequent taxable years.
• The CARES Act suspends the application of this excess business loss rule for 2020, and retroactively suspends the excess business loss limitation rule for 2018 and 2019. Thus, taxpayers will be allowed to offset their business losses against other income for 2020.

Insights:
Taxpayers will need to address with their tax advisors the impact of the retroactive removal of the excess business loss limitation rule for 2018 and 2019.  Many taxpayers have not yet filed for 2019 and the removal of the loss limitation rule should be considered in the preparation of the 2019 return. If a taxpayer was subject to the excess business loss rule in his or her 2018 tax return, the taxpayer should amend his or her 2018 return to take advantage of the elimination of the rule for 2018.  Taxpayers may have a refund opportunity for 2018 if their net business losses were limited and may also find their 2019 tax liabilities either increased or decreased, depending on whether their business losses were being carried forward to 2019 or were sustained in 2019 but were limited.

Small Business Administration (SBA) loans (Employee retention credit not available if PPP Loan was taken)

• Small businesses may also apply for a loan through the Payroll Protection Program. This program is designed to help provide capital to cover the cost of retaining employees. If certain criteria are met, the loan can be forgiven.  The funds for this program have been exhausted and there is pending legislation to extend the funding.
• Other SBA programs are also available. For more guidance, see SBA’s Coronavirus Small Business Guidance and Loan Resources.

Other business provisions

• Interest expense deduction limitations are more taxpayer favorable. Under prior legislation, net interest expense was limited to 30% of adjusted taxable income. This limitation has been increased to 50% for tax years 2019 and 2020.
• Depreciation modifications were made in connection with qualified improvement property to allow for a faster write-off of these assets. Under prior legislation, this type of property was required to be depreciated over 39 years. Under the recent legislation, this depreciation period has been reduced to 15 years, and these assets will now be eligible for bonus depreciation which will allow for an immediate deduction of the entire cost of the property.

Protecting our clients and staff
There are limitations on our physical work environment due to COVID-19; however, we’re working to minimize disruptions and impacts to you so that we can still offer the same level of superior service and support you have come to expect from our team.  Currently, we are still working with all staff available.

We have implemented procedures to protect the health and safety of our staff, clients and community including: restricting/limiting access to our office(s), restricting/reducing travel, providing health education and guidelines to keep our staff well, limiting the size of meetings, providing remote working solutions, implementing the use of remote assistance for our clients, adding virtual communication channels to stay connected, implementing continuity plans, other measures.

Our firm is open to serve you
Our firm remains open and available to serve you with our regular business hours.  However, currently only drop off or pick up is available at the front counters.  We are not able to have in office meetings currently.

Our commitment to you
Whether you have tax or financial planning questions or need advice on ways to navigate the expanded benefits outlined above, we’re here for you. If you have any questions or concerns, please don’t hesitate to contact us at 561-995-0064 or you may email us at info@vcpa.com.

During this unpredictable and challenging time, it’s more important than ever to stay connected. We’re in this together and our thoughts go out to all that have been impacted by this unprecedented situation.

Rest assured, we’re here to help with your questions.

Victor Lerro
Managing Partner