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Guide to the Coronavirus Aid, Relief and Economic Security (CARES) Act

Posted by Mike Anderson Posted on Mar 29 2020

To help small business owners and entrepreneurs better understand the new programs that will soon be available to them, the Senate has created a comprehensive guide to many of the small business provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was just passed by Congress. These programs and initiatives are intended to assist business owners with whatever needs they have right now. 

2nd Update 3/26/2020

Posted by Mike Anderson Posted on Mar 26 2020

Do not reduce the number of employees or the amount of your payroll until you consider how that will affect your business in light of the Cares Act (S.3548), which is currently being voted on. This bill could quite possibly pay your employees for you! Contact Mike for more details

Update for 3/26/2020

Posted by Mike Anderson Posted on Mar 26 2020

Filing and payment deadlines deferred. After briefly offering more limited relief, the IRS almost immediately pivoted to a policy that provides the following to all taxpayers-meaning all individuals, trusts, estates, partnerships, associations, companies or corporations regardless of whether or how much they are affected by COVID-19:

1. For a taxpayer with a Federal income tax return or a Federal income tax payment due on April 15, 2020, the due date for filing and paying is automatically postponed to July 15, 2020, regardless of the size of the payment owed.

2. The taxpayer doesn't have to file Form 4686 (automatic extensions for individuals) or Form 7004 (certain other automatic extensions) to get the extension.

3. The relief is for (A) Federal income tax payments (including tax payments on self-employment income) and Federal income tax returns due on April 15, 2020 for the person's 2019 tax year, and (B) Federal estimated income tax payments (including tax payments on self-employment income) due on April 15, 2020 for the person's 2020 tax year.

4. No extension is provided for the payment or deposit of any other type of Federal tax (e.g. estate or gift taxes) or the filing of any Federal information return.

5. As a result of the return filing and tax payment postponement from April 15, 2020, to July 15, 2020, that period is disregarded in the calculation of any interest, penalty, or addition to tax for failure to file the postponed income tax returns or pay the postponed income taxes. Interest, penalties and additions to tax will begin to accrue again on July 16, 2020. 

Favorable treatment for COVID-19 payments from Health Savings Accounts. Health savings accounts (HSAs) have both advantages and disadvantages relative to Flexible Spending Accounts when paying for health expenses with untaxed dollars. One disadvantage is that a qualifying HSA may not reimburse an account beneficiary for medical expenses until those expenses exceed the required deductible levels. But IRS has announced that payments from an HSA that are made to test for or treat COVID-19 don't affect the status of the account as an HSA (and don't cause a tax for the account holder) even if the HSA deductible hasn't been met. Vaccinations continue to be treated as preventative measures that can be paid for without regard to the deductible amount.

Tax credits and a tax exemption to lessen burden of COVID-19 business mandates. On March 18, President Trump signed into law the Families First Coronavirus Response Act (the Act, PL 116-127), which eased the compliance burden on businesses. The Act includes the four tax credits and one tax exemption discussed below.

Payroll tax credit for required paid sick leave (the payroll sick leave credit). The Emergency Paid Sick Leave Act (EPSLA) division of the Act generally requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The pay is up to $511 per day with a $5,110 overall limit for an employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee that is a caregiver.

The tax credit corresponding with the EPSLA mandate is a credit against the employer's 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit amount generally tracks the$511/$5,110 and $200/$2,000 per-employee limits described above. The credit can be increased by (1) the amount of certain expenses in connection with a qualified health plan if the expenses are excludible from employee income and (2) the employer's share of the payroll Medicare hospital tax imposed on any payments required under the EPSLA. Credit amounts earned in excess of the employer's 6.2% Social Security (OASDI) tax (or in excess of the Railroad Retirement tax) are refundable. The credit is electable and includes provisions that prevent double tax benefits (for example, using the same wages to get the benefit of the credit and of the current law employer credit for paid family and medical leave). The credit applies to wages paid in a period (1) beginning on a date determined by IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020.

Income tax sick leave credit for the self-employed (self-employed sick leave credit). The Act provides a refundable income tax credit (including against the taxes on self-employment income and net investment income) for sick leave to a self-employed person by treating the self-employed person both as an employer and an employee for credit purposes. Thus, with some limits, the self-employed person is eligible for a sick leave credit to the extent that an employer would earn the payroll sick leave credit if the self-employed person were an employee.

Accordingly, the self-employed person can receive an income tax credit with a maximum value of $5,110 or $2,000 per the payroll sick leave credit. However, those amounts are decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid sick leave from an employer under the Act. The credit applies to a period (1) beginning on a date determined by the IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020.

Payroll tax credit for required paid family leave (the payroll family leave credit). The Emergency Family and Medical Leave Expansion Act (EFMLEA) division of the Act requires employers with fewer than 500 employees to provide both paid and unpaid leave (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The leave generally is available when an employee must take off to care for the employee's child under age 18 because of a COVID-19 emergency declared by a federal, state, or local authority that either (1) closes a school or childcare place or (2) makes a childcare provider unavailable. Generally, the first 10 days of leave can be unpaid and then paid leave is required, pegged to the employee's pay rate and pay hours. However, the paid leave can't exceed $200 per day and $10,000 in the aggregate per employee.

The tax credit corresponding with the EFMLEA mandate is a credit against the employer's 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit generally tracks the $200/$10,000 per employee limits described above. The other important rules for the credit, including its effective period, are the same as those described above for the payroll sick leave credit.

Income tax family leave credit for the self-employed (self-employed family leave credit). The Act provides to the self-employed a refundable income tax credit (including against the taxes on self-employment income and net investment income) for family leave similar to the self-employed sick leave credit discussed above. Thus, a self-employed person is treated as both an employer and an employee for purposes of the credit and is eligible for the credit to the extent that an employer would earn the payroll family leave credit if the self-employed person were an employee. Accordingly, the self-employed person can receive an income tax credit with a maximum value of $10,000 as per the payroll family leave credit. However, under rules similar to those for the self-employed sick leave credit, that amount is decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid family leave from an employer under the Act. The credit applies to a period (1) beginning on a date determined by IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020.

Exemption for employer's portion of any Social Security (OASDI) payroll tax or railroad retirement tax arising from required payments. Wages paid as required sick leave payments because of EPSLA or as required family leave payments under EFMLEA aren't considered wages for purposes of the employer's 6.2% portion of the Social Security (OASDI) payroll tax or for purposes of the Railroad Retirement tax.

I will be pleased to hear from you at any time with questions about the above information or any other matters, related to COVID-19 or not. I wish all of youthe very best in a difficult time.

 

Filing Deadline has been Extended

Posted by Mike Anderson Posted on Mar 20 2020

(Updated to include Virginia's extension information)

Treasury Secretary Steven Mnuchin just announced that the IRS deadline for filing taxes from April 15 to July 15 due to the disruption caused by the coronavirus.

We are till working tirelessly to prepare tax returns because we believe that those with refunds should be filed as soon as they can be completed. Please get yours to us right away. If you expect to owe money, well, you have a bit of reprieve. 

One question I now have is whether the extension period will adjust to December 15. It is usually a six-month extension. Stand by...

Virginia has extended its and payment deadline to June 1, 2020. The filing deadline has not been extended (May 1), but there is an automatic six month extension available.

April 15, 2020 Payment Deadline Extended to July 15, 2020

Posted by Mike Anderson Posted on Mar 19 2020

Taxpayers and businesses will have until July 15, 2020 to pay their taxes this year, but the filing deadline is still April 15. The change was announced on Tuesday afternoon by Treasury Secretary Steven Mnuchin, following President Donald Trump's declaration of a national state of emergency in the United States as a result of efforts to combat the Covid-19 Coronavirus pandemic and minimize economic disruption.

While the IRS extended the tax payment deadline to July 15, 2020, that does not mean that we should all wait to file our tax returns. If you have a refund coming to you, we strongly advise that you file as soon as possible to get the ball rolling on your refunds.

Also, remember that the tax payment deadline extension does not extend the April 15th filing date. However, we are happy to obtain a 6 month filing extension if you want one.

We are following very closely to see if Virginia will offer any similar relief.

CoronaVirus Update

Posted by Mike Anderson Posted on Mar 17 2020

We are watching the evolving guidelines from the CDC and hoping we can all do our part at this critical time for our country. 

During this time, we plan to continue to serve our clients with the highest quality service possible while also protecting our staff so that they and their loved ones remain healthy. Starting today, our staff will begin working remotely from their homes. Thankfully, the technology required to accomplish this was put in place years ago, so we expect this to work seamlessly. Also,  we are closely monitoring any IRS updates regarding deadlines and will provide you with the most up to date information as soon as it becomes available.

Those of you who are completely paperless should have no problem delivering your tax documents to us from the comfort of your homes either through our portal, which can be accessed here, or via email to info@tagcpas.com.

For those times where there is no easy digital alternative for tax documents, we have developed the following protocols that we ask you to use:

  1. Mail documents to the following address:
           The Anderson Group, PC.
           2915 Hunter Mill Rd Suite 1
           Oakton, VA 22124
  2. Drop off documents in the mail slot in our door (we have two doors; the one on the left has the mail slot), or
  3. Fax documents to 703-281-4914

Our phones are set to forward on to cell phones, but since not all of us have tested this feature yet, they will be often be answered by voicemail. If you leave a message for a member of our staff, they will receive an email with a recording of your voicemail attached. As a result, we will be able to respond in a timely manner to any questions and service requests left on voicemails. Emailing may be preferable during this time because it allows you to copy more than one employee, and may lead to a more rapid response, but both options are available. 

We will return our staff to the office when it appears safe to do so. In the meantime, we will manage our client meetings via webinars, phone calls, or postponing until we reopen.

Please do not hesitate to reach out. That is what we are here for!

Best Regards,

The Anderson Group, PC
(703) 281-5212
 
Mike Anderson
 
Marlin Anderson
 
Janet Reaves
 
Amy Slusarczyk
 
Lisa Antonucci

Casualty losses can provide a 2017 deduction, but rules tighten for 2018

Posted by Mike Anderson Posted on Mar 15 2018




If you suffered damage to your home or personal property last year, you may be able to deduct these “casualty” losses on your 2017 federal income tax return. For 2018 through 2025, however, the Tax Cuts and Jobs Act suspends this deduction except for losses due to an event officially declared a disaster by the President.

What is a casualty? It’s a sudden, unexpected or unusual event, such as a natural disaster (hurricane, tornado, flood, earthquake, etc.), fire, accident, theft or vandalism. A casualty loss doesn’t include losses from normal wear and tear or progressive deterioration from age or termite damage.

Here are some things you should know about deducting casualty losses on your 2017 return:

When to deduct. Generally, you must deduct a casualty loss on your return for the year it occurred. However, if you have a loss from a federally declared disaster area, you may have the option to deduct the loss on an amended return for the immediately preceding tax year. 

Amount of loss. Your loss is generally the lesser of 1) your adjusted basis in the property before the casualty (typically, the amount you paid for it), or 2) the decrease in fair market value of the property as a result of the casualty. This amount must be reduced by any insurance or other reimbursement you received or expect to receive. (If the property was insured, you must have filed a timely claim for reimbursement of your loss.)

$100 rule. After you’ve figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It doesn’t matter how many pieces of property are involved in an event.

10% rule. You must reduce the total of all your casualty losses on personal-use property for the year by 10% of your adjusted gross income (AGI). In other words, you can deduct these losses only to the extent they exceed 10% of your AGI.

Note that special relief has been provided to certain victims of Hurricanes Harvey, Irma and Maria and California wildfires that affects some of these rules. For details on this relief or other questions about casualty losses, please contact us.

© 2018

Size of charitable deductions depends on many factors

Posted by Mike Anderson Posted on Mar 08 2018



Whether you’re claiming charitable deductions on your 2017 return or planning your donations for 2018, be sure you know how much you’re allowed to deduct. Your deduction depends on more than just the actual amount you donate.

Type of gift

One of the biggest factors affecting your deduction is what you give:

Cash. You may deduct 100% gifts made by check, credit card or payroll deduction. 

Ordinary-income property. For stocks and bonds held one year or less, inventory, and property subject to depreciation recapture, you generally may deduct only the lesser of fair market value or your tax basis.

Long-term capital gains property. You may deduct the current fair market value of appreciated stocks and bonds held for more than one year.

Tangible personal property. Your deduction depends on the situation:

  • If the property isn’t related to the charity’s tax-exempt function (such as a painting donated for a charity auction), your deduction is limited to your basis.
  • If the property is related to the charity’s tax-exempt function (such as a painting donated to a museum for its collection), you can deduct the fair market value.

Vehicle. Unless the vehicle is being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle.

Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift. 

Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven.

Other factors
First, you’ll benefit from the charitable deduction only if you itemize deductions rather than claim the standard deduction. Also, your annual charitable donation deductions may be reduced if they exceed certain income-based limits. 

In addition, your deduction generally must be reduced by the value of any benefit received from the charity. Finally, various substantiation requirements apply, and the charity must be eligible to receive tax-deductible contributions. 

2018 planning

While December’s Tax Cuts and Jobs Act (TCJA) preserves the charitable deduction, it temporarily makes itemizing less attractive for many taxpayers, reducing the tax benefits of charitable giving for them. 

Itemizing saves tax only if itemized deductions exceed the standard deduction. For 2018 through 2025, the TCJA nearly doubles the standard deduction ? plus, it limits or eliminates some common itemized deductions. As a result, you may no longer have enough itemized deductions to exceed the standard deduction, in which case your charitable donations won’t save you tax. 

You might be able to preserve your charitable deduction by “bunching” donations into alternating years, so that you’ll exceed the standard deduction and can claim a charitable deduction (and other itemized deductions) every other year.

Let us know if you have questions about how much you can deduct on your 2017 return or what your charitable giving strategy should be going forward, in light of the TCJA. 
 

Home equity borrowers get good news from the IRS

Posted by Mike Anderson Posted on Mar 01 2018




Passage of the Tax Cuts and Jobs Act (TCJA) in December 2017 has led to confusion over some of the changes to longstanding deductions, including the deduction for interest on home equity loans. In response, the IRS has issued a statement clarifying that the interest on home equity loans, home equity lines of credit and second mortgages will, in many cases, remain deductible under the TCJA — regardless of how the loan is labeled.

Previous provisions

Under prior tax law, taxpayers could deduct “qualified residence interest” on a loan of up to $1 million secured by a qualified residence, plus interest on a home equity loan (other than debt used to acquire a home) up to $100,000. The home equity debt couldn’t exceed the fair market value (FMV) of the home reduced by the debt used to acquire the home.

For tax purposes, a qualified residence is the taxpayer’s principal residence and a second residence, which can be a house, condominium, cooperative, mobile home, house trailer or boat. The principal residence is where the taxpayer resides most of the time; the second residence is any other residence the taxpayer owns and treats as a second home. Taxpayers aren’t required to use the second home during the year to claim the deduction. If the second home is rented to others, though, the taxpayer also must use it as a home during the year for the greater of 14 days or 10% of the number of days it’s rented.

In the past, interest on qualifying home equity debt was deductible regardless of how the loan proceeds were used. A taxpayer could, for example, use the proceeds to pay for medical bills, tuition, vacations, vehicles and other personal expenses and still claim the itemized interest deduction.

The TCJA rules

The TCJA limits the amount of the mortgage interest deduction for taxpayers who itemize through 2025. Beginning in 2018, a taxpayer can deduct interest only on mortgage debt of $750,000. The congressional conference report on the law stated that it also suspends the deduction for interest on home equity debt. And the actual bill includes the section caption “DISALLOWANCE OF HOME EQUITY INDEBTEDNESS INTEREST.” As a result, many people believed the TCJA eliminates the home equity loan interest deduction.

On February 21, the IRS issued a release (IR 2018-32) explaining that the law suspends the deduction only for interest on home equity loans and lines of credit that aren’t used to buy, build or substantially improve the taxpayer’s home that secures the loan. In other words, the interest isn’t deductible if the loan proceeds are used for certain personal expenses, but it is if the proceeds go toward, for example, a new roof on the home that secures the loan. The IRS further stated that the deduction limits apply to the combined amount of mortgage and home equity acquisition loans — home equity debt is no longer capped at $100,000 for purposes of the deduction. 

Some examples from the IRS help show how the TCJA rules work:

Example 1: A taxpayer took out a $500,000 mortgage to buy a principal residence with an FMV of $800,000 in January 2018. The loan is secured by the residence. In February, he takes out a $250,000 home equity loan to pay for an addition to the home. Both loans are secured by the principal residence, and the total doesn’t exceed the value of the home. 

The taxpayer can deduct all of the interest on both loans because the total loan amount doesn’t exceed $750,000. If he used the home equity loan proceeds to pay off student loans and credit card bills, though, the interest on that loan wouldn’t be deductible.

Example 2: The taxpayer from the previous example takes out the same mortgage in January. In February, he also takes out a $250,000 loan to buy a vacation home, securing the loan with that home. Because the total amount of both mortgages doesn’t exceed $750,000, he can deduct all of the interest paid on both mortgages. But, if he took out a $250,000 home equity loan on the principal home to buy the second home, the interest on the home equity loan wouldn’t be deductible.

Example 3: In January 2018, a taxpayer took out a $500,000 mortgage to buy a principal home, secured by the home. In February, she takes out a $500,000 loan to buy a vacation home, securing the loan with that home. Because the total amount of both mortgages exceeds $750,000, she can deduct only a percentage of the total interest she pays on them.

Stay tuned

The new IRS announcement highlights the fact that the nuances of the TCJA will take some time to shake out completely. We’ll keep you updated on the most significant new rules and guidance as they emerge.

© 2018

2018 Q1 tax calendar: Key deadlines for businesses and other employers

Posted by Mike Anderson Posted on Jan 10 2018

 


Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 31

 

 

  • File 2017 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • Provide copies of 2017 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
  • File 2017 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS.
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2017. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 12 to file the return.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2017. 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 February 12 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944,“Employer’s Annual Federal Tax Return.”)
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2017 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. 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 year in full and on time, you have until February 12 to file the return.

February 28

 

 

  • File 2017 Forms 1099-MISC with the IRS if 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is April 2.)
  • March 15
  • If a calendar-year partnership or S corporation, file or extend your 2017 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2017 contributions to pension and profit-sharing plans.

© 2017

 

Most Individual Tax Rates Set to Go Down in 2018

Posted by Mike Anderson Posted on Jan 08 2018




The Tax Cuts and Jobs Act (TCJA) generally reduces individual tax rates for 2018 through 2025. It maintains seven individual income tax brackets but reduces the rates for all brackets except 10% and 35%, which remain the same.

It also makes some adjustments to the income ranges each bracket covers. For example, the 2017 top rate of 39.6% kicks in at $418,401 of taxable income for single filers and $470,701 for joint filers, but the reduced 2018 top rate of 37% takes effect at $500,001 and $600,001, respectively.

Below is a look at the 2018 brackets under the TCJA. Keep in mind that the elimination of the personal exemption, changes to the standard and many itemized deductions, and other changes under the new law could affect the amount of your income that’s subject to tax. Contact us for help assessing what your tax rate likely will be for 2018.

Single individuals



Heads of households



Married individuals filing joint returns and surviving spouses


Married individuals filing separate returns


© 2018

The IRS Threw Shade on Prepaid Property Tax Deductions, But Don't Request a Refund Yet

Posted by Mike Anderson Posted on Dec 30 2017
For many of our clients, our advice has been to go ahead and prepay property taxes before the end of 2017, if you can swing it, and if you are clearly not subject to AMT, because we knew for certain that state and local taxes will be limited to a deduction of $10,000 in 2018. Our position was that you may as well have paid early in the hopes it would be deductible.
 
As you may have read, the IRS announced that it will not allow this if the tax has not yet been assessed. Unfortunately, most prepaid property taxes in the Washington, DC area will fail this requirement because they will not actually assess property taxes until the summer of 2018.
 
At least one locality has offered refunds to residents who request them in writing. However, there are several reasons you might want to wait this out.
 
First, the I.R.S. guidance is not a legal ruling, and was only based on limited precedents. 
 
Additionally, the term "assessed" was not defined in the IRS announcement. Nor has it been legally defined by the legislation or by any legal rulings.
 
We also believe it is possible that the anger and confusion over this issue could result in further mitigating announcements by IRS, further legislation by Congress, court decisions, or other creative workarounds by state and local governments attempting to circumvent the IRS announcement.
 
For these reasons, you should consider holding off for several weeks, or even months, before requesting a refund.