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Articles Posted in Coronavirus

Due to the COVID-19 pandemic and all its surrounding circumstances, the IRS chose to shift the tax filing deadline. This essentially moved the usual filing date for 2019 taxes from April 15th to July 15th. Whether you owed taxes to the IRS or they owed you a refund for that year, the applicable deadline was still July 15th , giving all taxpayers a few extra months to get their affairs in order. However, now that that date has come and gone, some people may have filed their returns but not paid any amount owed. In addition, others may not have sent in their return at all, either waylaid by the pandemic or afraid of having to pay the IRS an amount that they cannot afford. No matter which category you fit into, it’s important to know that you still have options.

Now Is the Time to File

You must file your 2019 return, regardless of whether you owe taxes or not, now is the best time to file. Yes, you will face the penalties and other fees handed down by the IRS, but with the help of a Tax Professional, they will work with you. However, nothing can be done help you if you don’t file at all.

Many — perhaps most — businesses in the U.S. may anticipate substantially lower revenues during 2020 than in previous years because of the COVID-19 pandemic, and many may have losses this year. Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March in order to provide stimuli to the economy, including loans, grants, tax credits, and other benefits. One section of the CARES Act makes changes to the provisions of the Internal Revenue Code (IRC) that deal with deductions of net operating losses (NOLs). The 2017 tax reform bill eliminated most NOL carrybacks, meaning that businesses could no longer deduct current losses from taxes paid in prior years. The CARES Act temporarily reinstates carryback loss deductions, potentially allowing businesses to claim refunds against taxes paid during the past several years.

What Is a Net Operating Loss?

A business has a NOL when its total allowable deductions is greater than its taxable income during a year. Obviously, if a business’ deductions are equal to their income during a tax year, their tax liability would be zero. The IRC allows businesses to use excess NOL amounts from prior years to lower their tax bills in other years. Without those provisions, any deductions that exceed total income would be lost at the end of the year.

How Are Net Operating Losses Deductible?

Prior to 2018, businesses could carry NOLs both forward and back, subject to limitations. A loss carryforward allows a business to reduce its tax bill in the future. Suppose a company has taxable income of $2 million during a particular year, and allowable deductions of $2.5 million during the same year. It would owe nothing in federal income tax, and would have a NOL of $500,000. The following year, suppose it has taxable income of $2.7 million, and $2.5 million in deductible expenses. The business can carry $200,000 of its NOL forward, reducing its net income for the year to zero. It can apply the remaining $300,000 in subsequent years.

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Congress established multiple programs to assist individuals, families, businesses, medical providers, and others in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Paycheck Protection Program (PPP) provides loans to small businesses to cover certain operating expenses. The portion of a PPP loan used to pay covered expenses is fully forgivable, with no resulting tax liability. This created uncertainty, however, with regard to whether those same expenses are considered tax-deductible. IRS Notice 2020-32 resolves this uncertainty. Businesses receiving PPP loan forgiveness may not deduct expenses covered by this provision of the CARES Act, and if a business claims those expenses as deductions, they may not be eligible for loan forgiveness.

What Is a PPP Loan?

The PPP appears near the beginning of the CARES Act, in § 1102. The program provides loans to small businesses to cover payroll expenses, rent and mortgage payments, utilities, and other costs needed to keep the business running for the period from February 15 to June 30, 2020. The primary purpose of these loans, as indicated by the name of the program, is to enable businesses affected by the COVID-19 pandemic to keep their employees paid.

When Can a PPP Loan Be Forgiven?

Under § 1106(b) of the CARES Act, businesses may obtain forgiveness of all or a portion of the loan. The forgivable amount is equal to the total spent during the “covered period,” an eight-week period beginning on the loan origination date, for expenses directly related to payroll, rent, utilities, and mortgage payments. The forgivable amount is reduced if the business lays off employees or cuts wages.

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The Paycheck Protection Program (PPP), part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, provides loans to eligible businesses to cover payroll and certain other expenses. The U.S. Small Business Administration (SBA) guarantees the loans, and a portion of each loan is forgivable. While the CARES Act specifies that forgiven loan amounts are not included in a business’ taxable income, it does not address whether the expenses paid by the forgiven loan are tax-deductible. The IRS has announced that businesses receiving PPP loan forgiveness cannot deduct these expenses.

What is the Paycheck Protection Program?

Section 1102(a) of the CARES Act amends § 7(a) of the Small Business (SB) Act, codified at 15 U.S.C. § 636(a), to establish the PPP. Eligible businesses may receive loans of up to $10 million from the SBA. The purpose of these loans is to allow businesses to maintain workers on payroll and cover other expenses from February 15 to June 30, 2020. The CARES Act caps interest rates for these loans at four percent, and defers all payments for six months to one year.

What Expenses Can Businesses Pay with PPP Loans?

The SB Act, as amended, defines “allowable uses of covered loans” to include:
– Payroll expenses, salaries, commissions, and other compensation to employees;
– Continuation of employee benefits;
– Rent and utilities; and
– Interest on mortgages and other debt incurred prior to February 15, 2020.

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Businesses across the country are struggling because of the economic downturn associated with the coronavirus pandemic. Congress has provided a variety of economic stimuli, including the Employee Retention Credit (ERC). This is a payroll tax credit found in § 2301 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act is the largest stimulus package in the nation’s history, providing around $2 trillion in direct payments, loans, grants, and tax credits.

What Is the Employee Retention Credit?

The ERC is a fully-refundable payroll tax credit that gives businesses affected by the pandemic an incentive to keep employees on their payroll. The credit applies to the employer’s share of the Social Security portion of payroll taxes under the Federal Insurance Contributions Act (FICA).

What Businesses Are Eligible for the Employee Retention Credit?

The ERC is available to most businesses that meet the CARES Act’s criteria regarding economic impact from the coronavirus.
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Congress has passed two major pieces of legislation intended to stimulate the economy and provide direct support to businesses, their employees, and others hurt by the economic effects of the fight against the coronavirus and COVID-19. Many benefits take the form of refundable payroll tax credits for employers. The IRS is waiving certain penalties related to payroll taxes, and allowing employers to request advance payment of refunds under these new laws.

Payroll Tax Credits

Paid Sick Leave and Family Leave

The Families First Coronavirus Response Act (FFCRA) creates temporary systems for paid sick leave, paid family leave, and expanded unpaid family leave. Employers with fewer than five hundred employees are subject to these provisions, although employers with fewer than fifty employees may request a waiver.

The amount of leave and rate of pay depends on the purpose of the leave. Paid leave for one’s own diagnosis or quarantine is capped at $511 per day. Paid leave to care for a sick or quarantined family member or a child out of school is capped at $200 per day.

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Congress passed the largest economic stimulus bill in the nation’s history in March 2020 to address problems caused by the global coronavirus pandemic. Its provisions include a waiver of the rule requiring employees to take a minimum distribution from certain types of retirement accounts by a date after they attain a particular age or when they retire, whichever is later. In 2019, Congress amended the Internal Revenue Code (IRC) to change the age after which a person must take a required minimum distribution (RMD) from 70½ to 72. People who turned 70½ in 2019 were not covered by the new law, however, which created some confusion. The coronavirus stimulus bill alleviates this confusion by waiving all RMDs during 2020.

Required Minimum Distributions Before 2020

Section 401(a)(9) of the IRC requires employees with individual retirement accounts (IRAs) and certain other types of retirement accounts to take an RMD by a “required beginning date,” defined as April 1 of the year following whichever occurs later:
– The person “attains age 70½”; or
– The person retires.

The use of a “half birthday” caused some confusion for people, since anyone born more than halfway through a calendar year would not turn 70½ until the following calendar year. For example, a person who turned 70 in June 2010 would turn 70½ in December 2010. Their RMD date would be April 1, 2011. A person who turned 70 in July 2010, however, would turn 70½ in January 2011. Their RMD date would be the following year, on April 1, 2012.

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The IRS recently began sending stimulus payments authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. These payments, which are technically tax rebates, can be up to $1,200 for individuals or $2,400 for married couples, with some exceptions. To assist individuals and families who have not received their payment yet, the IRS launched an online tool that allows people to check on their status. It is reportedly similar to the tool used to track tax refunds. The IRS has also issued a warning about possible financial scams targeting these payments.

Coronavirus Stimulus Payments

Section 2201 of the CARES Act establishes “2020 recovery rebates for individuals.” These are more commonly known as stimulus payments. The IRS sometimes refers to them as Economic Impact Payments. The “payments” are a credit against future federal income taxes, but since the CARES Act makes them refundable, the IRS is sending payments to individuals and families.

The maximum amount of $1,200 is available to any individual whose 2018 or 2019 federal income tax return shows adjusted gross income (AGI) of $75,000 or less. For married couples who filed a joint return, the maximum payment of $2,400 is available to anyone with AGI of no more than $150,000. Additionally, households with minor dependent children receive $500 per child.

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The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a massive stimulus package that became law on March 27, 2020. In total, the bill provides roughly $2 trillion, making it the largest economic stimulus bill in U.S. history. One noteworthy provision for small businesses involves a refundable employment tax credit for employers, known as the Employee Retention Credit (ERC). This credit is available to qualifying businesses that are experiencing a severe downturn in business, or that must suspend operations entirely under state and local public health orders.

Employee Retention Credit

Section 2301 of the CARES Act establishes the ERC. This tax credit is available for wages paid between March 12, 2020 and January 1, 2021.

Amount of Wages

Employers may take the credit against the Social Security portion of payroll taxes in an amount equal to fifty percent of wages, up to a maximum of $10,000 per employee. The maximum tax credit is therefore $5,000 per employee. If an employer ordinarily pays an employee $1,500 per week, the available tax credit for that week is $750.

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