 CARES 2” in the WorksLawmakers are continuing talks on a "phase four" economic relief package in response to the COVID-19 global pandemic.
To that end, the House’s "CARES 2" package is currently in the works and could see a floor vote as early as this month. "CARES 2"President Trump signed into law the $2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27. The CARES Act is known on Capitol Hill as the third phase of legislation aimed to address the national emergency. However, House Speaker Nancy Pelosi, D-Calif., has said that a House floor vote on a "CARES 2" package could happen later in April. "The acceleration of the coronavirus crisis demands that we continue to legislate," Pelosi said in a "Dear Colleagues" letter sent out to members during the week of April 6. "We must double down on the down-payment we made in the CARES Act by passing a CARES 2 package, which will extend and expand this bipartisan legislation to meet the needs of the American people," she added. According to Pelosi, the CARES 2 package would (1) go further in assisting small businesses (including farmers), (2) extend and strengthen unemployment benefits, and (3) distribute additional direct payments. "Our communities cannot afford to wait, and we must move quickly," Pelosi wrote. "It is my hope that we will craft this legislation and bring it to the Floor later this month." Paycheck Protection ProgramMeanwhile, the Trump administration is seeking an increase in funding for the CARES Act’s Paycheck Protection Program. Accordingly, several bipartisan lawmakers have called for congressional action to provide the necessary funding needed for small businesses. The administration is reportedly asking for an additional $250 billion for the largely overrun loan program. "Through this tax break, workers can get back on payrolls and stay there. By working with their bank, small businesses can get eight weeks of cash-flow assistance through 100 percent federally guaranteed loans," House Ways and Means ranking member Kevin Brady, R-Tex., said on April 7. "If the business [including churches] uses the money to maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven." Likewise, Senate Majority Leader Mitch McConnell, R-Ky., called for swift action on the matter. "Congress needs to act with speed and total focus to provide more money for this uncontroversial bipartisan program," McConnell said on April 7. "I will work with [Treasury] Secretary Steven Mnuchin and [Senate Minority Leader Chuck] Schumer and hope to approve further funding for the Paycheck Protection Program by unanimous consent or voice vote during the next scheduled Senate session on Thursday." published by intelliconnect
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 Who will get a payment? How much should you expect?
To qualify for a payment:
Single filers who earn less than $75,000 a year, will get up to $1,200, plus up to $500 for each qualifying child they claim as a dependent. If you earn $75,000-$99,000, you’ll receive a smaller amount, depending on your earnings. Joint filers who earn less than $150,000 a year, will get up to $2,400, plus up to $500 for each qualifying child they claim as a dependent. If you earn between $150,000-$198,000, you’ll qualify for a partial payment. What if you don’t usually file taxes or you haven’t filed your 2019 taxes yet? If you’re a senior citizen, receive Social Security benefits or are a railroad retiree, and don’t usually have to file a tax return, you could still qualify to get a payment. Go to the IRS website for everything you need to know about eligibility. Need to file but haven’t done it yet? With the recent tax extension, you now have until July 15 to file. The IRS will look at the information you filed for 2018. If your 2018 tax return, disqualifies you, then file your 2019 right away as you may qualify that way. Contact us we will get you filed right away. Do you need to do anything to get your CARES Act payment? No. There isn’t an application process and if you qualify, your payment will be sent to you automatically. How will you be paid? This depends on how you usually get your tax refunds.
You should get a faster CARES Act payment if the IRS has this info. The IRS will be setting up a portal in the coming weeks. Check this page on the IRS website for updates. When will your money arrive? The IRS reports it has started sending out its first direct payments this week. The first payments will go to Americans who have their direct deposit information on file with the IRS. You may start to see funds from the CARES Act as “pending” underneath a future date when checking your account in online or mobile banking. Most banks will not have the funds from the Federal Government until that date, so it is likely they can’t deposit the funds before then. Paper checks will start to go out at the beginning of May and could take up to 20 weeks for all the checks to be sent. Expecting a direct deposit and want to know when it’s arrived? Just log into your financial institution's account or mobile app. Your deposit will show up here as soon as they receive it. And if you have a question that isn’t answered leave a comment below.  As you know, the COVID-19 pandemic has shut down much activity in the United States. The IRS decided to use its authority in a national emergency to postpone certain tax return filings and payments. This change affects every one of you, and the rules are tricky—after all, this is tax law. We’ll explain who gets relief; what the IRS postponed; and perhaps more important, what wasn’t postponed. We’ll also tell you whether you should file regardless of the postponement. Who Qualifies? First, to qualify for postponement, you must have a tax return that is due on April 15, 2020. In general, the returns due on April 15 include the following:
In its FAQ, the IRS did not include the Form 1065 for partnerships or the Form 1120S for S corporations when it listed the forms available for relief. That’s because most partnerships and S corporations have calendar-year returns, making the 2019 tax return due March 15, 2020. But if you have a fiscal-year partnership or S corporation with a due date of April 15, 2020, it should qualify for relief under the official guidance. Second, you must have one of the following due on April 15, 2020:
This grant of relief does not apply to
Federal Tax Return Filing Deadline If you qualify for relief, your 2019 federal income tax return is now due July 15, 2020. You do not have to file an extension on Form 4868 or Form 7004 or contact the IRS to get the automatic postponement to July 15, 2020. If you need additional time beyond July 15, 2020, to file your tax return, you can file Form 4868 or Form 7004 on or before July 15, 2020, and get an automatic extension to your normal extension due date:
IRA, HSA, and Retirement Plan Payments
The COVID-19 grant of relief also postpones the following payment deadlines until July 15, 2020:
Should You Wait? If your tax return shows a refund, file it as soon as possible—get your cash as quickly as you can. If you have the cash and liquidity to make your tax payments on April 15, 2020, but keeping those payments in your bank account earns extra interest income, we see no reason you shouldn’t delay until July 15, 2020. If you have problems with making timely estimated tax payments, we recommend you keep the normal schedule as long as you have the liquidity and cash to make the payments. We don’t want you to fall into bad habits and possibly create an unpayable balance due on your 2020 tax return. Don’t forget. we are always here to help you in any way we can. Contact us at info@spenceraccounting.com.  C corporations cause double taxation for business owners, so you probably think you want to avoid them at all costs. And for many of you, this is true, as the S corporation often provides the lower overall tax outcome. But for some of you, the C corporation could provide the best tax outcome because it bypasses the $10,000 state and local tax (SALT) deduction cap, which was introduced by the Tax Cuts and Jobs Act (TCJA). Prior to the TCJA, you could deduct as itemized deductions on your Form 1040, Schedule A—without limit—the following foreign, state, and local taxes:
Tax reform took two direct actions against your Form 1040 itemized deductions for foreign, state, and local taxes. Beginning in tax year 2018,
 If you operate your business as an S corporation, the S corporation passes its net income to your individual tax return. This causes you, the individual, to pay state income taxes on the S corporation income. Those state income taxes are subject to the $10,000 cap. C Corporation Loophole But there is an exception: This $10,000 limit applies only to individuals—meaning, taxes deducted on your Form 1040, Schedule A. The limit does not apply to C corporations. If you operate your business as a C corporation, then your C corporation pays state income taxes on its net income and deducts those taxes on its corporate income tax return. How on earth do you figure out which is best? That’s why you have us. If you would like our help figuring this out for you, please contact us. If you are in business for yourself--say, as a corporation or self-employed--payroll taxes and self-employment taxes are likely two of your biggest tax burdens.
Here’s some possible good news: Congress decided to give you significant relief from these taxes due to the COVID-19 pandemic. We’ll tell you what relief options are available and whether or not you qualify. Payroll Tax Deferral If you have employees (including yourself), then you can postpone payment of the employer share of payroll taxes incurred from the date of enactment of the CARES Act (March 27, 2020) through December 31, 2020. You’ll need to pay 50 percent of your 2020 postponed employer taxes no later than December 31, 2021, and the remaining 50 percent no later than December 31, 2022. Note. This provision doesn’t apply if you use the small business loan forgiveness provision under the CARES Act. Self-Employment Tax Deferral If you owe self-employment tax in tax year 2020, you’ll pay it as follows: 50 percent on your 2020 Form 1040 return (which you file in 2021), 25 percent no later than December 31, 2021, and 25 percent no later than December 31, 2022. Example. On her 2020 Form 1040, Sue has a Schedule C and a self-employment tax liability of $8,000. She’ll pay that $8,000 on the following schedule: $4,000 with her 2020 Form 1040 when filed in 2021, $2,000 no later than December 31, 2021, and $2,000 no later than December 31, 2022. Employee Retention Credit The CARES Act gives you a refundable tax credit against the employer portion of employment taxes equal to 50 percent of wages paid to your employees after March 12, 2020, and before January 1, 2021. You are eligible if Under this new law, you may be able to take money from your IRA and other retirement accounts, avoid early withdrawal penalties, and have generous options on repayment (or not). Additionally, you may not have to take the required minimum distribution from your IRA. COVID-19-Related Distributions from IRAs Get Tax-Favored Treatment If you are an IRA owner who has been adversely affected by the COVID-19 pandemic, you are probably eligible to take tax-favored distributions from your IRA(s). For brevity, let’s call these allowable COVID-19 distributions “CVDs.” They can add up to as much as $100,000. Eligible individuals can recontribute (repay) CVD amounts back into an IRA within three years of the withdrawal date and can treat the withdrawals and later recontributions as federal-income-tax-free IRA rollover transactions. In effect, the CVD privilege allows you to borrow up to $100,000 from your IRA(s) and recontribute the amount(s) at any time up to three years later with no federal income tax consequences. There are no income limits on the CVD privilege, and there are no restrictions on how you can use CVD money during the three-year recontribution period. If you’re cash-strapped, use the money to pay bills and recontribute later when your financial situation has improved. Help your adult kids out. Pay down your HELOC. Do whatever you Under this new law, you may be able to take money from your IRA and other retirement accounts, avoid early withdrawal penalties, and have generous options on repayment (or not). Additionally, you may not have to take the required minimum distribution from your IRA. COVID-19-Related Distributions from IRAs Get Tax-Favored Treatment If you are an IRA owner who has been adversely affected by the COVID-19 pandemic, you are probably eligible to take tax-favored distributions from your IRA(s). For brevity, let’s call these allowable COVID-19 distributions “CVDs.” They can add up to as much as $100,000. Eligible individuals can recontribute (repay) CVD amounts back into an IRA within three years of the withdrawal date and can treat the withdrawals and later recontributions as federal-income-tax-free IRA rollover transactions. In effect, the CVD privilege allows you to borrow up to $100,000 from your IRA(s) and recontribute the amount(s) at any time up to three years later with no federal income tax consequences. There are no income limits on the CVD privilege, and there are no restrictions on how you can use CVD money during the three-year recontribution period. If you’re cash-strapped, use the money to pay bills and recontribute later when your financial situation has improved. Help your adult kids out. Pay down your HELOC. Do whatever you want with the money. CVD Basics Eligible individuals can take one or more CVDs, up to the $100,000 aggregate limit, and these can come from one or several IRAs. The three-year recontribution period for each CVD begins on the day after you receive it. You can make recontributions in a lump sum or make multiple recontributions. You can recontribute to one or several IRAs, and they don’t have to be the same account(s) you took the CVD(s) from in the first place. As long as you recontribute the entire CVD amount within the three-year window, the transactions are treated as tax-free IRA rollovers. If you’re under age 59 1/2, the dreaded 10 percent penalty tax that usually applies to early IRA withdrawals does not apply to CVDs. If your spouse owns one or more IRAs in his or her own name, your spouse is apparently eligible for the same CVD privilege if he or she qualifies (see below). Do I Qualify for the CVD Privilege? That’s a good question. Some IRA owners will clearly qualify, while others may have to wait for IRS guidance. For now, here’s what the CARES Act says. A COVID-19-related distribution is a distribution of up to $100,000 from an eligible retirement plan, including an IRA, that is made on or after January 2, 2020, and before December 31, 2020, to an individual
We await IRS guidance on how to interpret the last two factors. We hope and trust that the guidance will be liberally skewed in favor of IRA owners. We shall see. What If I Don’t Recontribute a CVD within the Three-Year Window? Another good question. You will owe income tax on the CVD amount that you don’t recontribute within the three-year window, but you don’t have to worry about owing the 10 percent early withdrawal penalty tax if you are under age 59 1/2. If you don’t repay, you can choose to spread the taxable amount equally over three years, apparently starting with 2020. Example. Tomorrow you withdraw $90,000 from your IRA, and you don’t recontribute it and don’t elect out of the three-year spread; you have $30,000 of taxable income in years 1, 2, and 3. Here it gets tricky, because the three-year recontribution window won’t close until sometime in 2023. Until then, it won’t be clear that you failed to take advantage of the tax-free CVD rollover deal. So, you may have to amend a prior-year tax return to report some additional taxable income from the three-year spread. The language in the CARES Act does not address this issue, so the IRS will have to weigh in. Of course, the IRS may not be in a big hurry to issue guidance right now, because it has three years to mull it over. You also have the option of simply electing to report the taxable income from the CVD on your 2020 Form 1040. You won’t owe the 10 percent early withdrawal penalty tax if you are under age 59 1/2. Can the One-IRA-Rollover-per-Year Limitation Prevent Me from Taking Advantage of the CVD Deal? Gee, you ask a lot of good questions. The answer is no, because when you recontribute CVD money within the three-year window, it is deemed to be done via a direct trustee-to-trustee transfer that is exempt from the one-IRA-rollover-per-year rule. So, no worries there. Can I Take a CVD from My Company’s Tax-Favored Retirement Plan? Yes, if your company allows it. The tax rules are similar to those that apply to CVDs taken from IRAs. That said, employers and the IRS have lots of work to do to figure out the details for CVDs taken from employer-sponsored qualified retirement plans. Stay tuned for more information. More Good News: Retirement Account Required Minimum Distribution Rules Are Suspended for 2020 In normal times, after reaching the magic age, you must start taking annual required minimum distributions (RMDs) from traditional IRAs set up in your name (including SEP-IRA and SIMPLE-IRA accounts) and from tax-favored company retirement plan accounts. The magic age is 70 1/2 if you attained that age before 2020 or 72 if you attain age 70 1/2 after 2019. And you must pay income tax on the taxable portion of your RMDs. Thankfully, the CARES Act Example. Tomorrow you withdraw $90,000 from your IRA, and you don’t recontribute it and don’t elect out of the three-year spread; you have $30,000 of taxable income in years 1, 2, and 3. Here it gets tricky, because the three-year recontribution window won’t close until sometime in 2023. Until then, it won’t be clear that you failed to take advantage of the tax-free CVD rollover deal. So, you may have to amend a prior-year tax return to report some additional taxable income from the three-year spread. The language in the CARES Act does not address this issue, so the IRS will have to weigh in. Of course, the IRS may not be in a big hurry to issue guidance right now, because it has three years to mull it over. You also have the option of simply electing to report the taxable income from the CVD on your 2020 Form 1040. You won’t owe the 10 percent early withdrawal penalty tax if you are under age 59 1/2. Can the One-IRA-Rollover-per-Year Limitation Prevent Me from Taking Advantage of the CVD Deal? Gee, you ask a lot of good questions. The answer is no, because when you recontribute CVD money within the three-year window, it is deemed to be done via a direct trustee-to-trustee transfer that is exempt from the one-IRA-rollover-per-year rule. So, no worries there. Can I Take a CVD from My Company’s Tax-Favored Retirement Plan? Yes, if your company allows it. The tax rules are similar to those that apply to CVDs taken from IRAs. That said, employers and the IRS have lots of work to do to figure out the details for CVDs taken from employer-sponsored qualified retirement plans. Stay tuned for more information. More Good News: Retirement Account Required Minimum Distribution Rules Are Suspended for 2020 In normal times, after reaching the magic age, you must start taking annual required minimum distributions (RMDs) from traditional IRAs set up in your name (including SEP-IRA and SIMPLE-IRA accounts) and from tax-favored company retirement plan accounts. The magic age is 70 1/2 if you attained that age before 2020 or 72 if you attain age 70 1/2 after 2019. And you must pay income tax on the taxable portion of your RMDs. Thankfully, the CARES Act Example. Tomorrow you withdraw $90,000 from your IRA, and you don’t recontribute it and don’t elect out of the three-year spread; you have $30,000 of taxable income in years 1, 2, and 3. Here it gets tricky, because the three-year recontribution window won’t close until sometime in 2023. Until then, it won’t be clear that you failed to take advantage of the tax-free CVD rollover deal. So, you may have to amend a prior-year tax return to report some additional taxable income from the three-year spread. The language in the CARES Act does not address this issue, so the IRS will have to weigh in. Of course, the IRS may not be in a big hurry to issue guidance right now, because it has three years to mull it over. You also have the option of simply electing to report the taxable income from the CVD on your 2020 Form 1040. You won’t owe the 10 percent early withdrawal penalty tax if you are under age 59 1/2. Can the One-IRA-Rollover-per-Year Limitation Prevent Me from Taking Advantage of the CVD Deal? Gee, you ask a lot of good questions. The answer is no, because when you recontribute CVD money within the three-year window, it is deemed to be done via a direct trustee-to-trustee transfer that is exempt from the one-IRA-rollover-per-year rule. So, no worries there. Can I Take a CVD from My Company’s Tax-Favored Retirement Plan? Yes, if your company allows it. The tax rules are similar to those that apply to CVDs taken from IRAs. That said, employers and the IRS have lots of work to do to figure out the details for CVDs taken from employer-sponsored qualified retirement plans. Stay tuned for more information. More Good News: Retirement Account Required Minimum Distribution Rules Are Suspended for 2020 In normal times, after reaching the magic age, you must start taking annual required minimum distributions (RMDs) from traditional IRAs set up in your name (including SEP-IRA and SIMPLE-IRA accounts) and from tax-favored company retirement plan accounts. The magic age is 70 1/2 if you attained that age before 2020 or 72 if you attain age 70 1/2 after 2019. And you must pay income tax on the taxable portion of your RMDs. Thankfully, the CARES Act Example. Tomorrow you withdraw $90,000 from your IRA, and you don’t recontribute it and don’t elect out of the three-year spread; you have $30,000 of taxable income in years 1, 2, and 3. Here it gets tricky, because the three-year recontribution window won’t close until sometime in 2023. Until then, it won’t be clear that you failed to take advantage of the tax-free CVD rollover deal. So, you may have to amend a prior-year tax return to report some additional taxable income from the three-year spread. The language in the CARES Act does not address this issue, so the IRS will have to weigh in. Of course, the IRS may not be in a big hurry to issue guidance right now, because it has three years to mull it over. You also have the option of simply electing to report the taxable income from the CVD on your 2020 Form 1040. You won’t owe the 10 percent early withdrawal penalty tax if you are under age 59 1/2. Can the One-IRA-Rollover-per-Year Limitation Prevent Me from Taking Advantage of the CVD Deal? Gee, you ask a lot of good questions. The answer is no, because when you recontribute CVD money within the three-year window, it is deemed to be done via a direct trustee-to-trustee transfer that is exempt from the one-IRA-rollover-per-year rule. So, no worries there. Can I Take a CVD from My Company’s Tax-Favored Retirement Plan? Yes, if your company allows it. The tax rules are similar to those that apply to CVDs taken from IRAs. That said, employers and the IRS have lots of work to do to figure out the details for CVDs taken from employer-sponsored qualified retirement plans. Stay tuned for more information. More Good News: Retirement Account Required Minimum Distribution Rules Are Suspended for 2020 In normal times, after reaching the magic age, you must start taking annual required minimum distributions (RMDs) from traditional IRAs set up in your name (including SEP-IRA and SIMPLE-IRA accounts) and from tax-favored company retirement plan accounts. The magic age is 70 1/2 if you attained that age before 2020 or 72 if you attain age 70 1/2 after 2019. And you must pay income tax on the taxable portion of your RMDs. Thankfully, the CARES Act suspends all RMDs that you would otherwise have to take in 2020. he suspension applies equally to your initial RMD if you turned 70 1/2 last year and did not take that initial RMD last year (the initial RMD is actually for calendar year 2019). Before the CARES Act, the deadline for taking that initial RMD was April 1, 2020. Now, thanks to the CARES Act, you can put off any and all RMDs that you otherwise would have had to take this year. Good! For 2021 and beyond, the RMD rules will be applied as if 2020 never happened. In other words, all the RMD deadlines will be pushed back by one year, and any deadlines that otherwise would have applied for 2020 will simply be ignored. Takeaways The CVD privilege can be a very helpful and very flexible tax-favored financial arrangement for eligible IRA owners. You can get needed cash into your hands right now without incurring the early withdrawal penalties. You can then recontribute the CVD amount anytime within the three-year window that will close sometime in 2023—depending on the date you take the CVD—to avoid any federal income tax hit. The suspension of RMDs for this year helps your 2020 tax situation, because you avoid the tax hit on RMDs that you otherwise would have had to withdraw and include as taxable income this year. We love it when we can bring good news. If you would like to discuss the COVID-19 changes to your IRA, please contact us.
During the COVID-19 pandemic, the last thing you need is the IRS doing bad things, like auditing you or levying your bank account or wages. But don’t worry--the IRS is pausing most of its collection and audit enforcement actions. Installment Agreements If you have an installment agreement with the IRS, then the IRS is suspending your payments due between April 1 and July 15, 2020. The IRS will not default any installment agreements during this period. Remember--interest will continue to accrue on any unpaid balances, so if you have the financial resources, you may want to continue to pay. Offers in Compromise If you have a pending offer in compromise, then the IRS will allow you until July 15, 2020, to provide requested additional information to support your offer. The IRS will not close any pending offer in compromise requests before July 15, 2020, without your consent. If the IRS has accepted your offer in compromise, then you can suspend all payments toward it until July 15, 2020. The IRS won’t default your accepted offer in compromise for a failure to file your 2018 tax return. But you should file your delinquent 2018 return (and your 2019 return) on or before July 15, 2020, to avoid default. Collection Actions IRS field revenue officers won’t initiate liens and levies (including any seizures of personal residences) through July 15, 2020; however, they will continue to pursue high-income non-filers and perform other similar activities as needed. In addition, consider the following actions:
Audits
The IRS generally will not start new field, office, or correspondence examinations through July 15, 2020. But it may start new examinations where deemed necessary to protect the government’s interest in preserving the applicable statute of limitations. The IRS suspended all in-person meetings regarding current field, office, and correspondence audits. Existing audits will continue remotely, where possible. You should continue to respond to any requests for information you’ve received if you are able to do so. What if you are ready, willing, and able to get your audit started? The IRS may agree to begin the audit before July 15, 2020, if it has personnel available. Independent Office of Appeals If you have a case in the Independent Office of Appeals, then Appeals employees will continue to work your case. You should promptly respond to any new or existing requests for information. Takeaways If you have IRS problems, the COVID-19 pandemic is creating a mercy period for you that ends July 15, 2020. During the mercy period, the IRS is suspending
Use this break in IRS enforcement through July 15, 2020, as a great opportunity to get back on track and solve any existing IRS tax problems you have, such as
As you know, we are here to help you. Just contact us. After the terrorist attacks on September 11, 2001, Congress added a little-known tax provision to the tax law. This little-known tax code provision exempts certain payments from taxation during a disaster or terrorist attack. President Donald Trump’s national emergency declaration triggered the disaster provisions of the tax law, including this one—where both you and your employees can reap benefits during this COVID-19 pandemic. How This Works Because of the pandemic, the tax code makes the following tax-free to your employees:
The qualified COVID-19 disaster relief payments are free of income tax, payroll taxes, and self-employment tax. Not only are the payments tax-free to your employee, but they are deductible to you as a business expense, regardless of whether or not the payment ends up being tax-free to the employee. Payments That Do Not Work The exclusion from income does not apply to payments in the nature of income replacement, such as payments to individuals for lost wages, unemployment compensation, or payments in the nature of business income replacement. Payments to business entities don’t qualify, either. Qualified disaster relief payments do not include payments for any expenses compensated for by insurance or otherwise. Payments You Can Make Here’s an example: the IRS ruled that grants received by employees under an employer program to pay or reimburse reasonable and necessary medical, temporary housing, or transportation expenses incurred as a result of a flood qualify for this benefit. With respect to the COVID-19 pandemic, you could reimburse or pay for the following employee expenses under this guidance:
Planning note. Because of the Tax Cuts and Jobs Act, employees may not deduct employee business expenses during tax years 2018-2025, so your reimbursement of such expenses under the disaster rules is extra valuable. We can help you implement this plan. If you would like our assistance please contact us at info@spenceraccounting,com or click here.
Congress just passed the CARES Act in response to the COVID-19 pandemic. In it, there are a lot of juicy tax benefits for you and your business. We’ll tell you about a collection of important ones you need to know. The Check Will Be in the Mail As you read this, the U.S. Treasury Department could be in the process of writing you a check, and it’s possible you could have that check in your hands within three weeks, according to the Treasury secretary. The check you receive this year is going to be your minimum amount. You don’t have to repay it or pay taxes on it. And next year, when you file your 2020 tax return--say, on April 15, 2021--you could receive more cash if the 2020 return shows a bigger credit than you receive this year. Technically, the cash you’re about to receive is an advance payment of a new refundable tax credit for your 2020 Form 1040 tax return. (This is the return you will file in 2021.) The advance tax credit (think cash) coming in the mail or electronically in the next three weeks or so is based on your 2018 or 2019 (if you filed it already) tax return. If your income qualifies for the full credit, you will receive
Your tax credit (the check in the mail) goes down by 5 percent of the amount by which your adjusted gross income (AGI) exceeds
The advance credit amount is based on
You’ll “true up” your advance tax credit on your 2020 Form 1040 (which you will file in 2021):
Your current tax debts will not interfere with the cash amount you are about to receive. There are no offsets for outstanding tax debts. But there is an offset for past-due child support that is reported to the IRS by a state. In this case, the IRS will take the child support money from the advance tax credit before remitting any money to the taxpayer. Planning tip. If you didn’t file your 2019 tax return yet, calculate if your advance credit is higher with your 2018 AGI. If it is, wait to file your 2019 return until after you get the advance credit paid to you. Example. You filed a 2018 Form 1040 with AGI of $70,000 and no dependents. Your 2019 Form 1040, which you did not file yet, has an AGI of $105,000 and no dependents. If you file your 2019 return now, you will get no cash from the advance credit because your AGI would have phased out your entire credit. But if you don’t file your 2019 return now, you receive $1,200. Fast-forward to your 2020 tax return--say your 2020 Form 1040 has AGI of $110,000. It’s over the threshold. No problem. Under the rules, you keep the $1,200. Charitable Contributions For tax year 2020 only, the CARES Act increases the limits on charitable contributions as follows:
If you are a non-itemizer, you may now deduct up to $300 of cash charitable contributions above the line. This above-the-line deduction is a permanent change starting with tax year 2020. Net Operating Losses The CARES Act temporarily suspends some of the Tax Cuts and Jobs Act (TCJA) limitations on net operating losses (NOLs):
These new, temporary changes allow you to fully utilize your NOLs and potentially amend prior-year tax returns to get refunds. 461(l) Limitation The TCJA created a new loss limitation rule (a ceiling) that limited your ability to use business losses. The CARES Act retroactively eliminates the Section 461(l) limitation rule for tax years 2018, 2019, and 2020 and moves the start to tax year 2021. Once again, this change allows you to possibly amend prior-year tax returns to get refunds now. Qualified Improvement Property Finally! Congress fixed the TCJA error. Qualified improvement property (QIP) is now 15-year property, and not 39-year property, for depreciation purposes. This means QIP is now eligible for bonus depreciation, where previously you could use only Section 179 expensing. This change is retroactive as if Congress originally included it in the TCJA, so you can amend prior-year returns to fully expense the property and potentially secure refunds. We are here to help you implement the benefits of this legislation. Don't hesitate to contact us at info@spenceraccounting.com.
The COVID-19 pandemic has upended all aspects of life around the world, including the world of business here in the U.S. If your business is struggling, you may be able to get some help from the federal Small Business Administration (SBA), which is authorized to provide loans to small businesses on an as-needed basis. There are two types of relief you can apply for—read on. Economic Injury Disaster Loans Traditionally, low-interest SBA Economic Injury Disaster Loans (EIDLs) have been available to small businesses following a disaster declaration; these are authorized by Section 7(a) of the Small Business Act. EIDLs are commonly granted on a local level following a natural disaster (such as a hurricane or a tornado). But right now they are authorized for small businesses in all U.S. states and territories due to the COVID-19 pandemic. Currently, each disaster loan provides up to $2 million to pay fixed debts, payroll, accounts payable, and other bills. The interest rate is fixed at 3.75 percent for small businesses and 2.75 percent for non-profits. EIDLs can be repaid over a period of up to 30 years. Additionally, due to COVID-19, the SBA is providing advances of up to $10,000 on EIDLs for businesses experiencing a temporary loss of revenue. Funds are available within three days after applying, and the loan advance does not have to be repaid. Small business owners can apply for an EIDL and advance here: https://covid19relief.sba.gov/#/. New Paycheck Protection Program The Paycheck Protection Program (PPP) is an expansion of the existing 7(a) loan program, authorized by the recently passed Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Who’s Eligible? Employees. According to the SBA, you are eligible if your business was in operation as of February 15, 2020, and you had employees for whom you paid salaries. (The CARES Act includes as eligible payroll your payments to 1099 independent contractors, but the SBA guidance says no—you can’t include the 1099 payments. And since this is an SBA loan, the SBA guidance likely rules for now.) No employees. You qualify the PPF loan even if the only worker is you. Thus, both the sole proprietor with no employees and the single-member LLC with no employees qualify. Small businesses that employ 500 or fewer employees are eligible for PPP relief. In this small business category, you find S and C corporations, sole proprietors, partnerships, certain non-profits, veterans’ organizations, and tribal businesses. How Much Aid Is Available? Small businesses can borrow 250 percent of their average monthly payroll expenses during the one-year period before the loan is taken, up to $10 million. For example, if your monthly payroll average is $10,000, you can borrow $25,000 ($10,000 x 250 percent). At $1 million, you can borrow $2.5 million. The law defines “payroll costs” very broadly as
What’s specifically not included in payroll costs:
How Much of the Loan Is Forgiven? Principal amounts used for payroll, mortgage interest, rent, and utility payments during an eight-week period (starting with the loan origination date) between February 15, 2020, and June 30, 2020, will be forgiven. If the full principal is forgiven, you are not liable for the interest accrued over that eight-week period—and, as an added bonus, the canceled amounts are not considered taxable income. Warning: Payroll Cuts Affect Loan Forgiveness Because the whole point of the PPP is to help keep workers employed at their current level of pay, the loan forgiveness amount decreases if you lay folks off or reduce their wages.
You are allowed to compare your average number of full-time equivalent employees employed during the covered period (February 15, 2020, to June 30, 2020) to the number employed during your choice of 1. February 15, 2019, to June 30, 2019, or 2. January 1, 2020, to February 29, 2020.
Example: Last quarter, Jim was earning $75,000 on an annual basis. You still have Jim on the payroll but have reduced his salary to $54,750 annually. Jim’s pay has decreased by 27 percent, so the amount of your PPP loan forgiven is reduced by the excess 2 percent. The good news: If you have already laid workers off or made pay cuts, it’s not too late to set things right. If you hire back laid-off workers by June 30, 2020, or rescind pay cuts by that date, you remain eligible for full loan forgiveness. When Are Payments Due? Any non-forgiven amounts are subject to the terms negotiated by you and the lender, but the maximum terms of the loan are capped at 10 years and 4 percent interest. Also, payments are deferred for at least six months and up to one year from the loan origination date. What If You Already Applied for an EIDL for Coronavirus-Related Reasons? No problem—if you took out an EIDL on or after January 30, 2020, you can refinance the EIDL into the PPP for loan forgiveness purposes, but you can’t double-dip and use the loans for the same purposes. Any remaining EIDL funds used for reasons other than the stated reasons above are a regular (albeit low-interest) loan that needs to be repaid. How to Apply for a PPP Unlike EIDLs, which run directly through the SBA, PPP loans go through approved third-party lenders. Talk to your bank or your local SBA office (given the current demands on the SBA, your bank may be a better place to start). There’s no fee to apply, and your burden for demonstrating need is low. In addition to the appropriate documentation regarding your finances, you need only make a good-faith showing that
If You’re Going to Apply, Do It Now The law allocates $349 billion for PPP relief—a huge amount, but one that will presumably be in very high demand given the devastating effects of the COVID-19 pandemic. There’s no guarantee that more funding will be forthcoming, so act now to claim your share if you are eligible. It may be a while before the processes to grant these loans are actually up and running, but get things rolling at your end ASAP. If you are in dire straits right now, you may additionally want to go ahead and apply for an EIDL loan and advance, as the machinery is already set up for those. I’m here to help you in any way you need in this process. Don’t hesitate to contact us. Be safe and take care.  If you or a well-off relative are facing the gift and estate tax, here’s a planning opportunity often overlooked: paying expenses for loved ones. Such payments, structured correctly, do not represent gifts. The monies spent by you on the qualified payments reduce your net worth and taxable estate, but they do no harm to your income, gift, or estate taxes. Further, the loved one who benefits from your help does not incur any tax issues. As unusual as this sounds, with the qualified payments, you operate in a tax-free zone. Even if you don’t have a gift tax problem today, use the tax-free method because, who knows, you could win the lottery tomorrow.
If you have questions about the qualified payment strategy, please contact us.  West Allis, WI – At the close of each tax filing season, the Internal Revenue Service (IRS) compiles a list of the most common errors taxpayers make when filing their tax returns. Believe it or not, incorrect mathematical calculations are not the number one error. The most frequent culprit for the past several years is submitting incorrect Social Security numbers on individual income tax returns. When an incorrect return is filed, the IRS first “rejects” it then sends a notice to the taxpayer requesting additional information. This can delay a refund by several weeks, or even months. In other instances, the IRS may issue a refund to you, but for a lesser amount than what you were expecting. This may occur when a claimed dependent has a missing or incorrect Social Security number, or when another taxpayer claims the same dependent. Another reason you may receive a reduced refund is if you are eligible to claim a tax credit for child and dependent care expenses but you do not include the Social Security number of your caregiver on your tax return. The IRS will issue your refund, less the amount of the credit. You will then have to file an amended return and wait several more weeks for the rest of your money. All this can be avoided if care is given when entering required information on your return. Other details to keep in mind when filing your taxes this year include:
Taking a few minutes to double check your tax return before you send it to the IRS, whether we mail it or electronically file, will increase the likeliness that IRS issues your refund in a timely manner. The IRS encourages taxpayers to e-file. By e-filing your tax return, many common errors may be avoided or corrected by the computer software.
Contacting Spencer Accounting Group is the easiest way to e-file. We are the experts who keeps current on tax law changes as well as a member of the WICPA and the AICPA. What does this mean for you? Coronavirus Aid, Relief, and Economic Security Act (CARES) Act is the $349 billion Paycheck Protection Program. S.3548 - CARES Act passed by the 116th Congress: This Act is loaded with goodies for some and not so goodies for others. Spencer Accounting Group is here to support you navigate this new normal. Here is something to consider as you donate during COVID-19. Charitable Contributions The bill enhances tax incentives for making charitable contributions for the 2020 tax year. First, it allows an above-the-line deduction of up to $300 for charitable contributions made by individuals. Retirement Plans The bill also waives the 10-percent penalty on early withdrawals up to $100,000 from qualified retirement plans for coronavirus-related distributions. For purposes of the penalty waiver, a coronavirus-related distribution is one made during the 2020 calendar year, to an individual (or the spouse of an individual) diagnosed with COVID-19 with a CDC-approved test, or to an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the virus. Any income attributable to an early withdrawal is subject to tax over a three-year period, and taxpayers may recontribute the withdrawn amounts to a qualified retirement plan without regard to annual caps on contributions if made within three years. Recovery Rebates The most well-publicized provision is the $1,200 recovery rebates for individual taxpayers. The rebate amounts are advance refunds of credits against 2020 taxes, and equal to $1,200 for individuals, or $2,400 for joint filers, with a $500 credit for each child. The amount of each rebate is phased out by $5 for every $100 in excess of a threshold amount. This threshold amount is based upon 2018 adjusted gross income (unless a 2019 return has already been filed), and the phaseout begins at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. Thus, the rebates are completely phased out for single filers with 2018 (or 2019, if applicable) adjusted gross income over $99,000, heads of household with $136,500, and joint filers with $198,000. In order to be eligible for a recovery rebate, the individual must not be: (1) a nonresident alien, (2) able to be claimed as a dependent on another taxpayer's return, (3) an estate or trust, and (4) must have included a Social Security number for both the taxpayer, the taxpayer's spouse, and eligible children (or an adoption taxpayer identification number, where appropriate). The bill includes additional rules for the application of the credit. The Secretary of the Treasury is directed to provide the rebate as rapidly as possible. Whether you have tax or financial planning questions or need advice on ways to navigate business challenges, we’re here for you. If you have any questions or concerns, please don’t hesitate to contact us here.
During this unpredictable and challenging time, it’s more important than ever to stay connected. We’re in this together.  Here is what you will need:
This list is a continuation of our article of a Healthy Work Environment.  Student loan interest has been waived according to the Press Conference at the White House with the President. However, when I go to Navient website here is their statement:
As we find out more we will ensure we are updating you. If you have any questions contact us.
Treasury and IRS have extended the April 15, 2020 filing deadline by 90 days to July 15, 2020.
We’re waiting on IRS to release details and the specific guidance, and we will share that as soon as we see it, too. This is great news for practitioners, and it’s a great tribute to the combined advocacy work of the WICPA, state CPA societies, AICPA and all our members!  With COVID-19 internet use has increased tremendously, since more people are staying at home there is an increase in video chats, online streaming and other online communications.
Here are some tips to stay mindful of when working from home:
With COVID-19 we are required to practice active social distancing however we don't want to socially disconnect. Actively scheduling client meeting and attending trainings and conference calls virtually will reduce the change of social disconnection. Creating Morning routines, Keeping regular office hours and client meetings will help protect or create boundaries between work and home life. Virtual socialization with colleagues, and attending trainings and conferences virtually of course will help avoid the creative staleness. Positions that can easily convert to work at home:
 The US Department of Treasury delays payments of the April 15th tax deadline to 90 days. This is a penalty free delay to pay not to file. You are still required to file timely returns.
At this time April 15th filing deadline remains in effect. You still have the option to file an six month extension of time to file, this will give you to October 15, 2020 to file your return. The extension of time to pay gives individuals and Corporations an additional 90 days to send in their payments. Currently the guidance on this rule has not been written, once a written guidance is issued we will share any additional information with you. Individuals and Corporations with due dates of April 15, this extension applies to you. Individuals can defer up to $1 million in taxes due. Corporations can defer up to $10 million in taxes due. There is even an opportunity to delay your estimated quarterly tax payments. Spencer Accounting Group, is focused on your safety and well being. We are for the foreseeable future 100% virtual, this will assist in adherence of social distancing and protect our families, our teams and all our clients. If you have any concerns please contact us. Governor Tony Evers has changed the State ban from 50 or less to 10 or less people. The State of Wisconsin has banned all gathering of 10 or less. In just a day the amount of people infected with this virus has increased including the death toll. We need to all ensure extreme caution with proceeding with daily activities.
We have seen Actors, Professional Athletes, and Everyday People are being affected with COVID-19, protect your families by protecting yourself.  You are not alone if your business is without a retirement plan, however that doesn't mean it is a good idea. You are paying more taxes then you need to be. Owner's of profitable business operations have the potential to a really large annual deduction---Sweet! With the proper retirement plan, you can exceed the traditional elective deferral contribution limit of $19,500 (indexed).
Under the right circumstances, we can help you create a great retirement plan. If you would like to discuss this with me, please call me at 262-358-8297.  In December 2017, Congress enacted the Tax Cuts and Jobs Act (TCJA) and changed how your children calculate their tax on their investment-type income. The TCJA changes led to much higher tax bills for many children. On December 19, 2019, Congress passed a bill that the president signed into law on December 20, 2019 (Pub. L. 116-94). The new law repeals the kiddie tax changes from the TCJA and takes you back to the old kiddie tax rules, even retroactively if you so desire Kiddie Tax BasicsWhen your children are subject to the kiddie tax, it forces them to pay taxes at a higher rate than the rate they would usually pay. Here’s the key: the kiddie tax does not apply to all of a child’s income, only to his or her “unearned” income, which means income from:
For 2019, your child pays the kiddie tax only on unearned income above $2,100. If you need help strategizing around kiddie tax, like who pays it, and the many choices you may have now under Secure Act. Contact us, we are subject matter experts and will walk you through this.
 Congress passed some meaningful tax legislation as it recessed for the holidays. In one of the new meaningful laws, enacted on December 20, you will find the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). The SECURE Act made many changes to how you save money for your retirement, how you use your money in retirement, and how you can better use your Section 529 plans. Whether you are age 35 or age 75, these changes affect you. Here are eight of the changes.
Most of these apply to any event that occurred after December 31, 2018. This strategies allow you to start thinking about your future while optimizing your tax options. If this sounds like something you will benefit from, contact us at 262-358-8297.
 It is important to understand that tax planning will save you money, you don't have to commit a crime by trying your luck with Tax Evasion! January 14, 2016 a South Dakota woman age 33 was convicted of Making and Subscribing a False Tax Return. She was sentenced to 5 years of probation, and ordered to pay a $100 special assessment to the Federal Crime Victims Fund and $14,792 in restitution to the Internal Revenue Service. She charged on September 17, 2015, and pleaded guilty on October 2, 2015. The conviction stems from her falsely subscribing to her 2013 tax return by underreporting her income tax liability. This is known as tax evasion and it is a crime. It is illegal to attempt to lower your tax liability by being deceitful and concealing your income or over reporting expenses. It is imperative that you inform your tax provider of all income received, even if you have not formed a legally entity and have earned income outside of your W-2 employment. i.e if you decided to embezzle money from your company that money is taxable. You will need to include that as income on your tax return. To legally reduce or eliminate your tax liability requires effective tax planning and evaluation. I will assist you with lowering your tax bill by structuring your transactions so that you reap the largest tax benefits.  Giving to your church, school, or other 501(c)(3) charity is a noble act no matter how you choose to give.
But for the purposes of tax savings, some forms of giving are much more beneficial to you than are others. As a business owner, you can use some business strategies to get the money to these institutions as business expenses. While this does not change anything from the institution’s perspective, it hugely increases your tax savings. The Tax Cuts and Jobs Act (TCJA) makes it harder to benefit from your personal donations. Let’s say you donate $10,000 to a church, school, or other 501(c)(3) charity: 1. Will you get a tax deduction—in other words, will you itemize? 2. Will you benefit from the entire $10,000 as an itemized deduction? In other words, did the $10,000 simply put you over the hump that beat the standard deduction? 3. Say you can deduct all $10,000 as an itemized deduction. Would making it a business deduction increase the tax benefit value to you?  The simple maneuver of converting your personal residence to a rental property brings with it many tax rules, mostly good when you know how they work. The first question that arises when you convert a personal residence into a rental is how to determine the property’s tax basis for depreciation purposes during the rental period and for gain/loss purposes when you eventually sell. Weirdly enough, two different basis rules apply:
Once you’ve converted a former personal residence into a rental, you must follow the tax rules for landlords. Here is a quick summary of the most important things to know:
If your rental property throws off a tax loss, things can get complicated. The so-called passive activity loss (PAL) rules will usually apply. In general, the PAL rules allow you to deduct passive losses only to the extent you have passive income from other sources, such as positive income from other rental properties or gains from selling them.
Eventually your rental property should start throwing off positive taxable income instead of losses because escalating rents will surpass your deductible expenses. Of course, you must pay income taxes on those profits. But if you piled up suspended passive losses in earlier years, you now get to use them to offset your passive profits. Another nice thing: positive taxable income from rental real estate is not hit with the dreaded self-employment (SE) tax, which applies to most other unincorporated profit-making ventures. The SE tax rate can be up to 15.3 percent, so it’s a wonderful thing when you don’t have to pay it. One other good thing is that your net rental profits may qualify for the Section 199A deduction. When you sell a rental property that you’ve owned for more than one year, the profit (the difference between the net sales proceeds and the tax basis of the property after subtracting depreciation deductions during the rental period) is generally treated as a long-term capital gain. Always keep in mind the good news here. You don’t pay the taxes on the property appreciation until you sell. Remember those suspended passive losses we mentioned above? The suspended losses are ordinary losses. When you sell a rental, you can find two great benefits:
And always keep this in mind: rental real estate owners can avoid taxes indefinitely using Section 1031 exchanges (named after the applicable section of our beloved Internal Revenue Code). The tax code totally mislabeled the 1031 exchange. It’s absolutely not an exchange or a swap. It works like this:
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Important Disclosures
Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances. AuthorKeana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients. 
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