This information is current as of 5/26.

 

Friday evening the SBA released a new Interim Final Rule regarding the Paycheck Protection Program (PPP). There still remains a lot to be clarified, but among other things it did clarify that bonuses paid to employees count towards forgiveness compensation calculations as long as it meets other stipulations required for full forgiveness (i.e. < $100K in annualized pay, etc).

We are getting lots of questions about forgiveness as many businesses approach the end of their 8 week forgiveness period. You should really proactively plan during your 8 week period.

After you’ve reached the end of your 8 week period, if you are confident you will receive full forgiveness then you may want to consider proceeding to submit your forgiveness application. If not, you may want to wait and see if any potential legislative changes could favorable impact your situation (such as extending 8 weeks to a longer period). In general, there is no need to rush to submit your forgiveness application.

Bankers will clearly prioritize forgiveness applications that are clean and well organized. This is one area that you don’t want to skimp on professional services.

Mitigating Risks of PPP Loans

This information is current as of 5/13/20.  If you have questions or are considering taking action, you should speak with a CPA or attorney to discuss your specific situation.

 

The Payroll Protection Program (“PPP”) was written, launched and implemented as a swift response to the economic hardships of COVID-19 on small businesses. It was clear from the initial launch that details of the program would be forth coming. However, these details have been sporadic and vague at best, leaving many to wonder and speculate on both loan forgiveness and possible future PPP audits.

On April 28, 2020 U.S. Treasury Secretary Steven T. Mnuchin, along with the SBA, announced they would be reviewing all PPP loans in excess of $2M and other loans as appropriate. They also indicated large companies that have liquidity and access to capital should reevaluate their needs for a PPP loan and return the money by May 14th, 2020 as part of a “safe harbor”.

 

Our recommendation:

Business owners should conduct an internal assessment of their current and short-term operations and finances in light of the economic hardships imposed by COVID-19. This can be as informal as an internal email or as formal as a board presentation or written memo. However, the documentation should be stored should the SBA or regulatory bodies audit the business’ need for a PPP loan at a future date.

The government is continuing to update and release new information concerning PPP loans. Until they provide additional guidance, borrowers should seek advice from their legal counsel.  Borrowers have to determine their own factors to include as part of their internal assessment on whether to accept (or keep) PPP funds or return them by May 14th, 2020. We recommend business owners include the following questions as part of their internal PPP assessment:

  • Has the company had to close or alter operations due to COVID-19? Has this impacted revenue?
  • If the company had to close, what is the re-opening plan? Is demand for goods/services expected to be lower after the company re-opens?
  • Has there been a reduction of customer orders or customers reducing the amount of their orders? Have customers cancelled or postponed their orders?
  • Are customers inquiring to change their payment terms or push out their bill due dates?
  • Was there an increase in March and April as customers increased their inventory, but a drop is expected in the coming weeks?
  • Has the company conducted layoffs, furloughs, or salary decreases?
  • Has the company suffered a loss in productivity due to employees being required to work remotely and/or care for children who are unable to attend school or day care?
  • Is the company taking steps to preserve working capital? Such as a hiring freeze, delaying large purchases or office improvements, or otherwise reducing costs?
  • Has the company sought advice from external or internal counsel?
  • Has the company attempted a financial projection of the next few months? What did they use to create this projection?
  • Are there any delays or expected delays with the company’s supply chain? Have materials suppliers cancelled or delayed orders to the company?
  • Does the company have access to credit or liquidity from banks, equity owners, or other third parties? If so, what are their terms and how would a loan from them impact the business?
  • How likely is a default on existing credit lines? For example, is the company having a hard time paying its bills on time?
  • Are there reasons the company may want to avoid government scrutiny?
  • Could the company tolerate negative publicity?
  • Are the company’s competitors also facing declining revenues or other similar challenges as your company?

 

At minimum, Adam Shay CPA, PLLC recommends the following:

  1. Be prepared that with any government funded program, there are certain rules you must abide by and documentation that will need to be produced.
  2. Put internal controls in place (internal assessment) to be able to support your position on why your company needed a PPP loan and the use of its funds.
  3. Consider the other benefits of the CARES Act your company can take besides PPP – such as the employee retention tax credits and tax deferrals.
  4. There is no requirement that the entire PPP loan is forgiven.  If all or a portion of it is not forgiven, the rest is a loan at a 1% interest rate over a 2 year term. Or your business could repay a portion of the loan early.
  5. Provide regular updates to the company’s managers on the use of PPP funds and the impact PPP has had on the company.
  6. Review PPP guidelines as they continue to emerge and if guidelines are unclear, take a conservative approach.
  7. Seek outside counsel should the SBA or regulatory agency inquiry regarding your PPP loan.

Paycheck Protection Program Loan Forgiveness

If you receive funds from the Paycheck Protection Program (“PPP”)  we want to ensure that you are able to receive the maximum amount of loan  forgiveness.  You should not make expenditures you would not otherwise incur just so that you receive full forgiveness of the loan.  We would like to offer you the following recommendations to account  for the loan proceeds:

 

  • All funds should be deposited into separate bank accounts. These funds need to be kept separate from any operating revenue bank account. You need to be able to account for all funds and how they were used separately.
  • Establish a separate Class in your General Ledger Software to track PPP related expenses.
  • Create a PPP file to organize and retain invoices and proof of payments for all PPP related disbursements.
  • Guidelines for Forgiveness:

– You can use for payroll costs (including health insurance and retirement benefits), rent and utilities.

– You cannot use more than 25% of the forgiveness amount for rent and utilities. The lease and services agreements have to be dated before February 15, 2020.

– Payroll annualized above $100,000 will not count towards forgiveness.

– You can use to pay the interest on your mortgage but not for principal payments.

There are two restrictions that also impact forgiveness:

Headcount – you cannot reduce headcount (based on Full Time Equivalents “FTE”).   If you’ve had a decrease in headcount in 2019 or 2020, please discuss with us.

Compensation – compensation levels cannot be reduced by more than 25% for any one employee (unless they make over $100,000). If employees have been furloughed or laid-off, then you may hire them back and make up salary that was missed to ensure full forgiveness. The time period used for comparison is the most recent full quarter that the employee was employed.

 

Example Forgiveness Calculation:

X Co. borrowed $100,000 in PPP proceeds on April 10, 2020. Over the next 8 weeks, X Co. spent $50,000 on payroll costs and $40,000 on rent and utilities. X Co.’s loan forgiveness is limited to $66,667: $50,000 of payroll costs and $16,667 of rent and utilities. Your non-payroll expenses cannot exceed 25% of the forgiveness amount.

 

*As of April 15, 2020 the SBA has indicated that further guidance on the details of the forgiveness will be released in the future.

Please reach out to us with any questions regarding your PPP funds.

COVID-19 Disaster Assistance Programs

This information is current as of 4/21/2020.

 

  1. Economic Injury Disaster Loan (Includes up to $10,000 Emergency Grant)

SBA Economic Injury Disaster Loan (EIDL)

The U.S. Small Business Administration (SBA) is providing low-interest rate federal disaster loans for small businesses and non-profits who have been affected by COVID-19. Currently, small businesses can borrow up to $2M in assistance and the interest rates are 3.75% for small business and 2.75% for non-profits. These loans have long-term repayment options, the maximum being a 30-year term.  Funds have currently been all used up, but they are expected to be replenished.

These loans can be used for the following:

  • Pay fixed debts
  • Payroll
  • Accounts payable
  • Rent
  • Working capital
  • Other bills that can’t be paid because of the impact of COVID-19

Per the SBA’s website, for questions please contact SBA disaster assistance customer service center at 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail [email protected]. To apply for a COVID-19 Economic Injury Disaster Loan click: https://covid19relief.sba.gov/#/

 

Emergency Grant (EIDL $10,000 Grant)

The EIDL Grant is calculated as $1,000 per employee up to a $10,000 maximum. It can be combined with the PPP Loans, but the $10,000 grant offsets the PPP forgiveness.

 

  1. Paycheck Protection Program (PPP)

Part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act created the Paycheck Protection Program which provides 100% federally guaranteed forgivable loans to small businesses and 501(c)(3) non-profits with fewer than 500 employees. Loan amounts are up to $10M per business. It’s important to know that these loans can be forgiven if the borrowing business either maintains their payroll or restores it after the crisis. As of 4/21/2020, the original $349 billion allocated to the PPP Loans has been depleted, but there is pending legislation proposing an additional $300 billion to replenish the PPP Loans.  We can connect you with banks that are still accepting applications.

How much can I borrow?

SBA loans that are part of the PPP can be up to 2.5 times your average monthly payroll costs, but cannot exceed $10 million.

 

Payment Protection Program Bill funds may be used for:

  • Payroll costs;
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • Employee salaries, commissions, or similar compensations;
  • Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);
  • Rent (including rent under a lease agreement);
  • Utilities; and
  • Interest on any other debt obligations that were incurred before the covered period.

 

  1. Employee Retention Tax Credit (ERTC)

The Employee Retention Tax Credit is available to businesses who have been forced to closed due to a government issued stay-at-home order or have had a 50% reduction in revenues and are unsure if they will rehire all employees. The ERTC may not be combined with PPP or EIDL Grant.

How much is the tax credit?

50% of wages in quarter with a maximum of $10,000 per employee during the period of 3/12/2020 – 12/31/2020. The ERTC stops once the business may reopen or revenues are 80% of the same quarter of the prior year.

 

  1. Delay of Employer Payroll Taxes

Generally, most any business is able to qualify for a delay of Employer Payroll Taxes. The delay of Employer Payroll Taxes is essentially a 0% loan with a 2 year term limit. 50% of the loan will need to be paid back by the end of 2021 and 50% will need to be paid back by the end of 2022. The delay of Employer Payroll Taxes can be combined with the PPP loan, but the tax deferral portion won’t be forgiven. It can also be combined with the EIDL.

How much is the loan?

It is about 6.2% of employee wages from 2/15/2020 – 12/31/2020. For example: An employer paying $100,000 in wages receives a $6,200 0% loan payable over a 2 year period to end no later than 12/31/2022.

Is the IRS Shutdown?

The American Society of Tax Problem Solvers solicited the below information directly from the IRS and the short answer is no, they are not closed. Generally, the IRS is not conducting any in-person meetings, however the Taxpayer Advocate Office and the Automated Collections System are still working. Although certain divisions are closed, the IRS remains open and is performing its duties. Regular processing times may be slower than normal as more of their employees are working remotely and are unable to conduct person-to-person business. Field examinations are suspended, although the examination may continue to take place remotely if possible.

 

Do I need to be worried about the IRS placing a lien or levy on my property?

As part of the IRS’ People First Initiative, they have stated they will not issue any new notices of federal tax lien or levies, except in extreme circumstances. An extreme circumstance would be if the statute of limitations was about to expire or the taxpayer is putting assets beyond the reach of the Government.

However, interest and penalties continue to accrue on any outstanding tax liability.

 

How do I stop a collection activity when I have lost most of my income?

We at Adam Shay CPA, PLLC have experience communicating with Revenue Officers at the IRS and can help draft correspondence on your behalf to them depending on your particular circumstance. The IRS has stated that they are considering the release of existing levies on a case by case basis, under their existing guidance. Please Note: If your employer is deducting levies from your wages, your employer has a legal obligation to continue to deduct levies until they receive a release of levy document from the IRS.

 

Installment Agreements:

IRS Commissioner Rettig stated that installment agreement payments due between 4/1/2020 through 7/15/2020 are suspended under the IRS’s People First Initiative. If you are currently making monthly installment agreement payments or direct debits from your bank, it is important you contact your bank immediately to suspend those payments. Please note that you will need to inform your bank 2 weeks prior to 7/15/2020 to begin making your direct debit payments again to avoid default once the suspension period has ended.

Back Taxes and Coronavirus Stimulus Checks

On March 27, 2020 President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act contains various provisions for small businesses, unemployment, and individual $1,200 stimulus payments from the federal government. Married couples can receive up to $2,400 and for each dependent child, taxpayers will receive an additional $500.

 

Calculate how much you’ll get from the $1,200 (or more) coronavirus checks:

https://www.washingtonpost.com/graphics/business/coronavirus-stimulus-check-calculator/

 

Who is eligible for the stimulus payments?

Taxpayers who have an adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing jointly will receive the full stimulus payment. For taxpayers with income above those amounts, the stimulus payment is reduced by $5 for each $100 above the $75,000/$150,000 limit. Individual taxpayers with income exceeding $99,000 and married filing jointly taxpayers with income exceeding $198,000 with no children will not receive any portion of the stimulus payment.

 

How does the government know what my income is?

The Internal Revenue Service (IRS) will start by looking at your adjusted gross income stated on your 2019 tax return if it has been filed. If you haven’t filed your 2019 taxes (this is okay since the deadline to file has been extended to July 15th due to coronavirus), the IRS will look next at your 2018 tax return and compute your stimulus payment from the income reported in 2018.

 

I haven’t filed my 2018 or 2019 taxes. How can I still receive the stimulus payment?

You will need to start by filing your 2018 and 2019 tax returns. The deadline to file your 2019 tax return has been extended to July 15th. However, if you have not filed your 2018 or 2019 income tax return and want to receive the stimulus in 2020 and not 2021, you need to file a 2018 and/or 2019 income tax return ASAP.

 

What if I haven’t filed my taxes in 3, 5, or 10 years (or ever!)?

You’re not alone! At Adam Shay CPA, PLLC we have an entire department dedicated to performing tax controversy work helping individuals like you that have not filed their tax returns in many years. If this is your situation, please contact us as penalties and interest continue to accrue the longer you wait to file your returns.

 

I will need to file one or more tax returns. How long are the stimulus payments available?

The stimulus payments will be available to taxpayers throughout the end of 2020. However, we encourage you to contact us today if you need one or more tax returns filed. Especially if it’s been several years since you’ve last filed a tax return as it will take some time to gather up your documents needed. We’re experienced professionals and are here to help! Email us at [email protected] today to get started!

Business Interruption Insurance and Covid-19 / Coronavirus

Adam Shay CPA, LLC is committed to assisting businesses and individuals proactively respond to the global economic crisis seeded by Covid-19. This article examines the current opportunities for business owners to claim relief from existing insurance policies that cover business interruption and the current debate between insurers and federal, state and local governments.

What is Business Interruption Insurance?

Business Interruption Insurance, also known as business income coverage, helps replace lost income and pay for expenses when a business suffers an impact by a covered loss. The most common covered losses include fire, wind, water pipe breaks, and lightning.

Typically, losses resulting from communicable diseases such as COVID -19 are not covered in the context of a physical loss. For instance, many policies have Limited Fungi, Bacteria or Virus Coverage. This particular policy endorsement can limit or exclude losses caused by COVID-19.

However, some business interruption insurance can include coverage when a business’s operations are prohibited due to an Order of Civil Authority. In North Carolina, there have been statewide Executive Orders restricting business operations which may trigger the “Civil Authority” clauses.

Additionally, certain elective coverage may exist and legislative efforts could retroactively amend coverage terms to include certain losses related to COVID -19.

How can I use Business Interruption Insurance during COVID-19?

As we all know, several businesses were either mandated to close by federal, state, and local orders or forced to drastically change their businesses operations (i.e. restaurants switching to take-out only). There’s also businesses that have seen significant reduction in sales due to the Center for Disease Control’s recommendation to social distance and stay home. The lost revenue resulting from a government order requiring your business to close and possibly the additional costs incurred by performing deep cleanings more frequently, may be currently covered through your business interruption insurance or may become covered through a Federal or State mandate.

 

DETERMINE YOUR COVERAGE

Review you insurance policy’s Declaration page to identify if coverage exists. Document if your business closure was involuntary such as compliance with state, county, and/or city orders. You also will want to identify limiting endorsements to your policy such as Fungi, Bacteria or Virus Coverage. Review your policy for possible riders and sub-limits. Certain industries such as healthcare, hospitality, and travel may have special coverage for diseases such as COVID-19.

Identify your policy’s claim reporting deadline. Some policies have a reporting deadline of 60, 90 or 180 days. If you’re still unsure after reading your policy, start with a call to your insurance company. Consider sending a confirmation email to the insurance agent to memorialize your communication.

 

LEGISLATION

Both Federal and State legislation can be difficult to understand under normal circumstances. Add in a global pandemic with rapidly changing legislation being passed, and it can be confusing to understand what kind of relief programs for small businesses exists. Adam Shay CPA, PLLC has been closely monitoring the legislative situation and has been staying abreast of emerging federal and local bills, specifically looking for how they impact small businesses.

There are federal bills contemplating relief from coronavirus-related losses. Recently, members of the US House of Representatives issued a letter urging four of the main insurance organizations to cover business interruptions claims that emerge as a result of COVID-19. Those four organizations are listed below:
1. The American Property and Casualty Insurance Association
2. The National Association of Mutual Insurance Companies
3. The Independent Insurance Agents & Brokers of America
4. The Council of Insurance Agents & Brokers

However, the CEOs of the organizations responded to the request of members of Congress by stating, “Standard commercial insurance policies offer coverage and protection against a wide range of risks and threats that are vetted and approved by state regulators. Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.”

It is not yet apparent if Congress will be satisfied with the insurance companies response; however some states appear to be working on legislation that could retroactively mandate converage for certain losses.

 

DOCUMENTATION

The number one thing business owners can do to boost the likelyhood of their claims being paid is to properly document their claim and losses. Obtain copies of company accounting records and documents related to the business interruption, including:

• Production records for the base period, the period during the loss, and the period after the loss.
• Sales records for the base period, the period during the loss, and the period after the loss.
• Inventory records for the base period, the period during the loss, and the period after the loss.
• Tax returns.
• Sales tax returns.
• Financial statements.
• Other statistical or internal records.
• Bank statements.
• Payroll records for the base period, the period during the loss, and the period after the loss.

 

Maintain thorough records of costs incurred to avert or reduce the loss. Document expenses that are necessarily incurred to reduce the loss and continue the business, but generally at a higher cost, such as:

• Premium portion of overtime (that is, the additional cost incurred for overtime worked to make up for lost production).
• Price premiums and extra shipping charges to expedite delivery of replacement machinery.
• Extra shipping charges for inventory (such as the difference between air freight and land freight to meet contract deadlines).
• Difference between the cost of buying the end product from a competitor and the insured’s normal variable cost to manufacture.
Document your Extra expenses. The expenses needed to continue business operation so that the business will not lose customers during a shutdown, such as:
• Relocation costs.
• Overtime pay.
• Added freight charges for quicker delivery of emergency supplies.
• Advertising costs in notifying customers of the relocation.

 

The documentation needed for business interruption claims may seem overwhelming. Seek assistance early in the process. At Adam Shay CPA, PLLC we have experience with helping our clients submit various insurance claims and are able to help gather and analyze the relevant documents to support your claim.

Interested in filing a business interruption claim? Contact Adam Shay CPA, PLLC to help file your claim.

If your business has suffered from a mandatory closure by federal, state or local authority, we would like to assist you in reviewing you policy terms for possible coverage so that you meet any reporting requirements under the contract. We will continue to monitor legislative actions and offer updates if changes are enacted.

Coronavirus, Taxes, and NC Unemployment

The world has been turned upside down in the past few weeks.  It’s really had an impact on businesses, employees, and personal finances.  Our goal during this time is to keep people up-to-date with the most recent information.  The place we are doing that most frequently on an ongoing basis is our Adam Shay CPA Facebook page.  This information is current as of March 20, 2020.

 

Income Tax Related

The personal and C corporation income tax filing deadlines are now 7/15/2020.  The IRS has also announced that they will allow the delay of payments originally due on 4/15/2020 to 7/15/2020.  Those payments include personal 2019 income tax balance due up to $1MM and C corporation income tax balance due up to $10MM.  In additional, Q1 2019 federal estimated income tax payments can be delayed until 7/15/2020.  Note that Q2 2019 federal estimated income tax payments are still due on 6/15/2020.

 

Unemployment

On March 17th, 2020 North Carolina implemented the following unemployment claim changes:

  • There is no longer a waiting period to apply for benefits.
  • There is no longer a requirement to be actively looking for a job to receive benefits. This could help in two ways:
    • Few businesses are interviewing or hiring right now.
    • A person could potentially be available for their employer when things return to normal.
  • Reduced hours can potentially result in eligibility for unemployment.
  • If employee termination is related to the Coronavirus then the employer’s unemployment account is not charged.

 

Sick Leave Requirements

A federal law was passed on March 18th, 2020 that requires employers with fewer than 500 employees to provide sick leave related to the Coronavirus.  In a nutshell, employers with less than 500 employees must provide paid sick leave related to the Coronavirus in the following manner:

    • 2 weeks paid sick leave to be diagnosed or quarantined.
    • 2 weeks paid leave to care for an ill family member.
    • 12 weeks 2/3 pay paid leave if an employee is caring for a child whose school is closed. The first two weeks can be unpaid.

The sick leave pay is capped at $511 per day and paid family or childcare leave is capped at $200 per day.  There is a potential exemption for employers with less than 50 employees if it would jeopardize the viability of the business.  It remains to be seen on how that exemption will be implemented. If you are an employer and have an employee that meets one of these conditions you should talk with an employment attorney about your specific situation.

From a tax perspective, there are a couple of relevant items.  There are quarterly payroll tax credits for the employers to help with having to offset the paid sick leave.  Self-employed individuals can apply for these sick leave benefits in the form of a credit to offset their self-employment income.

 

SBA Disaster Loans

All North Carolina counties have been declared a federal disaster area for the Coronavirus.  That means a NC business could be eligible for SBA Economic Injury Disaster Loans to help with working capital needs until normal operations resume.

 

Business Interruption Insurance

You should check your insurance policy or with your insurance provider to see if you may have a business interruption insurance policy that can provide some relief.

 

Things to Potentially Come

The federal government is working on additional economic stimulus that could be disbursed to families. There is the potential that NC may open up unemployment to self-employed individuals.  More details will be shared as they become available.

 

Timing

We realize that everyone wants immediate relief. While the government has moved relatively quickly on passing legislation, implementation and clearer frameworks will take time to put into place. There are a lot of moving parts with various pieces of legislation.

 

Summary

Our goal today was to provide updates for business and personal finances as it pertains to the Coronavirus crisis.  This is a very fluid and dynamic situation that is still being implemented and interpreted.  You need to talk with someone about your specific situation and current interpretations before taking action.  If you have any questions, feel free to reach out to us.

2020 Nourish NC Tax Season Food Drive

Did you know that 1 in 4 children struggle with hunger in New Hanover County? And, did you know that over 16,000 people in New Hanover County live in food deserts? Nourish NC’s research has found that food insecure children are more likely to:

  • Experience chronic illness & weakened immune systems. They are sick more often, are slower to recover from illness, and are hospitalized more often.
  • Have impaired concentration, poor academic performance and increased grade repetition.
  • Have higher school absences and late arrivals.
  • Have lower math and reading scores.
  • Have higher levels of behavioral & emotional issues.

Adam Shay CPA, PLLC wants to help combat hunger by teaming up with Nourish NC to feed hungry children in our area. We will host a food drive during our 2018 tax season, which runs from January 1, 2020 through April 30, 2020.

In the busy world we live in, it is so easy to forget how lucky we truly are to be able to run out for lunch or grab dinner with a loved one. We also take for granted the social aspect that comes with sitting down to eat with someone. We don’t even think twice about doing this, while others right here in our community may not know when or where their next meal will come from.

There are specific items that Nourish NC needs any given week. Please do not donate expired or junk food—Nourish NC will not provide expired or junk food to their kids. The most wanted list for Nourish NC can be found here: Most Wanted List.

If you are interested in donating, please bring your food items to our office! You can also learn more about Nourish NC by visiting their website, Nourish NC , or by contacting Caroline Montgomery, [email protected] . We look forward to seeing you and teaming up with you to help end hunger in New Hanover County!

On December 21, 2019 President Trump signed into law a spending bill that included good news for taxpayers in Southeastern NC. The spending bill included retroactive major disaster related tax relief that we know will put more money back into taxpayers’ pockets. The legislation also included some retroactive implementations of previous expired tax deductions and credits as well as changes to retirement plans. With retroactive tax changes on income tax years already filed, amended returns will be required.

We are going to walk through some of the changes, starting with those we think will have the biggest dollar impact on our client base. This is an early analysis and as the dust settles some of the specific details may change, but the legislation looks favorable for taxpayers.

There are several Disaster Tax Relief retroactive changes passed that will lead to large refunds, especially for business owners.

Business Owners – Disaster Relief
This one is HUGE. There is a credit for employers for retaining employees in an area impacted by major federal disasters, such as Hurricane Florence in 2018 or even Hurricane Dorian in 2019. We expect that this will bring significant refunds for businesses with employees.

Here is how the credit generally works: it is a credit of 40% of wages from the first day inoperable to the date at which the trade or business resumed significant operations. The wages for the credit are capped at $6,000 per employee. This credit will be significant for many companies with employees.

Individuals – Disaster Relief
There are also some retroactive individual changes that will result in found money. They have made it easier to deduct casualty theft and losses from 2018 and 2019 federally declared major disasters. Since they’ve made it easier, taxpayers will typically receive more money back than they would have without this change. This is one of the big ones that taxpayers were waiting on prior to filing their 2018 income tax returns.

Tax Extenders
There were several retroactive tax changes which are known as tax extenders. These portions of the tax code are typically extended at the last minute, hence the name. However, they were not extended for 2018 but now have been done so retroactively beginning with 2018. Here is a list of them:

  • Ability to exclude from income the forgiveness of debt related to primary residence.
  • Mortgage Interest Insurance is deductible again (assuming that you itemize deductions).
  • Qualified tuition deduction is allowed in lieu of education tax credits.
  • Several credits related to energy efficiency, renewable energy, and alternative fuel (think electric cars).

Retirement Plan Rule Changes
There are some changes to retirement plan rules for 2020 and beyond that taxpayers need to be aware of:

  • Starting for individuals who turn 70 ½ in 2020 or later, the mandatory Required Minimum Distributions (RMD) age will be 72 years old. This is the age when you are required to start taking money out of retirement accounts unless you want to be penalized for not doing so.
  • Inherited retirement plans will no longer have as much flexibility on how long you have to withdraw funds (unless a surviving spouse). It will now generally be limited to 10 years.
  • The age cap on contributions to IRAs for someone over 70 ½ has been removed (assuming they are still working).
  • You will able to withdraw penalty free up to $5,000 within a year of the birth or adoption of a child.

Our goal today was to highlight to you the retroactive federal income tax benefits from disaster relief and tax extenders.  With the amount of retroactive changes and the size of the impacts, we expect there will be a lot of 2018 amendments filed in 2020.