Category Archives: Individual Tax Issues

IRS Backlog – UPDATE

Everyone knows COVID-19 pandemic has affected all of us.  The IRS is no exception.

There can be communication issues when dealing with mixed media: manual, paper letters along with electronic systems on a good day.  When you add the slowed USPS system to the mix, it is only making the IRS processing system more strained.  Currently, there are computer-generated notices going out from the IRS that do not properly reflect the taxpayers’ account status because of this delay.  The IRS is stating online that they are experiencing high call volumes and have issued an “E-News for Tax Professionals Issue 2020-33“.  There are many people who are simply calling to follow up on manual payments that were sent in weeks ago.

If you are frustrated with the IRS, know you are not alone.  The issue is acknowledged and they are trying to resolve the backlog by bringing in additional help. The Journal of Accountancy published an article on this same topic as well.

As of August 21, the IRS has temporarily suspended the mailing of all notices to taxpayers with balances due. The latest article shared by the IRS explains more about the steps the System is taking to eliminate confusion and keep the process moving as smoothly as possible.

Please contact our office if we can answer any of your questions.

Key Highlights of the CARES Act and the FFCRA Relief Provisions

We have compiled the following useful and concise information for your reference as you consider the various planning opportunities available to address the impact of the COVID-19 situation on nonprofit organizations.  After studying the recently enacted law and interacting with other professionals, by parsing through the voluminous CARES Act, Families First Coronavirus Response Act (“FFCRA”) and relevant peripheral materials, the following includes the highlights of the relevant relief available to you via the government stimulus packages:

FINANCING & GRANTS

  • Loans available under the CARES Act provide the largest measure of assistance available via what is termed the “PPP”.  The borrowing amount is capped at a formula calculating the average monthly “Total payroll” incurred in a trailing 12-month period.  “Total payroll” includes employee compensation (not to exceed $100,000 annually per capita) + health insurance (employer share only) + PTO.  PPP loans will be obtained through traditional lending relationships (local / national banks) and NOT the SBA; best bet is to work with lenders with whom a borrowing relationship already exists as it may help expedite the process.   Our understanding is that local lenders will have finalized the application process and be in a position to initiate the approval process beginning April 3.  We recommend contacting lenders with whom the organization already enjoys a relationship as many banks are refusing to process the PPP applications for new customers without any other current bank connections.
  • Forgiveness of any “PPP” loans received under the CARES Act will be available if proceeds are used for payroll, rent, utilities AND employee labor force or employee compensation after April 1 remains consistent with a pre-April 1 “measurement period”.
  • An alternative loan program will be created in the future [“Midsize Business Loan Program”] will be established for organizations with > 500 employees whom plan to retain workforce.  No details have yet been released on this program.
  • Independently, “Disaster Relief Loans” (referred to as “EIDL”) are available under the more traditional borrowing program offered by the SBA.  The on-line loan application is available at https://covid19relief.sba.gov/#/.
  • What is interesting and somewhat confusing, the EIDL program administered by the SBA also includes a grant opportunity for up to $10,000 for businesses that have been severely effected by COVID-19.  The grant does not require repayment, nor does it obligate the recipient to execute an EIDL loan; furthermore, it does not preclude the business from also applying for the PPP.  Most prospective borrowers will apply for the grant through the SBA (which should be received on an expedited basis according to the Federal government’s stimulus objectives) while simultaneously applying for the PPP through their local lender.
  • NC-based businesses may also apply for loans of < $50,000 under the “NC COVID-19 Rapid Recovery Loan” program administered by a consortium of local lenders and stakeholders, and funded by the “Golden Leaf Foundation”.  The loans will have favorable repayment terms and the application process is available on-line.

 

EMPLOYMENT

  • Payroll tax deferment is available for employer FICA and Medicare due 4/1/20 – 12/31/20.  Any tax amounts deferred must be repaid in no less than 50% < 12/31/21 and the remaining 50% < 12/31/22.
  • Payroll tax credit is available on up 50% of up to $10,000 of wages per employee (or $5,000 of credit per quarter) by meeting certain workforce retention criteria [50% of wages paid to retained labor force during period when business gross revenues decline > 50% or experienced at least a partial shutdown].  Any employer whom receive a PPP loan and loan forgiveness will be precluded from qualifying for an equivalent amount of payroll tax credit.
  • EFMLA [“Family leave”] and EPSL [“Sick leave”] benefits paid out to qualifying employees will generate a payroll tax credit (rather than the normal deduction).  These “leave” and “sick pay” provisions provide a benefit to employees who file claims with compensation (at least in part) for up to 12 weeks in aggregate.  The mandatory leave provisions may not be applicable to anyone in the healthcare industry, however if a business already has family leave policies in place as part of their employee benefits, the policies should be be adhered to with regard to relevant claims made by employees whom are incapable of working due to COVID-19 issues.
  • Employees whom are separated from service via layoff can qualify for Unemployment Insurance.  Filings are now made via on-line platform by the terminated employee directly.  Under NC Law, even employees whom were not fully terminated but experienced severe decrease in work hours may qualify to receive partial benefits.  Anyone properly terminated would be ineligible for EFMLA or EPSL; in addition, employees severed from service whom were participants in the group health plan will need to offered COBRA coverage.  [Note for exit- counseling purposes and temporary layoff planning, a terminated employee is typically not required to self-pay the monthly premium amount until after a 59-day grace period; therefore, if a business anticipates rehiring the terminated employee < 59 days following the expectation of a return to business activity suspended due to COVID-19, there may not be any additional premium cost to the employee nor significant interruption in health care coverage.  [However, each business should consult with its health plan advisor or representative to verify no other “breaks in service” nor “on-board delays” in coverage would apply under the terms of the group plan in place.]

 

CHARITABLE CONTRIBUTION MODIFICATIONS

  • Individual taxpayers beginning in 2020 tax year may make a $300 tax-deductible contribution to public charities, and without any of the standard itemized deduction limitations.
  • Normal Itemized Deduction AGI limitations [60% for 2019] are lifted in 2020
  • Corporate Contribution Limitation [10% of net income for 2019] is increased to 25% for cash and food donations

 

CARES Act Relief Pertaining to Retirement Accounts

  • The Act allows for “coronavirus-related” distributions from defined contribution retirement plans, such as 401(k), IRAs, and 403(b) plans, of up to $100,000, with the early 10% withdrawal penalty suspended. Income associated with these distributions would be subject to tax over a three-year period rather than in the current year. Taxpayers would be able to choose to repay their retirement plans after receiving these distributions if they wish.
  • Coronavirus-related distributions include those made to individuals who have been diagnosed with COVID-19, a spouse or dependent of such individual, or those who experience adverse financial consequences as a result of the pandemic.
  • The amount that an individual may borrow from a qualified plan is temporarily increased from $50,000 to $100,000.
  • The Act suspends required minimum distributions (RMDs) in the year 2020 for various retirement plans, including IRAs, 403(a) and 403(b) plans, and 457(b) plans. Therefore, the 50% penalty associated with not taking an RMD is suspended in 2020.
  • The RMD suspension covers first RMDs from 2019, which individuals may have deferred until April 1 of this year. Similarly, RMDs are waived for plan participants who turned 70 ½ in 2019 (prior to the enactment of the SECURE Act) and are required to take an RMD prior to April 1 of this year. Though we are waiting on official guidance from the IRS, we expect that if an RMD has already been taken in 2020, the plan participant has up to 60 days to deposit it back into a qualified retirement account. We expect further guidance on a number of questions raised by the Act, including the treatment of 2019 RMDs taken in 2020.

 

Details continue to be released and we will keep you posted as to any new developments, and of course feel free to contact us should you need further information.

 

 

Key Highlights of the COVID-19 Relief Programs

by Tony Pandiscia

We have compiled the following useful and concise information for your reference as you consider the various planning opportunities available to address the impact of the COVID-19 situation on your business operations.  After studying the recently enacted law and interacting with other professionals, by parsing through the voluminous CARES Act, Families First Coronavirus Response Act (“FFCRA”) and relevant peripheral materials, the following includes the highlights of the relevant relief available to you via the government stimulus packages:

  • Loans available under the CARES Act provide the largest measure of assistance available via what is termed the “PPP”.  The borrowing amount is capped at a formula calculating the average monthly “Total payroll” incurred in a trailing 12-month period.  “Total payroll” includes employee compensation (not to exceed $100,000 annually per capita) + health insurance (employer share only) + PTO.  PPP loans will be obtained through traditional lending relationships (local / national banks) and NOT the SBA; best bet is to work with lenders with whom a borrowing relationship already exists as it may help expedite the process.   Our understanding is that local lenders will have finalized the application process and be in a position to initiate the approval process by April 3.
  • Forgiveness of any “PPP” loans received under the CARES Act will be available if proceeds are used for payroll, rent, utilities AND employee labor force or employee compensation after April 1 remains consistent with a pre-April 1 “measurement period”.
  • Independently, “Disaster Relief Loans” (referred to as “EIDL”) are available under the more traditional borrowing program offered by the SBA.
  • What is interesting and somewhat confusing, the EIDL program administered by the SBA also includes a grant opportunity for up to $10,000 for businesses that have been severely effected by COVID-19.  The grant does not require repayment, nor does it obligate the recipient to also apply for an EIDL loan; furthermore, it does not preclude the business from also applying for the PPP.  Many businesses will apply for the grant through the SBA (which should be received on an expedited basis according to the Federal government’s stimulus objectives) while simultaneously applying for the PPP through their local lender.
  • NC-based businesses may also apply for loans of < $50,000 under the “NC COVID-19 Rapid Recovery Loan” program administered by a consortium of local lenders and stakeholders, and funded by the “Golden Leaf Foundation”.  The loans will have favorable repayment terms and the application process is available on-line.
  • Payroll tax deferment is available for employer FICA and Medicare due 4/1/20 – 12/31/20.  Any tax amounts deferred must be repaid in no less than 50% < 12/31/21 and the remaining 50% < 12/31/22.
  • Payroll tax credit is available up to $10,000 by meeting certain workforce retention criteria [50% of wages paid to retained labor force during period when business gross revenues decline > 50%]
  • EFMLA [“Family leave”] and EPSL [“Sick leave”] benefits paid out to  qualifying employees will generate a payroll tax credit (rather than the normal deduction).  The mandatory leave provisions may not be applicable to anyone in the healthcare industry, however if a business already has family leave policies in place as part of their employee benefits, the policies will need to be adhered to with regard to relevant claims made by employees whom are incapable of working due to COVID-19 issues.
  • Employees whom are separated from service via layoff can qualify for Unemployment Insurance.  Filings are now made via on-line platform by the terminated employee directly.  Under NC Law, even employees whom were not fully terminated but experienced severe decrease in work hours may qualify to receive partial benefits.  Anyone properly terminated would be ineligible for EFMLA or EPSL; in addition, employees severed from service whom were participants in the group health plan will need to offered COBRA coverage.  [Note for exit- counseling purposes and temporary layoff planning, a terminated employee is typically not required to self-pay the monthly premium amount until after a 59-day grace period; therefore, if a business anticipates rehiring the terminated employee < 59 days following the expectation of a return to business activity suspended due to COVID-19, there may not be any additional premium cost to the employee nor significant interruption in health care coverage.  [However, each business should consult with its health plan advisor or representative to verify no other “breaks in service” nor “on-board delays” in coverage would apply under the terms of the group plan in place.]

Details continue to be released and we will keep you posted as to any new developments, and of course feel free to contact us should you need further information.

Official Guidance for Tax Deadlines

From IRS Press Release:

March 18, 2020

The Treasury Department and the Internal Revenue Service are providing special payment relief to individuals and businesses in response to the COVID-19 Outbreak. The filing deadline for tax returns remains April 15, 2020. The IRS urges taxpayers who are owed a refund to file as quickly as possible. For those who can’t file by the April 15, 2020 deadline, the IRS reminds individual taxpayers that everyone is eligible to request a six-month extension to file their return.

This payment relief includes:

Individuals: Income tax payment deadlines for individual returns, with a due date of April 15, 2020, are being automatically extended until July 15, 2020, for up to $1 million of their 2019 tax due. This payment relief applies to all individual returns, including self-employed individuals, and all entities other than C-Corporations, such as trusts or estates. IRS will automatically provide this relief to taxpayers. Taxpayers do not need to file any additional forms or call the IRS to qualify for this relief.

Corporations: For C Corporations, income tax payment deadlines are being automatically extended until July 15, 2020, for up to $10 million of their 2019 tax due.

This relief also includes estimated tax payments for tax year 2020 that are due on April 15, 2020.

Penalties and interest will begin to accrue on any remaining unpaid balances as of July 16, 2020. If you file your tax return or request an extension of time to file by April 15, 2020, you will automatically avoid interest and penalties on the taxes paid by July 15.

The IRS reminds individual taxpayers the easiest and fastest way to request a filing extension is to electronically file Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses must file Form 7004.

This relief only applies to federal income tax (including tax on self-employment income) payments otherwise due April 15, 2020, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges taxpayers to check with their state tax agencies for those details. More information is available at https://www.taxadmin.org/state-tax-agencies.

2017 Tax Season Update/Reminders

by Tony Pandiscia

Updates to Important 2016 Income Tax Return Filing Deadlines:

  • Individuals                  Tuesday, April 18, 2017
  • C Corporations           Tuesday, April 18, 2017
  • Trust/Estates              Tuesday, April 18, 2017
  • Partnerships       Wednesday, March 15, 2017
  • S-Corporations   Wednesday, March 15, 2017

HIGHLIGHTS OF FEDERAL TAX CHANGES

  • The Standard Deduction amount for Married Filing Joint couples has increased by $100 for 2017 to $12,700; all other filing status standard deductions have increased by $50.
  • The maximum annual “profit sharing” contribution limit for certain retirement plans has increased to $54,000 for 2017.
  • The annual compensation limit for certain retirement plans has increased to $270,000 for 2017.
  • The Social Security maximum earnings base for application of FICA tax has increased to $127,200 for 2017.
  • The thresholds for each of the Individual Income Tax Brackets for 2017 have been increased slightly due to annual Cost of Living Adjustments.
  • The gross income levels for which a 2017 income tax return is required have been increased to $ $20,800 (Married Filing Joint filers) and $10,400 (Single filers).
  • Effective January 1, 2017, Business-related travel expense “standard mileage rate” has been revised to 53.5 cent per mile for business miles driven. The “standard mileage rates” for medical or moving expense purposes is now 17 cents per mile, but the rate for charitable activities remains unchanged at 14 cents per mile.
  • Tax Exempt Organizations can now receive an automatic six-month extension of time to file using Form 8868 prior to the initial due date for their 2016 tax returns.

HIGHLIGHTS OF NORTH CAROLINA TAX CHANGES

  • The standard deduction has been increased by $1,000 for married individuals who file jointly (or as “head of household”) and $500 for all other individuals.
  • Effective January 1, 2017, many service businesses will now be subject to Sales & Use Tax collection and reporting when providing “repair, maintenance, or installation” services that are not “Capital Improvements.” In addition, a new exemption form has been issued for service businesses to qualify for a “Capital Improvement” exemption.

HELPFUL REMINDERS

  • Charitable Contribution:
    • Tax deductible contributions can be made in the form of cash or noncash but not “service” to a qualified 501(c)(3) organization. Out-of-pocket costs and travel expenses incurred may be subject to deduction.
  • Any single donation larger than $250 to a “qualified organization” requires acknowledgement (or receipt). For noncash donations, fair market value assessment is the responsibility of the donor and if over $5,000, a certified appraisal is required.
  • Reporting of Foreign Bank and Financial Accounts (FBAR):
    • If you have a financial interest in or signature authority over a foreign financial account with overall value exceeding $10,000 at any time during the calendar year, you are required to file an FBAR. (As a protective measure, many of our clients file this report regardless of the threshold in order to run the statute of limitations for audit.)
    • The annual due date for filing has been revised to April 18, 2017. All taxpayers will be granted an automatic six-month extension to October 15.

This is a summary of 2017 tax changes.  If you have any questions regarding the details of the changes and how they may affect your specific situation, please feel free to contact us to discuss.

Tony ([email protected]) is the Tax Partner with Langdon & Company LLP.  He is a CPA and also an attorney, advocating for clients on many levels-including with the State and the IRS.

Gift Tax Exemptions and Avoidance Strategies

by Eric Murphy

Under current IRS regulations, when a donor makes a gift in excess of $14,000, they must file Form 709 to report the gift and pay tax on the excess above $14,000.  This exemption is applicable to each donee the donor makes a gift to in 2016, so they can make one gift for $11,000 to one person and another gift of $12,000 to a different person and they won’t be subject to the tax liability or filing requirement.  Under IRC Sec. 2513, this threshold is increased for married couples to $28,000 per donee, with the donor and spouse having the option of making “Split Gifts”, which essentially result in each of them making half of a gift to a particular donee.  An example of this is a donor giving his friend $26,000 in cash to buy a car.  Under the rule of “Split Gifts”, the donor and his spouse each made a gift of $13,000 to the taxpayer’s friend, therefore neither exceeds the exemption threshold.  However, a gift tax return would need to be filed indicating the gift split option was utilized, even though no tax would be due.

There are also some othgift moneyer ways a donor can make gifts in excess of the exemption without being subject to the filing requirement and liability on the excess, under IRS Publication 950.  Some of these include:

  • Paying the medical expenses for anyone, as long as the payments are made directly to a third party medical institution or physician. The gift can’t be given to the donee directly or else it’s subject to the exemption limit.
  • Paying the tuition expenses for anyone, as long as the payments are made directly to a third party educational institution. Similar to a gift for a donees’ medical expenses, the gift can’t be given to the donee directly or else it’s subject to the exemption limit.
  • Donors can make unlimited gifts to their spouses.
  • Donors can make gifts to qualified Political Organizations for their objectives. However, these gifts don’t qualify for a charitable contribution deduction on their personal Tax Return.  Gifts to qualified charitable organizations formed under IRC 501(c)(3) are allowed as deductible contributions on the donor’s return and are exempt from the limitation.

The preceding information is a summary of some basics of gift taxation.  If you are in the process of estate planning or want to help out someone in need, please contact Langdon & Company, LLP.  Our tax professionals can discuss your goals with you and develop a strategy that insures that you’ll have more to give to those you care for.

Eric ([email protected]) is a Tax Senior with Langdon & Company LLP.  He works primarily on medical practices, real estate holding companies, and multi-state corporations.

New Overtime Rule – What you need to know

by Meagan Bulloch

On May 18, 2016, the US Department of Labor (DOL) published the Final Rule on overtime, which amended the Fair Labor Standards Act (FLSA).  This change is expected to affect approximately 4 million workers across the United States.

Beginning December 1, 2016, the salary threshold for non-exempt workers increases from $455/weekly ($23,660 annually) to $913/weekly ($47,476 annually).  Under this new rule, any worker regardless of their role or title who earns less than that amount will have to track their hours and will be entitled to overtime pay which equates to time and a half for any hours over 40 in a week.

How does this compare to the old rule?  Check out this comparison table.

What are my Options?

  1. Raise salaries for non-exempt “white collar” employees above the $47,476 threshold so that they will be exempt from overtime
  2. Limit the hours worked by these employees to 40 or fewer per week
  3. Hire additional workers to perform the extra hours
  4. Pay non-exempt employees overtime for any hours worked beyond 40 per week

What else should I consider?

  • Determine whether your organization is entitled to minimum wage and overtime pay protections on an enterprise or individual basis.
  • Review personnel records, job descriptions and worker classifications to make sure their actual job duties (not titles) are used to determine exempt or non-exempt status.
  • Review employee workload to evaluate current staff capacity considering weekend or seasonal workload fluctuations.
  • Review terms of any grant agreements or contracts and identify staffing needs. Keeping in mind that the organization may be contractually obligated to maintain services at a predetermined level.
  • Consider “what if” scenarios and estimate budget and cash flow impacts.
  • Revisit organizational policies and procedures including timekeeping, compensation and overtime to make sure they are in line with the new rule requirements.

Is anyone excluded?

The DOL has a non-enforcement policy for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds.  From December 1, 2016 through March 17, 2019, the DOL will not enforce the updated salary threshold of $913 per week for the subset of employers covered by this non-enforcement policy.

Be sure to give Langdon & Company LLP a call if you have questions on how this affects your organization.

Meagan ([email protected]) is an Audit Partner at Langdon & Company LLP.  She works on various clients from associations to healthcare.

The New Overtime Rule: Q&A

by Kendall Tyson

If you are an employer, you should get ready for the new overtime and worker classification changes to the Fair Labor Standards Act (FLSA) that was recently published by the Department of Labor (DOL).  According the DOL, the rule, which goes into effect December 1st 2016, will:

  • Raise the salary threshold indicating eligibility from $455/week to $913 ($47,476 per year), ensuring protections to 4.2 million workers.
  • Automatically update the salary threshold every three years, based on wage growth over time, increasing predictability.
  • Strengthen overtime protections for salaried workers already entitled to overtime.
  • Provide greater clarity for workers and employers.

Please visit the DOL’s Question and Answers section of their website for more detailed information.

Langdon & Company LLP is also available to assist business owners and help determine the impacts for their businesses.

Kendall ([email protected]) is a Manager in our tax practice.  She works with various types of clients according to professional standards and tax laws.

Small Business in North Carolina

by Russell Barker18th

Did you know there are approximately 833k small businesses in North Carolina?  That’s a pretty big number.  Why we are talking about this now? It is tax season and companies and individuals are gathering their information in order to either prepare or have their accountants their tax returns. You may or may not understand the process to get your tax returns accurately prepared and timely filed. I wanted to give you some guidelines to help.

Some people might think that gathering all their personal information and getting some of the business information is all you have to do.  The reality is that your first objective is to have your business’ books completed accurately.  You should ensure that all the bank accounts (including credit cards and loans) are updated and reconciled.  Be certain to capture any supplies or equipment  purchased near year-end in your books.  This will ensure that you obtain the proper expense and depreciation deductions you are entitled to.

The reason to get your company books in order first is because most small business (sole proprietor, Sub-S, Partnership, LLP, LLC) income will flow into your personal return.  It is important that you or  your tax preparer has all the proper information to complete both. Delays in the business returns will cause delays in having your personal returns processed.

This is just a quick reminder for you to think about so you can prepare all supporting documentation and have it ready for your tax preparer.

Remember 2015 taxes are due April 18th! Contact Langdon & Company LLP for help in getting 2015 tax return prepared or extended.

Russell ([email protected]) is part of Langdon & Company’s Accounting Services department. He works primarily with doctor’s practices.