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Qualified Disaster Payments to Employees During COVID-19

§139 of the Internal Revenue Code (the “Code and if you ever tried to read it you will know why they call it Code)”) excludes from a taxpayer’s gross income certain payments to individuals to reimburse or pay for expenses related to a qualified disaster. CONVID-19 is considered a Qualified Disaster in all states....

A “qualified disaster relief payment” is defined by §139(b) of the Code to include any amount paid to or for the benefit of an individual to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster.  Qualified disaster relief payments do not include qualified wages paid by an employer, even those that are paid when an employee is not providing services.

We interpret these expenses to be things like... the purchase of masks, hand sanitizers, computers so you work online or receive education online and probably many others we have not thought of.  The employer can deduct and pay this to employees with no tax consequences to the employee.

Thank you to Attorney Jon Alper www.AlperLaw.com  for the heads up on this.

 

Premature Distribution during VIRUS

When a premature distribution is made, it needs to be marked as a coronavirus-related distribution.  The distribution can be made any time in 2020 up to an aggregate limit of $100,000 and the 10% additional tax is waived.  You can also spread out the tax burden over three years (2020, 2021, and 2022) or decide to include the entire distribution in your income for the year of the distribution.

https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

RMD's for 2020 (BIG CHANGE)

RMD (Required Minimum Distribution)
 
Acknowledging that Americans are living and working longer, the SECURE Act increases the RMD age from 70½ to 72, applicable to distributions made after Dec. 31, 2019, for individuals who reach 70½ from Jan. 1, 2020 on.
 

NOL (Net Operating Loss) Changes for 2018

A net operating loss (NOL) is when business losses exceed income.

Prior toJanuary 1, 2018, NOLs were able to offset 100% of taxable income. They were allowed to be carried back two years and carried forward for twenty years.  You could affirmatively elect with a timely filed return to NOT carryback (the default) and instead carry forward only (permanent, could not change it for that year).

Under the new law effective in 2018, an NOL can offset only 80% of taxable income in any given tax year. NOLs can be carried forward only. The 20-year carryforward period is changed to an indefinite carryforward period NOLs created in tax years beginning before January 1, 2018 are subject to the old rules. Only NOLs generated in tax years beginning after December 31, 2017 are subject to the new rules.

Affordable Care Act Penalty Exemptions

Special hardship exemptions have to be applied for.... and when taxpayer receives an ECN (exemption certificate number) we can input that and the penalty goes away.   Has to be applied for....

Here is the link.

https://www.healthcare.gov/health-coverage-exemptions/hardship-exemptions/

If you have not done so, you should explore this.... some possible exemptions.......

Required care of a loved one disrupts your ability to pay living expenses

Or

Marketplace plans are unaffordable

Or

Experience some hardship in obtaining health insurance.

THERE ARE MORE EXEMPTIONS.  Have a look.

 

2018 20% Pass-through Deduction

MUCH CONFUSION NOW!
In general the new tax law allows self-employed and owners of pass-through entities (partnerships and S Corps) to deduct 20% of "qualified business income".
 
The law is COMPLEX with limitations, exceptions and undefined terms.
 
Needs to define "qualified business income" more clearly.  Specified service entities are subject to high income limitations.  There is an issue wit tiered entities and whether or not Schedule E rental income is "qualified business income".
 
Expect guidance (hopefully clear guidance) late this year 2018.
 
 

2019 IRS Payments & 2020 estimates DELAYED - Filing dates not changed

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.

Long Term Care Premiums in S Corps

Can you deduct Long Term Care Preimums the same as Health Insurance for the greater than 2% Shareholder.

Answer is .... sort of....

 

The way the math works…….

Let’s say LTC is $6,000

Age based LTC for age 61 to 70 is $3,900

Step 1:  The S Corp deducts the entire $6k (even if the Shareholder pays it personally).

Step 2: Box 1 on the W2 is increased by $6k.

Step 3: Box 14 on the W2 includes the aged based allowable amount $3.9k.

Result

So, steps 1 and 2 cancel each other.

Step 3 allows 100% of the allowable deduction ($3.9k) to be deducted on the front of the individual tax return, same as regular health insurance.

Accounting, Tax & Financial Services

How Often Does Tax Law Change....
There were approximately 4,430 changes to the tax code from 2001 through 2010, an average of more than one a day, including an estimated 579 changes in 2010 alone. Yup, its complicated but we can help.
 
Notice** IRS Headquarters Washington, D.C. - Names 10 New Members to IRPAC
The Internal Revenue Service announced the selection of 10 new members for the Information Reporting Program Advisory Committee (IRPAC).

“Members of IRPAC provide industry perspective and recommendations that assist the IRS in making decisions about third-party information reporting, which is important to sound tax administration,” said IRS Commissioner Doug Shulman.

The new appointees will join 14 returning members who are in the second or third year of their three-year terms.

Lonnie Young of Young & Company, LLC is one of the 10 selected in the United States! Click here for the complete article

If the IRS trusts his opinion, perhaps you can too!