The CARES Act liberalizes net operating losses
The CARES Act includes favorable changes to the rules for deducting net operating losses (NOLs) to provide businesses with relief from the novel coronavirus (COVID-19) crisis. It permanently eases the taxable income limitation on deductions. For tax years beginning before 2021, the CARES Act removes a taxable income limitation on deductions for prior-year NOLs carried over into those years. So NOL carryovers into tax years beginning before 2021 can be used to fully offset taxable income for those years. These changes may affect prior tax years for which you’ve already filed tax returns. To benefit from the changes, you may need to file an amended tax return. Contact us to learn more.
Do you have tax questions related to COVID-19? Here are some answers
The coronavirus (COVID-19) pandemic has affected many Americans’ finances. You may have questions about the implications. For example, if your employer is requiring you to work from home, can you claim home office deductions on your tax return? Unfortunately, if you’re an EMPLOYEE who telecommutes, home office expenses aren’t deductible through 2025. What about unemployment compensation? Is it taxable for federal tax purposes? Yes. This includes state unemployment benefits plus the temporary $600 per week from the federal government. (Benefits may also be taxed for state tax purposes.) Contact us if you have questions or need more information about these or other COVID-19-related tax issues.
Subchapter V: A silver lining for small businesses mulling bankruptcy
Although bankruptcy obviously isn’t an optimal outcome for any small business, there may be a silver lining for those considering it: The Small Business Reorganization Act of 2019. This law, which took effect in February, added Subchapter V to the U.S. bankruptcy code. Its purpose is to streamline the reorganization process for small businesses and, in some cases, improve their odds of recovery. Subchapter V originally applied only to companies or proprietors with less than about $2.7 million in debt. However, the Coronavirus Aid, Relief, and Economic Security Act temporarily raised this amount to $7.5 million in debt. We can help you choose the most prudent path forward for your company.
Hiring independent contractors? Make sure they’re properly classified
As a result of the coronavirus (COVID-19) crisis, your business may be using independent contractors to keep costs low. But be careful that these workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be costly. The question of whether a worker is an independent contractor or an employee is a complex one. The IRS and courts have generally ruled that individuals are employees if the businesses they work for have the right to control and direct them in their jobs. Otherwise, they’re generally contractors. Contact us if you’d like to discuss how the rules apply to your business. We can help ensure that none of your workers are misclassified.
IRA account value down? It might be a good time for a Roth conversion
The coronavirus (COVID-19) pandemic and the ensuing stock market downturn has caused the value of some retirement accounts to decrease. But if you have a traditional IRA, a downturn may provide a valuable opportunity: It may allow you to convert to a Roth IRA at a lower tax cost. Roth IRA qualified withdrawals are tax free and you don’t have to begin taking RMDs after you reach age 72. But if you convert to a Roth, you’ll owe income tax on the converted amount. If your traditional IRA has lost value due to a market downturn, converting to a Roth now will minimize the tax, and you’ll avoid tax on future appreciation. Interested? Contact us to see whether a conversion is right for you.
Adjust your expectations of business interruption coverage
If you maintain business interruption insurance for your company, you may wonder whether the COVID-19 pandemic is an “applicable event” that would enable you to file a claim and receive a payout. Many insurers are saying no, claiming the “force majeure” legal defense. This means unexpected external circumstances are preventing them from meeting their obligations. They also argue that the COVID-19 crisis doesn’t qualify as a physical loss. Lawsuits have already been filed challenging their position. To decide whether to proceed with a claim, review your policy carefully and be prepared to document the adverse financial impact of the pandemic on your company. Contact us for help.
IRS extends some (but not all) employee benefit plan deadlines
The IRS recently issued Notice 2020-23, expanding on previously issued guidance extending certain tax filing and payment deadlines in response to the novel coronavirus (COVID-19) crisis. The guidance applies to specified filing obligations and other “specified actions” that would otherwise be due on or after April 1, 2020, and before July 15, 2020. It extends the due date for specified actions to July 15, 2020. These include any “specified time-sensitive action” listed in Revenue Procedure 2018-58. Regarding employee benefits, the guidance addresses Form 5500 filings, retirement plan corrections and Health Savings Account rollovers. Contact us for more information.
Answers to questions you may have about Economic Impact Payments
Millions of eligible Americans have already received their Economic Impact Payments (EIPs) via direct deposit or paper checks, according to the IRS. Others are still waiting. The payments are part of the CARES Act. Is there a way to check on a payment status? A new IRS tool called “Get My Payment” shows taxpayers either their EIP amount and the scheduled delivery date, or that a payment hasn’t been scheduled. It also allows taxpayers who didn’t use direct deposit to provide bank account details. Some people are getting an error message (“payment status not available”). Hopefully, the IRS will have it running seamlessly soon. Access the tool here: https://bit.ly/2ykLSwa
New COVID-19 law makes favorable changes to “qualified improvement property”
A law providing relief due to the coronavirus (COVID-19) crisis contains a valuable change in the tax rules for improvements to interior parts of nonresidential buildings. You may recall that under the Tax Cuts and Jobs Act, any qualified improvement property (QIP) placed in service after Dec. 31, 2017 wasn’t eligible for 100% bonus depreciation. The cost had to be deducted over 39 years rather than entirely in the year the QIP was placed in service. This was due to a drafting error by Congress. But the new CARES Act now allows most businesses to claim 100% bonus depreciation for QIP as long as requirements are met. The correction is retroactive to QIP placed in service after Dec. 31, 2017.
Mapping Out Your SBA PPP Loan Forgiveness Strategy
So, you’ve applied for and been approved for a Payroll Protection Program loan. Now what? The next 8 weeks are crucial to maximize your eligible loan forgiveness. This is the time to map out your strategy! A few things to note and some things that still need to be clarified: For any amount of your […]
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