Five-Minute Tax Briefing®
July 13, 2021
No. 2021-13
Item for Wednesday, July 7, 2021
New Vehicles Added for Plug-in Vehicle Credit: IRC Sec. 30D(a) provides a credit to the purchaser of a qualified plug-in electric drive motor vehicle, including passenger vehicles and light trucks. The credit allowed is limited to $2,500 plus an additional amount, based on battery capacity, that cannot exceed $5,000. The credit phases out over six calendar quarters beginning when a manufacturer has sold at least 200,000 qualifying vehicles in the U.S. Recently, the IRS added the following models to its list of vehicles eligible for the credit: the 2021 Mustang Mach-E GT, 2021 Hyundai Ioniq Plug-In Hybrid Electric Vehicle and Ioniq Electric Battery Vehicle, 2021 Cayenne E-Hybrid and E-Hybrid Coupe, Cayenne Turbo S E-Hybrid and E-Hybrid Coupe, Panamera 4 PHEV which includes the 4 E-Hybrid, 4 E-Hybrid Sport Turismo, 4 S E-Hybrid, 4 S E-Hybrid Sport Turismo, 4 E-Hybrid Executive, Turbo S E-Hybrid, and Turbo S E-Hybrid Sport Turismo.
The Q2 2021 Met Life and US Chamber of Commerce SBI, released this week, finds that as more Americans received the COVID-19 vaccine, states lift restrictions and businesses continue to reopen, a majority (65%) of small business owners are more optimistic that the worst of the pandemic is over.
According to the poll taken April 21 – May 6th, the dominant emotion small business owners are feeling about their current strategy is hopeful. 31% say they are feeling comfortable and 24% say they are concerned.
“Small businesses are seeing real reasons for optimism this quarter and we’re seeing that reflected in the data,” said Tom Sullivan, vice President of small business policy at the US Chamber of Commerce. “The easing of capacity restrictions due to increased vaccinations means more small businesses are welcoming more customers. Increased foot traffic equates to economic growth and that is moving our country’s recovery forward.
Small businesses are very clear on what will help their businesses thrive: both easing COVID restrictions and more vaccinations. Small businesses say that easing COVID-19 restrictions (29%) and ramping up vaccinations in their area (28%) are the two biggest keys to their success in the remainder of 2021.
When it comes to views of the economy, positive outlooks are growing and negative ones are declining. Currently, 27% of small businesses rate the overall US economy as good, up from 21% who said the same in Q1. Driving this uptick is the decreasing number of small businesses seeing the economy as bad. While 46% continue to say the national economy is poor, this is the first time this measure has fallen below 50% during the pandemic. Just last quarter, 60% of small businesses said the economy was poor.
Additional Findings
Additional survey findings include:
COVID habits may be here to stay. 76% of small businesses intend to keep all COVID-19 safety precautions in place until the Coronavirus pandemic ends.
In a tight labor market, employers are holding onto the workers they have. Most small businesses anticipate retaining the same staffing level. 32% plan to increase staffing, and around 11% plan to decrease staffing over the next year.
Small businesses see revenue improving in the future. About 57% of small businesses anticipate their revenue increasing this year, up 10% compared to last quarter, the most positive outlook of this metric during the pandemic.
Well over half of small businesses expect their revenue to increase over the next 12 months. This compares to fall of 2020, when just 34% of small business owners were confident of increasing revenue. This positive statistic about the outlook of small businesses after the unprecedented disruption of 2020 and early 2021, was unveiled by the Bank of America.
Bank of American Small Business Owner Report 2021
Bank of America’s 2021 Small Business Report was based on a survey of nearly 1,000 small business owners. The survey was conducted in March 2021. It reveals that economic confidence and business outlook is witnessing a rebound. 56% of participants say they are confident the local economy will improve, which is a significant rise from 39% last fall. Half of respondents anticipate the national economy will expand, up from 37% in fall 2020.
Small Business Planning on Hiring in Forthcoming Months
Such is the confidence among small business that 21% plan to hire in coming months, a 7% rise from fall 2020. These heartening figures confirm just how much the small business community is progressing as the nation continues to lift lockdown restrictions. The research also shows what small businesses are doing to help aid recovery. 62% say they have been building a digital strategy, and 30% have been accepting forms of cashless payments. The Bank of America’s report provides important insight into strategies small businesses are adapting to pave the way for a rebound.
The Backbone of the US Economy
Talking about the resilience of small business and the moves they are taking to secure recovery, Sharon Miller, head of Small Business at the Bank of America commented:
“Small business owners have showed time and again during the pandemic that they are the resilient backbone of our economy and of local communities throughout the country. From providing essential services to revamping operating models, I am inspired by the dedication and passion of entrepreneurs across the country and encouraged to see their renewed optimism about the future of their businesses.”
“Almost 80% of those surveyed say a widely available vaccine and/or herd immunity in their community will play a pivotal role in bringing business back to pre-pandemic levels,” Miller continued.
Leading Concerns
The research also looked at the leading concerns small businesses are facing. The political environment and health care costs are among the top concerns, with 71% and 64% reporting such concerns, respectively. These figures are consistent with those reported in the fall of 2020. Worries that have witnessed a drop in prevalence since last fall are those about the pandemic. 55% of those surveyed in the last Bank of America report highlighted such concerns, down from 75% last fall. Fears about consumer spending has also dropped 75% last fall to 55%.
Steps to Aid Recovery
The report also explores the steps small business owners are taking to help aid recovery. It found that 62% of business owners have adopted new digital tools and strategies to optimize operations in response to the pandemic. Such digital initiatives include 47% of small businesses interacting with customers virtually, and 36% interacting with employees virtually. 30% have started accepting digital payments, and 26% have enhanced their social media presence. While the report presents a positive picture of small businesses gathering momentum after months of hardship, it confirms the value of taking savvy steps to gain momentum and boost revenue, such as taking operations online.
President Biden entered office with an ambitious agenda. From expanded healthcare subsidies and increased social security benefits, to student loan forgiveness. This would be costly. As a candidate, Biden proposed a series of tax rate increases on high-income families to pay for some of his new programs. Under his plan, corporate income tax rates and top personal income rates would rise. Top earners would face new Social Security taxes, and millionaires would face much higher tax rates on capital gains and dividends. What would these tax rate hikes look like, and what would they do to the economy?
Part 1: What are the Corporate Income Tax Increases?
Until 2018, the US had the highest statutory corporate tax rate in the developed world. Even before accounting for new state taxes, the top rate was 35%. This was well above rates in Ireland (12.5%), Canada (15%), and the UK (19%). The Tax Cuts and Jobs Act of 2017 (TCJA) permanently lowered the top rate to 21%. The current administration wants to increase the rate to 28%, which is higher than most developed countries, but still 20% lower than the 2017 rate. There are some reasons for why there isn’t support for the old rate:
At higher rates, corporations have more incentive to avoid the tax. They hire expensive tax lawyers to find clever ways to reduce their tax bills. They move their headquarters/profits to low-tax jurisdictions. A higher tax rate shifts a corporation’s focus from producing better products at lower costs to finding ways to reduce its tax liability. It affects what they produce, where they build it, and how they finance it. The end result is that consumers pay more but get less and the government takes in less tax revenue.
The person who pays a tax is often not the same person who bears the cost of the tax. In the case of corporate taxes, economist John Cochrane explains that “as an accounting matter, every cent corporations pay comes from higher prices, lower wages, or lower payments to the shareholders. The question is which one.” Economist Michael Boskin argues that corporate tax is born increasingly by workers: “Corporate taxes, like others, are ultimately paid by people. In a static economy with no international trade, shareholders are likely to bear the costs. The US economy is neither static nor closed to trade, and so taxes tend to be borne by the least mobile factor of production. Capital is much more mobile globally than labor, and the part of the corporate tax that is well above that of our lowest tax competitors will eventually be borne by workers. In a growing economy, the diminished investment slows productivity growth and future wages.
Slower economic growth and lower wages are a high price to pay for a tax that yields surprisingly little revenue. It’s no wonder then that there isn’t much support for pushing the rate back up to its former level.
Part 2: What About Personal Income Taxes?
About half of all federal tax revenue comes from personal income taxes. These taxes are progressive, meaning that as your taxable income rises, the share of your taxed income rises too. Every dollar of taxable income is taxed at a particular rate, called a marginal tax rate. Currently, marginal tax rates on earned income range from 10% to 37%. President Biden wants to raise the top rate to 39.6%, the rate that existed prior to the TCJA.
The personal income tax code doesn’t just tax wage income. People also pay income tax on realized capital gains and dividend payments. Capital gains are the profits made form selling an asset for more than it was bought. The tax rates for investment depend on the gross income of the tax filer and how long the filer held the investment. If you sell an asset within a year after buying it, your tax rate is generally the same tax rate you pay on your taxes. If you held it for more than a year, you pay a lower tax rate. Biden’s plan calls for eliminating this lower tax rate for filers with incomes above $1 million. How big of a tax increase would this be? Currently, the top rate on long-term capital gains and qualified dividends is 23.8% Biden’s plan calls for this to rise to 43.4%.
These higher marginal tax rates would have significant effects on the economy. Watch this video for an explanation:
The marginal tax rate affects a person’s decision on whether to work more hours, hire more workers, or invest in new innovations or businesses. As the video explains, the “investments not made, schooling not pursued, or businesses not started all cumulatively add up to a lower quality of life for everyone.”
While high marginal tax rates discourage the behaviors that produce economic growth, many policy makers are willing to accept that outcome in order to make the tax system more progressive. They argue that high-income taxpayers can afford to pay more. But just because they can, doesn’t mean they will. As we saw with corporate income taxes, the higher the rate, the more incentives people have to avoid the tax. This will be done either through clever accounting or through changing their economic decisions.
Further, the US already has one of the most progressive income tax systems in the developed world. The progressive rates don’t necessarily yield substantially higher tax revenue. The tax code is filled with countless deductions that reduce a filer’s taxable income and tax credits that directly reduce a filer’s tax liability. Filers may cut their taxable income by deducting charitable contributions, the interest they pay on their mortgage, and taxes they pay to state and local governments. Families with children may reduce their tax bill by claiming the child tax credit. Businesses can claim credits for research and development or building low-income housing. The US tax code has long been filled with these types of tax breaks. Milton Friedman explains how these tax breaks interact with high tax rates:
Part 3: What About Payroll Taxes?
Social Security and parts of Medicare are financed through payroll taxes on wage and salary income. The 2.9% Medicare tax, split evenly between employee and employer, is assessed on all wage and salary income. The Social Security tax is more complicated. It assesses a 12.4% tax, split like Medicare, on earnings up to the so-called taxable maximum. This maximum is set at $142,800 in 2021. Earnings above the taxable maximum face no Social Security taxes. President Biden wants to assess the full Social Security tax on all earnings above $400K.
It might seem odd that top earners pay a lower share of their income in Social Security taxes than those with earnings below the taxable maximum. There is an interesting historical reason for this unique tax. Workers’ taxable Social Security earnings are used to determine how much they receive in benefits when they retire. In discussing Senator Warren’s Social Security plan, John Cogan explains how applying these taxes to earnings above the taxable maximum would alter the nature of the program:
“The cornerstone of FDR’s Social Security program is its “earned right” principle, under which benefits are earned through payroll-tax contributions. Although Congress has eroded this principle over the years, it remains part of the program’s core. Warren’s plan calls for additional taxes on wage earnings, capital gains, and dividends paid to those with high annual incomes. These incomes are $250K or more for individuals, and $400K or more for families. But in a major break from one of FDR’s main Social Security principles, the plan provides no additional benefits in return for the new taxes. Warren’s new tax plan would account for about a quarter of future revenues flowing into the Social Security system. Such a large revenue stream to fund unearned benefits, called “gratuities” in FDR’s era, would put Social Security on a road to becoming a welfare program.
Even beyond its effect on the Social Security program, adding the Social Security tax on earnings above $400K would represent a dramatic marginal tax rate increase. Currently, workers with incomes in the top personal income tax bracket face a marginal tax rate of roughly 40.8%. 37% of that is for personal income taxes and 3.8% for Medicare. Adding the 12.4% tax would raise the top marginal tax rate above 50%, and that is before accounting for state income taxes. Like other marginal tax rates, these high rates will affect decisions to work, ultimately hurting future economic growth.
Conclusion
High marginal tax rates damage the economy and will result in fewer economic opportunities for everyone. yet we need revenue to pay for essential government services, and much more to fund the reforms envisioned by the new administration. Is there a better way?
Fortunately, yes. A consumption tax such as a sales tax or value-added tax offers a far more efficient way to raise revenue. In Blueprint for America, Michael Boskin explains:
“There is considerable research showing that moving toward a broad-based, integrated progressive consumption tax would significantly increase real GDP and future wages. Replacing both the corporate and personal income taxes with a broad, revenue-neutral consumption or consumed income tax would produce even larger gains.”
A consumption tax would give workers, entrepreneurs, and innovators better incentives to work, invest, and create. The result would be an economy that delivers more economic opportunity while providing adequate revenue for the government.
To help you make sure that you do not miss any important 2021 deadlines, we have provided this summary of when various tax-related forms, payments and other actions are due. Please review the calendar and let us know if you have any questions about the deadlines or if you would like assistance in meeting them.
Date
Deadline for:
February 1
Businesses: Providing Form 1098, Form 1099-MISC (except for those that have a February 16 deadline), Form 1099-NEC and Form W-2G to recipients.
Employers: Providing 2020 Form W-2 to employees. Reporting income tax withholding and FICA taxes for fourth quarter 2020 (Form 941). Filing an annual return of federal unemployment taxes (Form 940) and paying any tax due.
Employers: Filing 2020 Form W-2 (Copy A) and transmittal Form W-3 with the Social Security Administration.
March 15
Calendar-year S corporations: Filing a 2020 income tax return (Form 1120S) or filing for an automatic six-month extension (Form 7004) and paying any tax due.
Calendar-year partnerships: Filing a 2020 income tax return (Form 1065 or Form 1065-B) or requesting an automatic six-month extension (Form 7004).
April 15
Individuals: Filing a 2020 income tax return (Form 1040 or Form 1040-SR) or filing for an automatic six-month extension (Form 4868) and paying any tax due. (See June 15 for an exception for certain taxpayers.)
Individuals: Paying the first installment of 2021 estimated taxes, if not paying income tax through withholding (Form 1040-ES).
Individuals: Making 2020 contributions to a traditional IRA or Roth IRA (even if a 2020 income tax return extension is filed).
Individuals: Making 2020 contributions to a SEP or certain other retirement plans (unless a 2020 income tax return extension is filed).
Individuals: Filing a 2020 gift tax return (Form 709) or filing for an automatic six-month extension (Form 8892) and paying any gift tax due. Filing for an automatic six-month extension (Form 4868) to extend both Form 1040 and, if no gift tax is due, Form 709.
Household employers: Filing Schedule H, if wages paid equal $2,200 or more in 2020 and Form 1040 is not required to be filed. For those filing Form 1040, Schedule H is to be submitted with the return and is thus extended to the due date of the return.
Trusts and estates: Filing an income tax return for the 2020 calendar year (Form 1041) or filing for an automatic five-and-a-half month extension to October 1 (Form 7004) and paying any income tax due.
Calendar-year C corporations: Filing a 2020 income tax return (Form 1120) or filing for an automatic six-month extension (Form 7004) and paying any tax due.
Calendar-year corporations: Paying the first installment of 2021 estimated income taxes.
April 30
Employers: Reporting income tax withholding and FICA taxes for first quarter 2021 (Form 941) and paying any tax due.
May 17
Exempt organizations: Filing a 2020 calendar-year information return (Form 990, Form 990-EZ or Form 990-PF) or filing for an automatic six-month extension (Form 8868) and paying any tax due.
Small exempt organizations (with gross receipts normally of $50,000 or less): Filing a 2020 e-Postcard (Form 990-N), if not filing Form 990 or Form 990-EZ.
June 15
Individuals: Filing a 2020 individual income tax return (Form 1040 or Form 1040-SR) or filing for a four-month extension (Form 4868) and paying any tax and interest due, if you live outside the United States.
Individuals: Paying the second installment of 2021 estimated taxes, if not paying income tax through withholding (Form 1040-ES).
Calendar-year corporations: Paying the second installment of 2021 estimated income taxes.
August 2
Employers: Reporting income tax withholding and FICA taxes for second quarter 2021 (Form 941) and paying any tax due.
Employers: Filing a 2020 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or requesting an extension.
September 15
Individuals: Paying the third installment of 2021 estimated taxes, if not paying income tax through withholding (Form 1040-ES).
Calendar-year corporations: Paying the third installment of 2021 estimated income taxes.
Calendar-year S corporations: Filing a 2020 income tax return (Form 1120S) and paying any tax, interest and penalties due, if an automatic six-month extension was filed.
Calendar-year S corporations: Making contributions for 2020 to certain employer-sponsored retirement plans, if an automatic six-month extension was filed.
Calendar-year partnerships: Filing a 2020 income tax return (Form 1065 or Form 1065-B), if an automatic six-month extension was filed.
October 1
Trusts and estates: Filing an income tax return for the 2020 calendar year (Form 1041) and paying any tax, interest and penalties due, if an automatic five-and-a-half-month extension was filed.
Employers: Establishing a SIMPLE or a Safe-Harbor 401(k) plan for 2020, except in certain circumstances.
October 15
Individuals: Filing a 2020 income tax return (Form 1040 or Form 1040-SR) and paying any tax, interest and penalties due, if an automatic six-month extension was filed (or if an automatic four-month extension was filed by a taxpayer living outside the United States).
Individuals: Making contributions for 2020 to certain existing retirement plans or establishing and contributing to a SEP for 2020, if an automatic six-month extension was filed.
Individuals: Filing a 2020 gift tax return (Form 709) and paying any tax, interest and penalties due, if an automatic six-month extension was filed.
Calendar-year C corporations: Filing a 2020 income tax return (Form 1120) and paying any tax, interest and penalties due, if an automatic six-month extension was filed.
Calendar-year C corporations: Making contributions for 2020 to certain employer-sponsored retirement plans, if an automatic six-month extension was filed.
November 1
Employers: Reporting income tax withholding and FICA taxes for third quarter 2021 (Form 941) and paying any tax due.
November 15
Exempt organizations: Filing a 2020 calendar-year information return (Form 990, Form 990-EZ or Form 990-PF) and paying any tax, interest and penalties due, if a six-month extension was previously filed.
December 15
Calendar-year corporations: Paying the fourth installment of 2021 estimated income taxes.
December 31
Employers: Establishing a retirement plan for 2021 (generally other than a SIMPLE, a Safe-Harbor 401(k) or a SEP).
After years of low examination rates, the IRS announced it will increase audits of small businesses by 50 %. This news comes during a time when complex tax law changes and economic stimulus programs, in response to COVID-19, have made businesses’ books even more complicated than usual.
The Illinois CPA Society cautions this could lead to audits and enforcement actions against many different businesses. These businesses range from long-held family-owned operations to the many online businesses launched as the pandemic drags on.
With the IRS planning to hire more specialized auditors to begin strengthening its enforcement efforts, ICPAS offers the following tips to safeguard your business interests and help avoid an audit:
Keep Clear Records
Accurately and honestly reporting all income, deductions, credits, expenses, and other figures can help keep an audit at bay. Make sure you have adequate documentation to support the figures reported on your business’ information return. This will make your individual tax return less likely to be have errors or be audited.
Mind your deductions
Unusual itemized deductions raise red flags for auditors, especially now that most taxpayers only claim the standard deduction. If your small business is driving you to seek unique deductions or report business losses, enlist the help of a CPA to guide you. Reporting losses for three years or more could increase your risk of an examination into whether you’re actually in business.
Make your estimated tax payments
If you anticipate owing more than $500 in taxes for your business entity throughout the year, you should be making quarterly estimated tax payments. Failing to make these payments raises your risk of an audit and/or penalties.
Go Digital
Today’s bookkeeping software utilizes tools to keep your records accurate and secure. This helps your CPA electronically prepare and file your tax returns—the best method for preventing the filing of erroneous returns that might trigger an audit.
Read up on the rules
Since many small businesses are formed as partnerships, it’s important to determine if yours is subject to the Centralized Partnership Audit Regime, which dramatically changed IRS partnership audit procedures.
Most salespeople would tell you that there are few better feelings in life than closing a deal. This is because guiding a customer through the sales process and coming out the other side with dollars committed isn’t a matter of blind luck. It’s a craft — based on equal parts data mining, psychology, intuition and other skills. Many sales staffs were under unprecedented pressure last year. The COVID-19 pandemic triggered changes to the economy that made many buyers cut back on spending. Now that the economy is slowly recovering, sales opportunities may be improving.
Here are four steps your salespeople can follow to improve the odds that those chances will come to fruition:
1. Qualify prospects. Time is an asset. Successful salespeople focus most or all their time on prospects who are most likely to buy. Viable prospects typically have certain things in common:
A clear need for the products or services in question
Sufficient knowledge of the products or services
An identifiable decision-maker who can approve the sale
Adequate financial standing
A need to buy right away or soon.
If any of these factors is missing, and certainly if several are, the salesperson will likely end up wasting his or her time trying to make a sale.
2. Ask the right questions. A salesperson must deeply understand a prospect’s motivation for needing your company’s products or services. To do so, inquiries are key. Salespeople who make great presentations but don’t ask effective questions tend to come up short. An old rule of thumb says: The most effective salespeople spend 80% of their time listening and 20% talking. Actual percentages may vary, but the point is that a substantial portion of a salesperson’s “talk time” should be spent asking intelligent, insightful questions that arise from pre-call research and specific points mentioned by the buyer.
3. Identify and overcome objections. A nightmare scenario for any salesperson is spending a huge amount of time on an opportunity, only to have an unknown issue come out of left field at closing and kill the entire deal. To guard against this, successful salespeople identify and address objections during their calls with prospects, thereby minimizing or eliminating unpleasant surprises at closing. They view objections as requests for information that, if handled correctly, will educate the prospect and strengthen the relationship.
4. Present a solution. The most eloquent sales presentation may be entertaining, but it will probably be unsuccessful if it doesn’t satisfy a buyer’s needs. Your product or service must fix a problem or help accomplish a goal. Without that, what motivation does a prospect have to spend money? Your salespeople must be not only careful researchers and charming conversationalists, but also problem-solvers. When you alleviate customers’ concerns and allow them to meet strategic objectives, you’ll increase the likelihood of making today’s sales and setting yourself up for tomorrow’s.
The novel coronavirus (COVID-19) crisis has touched so many lives, both with illness and hardship. In response to this crisis, our office is working remotely on all accounting, and tax projects. The best method to contact us is to email us at [email protected]. We are focused on staying up to date on tax, accounting and finance updates to assist everyone with these challenges.
The tax and financial laws are changing daily, therefore I marked “V1” (version 1) on my memo above. There are various other social service updates, but our memos will focus mainly on finance, business and tax updates.
CONGRESS PASSED HR 6201, FAMILIES FIRST COONRAVIRUS RESPONSE ACT, which is highlighted below. However, this bill hasn’t passed the Senate as of March 17, 2020 at 7 p.m. PST.
Employer tax credits: The Act provides tax credits to employers to cover wages paid to employees while they are taking time of under the bill’s sick leave and family leave programs.
The sick leave credit for each employee would be equal to his wages, limited to $511 per day while the employee is receiving paid sick leave to care for themselves, or $200 if the sick leave is to care for a family member or child whose school is closed. An additional limit applies to the number of days per employee: the excess of 10 days over the aggregate number of days considered for all preceding calendar quarters.
The family leave credit for each employee is limited to $200 per day with a maximum of $10,000.
The credits are refundable to the extent they exceed the employer’s payroll tax.
Employers don’t receive the credit if they’re also receiving the credit for paid family and medical leave in IRC Sec. 45S. These rules apply only to wages paid with respect to the period beginning on a date selected by the Secretary of the Treasury which is during the 15-day period beginning on the date of the enactment of the Act and ending on December 31, 2020. (Act Sec. 7001; Act Sec. 7003)
Comparable credits for self-employed: The Act provides for similar refundable credits against the self-employment tax. It covers 100% of self-employed individual’s sick leave equivalent amount, or 67% of the individual’s sick-leave equivalent amount if they are taking care of sick family member or taking care of a child following the child’s school closing. The sick leave equivalent amount is the lesser of average daily self-employment income, or $51/ day to care for the self-employed individual, or $200 / day to care for a sick family member or child following a school closing.
Self-employed individuals could receive family leave credit for as many as 50 days multiplied by the lesser of $200 or their average self-employment income.
These rules apply only to days occurring during the period beginning on a date selected by the Secretary of the Treasury, which is during the 15-day period beginning on the date of the enactment of this Act and ending on December 31, 2020.
Employer FICA exclusion: Under the Act, sick leave and family and medical leave paid under the Act will not be considered wages under IRC section 3111(a) (employer tax and disability insurance portion of FICA ; 2%).
VA Note: The seems to mean the employer tax will not be required to be paid on qualified sick leave, family and medical leave, so make sure you inform your payroll processor.
Income Tax Updates as of March 17, 2020:
Federal April 15, 2020 Deadline for Tax Due Payment is extended to July 15, 2020:
This change was announced on March 17, 2020 in the afternoon by Treasury Secretary Steven Mnuchin.
Treasury Secretary Steven Mnuchin announced that taxpayers owing a payment to the IRS may defer the payment for 90 days.
Individual can defer up to $1MM and Corporations may defer up to $10MM.
The $1MM limit for individuals was established to cover small businesses and passthrough entities.
No interest and penalties will be charged on these deferred payments.
The Treasury Secretary is recommending filing tax returns timely even if you owe money as the taxpayer would still get the payment extension with no interest or penalties as discussed above.
If you have a refund, you should file timely to get the refund quicker.
VA Note:Please contact us if you have an urgent need for tax returns with refunds.
Currently, I’m reading that the tax returns are still due April 15, 2020, but the date for payment of taxes is extended to July 15, 2020. So, at this time, April 15, 2020 extensions are still required to be processed.
This may change, perhaps they will also add that extensions will not be required, so stay tuned.
Many details remain unclear with respect to this relief and no official written guidance has been released as of March 17, 2020.
State Tax Filing Guidance for Coronavirus Pandemic:
California: California has extended the due date to file returns and pay tax until June 15, 2020, which includes partnerships which were due on March 15, 2020, but it doesn’t discuss S Corporations, but I’m assuming that is an oversight.
IRS Notice 2020-17 is accessible from the link above. This notice is dated March 13, 2020. Some of the highlights are as follows:
President Trump issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act in response to the Coronavirus pandemic (Emergency Declaration).
VA Note:Please consider reviewing your business insurance for any loss of revenue or extra expense reimbursement due to this emergency declaration act. Perhaps this “Emergency Declaration” will allow some coverage.
The Emergency Declaration instructed to Secretary of the Treasury “to provide relief from tax deadlines to Americans who have been adversely affected by the OVID-19 emergency pursuant to IRC section 7508A(a). This code section is entitled, “Authority to postpone certain deadlines by reason of Presidentially declared disaster or terroristic or military actions.” Pursuant to IRC section 7508A(a), a period of up to one year may be given. Currently, the relief for tax payments as discussed above is 90 days.
The relief granted by the Federal government is federal income tax payments due on April 15, 2020.
The relief provided is available solely with respect to Federal income tax payments (including payments of tax on self-employment income) due on April 15, 2020 in respect of an affected taxpayer’s 2019 taxable year, and federal estimated income tax payments due on April 15, 2020.
VA Note: Our interpretation is April 15, 2020 tax due payments for 2019 tax liabilities and 2020 1st quarter estimated tax payments are provided a 90-day relief, to July 15, 2020. There doesn’t seem to be any extension/relief for other taxes like payroll taxes. However, some employers will find relief related to employer payroll tax as discussed above. As of this current notice, interest and penalties would begin on July 16, 2020.
SBA Relief/Small Business Loans: Small businesses will probably need cash/financing assistance to get us through this COVID-19 shutdown period. Currently, it seems SBA financial assistance is based on a state by state decision. Let’s discuss the current options
Faster, easier Qualification process for states seeking SBA disaster Assistance.
Expanded Statewide access to SBA Disaster Assistance loans for Small business. SBA disaster assistance loans are typically only available to small businesses within counties identified as disaster areas by a Governor. Under the revised criteria issues on March 17, 2020, disaster assistance loans will be available statewide following an economic injury declaration. This will apply to current and future disaster assistance declaration related to Coronavirus.
Process for Accessing SBA’s Coronavirus (COVID-19) Disaster Relief Lending:
SBA is offering designated states ad territories low interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of COVID-19. Upon request received from a state’s Governor, SBA will issue under its own authority, Supplemental Appropriations.
Any such Economic Injury Disaster Loan assistance declaration issued by SBA makes loans available statewide to small businesses and private, non-profit organizations to help alleviate economic injury caused by COVID-19.
One a declaration is made, the information on the application process for Economic Injury Disaster loan assistance will be made available to affected small businesses within the state.
The loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster impact. The interest rate is 3.75% for small businesses and 2.75% for non-profit.
SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrowers’ ability to repay.
COVID 19 / Coronavirus application is “Economic Injury”
Select your State and County
Selection Disaster Name which should be Coronavirus.
You must certify and accept a truthful clause
You need to accept statement required by EO, which includes information being available for specific reasons.
Filings Requirements:
Disaster Business Loan Application
Need FEIN
Need insurance information for flood, hazard, or business interruption.
If you every had a federal loan (like an SBA loan), they will want that information.
Personal Financial Statements SBA form 413
Schedule of Liabilities SBA form 2202
Request for Tax Return transcripts
Business Tax Returns
You will need to be prepared with financial and tax information for the application.
Unemployment Options
This is an option in which a business owner can terminate employees due to some purposes or reason which is based on their state law and employment contracts, like furloughed due to Coronavirus, and the employee would file for state unemployment insurance/income.
Political Discussion / Financial Thoughts:
I think all of us, as business owners, need to communication with our Congress person and Senator. I think one of the best ways to get money to small business is for the Federal Government to utilize SBA to provide loans to small businesses. The application needs to be streamlined. The loans to small businesses would provide financial help to keep those businesses going. Governments needs to be concerned with borrowers not taking advantage of the program could provide some sort of income tax incentives to the business owner in addition to the ones already passed. Here are my initial thoughts:
Use SBA to provide disaster loans to small business. I’m sure SBA can get cash to business owners better than Treasury cutting checks to taxpayers.
The SBA funds can be used to pay employees, rent, loans, utilities and necessary/fixed overhead would be a tax deduction and a refundable tax credit.
This should provide business owners with an incentive to use the money correctly, because if they don’t, then they will still be on the hook for the loan.
Profits will most likely be down, and cash spent to keep employees working and businesses paying the bills, should help the economy. These payments, which the IRS can define later, would be a tax deduction and a refundable credit.
The refundable credit should trigger a tax refund, and that money can be used to pay back the SBA loan.
If things work out correctly, businesses stay open, employees get paid, employee benefits stay in place, overhead gets paid, and this should help us through this pandemic. Then the IRS could provide tax forms with the 2020 tax returns, in which qualified disaster expenses would be a tax deduction and a refundable credit. The IRS can audit these calculations.
Refundable credits would provide business owners with cash upon filing tax returns, and thus the refund can be directly applied to SBA loans.
Refundable credits would also reduce the need or amount for 2020 estimated tax payments.
Yes, this is going to be an expensive taxpayer assistance package, but we the taxpayers pay the tax, and this time we need help. Based on my quick research, the TARP (Trouble Asset Relief Program) cost the taxpayers around $40 billion. Congress MUST act to save the US economy. Allowing the banks and small business to help should make the process easier.
If a financial assistance program isn’t provided, I expect employees will be laid off and businesses will go out of business. Loans won’t be paid, landlords won’t be paid, etc. It would be a ripple effect.
I recommend everyone contact their Congress person and / or Senator to such a strategy similar to the above. Business owners don’t want to go into debt to keep the doors open.
Hopefully this process or something similar will keep the economy sustained and reduce the chances of uprising. If people can’t work to earn money, they need a process to pay for food, housing, and bills. Plus, this should create an incentive for people to abide by the disaster request/requirements.
