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President Trump Signs an Executive Order and Three Memoranda to Provide or Extend COVID-19 Relief to Individuals and Businesses

On Saturday, August 8, 2020, President Trump issued an Executive Order and three Memoranda to provide or extend COVID-19 relief to individuals and businesses.  Although the Executive Orders are not currently operational, at Tarlow, we feel that it is important for us to communicate this update.

Payroll Tax Deferral

The Executive Order directs the Secretary of Treasury to defer the withholding, deposit, and payment of the employee portion of social security tax, excluding Medicare tax, on wages or compensation paid during the period of September 1, 2020, through December 31, 2020. The deferral applies to any employee whose pre-tax wages or compensation during any biweekly payroll period are generally less than $4,000, calculated on a pre-tax basis, or the equivalent amount during other payroll periods. The tax payments are deferred without penalties, interest, additional amounts, or addition to the tax.

The Executive Order directs the Secretary of Treasury to issue guidance to implement the Memorandum and to identify methods to eliminate the obligation to pay the deferred taxes. It provides only for the deferral of the employee portion of social security tax and, in the event the Secretary of Treasury does not eliminate the deferred tax entirely, an affected employee will be required to pay any remaining deferred tax. We await further guidance; currently, it is not clear how an employee would pay the deferred tax following the end of the deferral period.

Employers have already had 50% of their portion of payroll tax payments due during the period that begins on March 27, 2020, and ends on December 31, 2020, delayed until December 31, 2021, and the other 50% until December 31, 2022, by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136.

The other Executive Orders involve compensation to unemployed individuals, evictions, and student loan relief, as follows:

Disaster Relief/Unemployment Insurance Benefits

The CARES Act provided a $600 per week federally funded unemployment compensation assistance to an eligible unemployed person, in addition to standard state unemployment benefits. This benefit expired on July 31, 2020.

The Disaster Relief Memorandum directs the Federal Emergency Management Agency (“FEMA”) to provide benefits from the Department of Homeland Security’s Disaster Relief Fund. It also directs states to utilize their Coronavirus Relief Fund allocation to provide financial relief to unemployed Americans affected by COVID-19. The maximum amount is $400 per week supplemental unemployment compensation benefit. In comparison to the $600 supplemental benefit under CARES, the Disaster Relief Memorandum calls for two significant changes in eligibility:

  • Individuals must receive at least $100 per week in regular state unemployment compensation assistance, an increase from $1.
  • Individuals must certify that their lost wages are attributable to disruptions caused by COVID-19.

The funding for this new benefit differs from the funding under the CARES Act in that the federal government will only pay for 75% of the costs associated with this benefit. The remaining 25% will be the responsibility of the state governments, subject to an agreement between the federal government and the state in terms of the program and funding.

Eviction Minimization

The Housing Executive Order directs members of the Cabinet to consider, identify, review, and minimize residential evictions and foreclosures during the COVID-19 pandemic. President Trump directs the Secretary of Health and Human Services and the Director of the Centers for Disease Control and Prevention to consider whether any temporary ceasing of evictions for failure to pay rent are reasonably necessary to prevent further COVID-19 spread. President Trump directs the Secretary of the Treasury and the Secretary of Housing and Urban Development to identify Federal funds that could be allocated to provide temporary financial assistance to renters and homeowners struggling to make monthly payments. The President also directs the HUD Secretary to promote the ability of renters and homeowners to avoid eviction or foreclosure, including by providing Federal funds to landlords.

Student Loan Payment Relief

The Education Memorandum directs the Secretary of Education to effectuate waivers of and modifications to the requirements and conditions of economic hardship deferments.  It provides such deferments as necessary to continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until December 31, 2020. The Education Memorandum also states that student loan borrowers may continue to make payments.

Tarlow is Here to Help – Please Contact Us with Questions

Tarlow Partners and staff members are closely monitoring these Executive Orders, tax-related legislation and regulations, and new guidance from the SBA and the Department of Treasury. We are readily available to assist business owners and will continue to send updates about relevant news and changing guidelines.  If you have any questions about this update or any tax matter, please contact your Tarlow advisor for assistance.

Important Reminder from Tarlow: The Deadline to Apply for a Paycheck Protection Program Loan is Saturday, August 8, 2020

The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on payroll. The PPP resumed accepting applications on July 6, 2020, in response to President Trump signing the program’s extension legislation. As an important reminder from Tarlow, the deadline to apply for a Paycheck Protection Program loan is August 8, 2020. The five-week extension was intended to provide small businesses additional time to apply for the approximately $129 billion in PPP funding remaining. The Small Business Administration (SBA), which oversees the program with the Treasury Department, will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses.

PPP Loan Forgiveness Details 

PPP loan recipients can have their loans forgiven in full if the funds were used for eligible expenses and other criteria are met. The amount of the loan forgiveness may be reduced based on the percentage of eligible costs attributed to nonpayroll costs, any decrease in employee headcount, and decreases in salaries or wages per employee.  PPP loans will be fully forgiven if the funds are used for payroll costs (at least 60% of the forgiven amount must have been used for payroll), interest on mortgages, rent, and utilities. In addition:

  • PPP loans have an interest rate of 1%.
  • Loans issued prior to June 5, 2020, have a maturity of two years and loans issued after June 5, 2020, have a maturity of five years.
  • Loan payments will be deferred for six months.
  • No collateral or personal guarantees are required.
  • Neither the government nor lenders will charge small businesses any fees.

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.  Forgiveness will be reduced if the full-time headcount declines, or if salaries and wages decrease. The loan forgiveness form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:

  • Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles.
  • Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the 24-week period after receiving their PPP loan.
  • Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness.
  • Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30, 2020.
  • Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined.

Who Can Apply?

The following entities affected by COVID-19 may be eligible:

  • Any small business that meets SBA’s size standards, either the industry-based sized standard or the alternative size standard.
  • Sole proprietors, independent contractors, and self-employed persons.
  • Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location.
  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
  • 500 employees, or
  • That meets the SBA industry size standard if more than 500

How Can You Apply?

Entities can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.

If you wish to begin preparing your application, please contact your Tarlow advisor for assistance. You can also download the PPP borrower application form (revised June 24, 2020) to see the information that will be requested from you when you apply with a lender.

Paycheck Protection Small Business Forgiveness Act 

In addition to the five-week extension for the PPP application period, the Paycheck Protection Small Business Forgiveness Act was introduced to streamline forgiveness of PPP loans for small businesses. This bipartisan legislation includes forgiveness for PPP loans of $150,000 or less if the borrower submits a simple, one-page attestation form to the lender. It also ensures the lender will be held harmless from any enforcement action if the borrower’s attestation contained falsehoods.

Tarlow is Here to Help – Please Contact Us with Questions

Tarlow Partners and staff members are closely monitoring tax-related legislation and regulations, and new guidance from the SBA and the Department of Treasury. We are readily available to assist business owners submit Loan Forgiveness applications and will continue to send updates about relevant news and changing guidelines.  If you have any questions about maximizing PPP loan forgiveness, please contact your Tarlow advisor for assistance.

3 Ways to Receive Payments in QuickBooks Online

If you crafted 2020 business goals in 2019, you’ve probably had to revise them due to COVID-19. Despite the disruption of the last six months, we hope that you have managed to stay healthy and keep your small business running.

It’s more important than ever to conscientiously record all of the money coming into your company and ensure that it gets deposited into your account(s). QuickBooks Online offers several ways to accomplish this. Whether you’re receiving payment on an invoice, documenting an instant sale, or selling on the road, the site provides tools to make sure that your receipt of the funds is entered in the correct place.

Delayed Payments

Do you send invoices for products and services? If so, there’s more than one way to record payments when they come in. You can, of course, just open the invoice and click Receive Payment in the upper right corner. We find, though, that going to the All Sales screen gives us a chance to check the status of other pending transactions. Click Sales in the toolbar, then All Sales.

If your list isn’t very long, you can just look for the invoice number. If not, you can use the Filter tool to find the original form. Click the down arrow next to Filter in the upper left to see your search options here (StatusCustomer, etc.).


If you have a lengthy list of sales transactions, you can search for the one(s) you want in this drop-down window.

Once you’ve found the invoice, look down toward the end of that row. In the Action column, you’ll see Receive payment. (While you’re there, click the down arrow to familiarize yourself with the other options.) When the Receive Payment window opens, select the Payment method that applies. Leave the Deposit to field showing Undeposited Funds and look over the rest of the screen to make sure everything is accurate. Print it if you’d like, or add an Attachment using the links at the bottom, then Save it.

Tip: Customers tend to pay invoices faster if you allow them to make payments online. If you’re not yet set up for this, your Tarlow advisor can help you.

Instant Payments

Your business may collect payments at the time you provide a product or service. When this happens, you’ll want to supply your customers with a sales receipt instead of an invoice (this is also important for your records). Click the +New button in the upper left and select Sales Receipt under Customers to open a blank form. You’ll fill this out just like you would an invoice by selecting the Customer first, then entering or selecting any data needed for the other fields.

If you don’t anticipate needing all of the fields on your sales forms, you can remove some of them and even add your own. Ask us how this works.

If you’d like to add custom fields to your sales forms, you can do so in QuickBooks Online.

When you’ve completed all of the fields in your sales receipt, you can preview and print it. You can also save and email it to the customer.

Going Mobile

If you generate sales on the road, you can still create sales receipts for customers using the QuickBooks mobile app. Just click the plus (+) sign at the bottom of the screen and select Sales Receipt. The form is similar to the one you’d use on your desktop computer, though the layout is different, of course.

Having a QuickBooks Payments account is especially helpful when you’re making mobile sales. You can even swipe your customers’ credit and debit cards if you order a card reader from Intuit. We can walk you through this process.

You don’t ever want to record a payment incorrectly, of course, but it’s especially important right now to ensure that you’re accounting for every dollar that comes in. Please stay healthy and safe, and contact us if we can help in any way with your accounting and your use of QuickBooks Online.

A Novel Way to Make COVID-19 Relief Donations

Article Highlights:

  • Donating unused vacation time, sick leave and personal time
  • Employer’s Function
  • Great Donation Opportunity

On March 13, 2020, the President issued an emergency disaster declaration under the Stafford Act as a result of the coronavirus pandemic. The disaster area covers all 50 states, the District of Columbia, and five U.S. Territories. As a result, and as was done in the past in the wake of major disasters, including Hurricanes Katrina, Sandy, Harvey and Maria, the IRS is providing special relief that allows employees to donate their unused paid vacation, sick leave, and personal leave time to COVID-19 relief efforts.

Here is how it works: if your employer is participating, you can relinquish any available and paid vacation time, sick leave, and personal leave for cash payments, which your employer will donate to COVID-19 relief charitable organizations. The cash payment will not be treated as wages to you, and your employer can deduct the amount given as a business expense. However, since the income isn’t taxable to you, you will not be allowed to claim the donation as a charitable deduction on your tax return. Even so, excluding income is often worth more as tax savings than a potential tax deduction, especially if you generally claim the standard deduction* or you are subject to AGI-based limitations.

This particular relief applies to all donations made before January 1, 2021, giving individuals plenty of time to forgo their unused paid vacation, sick and leave time and have the cash value donated to a worthy cause.

This is an excellent opportunity to provide sorely needed help in the ongoing COVID-19 emergency without costing you anything but time. Contact your employer to donate. If your employer is unaware of this program, refer them to IRS Notice 2020-46 for further details.

If you have questions related to donating leave time for COVID-19 relief efforts or other charitable contributions, please contact us.

 

*Normally, charitable contributions are deductible only if you itemize your deductions on Schedule A as part of your 1040 return. This means you wouldn’t get a tax benefit from your donations if you claim the standard deduction instead of itemizing. However, the CARES Act, passed in late March 2020, allows up to $300 of cash charitable contributions made in 2020 to be deducted from your income even if you use the standard deduction. Of course, as noted above, you can’t deduct the value of COVID-19 relief donations made through leave-based donation programs in any case. Instead, the leave time is non-taxable.

IMMEDIATE ACTION REQUIRED: Important Tax Filing Information for July 15, 2020

The Supreme Court has taken up a case that will determine the constitutionality of the Affordable Care Act (ACA). While it is highly unlikely that the Supreme Court will retroactively deem this Act unconstitutional, the decision to strike down the ACA would likely also invalidate two taxes on high-income individuals, including the net investment income tax and the increased Medicare tax rate.

High-earning taxpayers affected by these ACA specific taxes have the potential to claim a refund for 2016 through 2019 tax years; however, the request for a refund must be filed before the three-year statute of limitations expires. For 2016 tax returns filed before July 15, 2017, that statute of limitations runs out July 15, 2020.

July 15, 2020, is the deadline to file a “protective” refund claim for 2016-2019

Despite the lack of an official ruling by the Supreme Court and the impending statute of limitations, it is still possible for affected taxpayers to preserve their ability to claim a refund by filing a “protective” refund claim before the statute of limitations for each year expires. A protective refund claim is possible when a law is still in question, but the statute of limitations is about to expire, as long as the protective refund claim is filed before the statute of limitations lapses. Filing the protective refund allows the taxpayer to file an amended return and request a refund if the law is ultimately deemed unconstitutional. Taxpayers that filed after July 15, 2017, will have until later in the year to file this refund claim.

Simple filing requirements 

The only requirements for a valid protective claim include an explanation for the claim and the specific years for the potential refund, as well as the taxpayer’s name, address, signature, and legal identification, including either a Social Security number or taxpayer ID number. The protective refund claim must also be postmarked by the statute of limitations end date, but it is not required that the IRS receive the claim by that date.

Instructions and forms to file your “protective” refund claim

It is possible for taxpayers to file their own protective claims using our template; this process ensures the most expedient filing of the claim. Claim filing instructions and templates to expedite the process are included for your use below.

Print out the appropriate templates, fill them out and mail by the end of the business day on Wednesday, July 15, or later if you filed your 2016 income tax return later than July 15, 2017.

Protective Claim Filing Instructions.pdf 

Protective Claim Form – Individual.pdf 

Protective Claim Form – Trust.pdf 

If you believe that you may have paid Net Investment Income Tax, please print the form and mail it to the IRS. You do not need to contact us prior to mailing the form, but please contact your Tarlow advisor to share a copy of your protective claim electronically.

Thank you and please contact us with further questions. We are here to assist you.

Here’s What Could Happen If You Try to Short-Change the IRS

Article Highlights:

  • Self-employed taxpayers
  • Underreported income
  • Unscrupulous tax preparers
  • Phony deductions or credits
  • Inflating the Earned Income Tax Credit
  • Taking fake education credits
  • Petty cheating

Some refer to it as “creative accounting” or just “a little fudging here and there.” However, if your tax return is missing some income that should have been reported or includes overstated deductions, regardless of whether you prepared your return or had it prepared, you are the one who is ultimately responsible. If you get caught, there can be very unpleasant consequences, including substantial monetary penalties and the possibility of jail time for blatant cases.

Those who fudge on their taxes may think that they are just cheating the government out of money. In actuality, however, the government is going to get the taxes it needs from somewhere, so those who fudge on their taxes are causing others to pay more.

Currently, just short of 50% of all U.S. taxpayers pay no income tax. A large percentage of these folks get money back from the government because their income is low, and they qualify for certain refundable tax credits. How many of those not paying taxes are either not reporting all of their income or exaggerating their deductions? There are no statistics on the issue, but it would seem to be a large number.

One of the most significant areas of cheating involves self-employed individuals not reporting cash payments. Some will even go so far as to offer discounts for cash payments; these discounts, of course, are attractive, and customers often opt for them, thus enabling the self-employed individuals to cheat on their taxes. However, if self-employed individuals get caught, perhaps because their reported income doesn’t support their lifestyles, they can end up with a high tax bill and penalties. Additionally, when the IRS finds a cheater, that person’s returns, or their company returns, are often audited for other years.

Some individuals who underreport their income are not just avoiding income taxes, but qualifying for low-income tax credits and other subsidies meant for those who need them.

Unscrupulous tax preparers also cheat, and you could end up being the victim. Here are some of the schemes they pull:

  • Adding false deductions or credits – They do your return correctly and tell you what your refund is. Then, before they e-file it, the preparer adds false deductions or credits to inflate the refund. The refund amount you expect is direct-deposited to your account, but the extra amount is sent to their bank account.
  • Inflating the Earned Income Tax Credit – Earned Income Tax Credit (EITC) is a refundable tax credit for low-income taxpayers that is based upon the amount of the taxpayer’s income from working (earned income). The credit increases up to a point as the taxpayer’s earned income increases then phases out for higher-income taxpayers. This credit is the frequent target of scams, and one of the most common is to create earned income by fabricating self-employment income of an amount that will result in the maximum EITC. Even though this may create more taxes, the EITC is higher than the taxes, netting an increase in the taxpayer’s refund.
  • Taking fake education credits – Another frequent scam is to claim a higher education tax credit, especially the partially refundable American Opportunity Tax Credit (AOTC), using made-up education expenses. The AOTC can be as much as $2,500, and $1,000 of that amount is refundable.

If you were a victim of an unscrupulous tax preparer and need assistance, please contact your Tarlow advisor.

Petty cheating is also prevalent. The following lists common areas of fraud and the steps that the IRS takes to counter them.

  • Inflating the value of noncash goods donated to charity – This is probably one of the most commonly inflated tax deductions.
    IRS Countermeasures: The IRS requires documentation from the charity, and if the value of the donation is more than $500 for the year, a detailed list of the items that the taxpayer contributed. The IRS will generally include charitable contributions in every audit, no matter what triggered the audit in the first place. 
  • Claiming fictitious cash contributions – This typically involves claiming that cash was donated through a house of worship’s collection plate or holiday charity kettle.
    IRS Countermeasures: All cash contributions must be verified with a bank record or a written record from the charity. Without such a document, no deduction is allowed. 
  • Purchasing an item at a charity event – Generally, when you receive something of value for donating, the amount of that item is not a deductible charitable contribution. Thus, the cost of pancake breakfasts, charity auctions, Girl Scout cookies, car washes, and the like are not deductible as charitable contributions.
    IRS Countermeasures: The IRS requires charities to include the value of goods or services provided to the donor on the charity’s receipt, making it easy for the IRS to detect when improper deductions are taken when it examines the receipts during an audit.
  • Donating cars to charity – At one time, individuals were donating vehicles that were close to being scrapped and then deducting the blue book value for the car as if it were in good or better condition. This trend became so prevalent that Congress actually stepped in and limited the vehicle contribution to $500 (generally).
    IRS Countermeasures: The IRS now requires the charity to issue a Form 1098-C to the donor; this form includes the information that needs to be reported if the vehicle contribution meets the requirements for a contribution greater than $500. 
  • Using a business vehicle for personal purposes – Have you seen pickups and other trucks with company logos on their doors towing boats and trailers down the highway? There is a good chance that the drivers of these trucks are writing off the mileage through their businesses.
    IRS Countermeasures: The IRS generally requires businesses, primarily closely held ones, to verify the business use of their vehicles (particularly those that are suitable for personal use) with a log, including the odometer readings for the start and finish of each business use. 
  • Deducting more home mortgage interest than entitled – Tax law limits the amount that can be deducted for home mortgage interest to the interest paid on $1 million in debt ($750,000 for debt incurred after December 15, 2017) from purchasing or improving a home. This limit applies to a taxpayer’s first and second homes only. Many taxpayers simply take the mortgage interest from the Form 1098 provided by the lender without any regard to these limitations.
    IRS Countermeasures: IRS Form 1098 requires lenders to include additional information that will allow the IRS computer to determine whether the limits have been exceeded. 
  • Making repairs on a personal home and deducting the expenses on a rental or business property – It is pretty easy for landlords or owners of business real estate to make repairs on their homes and then deduct those repairs on their rental or business properties.
    IRS Countermeasures: An auditor will look at the dates and addresses on receipts to ensure that they make sense. If an auditor catches such a violation, expect him or her to become very aggressive in other areas and to possibly invoke substantial penalties due to the intentional disregard of laws and regulations.
  • Falsifying investment costs to minimize gain – Until a few years ago, it was up to taxpayers to track their basis in the securities they owned. Inflating the price was prevalent before the IRS required brokers to begin monitoring basis.
    IRS Countermeasures: The IRS modified Form 1099-B, issued by brokers when stocks, bonds, etc., are sold, to include the basis if known, and to indicate otherwise if basis was unknown. Then, the IRS developed Form 8949 to separate investment sales into those for which the broker was tracking the basis, and those for which the broker did not know the basis or wasn’t required to track it. The information on these forms allows the IRS to focus on the sales for which the taxpayer was tracking the basis. 

If you suspect your tax returns could be fraudulent, or if you know someone who has been the victim of a dishonest or inept tax preparer, please contact us.

The U.S. Senate Approved a Vote to Extend the Paycheck Protection Program Application Period

On Tuesday, June 30, 2020, the U.S. Senate approved a vote to extend the Paycheck Protection Program (PPP) application period by five additional weeks until August 8, 2020.  The vote was passed by unanimous consent less than four hours before the PPP application window was scheduled to close with more than $130 billion in unspent loan money.

The legislation will require President Donald Trump’s signature for the program to continue. It now heads to the House of Representatives, which had finished voting before the bill was approved by the Senate.  Members of both chambers are expected to adjourn by the end of the week for the Fourth of July holiday and are scheduled to return in two weeks. The House would have to pass the measure and President Trump would have to sign it before the extension would take effect.

As of 5:00 p.m. ET on Tuesday, June 30, 2020, the U.S. Small Business Administration (SBA), which oversees the program with the Treasury Department, had approved nearly 4.9 million loans for a total of more than $520 billion. At midnight on Tuesday, June 30, 2020, the SBA stopped accepting loan applications. The unexpected extension is intended to provide small businesses additional time to apply for the approximately $129 billion in PPP funding remaining.

In early April, Congress created the PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.  The PPP was launched to aid the U.S. economy and assist small businesses facing economic hardships created by the COVID-19 pandemic. The program provides forgivable loans of up to $10 million per borrower that small businesses and other qualifying entities can use to cover payroll and other select costs, including mortgage interest, rent, and utilities.

PPP loan recipients can have their loans forgiven in full if the funds were used for eligible expenses and other criteria are met. The amount of the loan forgiveness may be reduced based on the percentage of eligible costs attributed to nonpayroll costs, any decrease in employee headcount, and decreases in salaries or wages per employee.

Tarlow is Here to Help – Please Contact Us with Questions

Tarlow Partners and staff members are closely monitoring tax-related legislation and regulations, and new guidance from the SBA and the Department of Treasury. We will continue to send updates and communications about relevant news and changing guidelines.

We are readily available to assist business owners in submitting Loan Forgiveness applications. If you have any questions about interpreting these new requirements and maximizing PPP loan forgiveness, please contact your Tarlow advisor for assistance.

The July 15th Deadline Is Fast Approaching, and It Isn’t Just for the 2019 Individual Tax Return

Article Highlights:

  • Extensions 
  • Contributions to IRAs 
  • Estimated Tax Payments for the First Two Quarters of 2020 
  • Individual Refund Claims for the 2016 Tax Year 
  • Foreign Account Reporting Requirements 

Due to the COVID-19 emergency, the IRS provided taxpayers with an automatic three-month extension to July 15 to file their 2019 tax returns and pay the 2019 tax, among other tax actions normally due on April 15. With July 15 fast approaching, it is crucial to understand that the day is more than just the deadline for filing your 2019 tax return. It is also the deadline for other tax items. Here is the rundown:

  • 1040 Extension – Those who are unable to file their 2019 individual 1040 tax return by the July 15 deadline need to file a Form 4868 extension, which will give them until October 15 to file the return. The tax liability shown on the extension should be paid with the extension form to avoid late payment penalties and interest. Penalties, interest, or additions to tax for failure to pay federal income taxes were disregarded during the April 15–to–July 15 extension-period window, but these will begin to accrue on July 16, 2020.

CAUTION: While the Form 4868 extension is an extension for filing, it is not an extension for paying your tax liability. The Form 4868 instructions say (and tax courts have ruled) that for an extension to be valid, a taxpayer must properly estimate their tax liability, enter that tax liability on the form, and file the extension by the due date of the return, which is July 15 this year.

The monthly penalty for not filing the 1040 tax return by the July 15 due date is 4½ percent of the tax due for late filing and ½ percent of the tax due for late payment. The maximum cumulative penalty rate is 25%; however, the ½ percent per month for late payment continues until the tax is paid.

There is also a minimum penalty for 2019 returns not filed within 60 days of the return due date, including extensions. That penalty is the lesser of $435 or the amount due on the 2019 tax return.

Importantly, if you do not owe or if you are getting a refund, there is no penalty because the penalties are based on a percentage of the tax due—if no tax is due, then no penalty is assessed.

The IRS also charges interest on late payments and penalties. The rate is subject to quarterly adjustment and is currently at an annual rate of 5% of the amount owed, with interest accumulating daily.

  • Contributions to a Roth or Traditional IRA for the 2019 Tax Year – July 15 is the last day for making 2019 contributions to Roth or traditional IRAs. Form 4868 does not provide an extension for making IRA contributions. 
  • Individual Estimated Tax Payments for the First Two Quarters of 2020 – Normally, the first installment of estimated taxes for a tax year is due on April 15, and the second installment comes due on June 15. For 2020, the IRS extended these due dates to July 15, to coincide with the other COVID-19-related extensions. Taxpayers who fail to prepay the minimum (“safe harbor”) amount may be subject to a penalty for underpayment of the estimated tax. This penalty is based on the interest on the underpayment, which is calculated using the short-term federal rate plus three percentage points. The penalty is computed on a quarter-by-quarter basis, so even people who have prepaid the correct overall amount for the year may be subject to the penalty if the amounts are not paid proportionally or in a timely way. However, for 2020, penalties for failure to pay federal income taxes during the April 15–to–July 15 period will be disregarded.

Federal tax law does provide ways to avoid the underpayment penalty. For instance, if the underpayment is less than $1,000 (referred to as the de minimis amount), no penalty is assessed. In addition, two options exist for safe-harbor prepayments:

    1. The first is based on the total tax on the current year’s return. There is no penalty when prepayments (including both withholding and estimated payments) equal or exceed 90% of the current year’s tax.
    2. The second is based on the total tax amount (not including credits for prepayments) on the return for the preceding tax year. This is generally set at 100% of the prior year’s tax liability. However, taxpayers with adjusted gross income exceeding $150,000 (or $75,000 for married taxpayers filing separately) must pay 110% of the prior year’s tax liability to meet the safe-harbor test. 
  • Individual Refund Claims for the 2016 Tax Year – The regular three-year statute of limitations for 2016 tax returns typically would have expired on April 15 of this year. However, due to the COVID-19 emergency, the statute of limitations was extended to July 15. Thus, no refund will be granted for 2016 returns (original or amended) filed after July 15. An exception is if a net operating loss is being carried to 2016; in this case, the usual three-year limitation for claiming a refund won’t apply as long as the statute is still open for the year when the net operating loss (NOL) occurred. However, taxpayers could risk missing out on the refundable Earned Income Tax Credit, the refundable American Opportunity Tax Credit for college tuition, and the refundable child credit for the 2016 tax year if they do not file before the statute of limitations ends. Caution: The statute does not apply to balances due for unfiled 2016 returns. 
  • Foreign Account Reporting Requirements (FBAR) – For each United States person who has a financial interest in, signature, or other authority over any foreign financial accounts, including bank, securities, or different types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, that person must report that relationship to the U.S. government during each calendar year. This reporting requirement is commonly referred to as FBAR, and the due date is the same as that for individual 1040 returns.

This report is submitted online to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), and the FBAR’s annual due date is April 15. However, FinCEN grants an automatic extension to October 15 each year, so if you missed the April due date this year, you still have until October 15 to file the FBAR. Penalties for failing to file an FBAR are severe, and individuals should not overlook overseas family accounts on which they are named as account holders or online foreign gambling accounts. If in doubt, call this office for further details.

If your income tax return is still pending because of missing information, please forward that information to us as quickly as possible so that we can ensure your return meets the July 15 deadline. Keep in mind that the last week before the due date can be very hectic, and your returns may not be completed in time if you wait until the last minute. If you know that the missing information will not be available before the July 15 deadline, please contact your Tarlow advisor so that we can prepare an extension request (and 2020 estimated tax vouchers, if needed).

If you have not yet completed your returns, please contact us immediately so that we can schedule an appointment, estimate your taxes, or file an extension.

Business Loan Program Temporary Changes: The SBA and Treasury Provide New Guidance on Interim Final Rules to Clarify the Loan Forgiveness Application Timeline and Owner Compensation

On Monday, June 22, 2020, the U.S. Small Business Administration (SBA) and the Department of Treasury released new guidance about the Paycheck Protection Program (PPP), Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule.

This new guidance outlines two significant changes affecting PPP loan borrowers:

  • Application Timeline: When can a borrower apply for loan forgiveness? 

A borrower can apply for loan forgiveness at any time on or before the loan maturity date.  If; however, the borrower applies for forgiveness before the end of the covered period, and if any employee’s salaries or wages have been reduced by more than 25 percent, the borrower must account for the excess salary reduction for the full eight-week or 24-week covered period.

  • Owner Compensation: What are the expanded limitations on owner compensation? 

The release of Revisions to the Third and Sixth Interim Final Rules on June 17, 2020, increased the maximum compensation for all employees and owners. The new interim rules added that the employer portion of retirement plan funding for owner-employees of S-Corporations and C-Corporations is now capped at 2.5 months’ worth of the 2019 contribution amount. In addition, healthcare costs paid on behalf of owner-employees of S-Corporations are not eligible for forgiveness.

Additional minor revisions to existing guidance are also included in the new regulations. These updates address the extension of the covered period derived from the June 5, 2020 enactment of the Paycheck Protection Program Flexibility Act (H. R. 7010).

Tarlow is Here to Help – Please Contact Us with Questions 

Tarlow Partners and staff members are closely monitoring tax-related legislation and regulations, and new guidance from the SBA and the Department of Treasury. We will continue to send updates and communications about relevant news and changing guidelines.

We are readily available to assist business owners in submitting Loan Forgiveness applications. If you have any questions about interpreting these new requirements and maximizing PPP loan forgiveness, please contact your Tarlow advisor for assistance.

The Small Business Administration and the Treasury Department Announce Streamlined Paycheck Protection Program Loan Forgiveness Applications

On Wednesday, June 17, 2020, the Small Business Administration (SBA) and the Treasury Department unveiled a streamlined loan forgiveness application for the Paycheck Protection Program (PPP). The new five-page “borrower-friendly” application, which can be found here, provides more flexibility to small businesses to receive forgiveness on their SBA-backed loans. The original eleven-page application was released in mid-May.

The SBA and the Treasury also released a three-page EZ Version, which applies to borrowers who are self-employed or have no employees; did not reduce the salaries or wages of their employees more than 25 percent and did not reduce the number of hours of their employees; or experienced reductions in business activity as a result of the coronavirus pandemic and did not reduce the salaries or wages of their employees by more than 25 percent.

The PPP was included as part of the CARES Act, the $2.2 trillion program that included economic impact payments to individuals and aid to businesses in response to the novel coronavirus pandemic. The program was initially launched on April 3 with $349 billion in funding to help small businesses remain open and retain employees. The loans would be forgiven if businesses retained their employees for up to eight weeks. Many small businesses had problems accessing or applying for the loans and the funds were quickly depleted. The program resumed on April 27 and Congress provided another $320 billion; however, the rules, eligibility, and forgiveness criteria have constantly changed. The program does not run out until June 30 and as of Tuesday, more than 4.6 million loans worth close to $513 billion had been distributed through the program. Congress allocated about $610 billion to the PPP, leaving approximately $120 billion to $130 billion in the fund.

Earlier this month, Congress provided more flexibility by passing the PPP Forgiveness Act to encourage more businesses to sign-up and to alleviate concerns regarding the loan forgiveness.  This was helpful to businesses such restaurants and the hospitality industry.  It extends the covered period from eight to 24 weeks, amends the requirement that no more than 25 percent of the loan forgiveness amount be attributed to non-payroll costs, and allows up to 60 percent to be used for non-payroll costs. The bill also included several other changes, including extending the deferral of payments of loan principal, interest and fees, from the current six months, until the date when the SBA pays the forgiveness amount to the lender. The new loan forgiveness application from the SBA reflects these changes.

The EZ application requires fewer calculations and less documentation for eligible borrowers. Details about the applicability of the various provisions are available in the instructions accompanying the new EZ application form. Both applications give borrowers the option of using the original eight-week covered period, if their loan was made before June 5, 2020, or the extended 24-week covered period under the new law. According to the SBA and the Treasury, the changes will result in a more efficient process and ease the process for businesses to realize full forgiveness of their PPP loan.

Please view the following applications for more information:

The EZ Forgiveness Application

The Full Forgiveness Application

The SBA’s new Interim Final Rule revises the previous Third and Sixth Interim Final Rules, published on April 14, 2020, and April 28, 2020, respectively. It specifically addresses the amount of employee compensation that may be forgiven under the extended 24-week covered period. While forgivable employee compensation was previously capped at $15,385 per individual, based on the annual covered salary cap of $100,000 and an 8-week covered period, the cap under the new 24-week covered period is $46,154 per individual employee. The annual covered salary cap remains at $100,000 per employee. However, owner compensation is specifically excluded from the $46,154 cap, although the forgivable figure does rise from the previous $15,385 cap under an 8-week covered period to $20,833 (a multiplier of 2.5 months is used for 24-week covered periods).

Tarlow is Here to Help – Please Contact Us with Questions

Tarlow Partners and staff members are closely monitoring tax-related legislation and regulations, and new guidance from the SBA and the Department of Treasury. We will continue to send updates and communications about relevant news and changing guidelines.

We are readily available to assist business owners in submitting Loan Forgiveness applications. If you have any questions about interpreting these new requirements and maximizing PPP loan forgiveness, please contact your Tarlow advisor for assistance.