A Message from Harper & Pearson Company, P.C.
We are fully operational and committed to serving our clients. As the novel coronavirus (COVID-19) continues to spread in the U.S. and across the world, our priority at Harper Pearson is the safety and well-being of our people, clients, families, and community. We are monitoring daily updates and recommendations from the CDC. Additionally, we are minimizing the impact that COVID-19 could have on our services and are staying abreast of all filing deadline adjustments. We understand that in this time of uncertainty you may have growing concerns for the financial health of yourselves and your businesses, employees, and families. We have communicated workplace guidelines to our Harper Pearson team members and have implemented strategies in our workplace that align with the recommendations to do our part with the prevention.
Tax Update on the Response to the COVID-19 Outbreak:
This is a unique time for our industry – the heart of tax season. Our team is actively monitoring possible tax return filing and payment extensions as a response to COVID-19. The IRS and Treasury pushed the tax filing deadline to July 15, aligning the due date with the extended deadline for payments. The guidance released Friday, 3/20 will give filers and advisers coping with the Covid-19 pandemic more time to prepare tax returns. It also permits unlimited tax payment deferral for individuals and businesses for those extra three months.
New CARES Act Provides Tax Relief
Key tax breaks in COVID-19 law
In response to the COVID-19 outbreak, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27. This new federal legislation includes relief for both individuals and businesses of all shapes and sizes. Following is a brief roundup of several key tax-related provisions affecting individuals and small business owners.
Stimulus checks: The most publicized provision in the new law provides $1,200 cash payments to single filers and $2,400 to joint filers. Plus, you will receive $500 for each “child” as defined by the Child Tax Credit (CTC). Generally, the CTC is available for dependent children under age 17 living in your household.
But the checks phase out for higher-income taxpayers. The phase-out begins at $75,000 of adjusted gross income (AGI) for single filers and $150,000 of AGI for joint filers. The phase-out is complete for single filers with an AGI of $99,000 or more and $198,000 for joint filers.
The payments are technically advances of refundable credits. These amounts are generally based on your 2019 tax return, if you have already filed it, or your 2018 return.
Charitable contributions: Due to changes in the Tax Cuts and Jobs Act (TCJA), many taxpayers who previously itemized now claim the standard deduction. Thus, they receive no current tax benefit from their charitable donations. The CARES Act allows you to deduct up to $300 in donations to qualified charities even if you do not itemize on your tax return and regardless of your AGI. Corporations can deduct donations up to 25% of taxable income in 2020 instead of the usual 10% limit.
Early plan withdrawals: Generally, if you make a withdrawal from a qualified retirement plan or IRA before age 59½, you must pay a 10% penalty tax in addition to regular income tax. But the tax code includes a list of exceptions to the penalty. The new law adds another exception for coronavirus-related distributions of up to $100,000 in 2020.
Required minimum distributions: Most qualified plan and IRA owners must begin taking “required minimum distributions” (RMDs) after attaining age 72 (recently increased from age 70½). But the CARES Act suspends all RMDs, including inherited accounts, for 2020.
Tax-free rollovers: Usually, you are taxed on IRA and qualified plan distributions, unless you roll over the funds to another account within 60 days. The CARES Act permits you to take COVID-19 related withdrawals of up to $100,000 and replace the funds within three years without any tax liability. In addition, the new law enhances the rules for loans from qualified plans.
Student loans: Employers may provide up to $5,250 this year in student loan repayment benefits on a tax-free basis. In other words, employers could assist with loan payments and employees would not be responsible for tax on those amounts, up to the stated limit. Borrowers can defer payments on qualified student loans without any penalty until September 30.
Qualified improvement property: Initially, Congress had intended for qualified improvement property placed in service after 2017 to have a 15-year depreciation recovery period, which would make it eligible for special “bonus depreciation.” However, due to a drafting error in the TCJA, the 15-year recovery period for this type of property wasn’t reflected in the statute. Now the CARES Act fixes this problem retroactive to January 1, 2018.
Employee retention credit: The new law authorizes a credit for 2020 only against an employer’s 6.2% share of Social Security payroll taxes. This refundable credit is available to businesses that suspend or close operations due to COVID-19, or certain companies with reduced gross receipts, as long as they continue to pay their employees. For each eligible quarter, the credit is equal to 50% of the first $10,000 of qualified wages per employee, through the quarter ending on December 31, 2020.
Payroll tax delay: A qualified employer will be able to defer its share of the 6.2% Social Security tax that would otherwise be due through December 31, 2020. The new law permits 50% to be paid by the end of 2021 and 50% by the end of 2022. Similarly, a self-employed taxpayer may defer payment of 50% of self-employment tax, with 25% due at the end of 2021 and 25% due at the end of 2022.
Net operating losses: The TCJA changed the rules for net operating losses (NOLs). Briefly stated, it disallowed carrybacks relating to NOLs after 2017 and provided an indefinite carryforward period with a limit of 80% of taxable income. The CARES Act repeals these NOL changes and also temporarily eliminates a cap for net losses based on $250,000 of income for single filers and $500,000 for joint filers.
Business interest limit: Under the TCJA, business interest expense deductions were limited to the sum of business interest income and 30% of “adjusted taxable income” (ATI). A provision in the CARES Act temporarily increases the ATI limit to 50% for 2019 and 2020.
Finally, the CARES Act includes numerous provisions signed to help small businesses weather the storm, including hundreds of billions of dollars in emergency funds to cover immediate operating costs and loans through the Small Business Administration (SBA). Extensive improvements to unemployment benefits for individuals were also approved.
The CARES Act also provides significant federal funding for a range of non-tax measures to assist individuals and businesses impacted by the economic effects of COVID-19. While not the focus of this update on the tax relief included in the CARES Act, some of the key programs include:
For more details about the CARES Act and the impact on your personal situation, contact your Harper Pearson contact or leave us a message at 713.622.2310.
We’ve attached a helpful reference sheet on the CARES Act related to tax relief associated with the recent stimulus package. You can download the reference sheet here.
Harper Pearson has taken measures to achieve our first priority of protecting the health and safety of our employees, clients, and the community at large. Our office will remain open for business, but access to our office will be modified as follows:
1. We encourage clients to send information electronically or via a delivery service.
2. Please contact us at firstname.lastname@example.org or call our office directly at 713.622.2310 if you need assistance.
3. There will be someone at our office from 8:00 am to 5:00 pm to meet with you if necessary.
4. The office will be closed to nonessential visitors such as family, friends and nonoperational vendors.
For those Harper Pearson clients practicing social distancing, or you do not feel comfortable coming to our office in person, these options are available to you:
• Email remains the most effective option for electronic communication.
• Electronic document sharing may be arranged using Harper Pearson’s secure portal. If you would like to be set up on the firm’s portal, please contact Shannon Allison at email@example.com or your Harper Pearson contact. An electronic signature of tax returns is available using RightSignature.
Your Harper Pearson contact can also set-up a virtual meeting, conference call, and video conferencing with you as an alternative to in-person meetings. • You can also send documents via FedEx, UPS, USPS, or any courier service. Please coordinate this with your Harper Pearson contact. For more information, please contact us at firstname.lastname@example.org or call our office directly at 713.622.2310.