The CARES Act extends the traditional ability of employers to exclude payments on behalf of an employee for educational expenses of up to $5,250 per year to include the repayment of employee student loans. In both cases, payments are deductible to the employer while excluded from the gross income of the employees. Student loan payments may not exceed $5,250 per employee and made before January 1, 2021. When an employer makes a payment on a student loan on behalf of an employee that employee may not deduct any student loan interest paid in the year of the payment.
One of the questions we are getting the most right now is regarding what those who have been forced by their business or company to work at home can deduct. The truth is if you are an employee working from home as the tax law currently stands, deductions for employee business expenses are no longer allowed.
Employees should speak to their employers about the possibility of being reimbursed for business related expenses; reimbursements would be deductible to the employer and not taxable to the receiving employee. Reimbursements can include things like internet service fees, office supplies, cell phone fees, and even business use of auto. Employers can also provide things like funds to purchase computers, printers and software and deduct them while excluding the payments under code section 139. Disaster Relief Payment also allows the payment of certain other expenses for employees due to a presidentially declared disaster, like COVID-19. These include reimbursement or payment of reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster, but only to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise.
Those that are self-employed may deduct all ordinary and necessary expenses related to the operation of their self-employed business and of those of working from home. If you are a shareholder and employee of a S or regular corporation, the corporation can use the reimbursement rules stated above to reimburse you and any other employees it designates necessary to the ongoing operations of its business and to deduct those reimbursement.
The IRS recently released Notice 2020-32 which explains that while amounts forgiven under PPP loans are not taxable to the recipients of the loan, the expenses used to qualify for said loan forgiveness are also not deductible.
The CARES Act provides for PPP loan forgiveness when the use of proceeds meets certain conditions. If the recipient of a covered loan uses the proceeds to pay (1) payroll costs, (2) certain employee benefits relating to healthcare, (3) interest on mortgage obligations, (4) rent, (5) utilities, and (6) interest on any other existing debt obligations, and meets all other qualifications then loan will be forgiven. The CARES Act also excludes this loan forgiveness for income. It makes no reference however to the deductibility of the expenses paid with the loan fund forgiven.
The IRS however, in Notice 2020-32 has determined that based on the existing tax code these expenses will NOT be tax deductible, as in effect they are not being paid with the funds of the taxpayer and are in effect being paid with loan forgiveness funds provided by the government.
The notice spells out the revenue sections and other information on which the IRS has based the notice. Since the CARES Act does not make specific reference to the deduction of these expenses, and there is no way to determine congressional intent or court decision to rely on, this would seem to be the best guidance on how these expenses will be handled for now.
For example: If ABC Company receives a PPP loan for $100,000 which is forgiven based on $80,000 in payroll expenses and $10,000 in rent and $10,000 in utilities during the 8 week qualifying period, and total expenses for these items for the tax year of $1,000,000 for payroll, $100,000 for rent and $120,000 for utilities, then the tax deductions for these items would be payroll ($1,000,000 – $80,000) = $920,000, rent ($100,000- $10,000) = $90,000 and utilities ($120,000-$10,000)=$110,000.
TooJay’s Deli Files for Bankruptcy
South Florida-based TooJay’s deli files for Chapter 11 bankruptcy; is this just the first of what is going to be a tsunami of bankruptcy filings to come? Will your company or employer be added to the list? No one ever wants to declare bankruptcy but it happens.
If you are a business owner, how do you stop your company from being added to the list of those filing for bankruptcy? Now is the time to start thinking about how you can reduce your expenses and preserve your cash so that you can survive the upcoming hard times. Survival almost always means being quick to adapt and keeping your eyes on two important things: your CASH and your Accounts Receivable.
Cash is the fuel required to keep your doors open, pay your employees, rent, and operating expenses. While accounts receivable is nothing more than future cashflow that is at risk.
At risk means that it’s something someone else can destroy – if you don’t control it. Make your credit policy too tight and you will lose sales and growth, but make it too loose and you end up with sales that you never collect payment on. Uncollected sales mean not only do you lose the cash you can’t collect, you also lose the cash expended to make the sale and the cash expended to purchase the goods sold.
Customers that have been good payers for years could be running into trouble through no fault of their own. The important thing is to prevent their trouble from becoming your trouble.
What can you do? Review the list of customers you extend credit too. Reevaluate their ability to meet their commitments, watch the balances of credit accounts, and be sure to cut them off early, as soon as they become delinquent. Keep in touch with those that owe you money and remember getting something now beats getting nothing later. When possible offer alternative payment terms, like payment by credit card.
Preserve your cash. Review expenses to see what recurring expenses can be eliminated. Check your credit card bills for services that automatically bill each month and are no longer used. Reduce the number of telephone lines, and eliminate services you don’t need like cable TV, window cleaners and other services that lower sales mean you can do in house.
Make a plan to protect your assets so that should things go down hill you are not left with nothing to show for many years of hard work. Talk to your accountant and your attorney about how to best protect your personal assets, and remember a business is not a ship, and in business the Capitan does not have to go down with the business. Be sure to save a spot on the lifeboat so if necessary you have the resources to start over.
IRS recalls employee. Effective April 27th 2020 the IRS began recalling certain employees in mission-critical functions. We are hopeful this means that the IRS will again begin processing Powers of Attorney and other documents submitted as well as responding to transcript requests.
The IRS Human Capital Officer is instructing employees returning to work that, face coverings to be required in IRS facilities and workspaces.
The IRS Says “The Check Is In The Mail” or Will Be
If you did not get a direct deposit and are still entitled to an Economic Impact Payment the check is in the mail or will be. The IRS says that paper checks will be mailed as follows, based on the AGI (Adjusted Gross Income) show on your 2019 return if filed. If your 2019 return has not been files then they will base the mailing on your 2018 AGI:
• People with up to $10,000 in AGI: the week ending April 24.
• Between $10,000 AGI and $20,000 AGI: the week ending May 1.
• Between $20,000 AGI and $30,000 AGI: the week ending May 8.
• Between $30,000 AGI and $40,000 AGI: the week ending May 15.
• Between $40,000 AGI and $50,000 AGI: the week ending May 22.
• Between $50,000 AGI and $60,000 AGI: the week ending May 29.
• Between $60,000 AGI and $70,000 AGI: the week ending June 5.
• Between $70,000 AGI and $80,000 AGI: the week ending June 12.
• Between $80,000 AGI and $90,000 AGI: the week ending June 19.
• Between $90,000 AGI and $100,000 AGI: the week ending June 26.
• Between $100,000 AGI and $110,000 AGI: the week ending July 3.
• Between $110,000 AGI and $120,000 AGI: the week ending July 10.
• Between $120,000 AGI and $130,000 AGI: the week ending July 17.
• Between $130,000 AGI and $140,000 AGI: the week ending July 24.
• Between $140,000 AGI and $150,000 AGI: the week ending July 31.
• Between $150,000 AGI and $160,000 AGI: the week ending Aug. 7.
• Between $160,000 AGI and $170,000 AGI: the week ending Aug. 14.
• Between $170,000 AGI and $180,000 AGI: the week ending Aug. 21.
• Between $180,000 AGI and $190,000 AGI: the week ending Aug. 28.
• Between $190,000 AGI and $198,000 AGI: the week ending Sept. 4.
• All other checks (e.g., those who didn’t have tax info on file): the week ending Sept. 11.
Remember that it may take some time after the IRS puts your check in the mail for the post office to deliver it, so patience is important.
If you don’t get the check you are entitled to there is not a lot that can be done right now as most of the IRS staff has been sent home and only a few departments are actually working, worst of all these departments will be able to answers about these checks. If the elf’s and gremlin working to get these checks out at the IRS mess-up and don’t send yours all is not lost, you will be able to file a claim for your missing payment when you file your 2020 tax return.
The information above comes from an IRS internal document published by The Washington Post.
The information above comes from an IRS internal document published by The Washington Post.
The Coronavirus (COVID-19) Pandemic has caused widespread, government ordered, shutdowns of many sectors of the United States economy, which has caused extensive job loss. Over 10 million Americans filed for unemployment benefits in March and far more claims are expected in the month of April, according to the U.S. Department of Labor.
In an effort to help curb the massive layoffs that we have been seeing, Congress has created a new federal income tax credit for employers that keep their workers on the payroll, and therefore out of the unemployment lines. The tax credit amount equals 50% of eligible employee wages paid by an eligible employer in a 2020 calendar quarter. It is subject to an overall wage cap of $10,000 per eligible employee.
Wondering if your business is eligible? Here’s a breakdown of eligibility criteria:
Forced Closure This credit is available to employers, including non-profits, whose operations have been fully or partially suspended during a 2020 calendar quarter as a result of an order from an appropriate governmental authority that limits commerce, travel, or group meetings due to COVID-19.
Decline in Receipts The credit can also be claimed by employers that have experienced a greater-than-50% decline in gross receipts for a 2020 calendar quarter. The credit is disallowed for quarters following the first calendar 2020 quarter during which gross receipts exceed 80% of gross receipts for the corresponding 2019 calendar quarter. In short, you can be eligible in one quarter of the year and ineligible in another.
Number of Employees An eligible employer must have had an average of 100 or fewer full-time employees in 2019. In this instance, all employee wages are eligible for the credit (subject to the $10k wage cap) regardless of whether employees are furloughed due to COVID-19.
The 50% employee retention credit is available to cover eligible wages paid between March 13, 2020 and December 31, 2020. The $10k cap includes allocable health plan expenses as well.
Rules and Restrictions
The 50% employee retention credit is NOT allowed for:
- Emergency sick leave wages or emergency family leave wages that small employers (those with fewer than 500 employees) are required to pay under the Families First Coronavirus Response Act (FFCRA). Those mandatory leave payments are covered by federal payroll tax credits granted by the FFCRA.
- Wages taken into account for purposes of claiming the pre-existing Work Opportunity Credit under Internal Revenue Code (IRC) Section 21.
- Wages taken into account for purposes of claiming the pre-existing employer credit for paid family and medical leave under IRC Sec. 45S.
The Employee Retention Credit is NOT available for employers that receive a potentially forgivable Small Business Administration (SBA) guaranteed Small Business Interruption Loan, issued pursuant to the
The Small Business Administration (SBA) issued new guidance today, April 23, 2020, intended to prevent larger publicly traded companies from accessing the next round of Paycheck Protection Program (PPP) funding intended for small business relief. The new SBA guidelines require that companies applying for relief certify that the loans are necessary and that they cannot tap other sources of funding.
“It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith,” the SBA said. A key detail of the SBA’s new position is that larger public companies will be able to avoid future scrutiny by returning the relief loans within the next two weeks should they have already received funds.
We have seen some of the PPP loan applications we helped clients submit be successfully funded. These loans are forgivable (converted to grants) if the funds are used to maintain employee payroll. While the funds available for these loans have all been expended at the time, I am writing this, congress has just approved another $320 billion to make additional funding available. If you are a small business that has not yet applied for one of these loans and have payroll, now is the time to get your ducks in a row so that you can submit your loan documents before this new funding runs out. For more information on these loans see the “Coronavirus (COVID-19) Information” on our website.
While the IRS is not closed, most of the staff have been sent home. Other than a few departments, not a lot is functioning right now.
Currently still working are: most of the electronic services, including the acceptance of E-Filed Returns, the electronic Transcript Delivery System (as long as we already have a Power of Attorney for you on file), and the Get Transcript for individuals that have an account set-up, or are able to meet the verification requirements (which includes having a cell phone reported in your name). There are only two departments that are staffed: ACS (Automated Collections Service), this is the department that sends those annoying collection notices, and the local Tax Payer Advocates, who are working from home.
On the bright side, most collections matters are currently on hold until July 15th. However, if you have a garnishment in place or an automated payment plan, these have not been affected by the IRS shutdown. If you have one of these and you are experiencing a hardship due to COVID-19, you will need to contact your employer or bank about suspending the payment until July 15th.
The IRS is not processing any paper returns, paper forms or mail. These things are just piling up and with any luck will be processed when employees return to work. This means we, as tax professionals, can’t submit new Powers of Attorney and get information to help taxpayers get compliant. Banks can’t get verification of taxes and payments when processing mortgage applications and those waiting for answers to tax problems and IRS correspondence will just have to wait.
I also may mean some Economic Disaster payments are delayed for those that choose to submit paper returns.
The one thing you can depend on is that we are working and happy to assist you should you need help.