Alan L Lambert, CPA

Alan L Lambert, CPA



Useful News

Deferral of 2020 Required Minimum Distributions (RMD)

Generally, individuals are required by law to take an annual withdrawal from their IRA, Simple IRA, SEP IRA, or other retirement plan vehicles such as a 401K plan once they reach age 72 (or 70 1/2 before 2020).  They have until April 1st of the following year after reaching the required RMD age to take their first RMD payment.  Every year thereafter, they must take the RMD by December 31st.

But the CARES Act, passed by Congress on March 27, 2020, waives the RMD payment requirement for 2020.  Additionally, the waiver covers the first RMD, which individuals may have delayed from 2019 until April 1, 2020.  If the 2020 RMDs had not been waived, individuals likely would have to withdraw a greater percentage of their plan balances AND owe a big tax bill on a value that no longer exists due to market losses sustained in the first quarter of 2020.

 

COVID-19 UPDATE

I hope all of you are safe and well.  There have been some changes for this tax season due to the Covid-19 pandemic.  Here is a summary as of right now.

  1. The 2019 federal tax filing deadline has been extended to July 15.
  2. Any taxes otherwise due April 15 are now due July 15.  This includes estimated taxes for 2020.
  3. If your return has been filed and you owe taxes, you don’t have to pay until July 15 to avoid penalties and interest. 
  4. This shouldn’t affect you if you have a refund.  You should still file as soon as possible to get your refund.
  5. The deadline for making contributions to your IRA for 2019 is also extended to July 15.
  6. The Senate is working on a $1 trillion+ economic stimulus bill that will possibly make more changes to the filing and tax payment deadlines.

Here’s what you should do now:

  • If your return has already been efiled and you have a refund, you don’t need to do anything!
  • If you owe money, whether on the tax return or 2020 estimated taxes, hold off filing or paying until at least July 15, if you haven’t already done so.
  • If your return has been efiled but payment is set up for direct debit on April 15, I’ll change to July 15 unless you tell me not to.
  • If your return has been efiled and you are going to pay taxes due by check, your payment is not due until July 15.  You can use the same 1040-V payment voucher I sent you.
  • If your return is completed but not filed, you can send me the signature authorization, but I won’t efile, unless you have a refund, until the due date.
  • If you haven’t sent me your tax docs yet, I recommend you do so to see if you have a refund and to plan for payment if you owe.

Finally, I’m practicing “social distancing” as you all should be, so I’m not meeting with clients.  If you have questions, please email me.  Also, I recommend that you mail, upload or fax your tax docs to me rather than taking them to the UPS Store.

 

Families First Coronavirus Response Act (Act).

Small and midsize employers can begin taking advantage of two new refundable pay‚Äčroll tax credits designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing COVID-19-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (Act).

The act gives businesses with fewer than 500 employees funds to provide employees with up to 80 hours of paid leave, either for the employee’s own health needs or to care for family members. There are two credits available:

Paid sick leave credit

For an employee who is unable to work because of COVID-19 quarantine or self-quarantine or has COVID-19 symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee's regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days (up to 80 hours).

For an employee who is caring for someone with COVID-19, or is caring for a child because the child's school or child care facility is closed, or the child care provider is unavailable due to COVID-19, eligible employers may claim a credit for two-thirds of the employee's regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days (up to 80 hours). Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Child care leave credit

In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to COVID-19, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee's regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Using the credits

Under guidance that will be released soon, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.

If there are not sufficient payroll taxes to cover the cost of paid qualified sick and child care leave, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced soon.

 

 

2020 Texas Sales Tax Holidays

  • Emergency preparation supplies, April 25–27, 2020
    • Hurricane shutters and emergency ladders priced less than $300
    • Portable generators priced less than $3,000
    • Specified emergency preparation supplies priced less than $75
    • Applies to state and local sales tax
  • Energy Star sales tax holiday, May 23–25, 2020
    • Energy Star air conditioners priced at $6,000 or less
    • Energy Star refrigerators priced at $2,000 or less
    • Specified Energy Star products, no price restriction
    • Applies to state and local sales tax
  • Water-efficient products sales tax holiday, May 23–25, 2020
    • Any WaterSense-labeled product may be purchased tax free during the sales tax holiday
    • Applies to purchases for business and personal use
    • No price restrictions
    • Certain water-conserving products (for residential use only) may be purchased tax free
    • Applies to state and local sales tax
  • Annual sales tax holiday, August 7–9, 2020
    • Clothing and footwear priced less than $100
    • Specified school supplies and school backpacks priced less than $100 per item
    • Applies to state and local sales tax

*Qualified Charitable Distribution (QCD)

If you are over 70.5 years of age and are required to take a minimum distribution from your qualified retirement plans (RMD) you need to be aware of this potential tax saving tip.  If you donate part of your RMD (up to $100,000) directly to a qualified charity, that portion of the RMD is not taxable.  This can benefit taxpayers who would otherwise not get a tax deduction for the contribution because they don't itemize.  Since the standard deduction is so high now, most taxpayers don't itemize.  So, if you are taking RMD's and donating to charity, it makes sense to consider a QCD.  There are other considerations, so check with your tax advisor.

*President Signs Tax Reform Bill

On 12/22/17, President Trump signed H.R. 1, the tax reform bill known as the "Tax Cuts and Jobs Act", into law.  This act makes widespread changes to the Internal Revenue Code. Almost all of its provisions, including a lower corporate tax rate of 21% and lower individual income tax rates, go into effect Jan. 1, 2018.

Here are a few of the items to consider regarding the new law:

  1. Tax rates are generally lower
  2. The standard deduction almost doubled to $12,000 for individuals and $24,000 for couples
  3. The personal exemption is eliminated
  4. The deduction for sales taxes and property taxes (and state income taxes) is limited to $10,000 total.
  5. The deduction for 2% miscellaneous expenses, such as investment advisory fees, is eliminated.

*Congress Reinstates Health Reimbursement Arrangements

On 12/7/16, Congress approved the "21st Century Cures Act", which includes a provision to allow small employers (those with under 50 full time equivelent employees) to reimburse employees for their health care costs, including premiums for individual health insurance.  The employer contributions, which are limited to specific dollar amounts, are deductible by the employer and tax-free to the employee.  Any small employers who increased employee pay to avoid previously imposed penalties (See note below on Employer Health Reimbursement Arrangements), may now have the option of converting the additional pay to pre-tax reimbursement, within the allowable limits.

 

*Affordable Care Act Tax Provisions For Small Business

The Employer Shared Responsibility was originally supposed to be effective in 2014, but was moved back to 2015 and 2016.  Final regulations were issued in February 2014.  The "Shared Responsibility" is a euphanism for a tax on employers who fail to offer "suitable" health insurance to their employees.  If you are an employer with 50 or more full-time employees (part-time employees are converted to full-time through a formula) you need to be aware of this provision.  Here is an exerpt from a fact sheet issued by the government:

                                                U.S. TREASURY DEPARTMENT FACT SHEET 
 
   Final Regulations Implementing Employer Shared Responsibility Under the Affordable Care Act (ACA) for 2015 
 
Provisions to Assist Smaller Businesses and Businesses that Offer Most but Not All Employees Coverage in 2015 
Approximately 96 percent of employers are small businesses and have fewer than 50 workers and are exempt from the employer responsibility provisions. To ensure a gradual phase-in and assist the employers to whom the policy does apply, the final rules provide, for 2015, that: 

 
o The employer responsibility provision will generally apply to larger firms with 100 or more full-time employees starting in 2015 and employers with 50 or more full-time employees starting in 2016. 
 
o To avoid a payment for failing to offer health coverage, employers need to offer coverage to 70 percent of their full-time employees in 2015 and 95 percent in 2016 and beyond, helping employers that, for example, may offer coverage to employees with 35 or more hours, but not yet to that 
fraction of their employees who work 30 to 34 hours. 

 

*ACA "Individual Mandate"

On January 20, 2017, President Trump issued an Executive Order "Minimizing the Economic Burden of the Patient Protectionh and Affordable Care Act Pending Appeal".  Among other things, the EO calls into question the proper handling of the penalty imposed for failure to have health insurance (the "individual mandate"). 

The new tax reform bill eliminates the penalty associated with failure to have health insurance, effective for months beginning after December 31, 2018.  Therefore, the penalty still exists for 2017 and 2018.  The penalties, mandate and reporting requirements imposed on large employers by the ACA remain unchanged.

 

*New IRS Treatment of Multiple IRA Rollovers

A recent Tax Court ruling has changed the way the IRS looks at rollovers when taxpayers have multiple IRA accounts.  For this purpose, rollovers mean when there is an actual distribution out of the IRA to the taxpayer, who then rolls the distribution to another IRA within the 60 day time limit. It does not apply to "trustee to trustee" rollovers.  

If you have multiple IRA accounts please be aware that you may only make one rollover per year in the aggregate.  In the past, the IRS allowed one rollover per year per IRA account.  If you must make multiple rollovers, please use the "trustee to trustee" method.

 

*Employer Health Reimbursement Arrangements (Only "large" employers-see note above)

On May 13, 2014, the IRS issued a Q&A reiterating that employers are prohibited from reimbursing employees on a pre-tax basis for premiums employees pay for individual health insurance policies, either in or outside the Exchange/Marketplace. 

Q1.  What are the consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace)?

Under IRS Notice 2013-54, such arrangements are described as employer payment plans. An employer payment plan, as the term is used in this notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation. As explained in Notice 2013-54, these employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.  Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms.  Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code.

Q2. Where can I get more information?

On Sept. 13, 2013, the IRS issued Notice 2013-54, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy.

DOL has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03, and HHS will shortly issue guidance to reflect that it concurs with Notice 2013-54. On Jan. 24, 2013, DOL and HHS issued FAQs that addressed the application of the Affordable Care Act to HRAs.

 

*Tax Scams-Tips on How to Protect Yourself

From Taxaudit.com:

• If the caller claims that you need to send money right now or they will call the IRS or another government agency, know it is a scam and hang up.

• If you receive a call or email claiming to be holding your refund until they "verify" some information, such as your bank account number and PIN, it is a scam. Do not respond.

• If the person emailing claims, "I am from the IRS and I am here to help you obtain your refund," they clearly are not either. The IRS does not contact taxpayers via email. Do not respond.

• If you receive a call from IRS asking for information, ask for the agent's ID number, then call the IRS directly to verify it or ask that they send their request in writing.

• Protect your personal identifiable information (PII) from theft. Store W-2s and other sensitive documents in secure locations.

• Check out the credentials of the tax preparer you are using.

• If you do fall victim to a scam, seek guidance from the various resources available at IRS.gov.

 

*Passport Program

In 2015, legislation was enacted that permitted the Secretary of State (“State Department”) to revoke or limit the issuance of a passport to a taxpayer with a “seriously delinquent tax debt.”  Of course, the State Department must receive information from the IRS to know which taxpayers have delinquent liabilities.  Well, the IRS is now ready to begin the sharing information with the State Department, but the State Department is not yet ready to begin.  Once the State Department is ready, the IRS will send weekly updates.

 The law states that the effective date is the date of enactment but the law does not give a date that the IRS is to begin sending lists of certified taxpayers to the State Department nor does the law state when the State Department is to begin revoking passports. Is the State Department delaying implementation of their systems and procedures for the purpose of delaying beginning this process? If so, it is not known when this program may begin .i

As a preliminary step, the IRS will issue a weekly list of taxpayers that meet the definition of having “seriously delinquent tax debt.”  To classify as “seriously delinquent,” the debt must be greater than $50,000 and meet other conditions.  However, if a taxpayer with a delinquent debt has an installment payment plan in effect and is paying timely, such taxpayer will not be referred to the State Department.  There are a few other conditions for which taxpayers with a debt will not be referred to the State Department.  Once a taxpayer is certified as having such debt, the certification can be revoked upon meeting certain conditions.

I advise my clients that your passport may be revoked if you owe more than $50,000 in tax debt.  If this situation applies to you, contact me to discuss if you meet one of the exceptions to not be certified as owing a tax debt for the purpose of the State Department revoking your passport.