COVID-19 Assistance Provisions | A brief recap

COVID-19 Assistance Provisions

In the midst of the coronavirus (COVID-19) pandemic, Americans are focusing on their health and financial well-being. To help with the impact facing many people, the government has provided a range of relief. Here is a recap of some of the announcements made by the IRS.

More deadlines extended

As you probably know, the IRS postponed the due dates for certain federal income tax payments — but not all of them. New guidance now expands on the filing and payment relief for individuals, estates, corporations, and others.
Under IRS Notice 2020-23, nearly all tax payments and filings that would otherwise be due between April 1 and July 15, 2020, are now postponed to July 15, 2020. Most importantly, this would include any fiscal year tax returns due between those dates and any estimated tax payments due between those dates, such as the June 15 estimated tax payment deadline for individual taxpayers.

Economic Impact Payments for nonfilers

You have also likely heard about the cash payments the federal government is making to individuals under certain income thresholds. The Coronavirus Aid, Relief, and Economic Security (CARES) Act will provide an eligible individual with a cash payment equal to the sum of: $1,200 ($2,400 for eligible married couples filing jointly) plus $500 for each qualifying child. Eligibility is based on adjusted gross income (AGI).

On its Twitter account, the IRS announced that it deposited the first Economic Impact Payments into taxpayers’ bank accounts on April 11. “We know many people are anxious to get their payments; we’ll continue issuing them as fast as we can,” the tax agency added.

The IRS has announced additional details about these payments:

  • “Eligible taxpayers who filed tax returns for 2019 or 2018 will receive the payments automatically,” the IRS stated. Automatic payments will also go out to those people receiving Social Security retirement, survivors or disability benefits and Railroad Retirement benefits.
  • There’s a new online tool on the IRS website for people who didn’t file a 2018 or 2019 federal tax return because they didn’t have enough income or otherwise weren’t required to file. These people can provide the IRS with basic information (Social Security number, name, address and dependents) so they can receive their payments.

This only describes new details in a couple of the COVID-19 assistance provisions. Members of Congress are discussing another relief package so additional help may be on the way. We’ll keep you updated. Contact us if you have tax or financial questions during this challenging time.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Review your estate plan in the midst of a major life shock

Review-your-estate-plan

Generally, it’s recommended that you review your estate plan at year’s end. It’s a good time to check whether any life events have taken place in the past 12 months or so that affect your plan.

However, with a life shock as monumental as the coronavirus (COVID-19) pandemic, now is a good time to review your estate planning documents to ensure that they’re up to date — especially if you haven’t reviewed them in a number of years.

When revisions might be needed

The following list isn’t all-inclusive by any means, but it can give you a good idea of when estate plan revisions may be needed:

  • Your marriage, divorce, or remarriage
  • The birth or adoption of a child, grandchild or great-grandchild
  • The death of a spouse or another family member
  • The illness or disability of you, your spouse or another family member
  • A child or grandchild reaching the age of majority
  • Sizable changes in the value of assets you own
  • The sale or purchase of a principal residence or second home
  • Your retirement or retirement of your spouse
  • Receipt of a large gift or inheritance
  • Sizable changes in the value of assets you own

It’s also important to review your estate plan when there’ve been changes in federal or state income tax or estate tax laws.

Will and powers of attorney

As part of your estate plan review, closely examine your will, powers of attorney, and health care directives.

If you have minor children, your will should designate a guardian to care for them should you die prematurely, as well as make certain other provisions, such as creating trusts to benefit your children until they reach the age of majority, or perhaps even longer.

A durable power of attorney authorizes someone to handle your financial affairs if you’re disabled or otherwise unable to act. Likewise, a medical durable power of attorney authorizes someone to handle your medical decision-making if you’re disabled or unable to act. The powers of attorney expire upon your death.

Typically, these powers of attorney are coordinated with a living will and other health care directives. A living will spells out your wishes concerning life-sustaining measures in the event of a terminal illness. It says what measures should be used, withheld, or withdrawn.

Changes in your family or your personal circumstances might cause you to want to change beneficiaries, guardians, or power-of-attorney agents you’ve previously named.

Find calm in the middle of a storm

In the midst of the COVID-19 crisis, many people’s thoughts are turning to their families. Updating and revising your estate plan today can provide you peace of mind that your loved ones will be taken care of in the future. We can help you determine if any revisions are needed.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Reasons why married couples might want to file separate tax returns

oint-or-separate-tax-returns

Married couples often wonder whether they should file joint or separate tax returns. The answer depends on your individual tax situation.

It generally depends on which filing status results in the lowest tax. But keep in mind that, if you and your spouse file a joint return, each of you is “jointly and severally” liable for the tax on your combined income. And you’re both equally liable for any additional tax the IRS assesses, plus interest and most penalties. This means that the IRS can come after either of you to collect the full amount.

Although there are provisions in the law that offer relief, they have limitations. Therefore, even if a joint return results in less tax, you may want to file separately if you want to only be responsible for your own tax.

In most cases, filing jointly offers the most tax savings, especially when the spouses have different income levels. Combining two incomes can bring some of it out of a higher tax bracket. For example, if one spouse has $75,000 of taxable income and the other has just $15,000, filing jointly instead of separately can save $2,512.50 for 2020.

Filing separately doesn’t mean you go back to using the “single” rates that applied before you were married. Instead, each spouse must use “married filing separately” rates. They’re less favorable than the single rates.
However, there are cases when people save tax by filing separately. For example:

One spouse has significant medical expenses.

For 2019 and 2020, medical expenses are deductible only to the extent they exceed 7.5 percent of adjusted gross income (AGI). If a medical expense deduction is claimed on a spouse’s separate return, that spouse’s lower separate AGI, as compared to the higher joint AGI, can result in larger total deductions.

Some tax breaks are only available on a joint return.

The child and dependent care credit, adoption expense credit, American Opportunity tax credit and Lifetime Learning credit are only available to married couples on joint returns. And you can’t take the credit for the elderly or the disabled if you file separately unless you and your spouse lived apart for the entire year. You also may not be able to deduct IRA contributions if you or your spouse were covered by an employer retirement plan and you file separate returns. You also can’t exclude adoption assistance payments or interest income from series EE or Series I savings bonds used for higher education expenses.

Social Security benefits may be taxed more.

Benefits are tax-free if your “provisional income” (AGI with certain modifications plus half of your Social Security benefits) doesn’t exceed a “base amount.” The base amount is $32,000 on a joint return, but zero on separate return (or $25,000 if the spouses didn’t live together for the whole year).

No hard and fast rules

The decision you make on your federal tax return may affect your state or local income tax bill, so the total tax impact should be compared. There’s often no simple answer to whether a couple should file separate returns. A number of factors must be examined. We can look at your tax bill jointly and separately. Contact us to prepare your return or if you have any questions.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Determining whether you need to file gift tax returns can be tricky

gift tax returns

For 2020, the lifetime gift and estate tax exemption has reached a whopping $11.58 million ($23.16 million for married couples). As a result, few people will be subject to federal gift taxes.

If your wealth is well within the exemption amount, does that mean there’s no need to file gift tax returns? Not necessarily. There are many situations in which it’s necessary (or desirable) to file Form 709 — “United States Gift (and Generation-Skipping Transfer) Tax Return” — even if you’re not liable for any gift taxes.

If you’re required to file, keep in mind that the deadline for Form 709 is April 15 of the year after you make a gift.

All gifts are taxable, except . . .

The federal gift tax regime begins with the assumption that all transfers of property by gift (including below-market sales or loans) are taxable, and then sets forth several exceptions. Some of the nontaxable transfers that need not be reported on Form 709 include:

  • Gifts of present interests (see below) within the annual exclusion amount (currently, $15,000 per donee),
  • Deductible charitable gifts, and
  • Gifts to one’s U.S.-citizen spouse, either outright or to a trust that meets certain requirements.

If all your gifts for the year fall into these categories, no gift tax return is required. But other types of gifts may be taxable — and must be reported on Form 709 — even if they’re shielded from tax by the lifetime exemption.

Traps to avoid

If you make gifts during the year, consider whether you’re required to file Form 709. And watch out for these common traps:

Future interests.

The $15,000 annual exclusion applies only to present interests, such as outright gifts. Gifts of future interests, such as transfers to a trust for a donee’s benefit, aren’t covered, so you’re required to report them on Form 709 even if they’re less than $15,000.

Spousal gifts.

As previously noted, gifts to a U.S.-citizen spouse need not be reported on Form 709. However, if you make a gift to a trust for your spouse’s benefit, the trust must 1) provide that your spouse is entitled to all the trust’s income for life, payable at least annually, 2) give your spouse a general power of appointment over its assets, and 3) not be subject to any other person’s power of appointment. Otherwise, the gift must be reported.

Gift splitting.

Spouses may elect to split a gift to a child or other donee, so that each spouse is deemed to have made one-half of the gift, even if one spouse wrote the check. This allows married couples to combine their annual exclusions and give up to $30,000 to each donee. To make the election, the donor spouse must file Form 709, and the other spouse must sign a consent or, in some cases, file a separate gift tax return.

To file or not to file

To keep from running afoul of the IRS, it’s critical to know when you need to file a gift tax return. We can help you in that determination.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Do you want to go into business for yourself?

tax aspects of your new business

Many people who launch small businesses start out as sole proprietors. But what are the tax aspects of your new business? Here are nine tax rules and considerations involved in operating as that entity.

1. You may qualify for the pass-through deduction.

To the extent your business generates qualified business income, you are eligible to claim the 20 percent pass-through deduction, subject to limitations. The deduction is taken “below the line,” meaning it reduces taxable income, rather than being taken “above the line” against your gross income. However, you can take the deduction even if you don’t itemize deductions and instead claim the standard deduction.

2. Report income and expenses on Schedule C of Form 1040.

The net income will be taxable to you regardless of whether you withdraw cash from the business. Your business expenses are deductible against gross income and not as itemized deductions. If you have losses, they will generally be deductible against your other income, subject to special rules related to hobby losses, passive activity losses, and losses in activities in which you weren’t “at risk.”

3. Pay self-employment taxes.

For 2020, you pay self-employment tax (Social Security and Medicare) at a 15.3 percent rate on your net earnings from self-employment of up to $137,700, and Medicare tax only at a 2.9 percent rate on the excess. An additional 0.9 percent Medicare tax (for a total of 3.8 percent) is imposed on self-employment income in excess of $250,000 for joint returns; $125,000 for married taxpayers filing separate returns; and $200,000 in all other cases. Self-employment tax is imposed in addition to income tax, but you can deduct half of your self-employment tax as an adjustment to income.

4. Make quarterly estimated tax payments.

For 2020, these are due April 15, June 15, September 15, and January 15, 2021.

5. You may be able to deduct home office expenses.

If you work from a home office, perform management or administrative tasks there, or store product samples or inventory at home, you may be entitled to deduct an allocable portion of some costs of maintaining your home. And if you have a home office, you may be able to deduct expenses of traveling from there to another work location.

6. You can deduct 100 percent of your health insurance costs as a business expense.

This means your deduction for medical care insurance won’t be subject to the rule that limits medical expense deductions.

7. Keep complete records of your income and expenses.

Specifically, you should carefully record your expenses in order to claim all the tax breaks to which you’re entitled. Certain expenses, such as automobile, travel, meals, and office-at-home expenses, require special attention because they’re subject to special recordkeeping rules or deductibility limits.

8. If you hire employees, you need to get a taxpayer identification number and withhold and pay employment taxes.

9. Consider establishing a qualified retirement plan.

The advantage is that amounts contributed to the plan are deductible at the time of the contribution and aren’t taken into income until they’re are withdrawn. Because many qualified plans can be complex, you might consider a SEP plan, which requires less paperwork. A SIMPLE plan is also available to sole proprietors that offers tax advantages with fewer restrictions and administrative requirements. If you don’t establish a retirement plan, you may still be able to contribute to an IRA.

Seek assistance

If you want additional information regarding the tax aspects of your new business, or if you have questions about reporting or recordkeeping requirements, please contact us.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.