How business entities would obtain benefits from the suspension of tax compliance programs by the IRS?

How business entities would obtain benefits from the suspension of tax compliance programs by the IRS?

by | Mar 25, 2020 | COVID - 19, Deduction & Credits, global income tax, Investment & Income, IRS, Tax Break, Tax compliance, Tax credits, tax deadline, Tax Extension, tax filing, Tax implications, Tax Payers, tax return, Taxation, US Government

How business entities would obtain benefits from

the suspension of tax compliance programs by the IRS?

Tax Compliance programs by the IRS has been taking a series of steps related to tax legislation as an effort to alleviate the stress common people are facing due to the outbreak of COVID-19. The rapidly spreading COVID-19 has led to the reduction in sales, slowdown of businesses, people being laid off from their jobs and huge economic adversities. In such a chaotic situation, the IRS’s initiatives on the suspension of tax compliance would act as a boon for the taxpayers, especially for the business entities. 

How business entities would obtain benefits from the suspension of tax compliance programs by the IRS.One such major initiative taken by the IRS is the implementation of the “People First Initiative” which would help in providing relaxation to those business entities who are facing uncertainties related to their taxes.

People First Initiative

The People First Initiative includes the postponement of certain payments that are associated with the installment agreements and offers in compromise.According to IRS, these measures included under the People First Initiative would start from 1st April 2020 onwards and would continue up to July 2020.The major changes which have been included in the People First Initiative are the postponement of the payments which are related to the Installment Agreements, the Offers in compromise, Audits, and other enforcement activities.

Installment Agreements

  • The IRS has announced that it has suspended the existing installment agreements that were due in between 1st April and 15th July 2020. Those taxpayers who are not able to comply with the terms of the installment agreement can suspend their payments due during this period. The IRS would also not consider any installment agreement of this period as a defaulter. However, the interest would be accruing on the unpaid balances. 
  • Also, the IRS has made provisions by which taxpayers either individuals or business entities who would not be able to make payment for their federal taxes can take the help of the monthly payment agreement by the IRS.

 

Offers in Compromise (OIC)

  1. The taxpayers who have pending OIC can provide additional information for support till 15th July 2020. Without the consent from taxpayers, IRS would not be closing any OIC which is pending before 15th July 2020.
  2. Taxpayers who have accepted OICs can suspend their payments until 15th July 2020. However, interest would be levied on the accrued balances which are unpaid.

 

3.Those taxpayers who are delinquent in the filing of their tax return for the year 2018, the IRS would not issue an OIC as a defaulter for them.

 4.Any delinquent returns of the tax year 2018 must be filed by the taxpayers either before or on 15th July 2020.

Automated Liens

and

Levies

According to the regulations of the IRS, no new automatic liens and levies would be carried out till 15th July 2020.

 

Activities related

to field collection

  • All activities related to liens, levies and any seizures associated with a personal residence that are initiated by the field revenue officers will be suspended till 15th July 2020. 
  • The field revenue officers will, however, continue to perform seizures and similar activities for high-income non-filers whenever needed.

 

Passport Certifications to the State Government and Private Debt Collection

  1. For the seriously delinquent taxpayers, the IRS would provide Passport certifications to the State Government. This procedure has been suspended currently till 15th July 2020.
  2. Moreover, new delinquent accounts will also not be forwarded by the IRS to the other private collection agencies for working on them until 15th July 2020.

Field, Office and other correspondence audits

  1. Any in-person field, office or correspondence audits will not be carried on till 15th July 2020. There can be audits or examinations remotely by the examiners of the IRS. Taxpayers should also co-operate with the IRS and provide all information that is requested for faster tax processing. 
  2. There might be some situations in which the taxpayers might be interested in the examination or audit. If the audit or examination is beneficial for the parties and the required IRS personnel are available then the audits/examination can start.

 

 

Refund claims

The IRS would continue to work on the processing of the refund claims without making any in-person contact.

Earned Income Tax Credit and

Wage Verification Reviews

  • The taxpayers have time till 15th July 2020 for responding to the IRS that whether they qualify for the EITC or their income has to be verified. 
  • Through 15th July 2020, taxpayers will not be denied these credits if they have a failure in providing the requested information.

 

Independent Office of appeals

The Office of appeals would be continuing to work on their cases. There might be a conference which would be held by telephone or through videoconferencing. For all the cases of the Independent Office of appeals, the taxpayers should promptly respond to any request made for information.

Statute of limitations

There would no disruption in the protection of the statute limitations by the IRS. The taxpayers are encouraged to co-operate with the IRS in extending those statutes whose expirations may be jeopardized. Otherwise, notes of deficiency would be issued by the IRS to protect the interests of the Government in the preservation of these statutes.

Conclusion

Hence, with these several changes being implemented by the IRS in the tax regulation the plight of the individual taxpayers and business entities would reduce by a considerable amount. With these tax relaxations and suspensions, business entities are sure to cope up with the losses that have been incurred due to the outbreak of COVID-19.  

References

https://tax.thomsonreuters.com/news/irs-suspends-certain-compliance-programs-due-to-covid-19/

https://www.forbes.com/sites/kellyphillipserb/2020/03/25/irs-will-ease-tax-payment-guidelines–limit-collections-activities-during-covid-19-crisis/#5a8cdb9c4dca

https://www.forbes.com/sites/robertwood/2020/03/25/irs-eases-installments-due-slows-audits-sweeping-relief-puts-people-first/#2eb525c93855

https://www.accountingtoday.com/news/irs-suspends-key-tax-compliance-and-enforcement-programs-to-adjust-covid-19-effort

  

 

CARES Act: Relief for small businesses and individuals during COVID-19

CARES Act: Relief for small businesses and individuals during COVID-19

by | Mar 22, 2020 | CARES, charitable donations, COVID - 19, EIDL, federal government, global income tax, Investment & Income, IRS, paid leave credits, payroll tax credits, Tax Extension, US Government

CARES Act: Relief for small businesses and individuals during COVID-19

The outbreak of the pandemic COVID-19 has created a threatening impact on the lives and livelihoods of people across the world. In the US, more than 2 lakhs people have been affected by this dreadful disease and there have been around 6K deaths due to this pandemic. COVID-19 has not only affected the lives of common people but also the economy of the nation. There has been a remarkable slowdown in businesses with the common masses being laid off from their jobs.CARES Act: Relief for small businesses and individuals during COVID-19 

In such adverse situations, the Federal Government has brought certain changes in the tax rules. There has been the implementation of some new laws for reducing the stress that the common people are facing.

Coronavirus Aid, Relief, and Economic Security (CARES) Act

On 27th March 2020, the CARES Act was passed in the House of Representatives by a voice vote. Then the bill was signed into law by the US President. It is the third round of support from the Federal Government for the general public concerning the outbreak of the COVID-19. In the previous weeks, the Federal Government had already passed the Families First Coronavirus Act (FFCRA) and sanctioned an amount of $8.3 billion for the public health initiatives.

Business Relief

SBA Economic Injury Disaster Loans (EIDL) and Emergency Grants – The SBA stands for Small Business Administration which is a federal program that helps small businesses with financial assistance. Loans and EIDL are offered by SBA when there is a critical situation. A business must have been operational on 31st January 2020 for being eligible for the loans by SBA. According to the provisions of the CARES Act, the SBA would provide an advance of up to $10,000 to small businesses that have been harmed in COVID-19. This loan would be provided within 3 days of applying. There is no provision for the return of the advance by the businesses and can be used for paying debts, keeping employees on the payroll, paying sick leave, rent or other obligations. 

PPP Forgivable Loan – For a small business to avail of the PPP forgivable loan, it must have been in business on 15th February 2020. Small businesses, sole proprietorships with a workforce of 500 employees or less, self-employed individuals and even independent contractors can apply for this loan. The amount of this loan can be up to 2.5 times the business’s average monthly payroll costs plus an extra 25%. It is necessary that at least 75% of the loan amount must be utilized for payroll costs and the remaining 25% can be used for business rent, debts, and other expenses.

Local Government Grants – Small business grants are being offered by some Local Governments for relief to businesses.

Paid Leave credits – Small and midsize businesses would provide paid leaves to their employees who are sick due to COVID-19 or need to stay back at home for taking of a family member who has been affected by COVID-19. The employers would be provided with tax credits for the paid leaves that are being provided to their employees.

Payroll tax credits – If a business has been impacted by the economic shutdown which took place from mid-March 2020 to December 2020, then the exact payroll tax need not be paid and if the organization/business has already made the payment then they will get back the money. This is known as retention credit.

Also, employers can delay payment of that part of the employee payroll tax which is related to social security. This can be paid over the upcoming two years i.e. by the end of 2021 and 2022.  

Other provisions – Some other provisions are also associated with the business relief such as relaxation of the limit to the carrying back of net operating losses up to 5 years, avail of additional business expenses under the CARES Act, etc.

Activities to be done

To avail the business reliefs under the CARES Act, small businesses must ensure that their accounting records are well-maintained. The Profit and Loss Statement must be updated as it would highlight the income, payroll and other expenses.  Proper estimation must be done which would assess the financial ability of the business to survive the economic shutdown, money that must be needed by the business and the loan re-payment.  

 

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Personal Relief

Stimulus check – The Federal Government would provide the taxpayers with a direct deposit of up to $1200 in case of a single person, $2400 for married couples and an additional $500 for each child. This stimulus checks would be available only for those individuals who have an income of up to $75000 and $150,000 for married couples.

Unemployment benefits – Those taxpayers who are already receiving unemployment benefits would receive an additional $600 every week until 31st July 2020. There has been an extension of 13 weeks for receipt of unemployment benefits than the period allowed by State unemployment programs. Employees would be beneficial by Short-time compensation and work-share programs where their working hours would be reduced rather than being laid off.  

Delayed tax filing and payment – The IRS have postponed the tax filing and payment date to 15th July 2020 rather than 15th April 2020. Also, for self-employed taxpayers, the date for the estimated tax payment has been moved to 15th July 2020.

Federal Student loans – The interest on the Student loan which is due on the US Department of Education has been waived temporarily.

Retirement plans – Early retirement distribution done in 2020 up to an amount of $100,000 are not subject to any penalty if the taxpayer or his family are diagnosed with COVID-19 or have been impacted financially due to COVID-19.

Mortgage relief – The Federal Government has also announced suspensions in mortgage payments during the economic shutdown of COVID-19.

Charitable donations – Taxpayers can deduct up to $300 in the cash contributions that have been made for qualified charitable donations. For 2020, individuals can deduct more than 50% of their AGI (Adjusted Gross Income) for charitable organizations.  

 Activities to be done

The individual taxpayers should ensure that if their banking information or current address is not present with the IRS and if not then the post office must have the address. Also, if an individual has not filed his tax returns for 2019 then he must consult with his tax professional about the feasibility and impacts of filing the tax returns now.

Conclusion

Hence, these new provisions implemented according to the CARES Act prove that it is quite a positive step to help individuals and businesses to overcome the hardships or the economic ruins which have been caused by the COVID-19.

References

https://www.simpleprofit.com/coronavirus

https://www.forbes.com/sites/leonlabrecque/2020/03/29/the-cares-act-has-passed-here-are-the-highlights/#3e3a5cc168cd

https://taxfoundation.org/cares-act-senate-coronavirus-bill-economic-relief-plan/

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Tax relief measures for small businesses during the coronavirus pandemic

Tax relief measures for small businesses during the coronavirus pandemic

by | Mar 21, 2020 | COVID - 19, federal government, global income tax, income tax credit, Investment & Income, Tax credits, tax deadline, Tax exemption, Tax Extension, tax filing, Tax Payers, Tax Refund, taxes, US Government

Tax relief measures for small businesses

during the coronavirus pandemic

The entire nation has been affected by the dreadful coronavirus. The rapid spread of the COVID-19 across the country has affected the economy on a very massive scale. The business operation across the country has come to a standstill especially in the case of small businesses that are tax relief measures. Social distancing and quarantining have led to a decrease in the number of customers coming to purchasing impacting sales. Numbers of employees are also not going on work as everyone is forced to stay inside for preventing further spread of the disease. In such adverse situations where there are huge economic disruptions, the Government is working towards passing legislation that would help in providing financial relief to the businesses and taxpayers.

The Families First Coronavirus Response Act

On March 13th, 2020, President Trump had declared a situation of national emergency along with open access of States and Territories to $50 billion for the shared fight against the disease. Again on 18th March 2020, the Senate had passed the Families First Coronavirus Response Act. This bill was signed by the President on that day which included the below-mentioned highlighted points.

1.Federally mandated paid leave benefits and paid sick leave are to be provided to the eligible employees. The paid sick leave must be provided to the impacted employees for 14 days at the regular rate of pay i.e. max $511 per day. Moreover, employers should also provide the benefits of paid leave to the eligible employees for three months.

2.The availability of tax credits for both employers and self-employed taxpayers have been mandated to reduce the burden of employers arising due to the paid leave

 

Extension in tax payment and tax return filing deadline

The US Treasury Department and the IRS had announced that the deadlines for filing tax returns and tax payments that are due on 15th April 2020 are extended up to 15th July 2020. This extension is applicable for making filing tax returns for 2019, Income Tax payments for 2019 and the estimated income tax payments for 2020.

If there is a tax refund due, then the Income tax returns must be filed as soon as possible so that the refund can be obtained immediately and put to use in this time of crisis.

 

Low-interest loans guaranteed by the SBA

 

When there is a tremendous drop in sales, it becomes quite difficult to manage business expenses, employee wages, bills, etc. In such a situation, a business loan can be taken but then it will have a very high rate of interest. So, to ease down these worries the President has announced that the Government would provide more funds in the federal disaster loans which are backed by the Small Business Administration (SBA).  The loans provided by the SBA are known as the Economic Injury Disaster Loan.These loans would help in providing relief for the qualifying businesses in the below-mentioned forms.

 

  1. Loans at low-interest rates i.e. 3.75% for businesses and 2.75% for non-profit organizations.
  2. Repayment plans are long term in nature i.e. up to a maximum period of 30 years.

If a small business is facing financial issues and is not able to afford bills related to the payroll expenses, fixed debts and accounts payable then it can apply for an “Economic Injury Disaster Loan”.

 

Moreover, the federal and state financial regulators have been encouraging the financial institutions to work in a co-operative manner with those borrowers who belong to the affected communities.

Cash Payment by the Government

Another measure taken by the Government to provide relief to the small businesses is by providing the Stimulus package. Under this package, stimulus checks would be provided to US adults. On 27th March 2020, President Trump signed the CARES Act into law.

By this Act, cash payments would be provided to adult taxpayers up to $1200 for a single person and up to $2400 for couples. If there is a child, then the amount of the stimulus cheque will include an additional $500.

Those individuals who have earned $75,000 in the adjusted gross income (AGI) on the Income-tax returns of 2018 will be receiving a lower amount. Also, those individuals who do not have a federal tax liability will receive $600 under this proposal.       

 

Deferment of

any amount

The IRS has also announced any amount can be deferred related to the Federal tax.  In the Notice 2020-18, the IRS had stated that “there is no limitation on the amount of payment that may be postponed”. Previously, there was a dollar limit on the tax that can be deferred but later on 21st March 2020 this limit has been withdrawn.

This deferment or the postponement of tax payment has only been announced for the federal taxes and is not applicable for any other tax like excise taxes and payroll taxes.

Conclusion

Hence, the various legislations and implementations of new tax laws would be helpful for small business owners to avoid sleepless nights due to tax payments in times of low sales and disrupted business.

References

https://ssfllp.com/coronavirus-covid-19-tax-relief-for-small-businesses/

https://www.patriotsoftware.com/blog/payroll/small-business-relief-coronavirus-pandemic/

 

All you need to know about the changes in tax rules due to COVID-19

All you need to know about the changes in tax rules due to COVID-19

by | Mar 18, 2020 | CARES, COVID - 19, federal government, FFCRA, Investment & Income, IRS, state government, tax deadline, Tax Extension, tax filing, Tax Payers, tax return, US Government

All you need to know about the changes in tax rules due to    COVID-19

On 13th March 2020, the US President had issued an emergency declaration in response to the ongoing COVID-19 pandemic. Due to COVID-19 the tax Rules have changed Since the outbreak of COVID-19 has caused huge harm to individuals and businesses, the Federal Government and the State Government have responded very promptly by making significant changes to the tax laws.  

FEDERAL EXTENSIONS: The IRS has announced for the extension of both tax payment and tax return filing deadline for several taxpayers including individuals, business entities, trust, etc. The tax payment and return filing deadline has been extended to 15th July 2020 which would have been 15th April 2020 otherwise. There would be a waiver of interest and late filing penalties for this extension  of these 90 days. This relief applies to a taxpayer’s 2019 income tax liability and the estimated income tax payments for the first quarter of 2020.

STATE EXTENSIONS: Although the tax implications and timelines are different for the states, still a majority of the states have extended their tax return filing and payment deadlines following that of the federal guidelines. However, there might be some states which have responded to this deadline extension separately. State responses to the tax deadline extension might apply to other categories of taxes as well apart from Income tax.

THE CORONAVIRUS STIMULUS PACKAGE: On 27th March 2020, the US President had signed an Act known as CARES i.e. Coronavirus Aid, Relief and Economic basis Security Act. This Act has been transformed into law which ensures a $2 trillion stimulus package. This will help in providing financial relief to business entities, individual taxpayers and even families. Also, by the coronavirus stimulus package taxpayers can avail of the benefits of advanced tax rebates.The taxpayers can receive stimulus checks up to $1,200 for individual taxpayers. 

 Joint taxpayers would receive stimulus checks up to $2,400 and an additional check of $500 in case of each qualifying child. The payment of this stimulus checks associated with COVID-19 would be done based on tax filings that have been done in 2018 or 2019. If a taxpayer has not yet filed the tax returns, then the information of 2018 would be used. The amount which would be paid now would be reconciled in the tax return of the next year depending on the 2020 situation. 

Moreover, the CARES Act also allows the Government to grasp the information of direct deposit in the income tax return filing of 2019 or the tax return 2018. This would help deposit the funds in the stimulus package directly into the taxpayer’s account by electronic means. 

So, in the present situation, it is advisable to file for 2019 tax returns soon and select to obtain the refunds by direct deposit method. By this, the IRS would be able to have the current tax filing information and direct deposit information which would help in the transfer of the stimulus amount conveniently. 

The FAMILIES FIRST CORONAVIRUS RESPONSE ACT (FFCRA): 

President Trump has signed the Families First Coronavirus Response Act into Law which would be effective from no later than 2nd April 2020. According to the guidelines of this Act, employers who have an employee count of less than 500 ought to provide their employees with paid sick leave and expanded Family and Medical Leave Act (FMLA) rights and free testing for COVID-19. 

  1. This Act also helps in providing two refundable payroll tax credits which would help the businesses to make up for the cost incurred with the mandated paid leaves.  The eligible employers can claim both the credits in amounts that are equal to 100% of the amount of family leave wages which are paid under the FFCRA.  
  2. Employers need to offer paid sick leave tax credit and paid family leave or “Child Care Leave” Tax credit. Self-employed individuals or small business owners are required to offer paid sick leave for those employees who are unable to work due to COVID-19 and would also receive sick leave tax credit which is equal to 100% of the wage amount paid. This amount of credit has been limited to $200 per day if the employee is not able to work if he is taking care of a minor child after the closure of his school or an individual under the self-isolation order.
  3. Employers can also obtain refundable family leave tax credit for the wages that are being paid to the employees who are unable to work as they are taking care of a minor child. The school or child care center of the minor is closed due to the outbreak of COVID-19. 

Conclusion

Hence, in these difficult times of national emergency, these changes introduced by the US Government would be highly beneficial for all the taxpayers as it would mitigate the impact of COVID-19 on individuals as well as business entities.

References

https://blog.turbotax.intuit.com/tax-news/is-the-tax-deadline-delayed-what-to-know-about-coronavirus-covid-19-and-your-taxes-46320/

https://www.bradley.com/insights/publications/2020/03/update-on-federal-and-state-tax-responses-to-covid19-pandemic

 

Should capital gains taxation affect me?

Should capital gains taxation affect me?

by | Jan 24, 2020 | capital gains, income tax, Investment & Income, tax deductions, Tax Refund, Taxation, taxes

Should capital gains taxation affect me?

Capital gains taxation a lot of things that we own for either personal use or for investment purpose usually qualifies as a capital asset. Some common examples of capital assets include house, property, bonds, and stocks held as an investment, home furnishings, etc.

When you sell any of these capital assets and make some profit on them, the capital gains taxation come into the picture. The basis of capital gains taxes is that when you sell or exchange your capital assets, you do so at a higher price than you had bought them. Similarly, if you sell a capital asset at a lower price than you paid to buy the same, it would be tagged as a capital loss.

Classification

Capital gains are either classified as long term capital gains or short term capital gains. Here are some details about each category.

  • Long Term Capital Gains

If you hold on to a capital asset for a minimum of 1 year and then decide to sell or exchange it, any gains that you make would be long term capital gains. And the applicable taxes also vary depending on the type of capital gain. For long term capital gains, most individuals would end up paying no more than 15% as taxes.

There is a possibility that some or all your capital gains might be even taxed at 0% if your income is less than $78,750. The standard rate of 15% is applicable if your income ranges between $78,750 and $434,500 for single taxpayers and between $78,750 and $488,850for taxpayers who are married and filing jointly.

Citizens with annual income exceeding the above, the capital gains tax works out to be 20%. Certain capital assets such as collectibles, selling stocks of small businessses, etc. are taxed at a maximum of 28%.

  • Short Term Capital Gains

Any assets that you sell or exchange within a year of buying or acquiring it qualifies as sort term capital gain. In the case of any short term gains, the gain is added to your annual income and taxed accordingly.

One of the major benefits of categorizing these gains is that you are entitled to lower taxes. If the same amount were to be taxed like your income, you would end up paying higher taxes. However, with short term and long term capital gains, you can reduce the tax liability by a considerable margin.

As a rule of thumb, short term capital gain taxes tend to be on the higher side. Since it is dependent on the annual income, the maximum taxes can go up to 37%. On the other hand, long term capital gains can be up to a maximum of 20%.

On the other hand, if you sold a capital asset at a lower price than what you acquired it for, you would incur a capital loss. And it is important to know that you can use those losses to offset any of your capital gains. They can offset gains up to $3,000 with the help of capital losses.

If you stay in the house that you are putting up for sale for a minimum of two years, capital gains up to $250,000 for individuals and $500,000 for married couples is tax free. Thus being aware of the taxes can save the day for you.

If you own any of the capital assets mentioned above, you are entitled to pay capital gains taxes on the selling of these assets. The presence of capital gains taxes impacts you in more ways than you realize. For starters, unless it is short term capital gains, you will end up paying fewer taxes.

Reference:

https://www.taxpolicycenter.org/briefing-book/how-are-capital-gains-taxed

https://taxfoundation.org/capital-gains-taxes/

https://www.irs.gov/taxtopics/tc409