New Ways the CARES Act Affects Individuals and Businesses

As additional details of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) become available, the list of potential tax benefits continues to grow.

Individual Taxpayers

Individual taxpayers are affected in a number of ways. Rebate checks, the so-called stimulus checks, are slated to be issued to individual taxpayers subject to income limitations. Between 2019 and 2018, the most recent filing will be used as a starting point for calculating the taxpayer’s benefit.

The IRS has also adjusted the treatment of some charitable donations. For example, $300 of a taxpayer’s charitable contributions can now reduce adjusted gross income instead of being subject to itemized deduction restrictions. Contributions made by individuals are also no longer limited to a percentage of adjusted gross income. For those who have turned to their retirement accounts for reprieve, certain early withdrawal penalties will be waived if funds were withdrawn for a “coronavirus-related distribution”.

Previously, individual taxpayers were not permitted to deduct more than $250,000 in combined business losses and married taxpayers filing jointly were limited to combined losses of $500,000. This limitation has now been delayed to 2021. Taxpayers whose excess business losses were limited in 2018 and 2019 may file for refunds.

Businesses

Updates to the CARES Act are also impactful for businesses. The 2017 Tax Cuts and Jobs Act imposed limitations on the amount of interest expense a business could deduct. Deductible interest expense was limited to 30% of adjusted gross income. The CARES Act now permits business interest expense deductions of up to 50% of AGI for 2019 and 2020 tax filings. Additionally, taxpayers can treat their 2020 AGI as if it were the same as 2019 for purposes of applying the limitation.

Earlier legislation removed the ability for most businesses to carry back net operating losses to prior years. The CARES Act allows for NOLs arising in 2018, 2019, and 2020 to be carried back five years. The new law also temporarily lifts the requirement that net operating losses not exceed 80% of taxable income.

The original language of the 2017 Tax Cuts and Jobs Act inadvertently increased the life of qualified improvement property from 15 to 39 years, and did not provide a provision for bonus depreciation. The CARES Act corrected this drafting error, allowing QIP to be eligible for bonus depreciation. Taxpayers can proceed as though the current revision has always been the law and correct 2018 and 2019 returns previously filed.

We are still awaiting further guidance from the IRS as to how many of these changes will be implemented. As guidance is issued, we are actively analyzing all 2018 and 2019 filings to ensure that all of our clients are receiving the maximum benefit available under the changing tax laws. As always, please contact your Siegfried Advisory team member with any questions.

– Your Siegfried Advisory Team

Section 139 Tax-Free Payments to Employees

On March 13, 2020, President Trump declared a national emergency under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Declaration”) due to extraordinary circumstances resulting from COVID-19. The Declaration allows employers to make tax-free payments or reimbursements to employees as “qualified disaster payments” under Section 139 of the Internal Revenue Code.

Qualified disaster payments must be used to reimburse or pay an employee for “reasonable and necessary personal, family, living or funeral expenses” incurred as a result of COVID-19. Payments to employees are not covered by Section 139 if they compensate employees for expenses that are otherwise compensated for by insurance or that are intended to replace lost income. As a result, payments for sick pay or family medical leave remain fully taxable to the employee. Although Section 139 has yet to be utilized for a national pandemic before, a reasonable interpretation of Section 139 would allow for the following to be considered qualified disaster payments as long as they relate to COVID-19.

Employee medical expenses not covered by insurance (i.e. employee deductibles and over-the-counter medications).
Funeral costs of an employee or a member of an employee’s family.
Costs associated with enabling an employee to work from home such as the cost of a computer, cell phone, printer, and supplies.
Child care for family members that are not permitted to attend school during the pandemic.

Qualified disaster payments are federally tax-free to employees and are fully deductible to the employer. There is no federal reporting or disclosures, so such payments are not reported on Form W-2 or 1099 and are not subject to federal income or payroll tax withholding. Generally, state treatment mirrors the federal treatment of qualified disaster relief payments as well.

The IRS is generally pretty lax on the requirements behind qualified disaster payments. There is no limit on the amount or frequency of qualified disaster payments that an employer can make and employees are not required to substantiate their expenses to prove that they are eligible. Furthermore, employers are not required to maintain any formal plan or documentation although we recommend employers do document the following:

The amounts paid and to whom.
The start and end dates of any Section 139 “program.”
A general listing of expenses that will be paid or reimbursed on behalf of employees.
Any maximum amount per employee or in the aggregate that the employer will pay.

Although Section 139 does not provide any additional tax relief to employers aside from allowing a deduction for amounts paid, it does allow them to assist employees in their time of need with tax-free payments. If you’re interested in learning more about making qualified disaster payments to your employees, please contact your Siegfried Advisory relationship coordinator.

– Your Siegfried Advisory Team

The above message is for informational purposes. Please consult your Siegfried Advisory contact or other advisor for further guidance in advance of undertaking transactions or making decisions with tax implications.

COVID-19 & Assistance for Small Businesses

Forced business closures and lost revenue as a result of COVID-19 are causing many businesses to face a severe cash crunch. One currently available avenue for relief is the Small Business Administration (“SBA”). The SBA is currently offering Economic Injury Disaster Loans of up to $2.0 million for eligible small businesses and not for profit organizations. Eligibility as a qualified small business varies by industry and is generally subject to average annual receipts or number of employee thresholds. Loans can be up to $2 million and may be used to cover payroll, fixed debts, accounts payable and other bills. Interest rates for small businesses are 3.75% and 2.75% for non-profits. Payment terms can be up to 30 years but are determined on a case by case basis.

Applicants for SBA loans are required to provide the following:
The last three year’s financial statements and tax returns.
The owner’s personal financial statements for the last three years.
The tax returns of any entity in which an individual has or had an interest of greater than 20%.
Accounts receivable and accounts payable aging schedules as of the loan application date.
Form 4506-T, which allows the IRS to share your data with the SBA.

The SBA highly encourages applicants to apply online, but the SBA notes that their website is experiencing heavy traffic and recommends applicants visit on off-peak hours. The website to apply is DisasterLoan.SBA.gov. We highly recommend that that small business owners apply or gather the necessary information now if they think they will need SBA loan assistance as the approval process is being delayed. More information on whether your business will qualify for an SBA disaster loan can be found here.

In addition to the Economic Injury Disaster Loans mentioned above, there is proposed legislation in both the United States Senate and House of Representatives that would provide additional funding for small businesses to meet immediate financial obligations. Both proposals would also allow for portions of the loans to be converted to grants as long as the funds are used to keep employees on the company’s payroll. These proposed legislations have not been finalized and are subject to change. We will provide additional information as updates are available.

State and local government agencies are also providing additional relief options to small businesses. A few local examples are listed below. We encourage small business owners to check with their local and state commerce departments for additional information.
– Delaware Hospitality Emergency Loan Program (HELP) – Delaware is offering 10 year, no-interest loans for up to $10,000 per month for related companies in the hospitality industry. The HELP loans are available to companies with less than $1.5 million in annual revenues. More information can be found here.
– Philadelphia COVID-19 Small Business Relief Fund – The city of Philadelphia is distributing grants and zero-interest loans throughout the city to small businesses that have been impacted by the coronavirus. Businesses with less than $500,000 in annual revenue will be eligible for a $5,000 microenterprise grant. Businesses with annual revenue between $500,000 and $3 million will be eligible for small business grants up to $25,000. Businesses with annual revenue between $3 million and $5 million will be eligible for a small business zero-interest loan up to $100,000. More information can be found here.

As always, please contact your Siegfried Advisory Relationship coordinator with any questions.

– Your Siegfried Advisory Team

IRS Deadline for Filing Tax Returns – July 15

Treasury Secretary Steven Mnuchin announced Friday that the administration has moved the IRS deadline for filing individual tax returns from April 15 to July 15 due to the disruption caused by the coronavirus.

We are going to continue to work diligently to complete all of our clients’ tax returns and deliverables over the next few weeks and months. We will prioritize those tax returns that must get done by April 15th for various reasons, while balancing our team’s ability to complete all work accurately given the current situation as a result of Covid-19. Our team will be reaching out to you to discuss, but always feel free to contact your Siegfried Advisory team member. We look forward to partnering with you through this unprecedented global situation.

– Your Siegfried Advisory Team

Families First Cornonavirus Response Act

Wednesday evening, March 18, 2020, President Trump signed the Families First Coronavirus Response Act (“FFCRA”), an emergency legislative measure in response to the spread of the coronavirus, which takes effect April 2, 2020. Under the FFCRA, businesses who employ fewer than 500 individuals will be required to provide up to 80 hours of paid leave to employees forced to miss work because of the COVID-19 outbreak. Details regarding eligible employees are included further below.

The FFCRA also notes that the cost of the benefits will be paid by employers and then reimbursed by the government through refundable payroll tax credits. However, this is raising cash flow concerns from small business owners because the credits will not be recognized for a few months and cash inflows for many organizations have slowed significantly in the past week.

One current solution is to take advantage of low-interest loans being offered by the Small Business Administration (SBA) in certain states significantly impacted by COVID-19.

On its face, FFCRA applies more broadly than the federal Family and Medical Leave Act (“FMLA”), as FMLA leave is not generally available to smaller businesses with fewer than 50 employees. There may eventually be exemptions to the FFCRA for small businesses with fewer than 50 employees if paying for these benefits would “jeopardize the viability of the business as a going concern,” although we are currently awaiting for more guidance from the Secretary of Labor.

If any business is required to close (either temporarily or otherwise) due to COVID-19, the employees will generally be eligible for unemployment benefits offered and paid by the state government. Note that unemployment benefits vary by state and many are proposing legislative changes due to COVID-19. We recommend consulting your legal advisors on unemployment legislature on a state by state basis.

EMPLOYEE ELIGIBILITY FOR NEW SICK LEAVE
Employers are to provide 80 hours of paid sick leave for full-time employees (or pro-rata for part-time employees) that are unable to work, or telework, if the employee:

1. Is subject to a government mandated quarantine or isolation order;
2. Has been advised by a healthcare provider to self-quarantine;
3. Is experiencing symptoms of COVID-19;
4. Is caring for an individual subject to a government mandated quarantine or isolation order or advised by a healthcare provider to self-quarantine;
5. Is caring for a child whose school or place of care has been closed due to COVID-19; or
6. Is experiencing any other substantially similar condition related to COVID-19.

Sick leave must be paid at the employee’s regular rate of pay if taken for the employees own self-isolation (items 1 – 3 above) and only two-thirds the employee’s regular rate of pay if taken for the care of another (items 4 – 6 above). Employers will also be required to pay for 10 weeks of family and medical leave for employees who are unable to work to care for the employee’s child if the child’s school or place of care is closed due to COVID-19 at a rate of two-thirds of regular pay.

If you would like to discuss your specific financial and tax situation with us, please reach out to your Siegfried Advisory team member today to set up a time. We will continue to closely monitor the implications and changes that arise as a result of the COVID-19 situation. Please do not hesitate to reach out to us if you have any questions or concerns.

Tax Deadline Update

On March 13, 2020, President Trump issued an emergency declaration in response to the ongoing COVID-19 pandemic that instructed the Secretary of the Treasury “to provide relief form tax deadlines to Americans who have been adversely affected by the COVID-19 emergency.” In response, the Internal Revenue Service officially announced today that the due date for making Federal income tax payments due April 15, 2020, is postponed to July 15, 2020. Postponed payments are limited to $1 million for individuals and $10 million for C corporations.

This payment deferral includes both remaining 2019 income tax payments due (including payments of tax on self-employment income), as well as Q1 2020 estimated tax payments. The postponement does not provide for a filing deferral. Tax returns or extensions due on April 15th must still be filed by that date. Interest and penalties for unpaid taxes after the deferral period will begin to accrue on July 16, 2020.

Many state jurisdictions are also extending payment and filing deadlines in response to the Federal postponement. We expect more definitive guidance from these jurisdictions in the coming days. Real-time updates on state responses can be found here.

If you would like to discuss your specific financial and tax situation with us, please reach out to your Siegfried Advisory team member today to set up a time. We will continue to closely monitor the implications and changes that arise as a result of the COVID-19 situation. Please do not hesitate to reach out to us if you have any questions or concerns.

– Your Siegfried Advisory Team

Siegfried Advisory + COVID-19

Valued Clients,

We have been closely monitoring developments around COVID-19. As always, our highest priorities are the safety and wellbeing of our employees, clients, and the communities where we live. We are taking all necessary precautions and encourage all of you to do the same.

In light of continuing developments, we are sharing an important update with all of you. As of today, our employees are generally working from home and have secure, remote access to the resources necessary to perform their responsibilities without interruption and without impacting the security of our clients and their data.

We are closely watching any potential changes to upcoming deadlines and will communicate if anything changes. It is likely that COVID-19 will have an impact on all of us financially. If you would like to discuss your personal long and short-term impact please feel free to reach out to your account representative.

Do not hesitate to contact us with any questions or concerns, but most importantly feel confident that as we follow guidance from government authorities, our team remains fully functional in all aspects.

– Your Siegfried Advisory Team

Celebrating the end of Tax Season!

The Siegfried Advisory team recently came together to celebrate the end of another amazing tax season. This year was filled with clients (both existing and new), Tax Cuts, Jobs Act changes, and adding a few new faces to our own growing team!

We invited our friends (who helped keep us balanced throughout the hectic tax season) from Balanced Athlete, to come together at Urban Axe in Philadelphia. What better to do after months of long hours? Throw Things!!!

It was a great way to rejuvenate, relieve some stress and enjoy great food, drinks and conversation among friends. The entire team was able to break away and participate in some friendly competition, but it was the small and mighty Alyssa that took home the win.

Promotions At Siegfried Advisory

Please join us in congratulating the following team members for well-deserved promotions. These folks have shown alignment to firm and team vision, 5-star client service, overall performance, values and leadership qualities worthy of a promotion.

  • Steve Hutchison, FAS Director
  • Shaun Menkhaus, Tax Manager
  • Brieann Capecci, Level 3 Senior Tax Associate

Congratulations!

Crime and Cryptocurrency: Investors Beware

People are taking about cryptocurrency. And with so much interest in the topic, Siegfried Advisory’s Alyzabeth Smith, along with Judith Herron, CPA, recently published an article on CPA Now, a blog from the Pennsylvania Institute of CPAs. The article, which focuses on cryptocurrency and crimes that could be associated with it, can be found in full here.