Tax Rules & Laws

CARES Act: Small Business Overview

This information is constantly changing. We will update it as we can. Please make sure to review the PPP loan under the SBA loan section below. It is something that most of our clients could and should take advantage of.

Employee Retention Credit

Qualifying employers can take a tax credit equal to 50% of employee’s wages if your business was entirely or partially shut down or closed due to COVID-19 related orders or if gross receipts declined by more than 50% when compared to the same quarter of the year before. More details are available on the IRS website here.

Delay in Payment of Employer Payroll Taxes

Although this provision is allowed we do not recommend it. Staying in the habit of paying payroll taxes is very important. Penalties for not paying payroll taxes at the deferred time can be very high.

This provision allows employers to defer payment their portion of Social Security (FICA) tax for wages from March 27, 2020 to December 31, 2020. Half of the taxes owed will be due by December 31, 2021 and the other half will be due on December 31, 2022.

In the example below the only portion that you would be able to defer would be the $6,200 of the employer’s portion of FICA or Social Security.

  • $100,000 gross wages from March 27 – December 31, 2020
  • $6,200 FICA, employee’s share
  • $1,450 Medicare, employee’s share
  • $6,200 FICA, employer’s share
  • $1,450 Medicare, employer’s share

Mandatory Paid Sick Leave and E-FMLA

See our post here describing the leave policy. Employers would receive a tax credit equal to the amount of paid sick leave and expanded family medical leave paid and the related taxes.

SBA Loans

Paycheck Protection Plan Loan (PPP Loan)

This loan is applied for through banks that are qualified to do SBA lending. Applications may begin to be sent beginning April 3, 2020. Please reach out to your banker or if you need a referral please let us know.

This loan allows you to receive up to 2.5x your average monthly payroll. If within the 8 week following the close of the loan you use the funds to pay payroll, rent, utilities or interest on loans, the amount you pay for those expenses may be forgiven and you won’t have to pay back that portion of the loan.

Most businesses will qualify including self-employed individuals (Sole Proprietors, Partnerships, etc.). There are many rules as to what is included in your average payroll and reductions in forgiveness if you have less employees than in the past. WCG Inc, another CPA firm, has a great post with many of those details.

Economic Injury Disaster Loan (EILD) and $10k Grant

This loan is applied for directly on the SBA website here. It is a basic application that is available right now.

In applying for this loan you can request that the SBA send you a one-time $10,000 grant that you do not need to pay back unless you also are participating in the PPP loan above. The $10k should arrive within a week of submitting your application.

This loan is essentially just a loan that is much easier to qualify for and the terms are favorable (3.75% interest rate, up to 30 year amortization). The entire country is in a disaster are due to COVID-19 so everyone should be eligible

Additional Resources

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CARES Act: Individual Overview

Updated 4/15/2020 11:00 AM AZ time

Stimulus Checks

On Friday the CARES Act was signed into law and one of its provisions allows individuals to receive one time stimulus checks. The Treasury Department has said that they will issue these checks starting today. Starting today the IRS has an online tool to check the status of your stimulus check (Get My Payment).

There are some rules as to who receives the stimulus checks and how the Treasury Department will be determining if you qualify for a stimulus check and how much. This post goes into a few details of how this will be determined.

How much do I get?

The IRS will be looking at your 2019 tax return first and if you have yet to file, they will look at the 2018 tax return. They will not be looking back further than your 2018 tax return. For those that haven’t filed a tax return or weren’t required to file you can go here to enter your information for direct deposit.

If you have not filed your tax returns in recent years then please reach out to us so we can get your returns filed so you can qualify for the stimulus check.

There are income limitations to receiving a stimulus check (see below) but the amount you will receive is $1,200 for a Single taxpayer or $2,400 for a married filing joint taxpayer. An additional amount of $500 per dependent child age 16 and younger at the end of the year of the tax return they are looking at will be sent as well (ex. 2019 tax returns they look at age as of December 31, 2019). This excludes dependents age 17 and older from receiving any sort of stimulus check (ex. older children, college students claimed by parents, retired parents being claimed by their child, etc.). There has not been guidance released on Married Filing Separate individuals as of yet.

Income Limitations

As mentioned above, the IRS will send out a check based on your 2018 or 2019 tax return but the stimulus check will actually be reconciled against your 2020 tax return. If in 2020 you exceed the income limitations below then you will be required to pay back any amount that you received. It is unclear on if they will require paying back any amount received for a child that was 16 or younger in 2019 but is now 17 or older in 2020.

For a Single taxpayer if your Adjusted Gross Income (AGI) is $75,000 or lower then you qualify for the full stimulus amounts listed above. If your AGI is between $75,001 and $99,000 then your benefit will be reduced by $5 for every $100 earned above $75,000 (see Stimulus Calculator at the end of this article). With income above $99,000 you will not receive anything.

For a Marries taxpayer if your Adjusted Gross Income (AGI) is $150,000 or lower then you qualify for the full stimulus amounts listed above. If your AGI is between $150,001 and $198,000 then your benefit will be reduced by $5 for every $100 earned above $150,000 (see Stimulus Calculator at the end of this article). With income above $198,000 you will not receive anything.

AGI can be found on your 2018 tax return on Form 1040, page 2 line 7. It is found on your 2019 tax return on Form 1040 (or Form 1040-SR), page 1, line 8b.

How will I get the money?

The IRS will be sending you the money using the same method that was used on your most recent tax return. If you set up direct deposit then it will go to that bank account that you set up. If you had your refund mailed to you or if you owed money last year then they will mail you a check to the address of your most recent tax return.

If you have changed bank accounts, the direct deposit will fail and they will then mail you a check instead. I imagine this will delay the check slightly but no information has been provided as of yet.

If your address is not current with the IRS then please fill out and file Form 8822 to change your address with the IRS. It is a simple form where you put your name, SSN, old address and new address. If you have set up mail forwarding you should be OK but the best option would be file update your address with the IRS.

Additional Resources

Student Loans

There were a few items changed in regards to student loans with the CARES Act:

  1. No payments due until September 30, 2020. Your balance is frozen.
  2. No interest through September 30, 2020.
  3. Skipping payments through September 30, 2020 counts towards the public service loan forgiveness program.
  4. Suspension of debt collection for student loans.
  5. Employers can provide up to $5,250 of payments tax free on student loan balances to employees.

This applies to federal student loans only, and not private student loans.

Exception to Using Retirement Funds because of Coronavirus

Under the CARES Act you are now able to withdraw up to $100k as a loan from your retirement account tax and penalty free. The withdrawal is only penalty and tax free if you pay back the entire amount withdrawn within 3 years. You must meet certain conditions (see below) in order to qualify for this loan.

  • Distribution made between 1/1/2020 and 12/31/2020
  • You are diagnosed with COVID-19 using a test approved by the CDC
  • Your spouse or dependent is diagnosed with COVID-19
  • You have experienced adverse financial conditions due to being quarantined, furloughed, laid off, or reduced work hours due to COVID-19
  • You are unable to work because you need to care for a child.
  • You own a business that has closed or reduced hours due to COVID-19
  • IRS will give further reasons in the future that may qualify.

Stoppage of Required Minimum Distributions (RMDs)

No RMD is required to be taken in 2020 by anyone. This means if were required to take an RMD for the first time in 2019 (turned 70 and 1/2 in 2019) you would normally be required to take the RMD by April 15th, 2020. Under this act you would not be required to take the 2019 or 2020 distribution this year but would begin in 2021.

Additional Charitable Deduction

Whether you itemize your deductions or not, you will be able to take a charity deduction above the line for up to $300. These contributions must be made in cash and the deduction will be claimed on your 2020 tax return.

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SBA Loans Available for COVID-19 Affected Businesses

The following information is very new and constantly changing but we wanted to provide it to you as quickly as we could. Please note the date of the post and recognize that each business is different in how this will or will not apply to them. We may not have the answers to all of your questions but we will do our best to answer how this applies to you.

We do not have the expertise or knowledge to fill out loan applications on your behalf at this time. We are able to provide necessary documentation that you may need from us if you are unable to find them in your records. We also have bank contacts that would be able to assist. Please reach out and we can pass on their information to you.

Coronavirus Emergency Loans (passed 3/27/2020)

With the passing of the CARES Act on Friday, March 27, 2020, there are some options for loan forgiveness as well for qualifying expenses. Please review the US Chamber of Commerce’s Guide and Checklist for details. This loan program is much better than the remaining information in this post.

Other SBA Loans (passed 3/6/2020)

Under the Coronavirus Preparedness and Response Supplemental Appropriations Act (the Act), small businesses that have suffered substantial economic injury as a result of COVID-19 can apply for low-interest federal disaster loans through SBA. Small businesses and nonprofits can apply for working capital loans of up to $2 million.

We’ve highlighted the following key details of the Act for you here, but you can also learn more by visiting the COVID-19 disaster assistance page on SBA’s website.

  • State governors must first request access to the Economic Injury Disaster Loan program. Once the declaration is made, information on the application process for disaster loan assistance will be made available to affected small businesses within the given state.
  • Loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits.
  • Loans can be used to cover accounts payable, debts, payroll and other bills.
  • Loans can be offered with long-term repayments in order to keep payments affordable—up to a maximum of 30 years. Terms are determined on a case-by-case basis.
  • Businesses will apply for loans online and select “Economic Injury” as the reason for seeking assistance.
  • SBA offers disaster assistance via its customer service center. If you have questions or want to check if your state is eligible, contact U.S. Small Business Administration via phone at 800.659. 2955 (TTY: 800.877.8339) or e-mail  disastercustomerservice@sba.gov.

The coronavirus situation is changing rapidly, as are the updates to various relief efforts. We will continue to monitor news and keep you updated as clarification is provided.

Additional Resources

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Tax Return and Payment Deadline Pushed to July 15, 2020

The IRS has changed the tax deadline to now be July 15, 2020. This means that tax returns do not need to be submitted and payments do not need to be made until July 15th. We encourage you to still file as soon as you can. If you owe you can still wait to pay but finalizing the information and getting it into the IRS early will be critical, especially as they have slowed down as well.

If you are expecting a refund we highly encourage you to get your return filed as soon as possible. As of this posting the IRS is still issuing refunds as normal but they will become busy sending stimulus checks in the coming weeks. Below is some additional information from the IRS.

Tax Deadline Extension

Below, you will find a list of frequently asked questions in reference to the Internal Revenue Service’s (IRS) Notice 2020-18 (PDF). In this Notice, the Treasury Department and the IRS announced special Federal income tax return filing and payment relief in response to the ongoing COVID-19 emergency.

You can review the IRS page for additional information here:
https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers.

Frequently Asked Questions

Question 1: Who is eligible for relief under the Notice?

Answer: Any person with a Federal income tax return or payment due on April 15, 2020 is eligible for relief under the Notice. “Person” includes any type of taxpayer such as an individual, a trust, an estate, a corporation or any type of unincorporated business entity. The payment due refers to both 2019 Federal income tax payments (including payments of tax on self-employment income) and 2020 estimated Federal income tax payments (including payments of tax on self-employment income)—regardless of the amount owed. The return or payment must be due on April 15, 2020—this relief does not apply to Federal income tax returns and payments due on any other date.

Question 2: Do I have to actually be sick, quarantined or have any other impact from COVID-19 to qualify for payment relief?

Answer: No, you do not have to be sick, quarantined or have any other impact from COVID-19 to qualify for relief. You only need to have a Federal income tax return or payment due on April 15, 2020 as described above.

Question 3: I am a fiscal year filer. My Federal income tax return for fiscal year 2019 is due on April 15, 2020. Am I an “Affected Taxpayer” eligible for relief under the Notice?

Answer 3: Yes, the relief provided in the Notice applies to Federal income tax returns and payments in respect of an Affected Taxpayer’s 2019 taxable year and postpones those 2019 return filings and payments due on April 15, 2020 until July 15, 2020. If your Federal income tax return for your fiscal year ending during 2019 is due on April 15, 2020, whether that is the original due date or the due date on extension, your due date is postponed to July 15, 2020.

Question 4: Does this relief apply to state tax liabilities?

Answer: No, this relief applies only to Federal income tax payments. State filing and payment deadlines vary and are not always the same as the Federal filing and payment deadline. We urge you to check with your state tax agencies for those details. More information is available at https://www.taxadmin.org/state-tax-agencies.

Question 5: I haven’t filed my 2019 income tax return yet (that would have been due on April 15), but I expect to file it by July 15. What do I need to do?

Answer: Nothing, except file and pay any tax due with your return by July 15. You don’t need to file any additional forms or call the IRS to qualify for this automatic Federal tax filing and payment relief. If you expect a refund, you are encouraged to file your return as soon as you can so that you can receive your refund. Filing electronically with direct deposit is the quickest way to get refunds. If you need more time beyond July 15 to file your return, request an automatic extension of time to file as described next.

Question 6: What if I am unable to file my 2019 income tax return (that would have been due on April 15) by July 15, 2020?

Answer: If you are an individual, you can request an automatic extension to file your Federal income tax return if you can’t file by the July 15, 2020 deadline. The easiest and fastest way to request a filing extension is to electronically file Form 4868 through your tax professional, tax software or using the Free File link on IRS.gov. Businesses, including trusts, must file Form 7004.

You must request the automatic extension by July 15, 2020. If you properly estimate your 2019 tax liability using the information available to you and file an extension form by July 15, 2020, your tax return will be due on October 15, 2020. To avoid interest and penalties when filing your tax return after July 15, 2020, pay the tax you estimate as due with your extension request.

Question 7: I already filed my 2019 income tax return (that would have been due on April 15) and I owe taxes, but I haven’t paid yet. What do I need to do to avoid interest and penalties?

Answer: To avoid interest and penalties, pay your taxes in full by July 15, 2020. If you filed Form 1040 or Form 1040-SR, the tax payment amount can be found on line 23. If you filed Form 1040-NR, the tax payment amount can be found on line 75. For a corporation filing Form 1120, the tax payment amount can be found on line 35.

Interest and penalties will begin to be charged after July 15 for any amount remaining unpaid by that date.

Question 8: I already filed my 2019 income tax return that would have been due on April 15 and scheduled a payment of taxes for April 15, 2020. Will this payment be automatically rescheduled to July 15, 2020?

Answer: No, the payment will not be automatically rescheduled to July 15, 2020. If you do nothing, the payment will be made on the date you chose. Here is information on how to cancel and reschedule your payment:

  • If you scheduled a payment through IRS Direct Pay, you can use your confirmation number from the payment to access the “Look Up a Payment” feature. You can modify or cancel a scheduled payment until two business days before the payment date. The email notification you received when you scheduled the payment will contain the confirmation number.
  • If you scheduled a payment through the Electronic Federal Tax Payment System (EFTPS), click on “Payments” from the EFTPS home page, login, click “Cancel a Tax Payment” from the left menu and follow the instructions. You must do so at least two business days before the scheduled payment date.
  • If you scheduled a payment as part of filing your tax return (authorizing an electronic funds withdrawal), you may revoke (cancel) your payment by contacting the U.S. Treasury Financial Agent at 888-353-4537. You must call to make a payment cancellation request no later than 11:59 p.m. ET two business days prior to the scheduled payment date.
  • If you scheduled a payment by credit card or debit card, contact the card processor to cancel the payment.

Question 9: The Notice postpones the deadline for first quarter 2020 estimated income tax payments due on April 15, 2020. What about second quarter estimated tax payments due on June 15? Have they been postponed as well?

Answer: No, second quarter 2020 estimated income tax payments are still due on June 15, 2020. First quarter 2020 estimated income tax payments are postponed from April 15 to July 15, 2020.

Question 10: Does this relief provide me more time to contribute money to my IRA for 2019?Answer: Yes. Contributions can be made to your IRA for a particular year at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, 2020, the deadline for making contributions to your IRA for 2019 is also extended to July 15, 2020. For more details on IRA contributions, see Publication 590-A – Contributions to Individual Retirement Arrangements (IRAs).

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New Sick Pay and Medical Leave Requirements Due to COVID-19

The following information is very new and constantly changing but we wanted to provide it to you as quickly as we could. Please note the date of the post and recognize that each business is different in how this will or will not apply to them. We may not have the answers to all of your questions but we will do our best to answer how this applies to you.

Family and Medical Leave Act (FMLA) expanded to provide relief to those affected by COVID-19

“The Families First Coronavirus Response Act” (FFCRA), which goes into effect April 1, 2020 and expires December 31, 2020, responds to the coronavirus outbreak by providing additional assistance in the areas of COVID-19 testing, sick leave, food assistance, and more. We’ve compiled key details of FFCRA that we believe you need to know.

The following items are mandatory unless you believe it will “jeopardize the viability of the business is a growing concern”.  You may apply for an exemption, but the Department of Labor has yet to provide details of how this exemption process will work and who qualifies.

In summary, the Act:

  • Requires employers to provide emergency paid sick leave to workers affected by COVID-19
  • Expands family and medical leave (FMLA) for employees that are required to care for children out of school or daycare.
  • Offers increased funding for state unemployment insurance, food stamp and nutritional programs.

More specifically, here’s what The Families First Coronavirus Response Act means for both business owners and employees in the areas of sick leave and expanded family and medical leave.

  • Emergency paid sick leave:
    • Employees are eligible for up to two weeks of sick leave (full pay for self, 2/3 pay for family care) for illness, quarantine or school closures.
    • Applies to employers with fewer than 500 employees
    • All employees no matter the length of employment (some exclusions may apply)
  • FMLA expansion covers:
    • Employees are eligible for up to 12 weeks of FMLA leave for school closures (2 weeks unpaid and then up to 10 weeks at 2/3 pay).
    • Employers with fewer than 500 employees
    • Employees who have been employed for at least 30 calendar days (some exclusions may apply)
    • Employees who must care for children under the age of 18 in the event of school and place-of-care closures or if care provider is unavailable due to a public health emergency with respect to COVID-19.

Qualifying Reasons for Leave related to COVID-19

  1.  Is subject to Federal, State or local quarantine or isolation order related to COVID-19
  2. Has been advised by a health care provider to self-quarantine related to COVID-19
  3. Is experiencing COVID-19 Symptoms and is seeking medical diagnosis
  4. Is caring for an individual subject to an order described in number 1 or 2 above. (Does not have to be a family member.)
  5. Is caring for his or her child whose school or place of care is closed (or child care provider is unavailable due to COVID-19 related reasons

Is experiencing any other substantially similar condition specified by the US Department of Health and Human Services.

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2018 Tax Reform

What the Tax Reform Act Means for You

Congress has passed a tax reform act that will take effect in 2018, ushering in some of the most significant tax changes in three decades. There are a lot of changes in the new act, which was signed into law on Dec. 22, 2017.

You can use this memo as a high-level overview of some of the most significant items in the new act. Because major tax reform like this happens so seldom, we recommend you schedule a tax-planning consultation to ensure you reap the most tax savings possible during 2018. 

Key changes for individuals:

Here are some of the key items in the tax reform act that affect individuals:

  • Reduces income tax brackets: The act retains seven brackets, but at reduced rates, with the highest tax bracket dropping to 37 percent from 39.6 percent. The individual income brackets are also expanded to expose more income to lower rates (see charts below).
  • Doubles standard deductions: The standard deduction nearly doubles to $12,000 for single filers and $24,000 for married filing jointly. To help cover the cost, personal exemptions and most additional standard deductions are suspended.
  • Limits itemized deductions: Many itemized deductions are no longer available, or are now limited. Here are some of the major examples:
    • Caps state and local tax deductions: State and local tax deductions are limited to $10,000 total for all property, income and sales taxes.
    • Caps mortgage interest deductions: For new acquisition indebtedness, mortgage interest will be deductible on indebtedness of no more than $750,000. Existing mortgages are unaffected by the new cap as the new limits go into place for acquisition indebtedness after Dec. 14, 2017. The act also suspends the deductibility of interest on home equity debt.
    • No more 2 percent miscellaneous deductions: Most miscellaneous deductions subject to the 2 percent of adjusted gross income threshold are now gone.

Tip: If you’re used to itemizing your return, that may change in coming years as the doubled standard deduction and reduced deductions make itemizing less attractive. To the extent you can, make any remaining itemizable expenditures before the end of 2017.

  • Cuts some above-the-line deductions: Moving expense deductions get eliminated except for active-duty military personnel, along with alimony deductions beginning in 2019.
  • Weakens the alternative minimum tax (AMT): The act retains the alternative minimum tax but changes the exemption to $109,400 for joint filers and increases the phaseout threshold to $1 million. The changes mean the AMT will affect far fewer people than before.
  • Bumps up child tax credit, adds family tax credit: The child tax credit increases to $2,000 from $1,000, with $1,400 of it being refundable even if no tax is owed. The phaseout threshold increases sharply to $400,000 from $110,000 for joint filers, making it available to more taxpayers. Also, dependents ineligible for the child tax credit can qualify for a new $500-per-person family tax credit.
  • Doubles estate tax exemption: Estate taxes will apply to even fewer people, with the exemption doubled to $11.2 million ($22.4 million for married couples).

What stays the same for individuals:

  • Itemized charitable deductions: Remain largely the same.
  • Itemized medical expense deductions: Remain largely the same. The deduction threshold drops back to 7.5 percent of adjusted gross income for 2017 and 2018, but reverts to 10 percent in the following years.
  • Some above-the-line deductions: Remain the same, including $250 of educator expenses and $2,500 of qualified student loan interest.
  • Gift tax deduction: Remains and increases to $15,000 from $14,000 for 2018.

Farewell to the healthcare individual mandate penalty

One of the changes in the tax act is the suspension of the individual mandate penalty in the Affordable Care Act (also known as “Obamacare”). The penalty is set to zero starting in 2019, but remains in place for 2018 and prior years.

Tip: Retain your Form 1095s, which will provide evidence of your healthcare coverage. Without it, you may have to pay the individual mandate penalty, which is the higher of $695 or 2.5 percent of income. Beginning in 2019, this penalty is set to zero.

NOTICE: The IRS recently granted employers and health care providers a 30-day filing extension for Forms 1095-B and 1095-C, to March 2, 2018. The IRS clarified that taxpayers are not required to wait until receipt of these forms to file their taxes.

 

New 2018 tax bracket structures for individuals

Single taxpayer

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000   37%

Head of household

Taxable income over But not over Is taxed at
$0 $13,600 10%
$13,600 $51,800 12%
$51,800 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000   37%

 

Married filing jointly

Taxable income over But not over Is taxed at
$0 $19,050 10%
$19,050 $77,400 12%
$77,400 $165,000 22%
$165,000 $315,000 24%
$315,000 $400,000 32%
$400,000 $600,000 35%
$600,000   37%

 

Married filing separately

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $300,000 35%
$300,000   37%

 

Estates and trusts

Taxable income over But not over Is taxed at
$0 $2,550 10%
$2,550 $9,150 24%
$9,150 $12,500 35%
$12,500   37%

This brief summary of the tax reform act is provided for your information. Any major financial decisions or tax-planning activities in light of this new legislation should be considered with the advice of a tax professional. Call if you have questions regarding your particular situation. Feel free to share this memo with those you think may benefit from it.

Information from Knutte & Associates, Tax Reform Newsletter 12-28-17 was used in this blog post.

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Should I File a Tax Return?

Should I File a Tax Return?

Most people file a tax return because they have to. Even if a taxpayer doesn’t have to file, there are times they should. They may be eligible for a tax refund and not know it.

Here are five tips on whether to file a tax return:

  1. General Filing Rules.  In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed or a dependent of another person. For example, if a taxpayer is single and under age 65, they must file if their income was at least $10,350 (for 2016). There are other instances when a taxpayer must file. Contact one of the professionals at Fox Peterson for more information.
  2. Tax Withheld or Paid.  Did the taxpayer’s employer withhold federal income tax from their pay? Did the taxpayer make estimated tax payments? Did they overpay last year and have it applied to this year’s tax? If the answer is “yes” to any of these questions, they could be due a refund. They have to file a tax return to get it.
  3. Earned Income Tax Credit.  A taxpayer who worked and earned less than $53,505 last year could receive the EITC as a tax refund. They must qualify and may do so with or without a qualifying child. They may be eligible for up to $6,269. The professionals at Fox Peterson can help determine eligibility, or the IRS’ 2016 EITC Assistant tool on IRS.gov can also help. Taxpayers need to file a tax return to claim the EITC.
  4. Additional Child Tax Credit.  Did the taxpayer have at least one child that qualifies for the Child Tax Credit? If they do not qualify for the full credit amount, they may be eligible for the Additional Child Tax Credit. Beginning in January 2017, by law, the IRS must hold refunds for any tax return claiming either the EITC or the Additional Child Tax Credit until Feb. 15. This means the entire refund, not just the part related to either credit.
  5. American Opportunity Tax Credit.  To claim the AOTC, the taxpayer, their spouse or their dependent must have been a student enrolled at least half time for one academic period to qualify. The credit is available for four years of post-secondary education. It can be worth up to $2,500 per eligible student. Even if the taxpayer doesn’t owe any taxes, they may still qualify. Complete Form 8863, Education Credits, and file it with the tax return. Learn more by visiting the Education Credits web page.

The professionals at Fox Peterson can help with questions on any of these points. Information from IRS Tax Tip 2017-02 was used in this blog post.

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Debt Cancellation May be Taxable

Debt Cancellation May be Taxable

If a lender cancels part or all of a debt, a taxpayer must generally consider this as income. However, the law allows an exclusion that may apply to homeowners who had their mortgage debt canceled in 2016.

Here are 10 tips about debt cancellation:

  1. Main Home. If the canceled debt was a loan on a taxpayer’s main home, they may be able to exclude the canceled amount from their income. They must have used the loan to buy, build or substantially improve their main home to qualify. Their main home must also secure the mortgage.
  2. Loan Modification. If a taxpayer’s lender canceled or reduced part of their mortgage balance through a loan modification or ‘workout,’ the taxpayer may be able to exclude that amount from their income. They may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt canceled in a foreclosure.
  3. Refinanced Mortgage. The exclusion may apply to amounts canceled on a refinanced mortgage. This applies only if the taxpayer used proceeds from the refinancing to buy, build or substantially improve their main home and only up to the amount of the old mortgage principal just before refinancing. Amounts used for other purposes do not qualify.
  4. Other Canceled Debt. Other types of canceled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion. On the other hand, there are other rules that may allow those types of canceled debts to be nontaxable.
  5. Form 1099-C. If a lender reduced or canceled at least $600 of a taxpayer’s debt, the taxpayer should receive Form 1099-C, Cancellation of Debt, by Feb. 1. This form shows the amount of canceled debt and other information.
  6. Form 982. If a taxpayer qualifies, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. They should file the form with their income tax return.
  7. Exclusion Extended. The law that authorized the exclusion of cancelled debt from income was extended through Dec. 31, 2016.

 

Information from IRS Tax Tip 2017-23 was used in this blog post

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The Fair Wages and Healthy Families Act

THE FAIR WAGES AND HEALTHY FAMILIES ACT

Earned Paid Sick Time

 Employers: click here to download a pdf of the AZ Earned Paid Sick Time Poster 2017

EXEMPTIONS: The Fair Wages and Healthy Families Act (the “Act”) does not apply to any person who is employed by a parent or a sibling; any person who is employed performing babysitting services in the employer’s home on a casual basis; or any person employed by the State of Arizona or the United States government.

ENTITLEMENT AND AMOUNT:

Beginning July 1, 2017, employees are entitled to earned paid sick time and accrue a minimum of one hour of earned paid sick time for every 30 hours worked, subject to the following limitations:

  • Employees whose employers have less than 15 employees may only accrue or use 24 hours of earned paid sick time per year.
  • Employees whose employers have 15 or more employees may only accrue or use 40 hours of earned paid sick time per year.

Employers are permitted to select higher accrual and use limits.

TERMS OF USE: Earned paid sick time may be used for the following purposes: (1) medical care or mental or physical illness, injury, or health condition; or (2) a public health emergency; and (3) absence due to domestic violence, sexual violence, abuse, or stalking. Employees may use earned paid sick time for themselves or for family members. See Arizona Revised Statutes § 23-373 for more information.

RETALIATION & DISCRIMINATION PROHIBITED:

Employers are prohibited from discriminating against or subjecting any person to retaliation for: (1) asserting any claim or right under the Act, including requesting or using earned paid sick time; (2) assisting any person in doing so; or (3) informing any person of their rights under the Act.

ENFORCEMENT: Each employee has the right to file a complaint with the Industrial

Commission’s Labor Department alleging that an employer has violated the Act. Certain time limits apply. A civil action may also be filed as provided in the Act. Violations of the Act may result in penalties.

INFORMATION: For additional information regarding the Act, you may refer to the Industrial Commission’s website at www.azica.gov or contact the Industrial Commission’s Labor Department: 800 W. Washington, Phoenix, Arizona 85007-2022; (602) 542-4515.

The State of Arizona is requesting that THIS POSTER be conspicuously posted in a place that is accessible to employees.

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Late Filing and Late Payment Tips

Late Filing and Late Payment Tips

April 18 was this year’s deadline for most people to file their federal tax return and pay any tax they owe. If you are due a refund there is no penalty if you file a late tax return. If you owe tax, and you failed to file and pay on time, you will most likely owe interest and penalties on the tax you pay late. To keep interest and penalties to a minimum, you should file your tax return and pay the tax as soon as possible. Here are some facts that you should know.

Late Filing and Late Payment Tips

1. Two penalties may apply. One penalty is for filing late (5%) and one is for paying late (.5%). They can add up fast. Interest accrues on top of the penalties. The interest rate as of April 2017 is 4%.

2. Penalty for late filing. If you file your 2015 tax return more than 60 days after the due date or extended due date, the minimum penalty is $205 or, if you owe less than $205, 100 percent of the unpaid tax. Otherwise, the penalty can be as much as five percent of your unpaid taxes each month up to a maximum of 25 percent.

3. Penalty for late payment. The penalty is generally 0.5 percent of your unpaid taxes per month. It can build up to as much as 25 percent of your unpaid taxes.

4. Combined penalty per month. If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent per month.

5. File even if you can’t pay. Filing on time and paying as much as you can will keep your interest and penalties to a minimum. If you can’t pay in full, getting a loan or paying by debit or credit card may be less expensive than owing the IRS. If you do owe the IRS, the sooner you pay your bill the less you will owe.

6. Payment Options. Explore your payment options on our website at IRS.gov/payments. For individuals, IRS Direct Pay is a fast and free way to pay directly from your checking or savings account. The IRS will work with you to help you resolve your tax debt. Most people can set up a payment plan using the Online Payment Agreement tool on IRS.gov.

7. Late payment penalty may not apply. If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 18 due date.

Information from IRS Tax Tip 2016-66 was used in this blog post. Contact the professionals at Fox Peterson to help you determine your best option for filing your taxes and minimizing your penalties and interest.

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