Retirement Accounts: Rollover Relief for RMDs

Generally, taxpayers must begin taking a required minimum distribution (RMD) from a defined-contribution retirement plan, including a 401(k) or 403(b) plan, or an IRA when they reach age 72 (70 1/2 if they reached 70 ½ before January 1, 2020). The RMD for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table” and is the minimum amount you must withdraw from your account each year.

The CARES Act, however, allowed taxpayers with an RMD due in 2020, to skip any RMDs this year. This includes anyone who turned age 70 1/2 in 2019 and would have had to take the first RMD by April 1, 2020.

This waiver does not apply to defined-benefit plans.

If you’ve already taken out a required minimum distribution (RMD) this year (2020) from a retirement account you now have the opportunity to roll those funds back into a retirement account, thanks to the CARES Act RMD waiver for 2020. Furthermore, the 60-day rollover period for any RMDs already taken this year has been extended to August 31, 2020, to give taxpayers time to take advantage of this opportunity.

This repayment is not subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.

As always, don’t hesitate to call the office with any questions.

Wheeler News – Welcome Dominic Anthony Biancucci

We are happy to announce the arrival of partner, Jaclyn Skull’s newest family member!

Dominic Anthony Biancucci was born 10:28 PM Monday, June 8th at a height of 21.8 inches and weighing eight pounds, one ounce. Dominic is Jaclyn’s third child, and sports a blonde head of hair to match his two older brothers.

Congratulations to Jaclyn and her family!

 

Flexibility for Taxpayer Elections in Cafeteria Plans

Temporary changes to Section 125 cafeteria plans due to the coronavirus pandemic allow flexibility for taxpayers participating in cafeteria plans. These changes include extending the claims period for health flexible spending arrangements (FSAs) and dependent care assistance programs and allow taxpayers to make mid-year changes.

Specifically, these temporary changes for taxpayers include:

  • extending claims periods for taxpayers to apply unused amounts remaining in a health FSA or dependent care assistance program for expenses incurred for those same qualified benefits through December 31, 2020.
  • expanding the ability of taxpayers to make mid-year elections for health coverage, health FSAs, and dependent care assistance programs, allowing them to respond to changes in needs as a result of the COVID-19 pandemic.
  • applying earlier relief for high deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactively to January 1, 2020.

Furthermore, temporary relief for high deductible health plans may be applied retroactively to January 1, 2020 and the $500 permitted carryover amount for health FSAs increases to $550. This amount is adjusted annually for inflation.

Please contact the office if you have any questions.

Facts About Capital Gains and Losses

When you sell a capital asset such as a home, household furnishings, and stocks and bonds held in a personal account, the difference between the amount you paid for the asset and its sales price is known as a capital gain or capital loss. Here are ten facts you should know about how gains and losses can affect your federal income tax return.

1. Capital Assets. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset including property such as your home or car, as well as investment property, such as stocks and bonds.

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Avoid These Common Errors When Filing a Tax Return

When filing a tax return, mistakes such as the common errors listed below can result in a processing delay – and increase the amount of time it takes to receive a tax refund. Using a reputable tax preparer such as a certified public accountant, enrolled agent or another knowledgeable tax professional is usually the best way to avoid this. With this in mind, here are eight of the most common errors taxpayers make when filing their returns:

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Pass on Wealth to Heirs Using These Strategies

Individuals with significant assets who want to transfer wealth to heirs tax-free, as well as minimize estate taxes, should take advantage of proven tax strategies such as gifting and direct payments to educational institutions; however low interest rates and a volatile stock market are creating additional opportunities. Let’s take a look at some of the strategies available:

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SBA Releases Advanced IFR and PPP Loan Forgiveness Applications

The SBA filed its 19th Interim Final Rule (IFR), scheduled to be published on Friday June 19th, focusing on revisions made from Paycheck Protection Program Flexibility Act (Flexibility Act) signed into law on June 5th. Also released yesterday, was a revised Loan Forgiveness Application and EZ Version. Significant updates are highlighted below:

Owner Compensation:

  • Eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week covered period;

OR

  • 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week covered period.

This means there will be full forgiveness for any self-employed, freelancers, or independent contractor who took the maximum loan amount based on 2.5 times their 2019 monthly income.

As with most SBA/Treasury guidance, we receive some answers, however we are left with other questions. The guidance mentions “owner compensation replacement for individuals with self-employment income who file a Schedule C or F”, however it doesn’t mention the owner-employees (S-Corp owners) and also doesn’t mention general partners. Based on the revised Schedule A on the application, it appears that owner-employees, self-employed individuals, and general partners would all be subject to the $20,833 cap.

Employee Compensation:

  • $100,000/52 * 8 (a max of $15,385 per individual);

OR

  • $100,000/52 *24, making the new maximum forgiveness cap $46,154 per individual for 24 weeks.

Also included in either the 8 or 24 week period is covered benefits for employees, including:

  • Health care expenses
  • Retirement contributions
  • State taxes paid by the employer, including unemployment insurance premiums

Non-payroll expenses:

Loan forgiveness amounts for non-payroll expenses have also been extended to 24 weeks. This includes:

  • Covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020.
  • Covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020.
  • Covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation.

The incurred or paid rule is still applicable.

Applications for Loan Forgiveness:

The SBA released two new applications, a revised full loan application and EZ Version.

The new EZ version applies to borrowers that:

  • Are self-employed and have no employees;

OR

  • Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees;

OR

  • Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

EZ application is simpler with less documentation. Details regarding the use of the new EZ application can be found in the instructions for the application form.

$146B still remains from the second round of funding for the PPP Loan program. Businesses must apply by June 30, 2020.

Also, as of Monday, June 15, 2020, the Economic Injury Disaster Loans (EIDL) application opened again to all businesses. The loans are capped at $150,000 and can be used in conjunction with PPP Loan as long as the proceeds are not used for the same expenses. Terms are up to 30 years at 3.75% (2.75% for nonprofits).

As always, the PPP Team is here to answer any questions via ppp@wheelercpa.com, and additional PPP Loan Forgiveness Resources are available here.

SBA and Treasury Release Revisions to First Interim Rule

On June 11, 2020, the Small Business Administration and the U.S. Department of the Treasury released their latest guidance in the form of Paycheck Protection Program – Revisions to First Interim Final Rule (the Revised Interim Final Rule). This Revised Interim Final Rule amends the SBA’s initial interim final rule posted on April 2, 2020. The changes are to conform with the Paycheck Protection Program Flexibility Act of 2020 (the Flexibility Act) that was signed into law on June 5, 2020.

Key takeaways from the new guidance include:

  • Covered Period for PPP Loans:

The definition of “covered period” for a PPP loan is amended to begin on February 15, 2020, and end on December 31, 2020 (originally to end on June 30, 2020). This amendment is effective as of March 27, 2020, and applies to the definition of “covered period” that governs loan use, loan eligibility, and related requirements, however it does not alter the meaning of “covered period” that governs loan forgiveness, which is addressed by a different provision of the Flexibility Act.

  • Loan Forgiveness Covered Period:

The 24-week loan forgiveness covered period begins on the date of loan disbursement. All loans made on or after June 5, 2020, will have a 24-week loan forgiveness covered period. Borrowers who received their PPP loan before June 5, 2020, will have the option of the original eight-week covered period in the CARES Act, or may use the newly enacted 24-week covered period.

  • Payroll Costs as a Percentage of Loan Proceeds:

The guidance states that a maximum of 40% of the loan may be used for non-payroll costs. The guidance provides that, in situations where less than 60% of the loan proceeds are used for payroll costs, the borrower will only receive partial forgiveness. This ensures that 60% of the forgiven amount is used for payroll costs.

The regulations provide an example of a borrower who received a PPP loan in the amount of $100,000, but who only spent $54,000 on payroll costs. The borrower would receive a maximum of $90,000 ($54,000/60%) of loan forgiveness, with $54,000 in payroll costs constituting 60% of the forgiveness amount, and $36,000 in non-payroll costs constituting 40% of the forgiveness amount.

  • Deferral Period:

For borrowers who submit their loan forgiveness application within 10 months after the end of the covered period, no payment of principal or interest is due until the SBA remits the forgiven amount to the lender (or informs the lender that no loan forgiveness is allowed).

If the borrower does not submit a forgiveness application within 10 months after the end of the covered period, the borrower must begin making payments toward principal and interest at the end of that 10-month period.

  • Maturity Date:

For loans made before June 5, 2020, the loan matures in two years, however the borrower and lender may mutually agree to extend the maturity to five years (talk to your lender about options). Loans made on or after June 5, 2020, will have a five-year maturity date.

  • Borrower Certifications:

When applying, borrowers will continue to make certifications including among other things that funds received will be used to “retain workers and maintain payroll,” but also importantly that they understand that “knowingly” using funds for unauthorized purposes may mean the federal government will hold the borrower liable “such as for charges of fraud.”

This recent guidance only addresses a few key items that the SBA and Treasury needed to immediately address. As we continue to see with PPP loan guidance, there is still much more to come. Below is a constant question that we have been receiving since the PPP Flexibility Act was signed into law on June 5, 2020:

Q: Now that the covered period is 24 weeks, will the $100,000 cap be changed as it currently only allows for $15,385 per individual?

A: The law seems to be indicating that the salary amount is to be prorated for the covered period. Since the covered period under the PPP Flexibility Act is extended from 8 weeks to 24 weeks, we believe the new cap on salaries should increase from $15,385 to $46,155. This will have to be clarified by the SBA in the next version of the application, so we will need to wait until then to make any final determinations.

Paycheck Protection Program Flexibility Act of 2020

On June 3, 2020, the Senate passed the House version of the Paycheck Protection Program Flexibility Act of 2020 (the PPP Flexibility Act). It is expected to be signed into law by President Trump. The Act was passed to fix several issues created by the Small Business Administration (SBA) and Treasury when implementing guidance under the Paycheck Protection Program.

Most notably, this bill:

  • Extends the minimum loan maturity date from 2 years to 5 years for all loans made after the date of enactment of the PPP Flexibility Act. The maturity date on previous PPP loans is not automatically extended, but it may be extended by mutual agreement of the lender and borrower. The CARES Act originally gave SBA and Treasury the ability to select maturity dates of up to 10 years.
  • Extends the “covered period” for borrowers to spend loan proceeds on forgivable expenses from 8 weeks to 24 weeks, as many borrowers are not yet able to open for business and were being forced to choose between forgiveness and conserving PPP loan proceeds until they could open again. Existing borrowers can elect to keep the current 8 week covered period, if preferred, or adopt the 24 week covered period.
  • Extends the deadline to cure reductions in full-time equivalent headcount and salary cuts from June 30, 2020 to December 31, 2020, and provides potential exemptions for the reduction in forgiveness due to headcount if the borrower is not able to rehire employees or hire replacement employees or cannot return to normal business activities because of health and safety restrictions.
  • Increases the maximum amount of the PPP loan proceeds that can be spent on non-payroll costs from 25% to 40%. For many borrowers, non-payroll costs were a significant part of their covered period expenses.
  • Extends the deferral period before loan payments begin from a fixed 6 months to the time at which a borrower’s final forgiveness decision is rendered by the SBA. A backlog of forgiveness decisions is likely to occur, and this ensures that borrowers in “forgiveness limbo” aren’t required to start making payments. For borrowers who do not seek forgiveness, the deferral period lasts 10 months.
  • Eliminates the prohibition on payroll tax deferral for PPP borrowers. Thus, PPP borrowers will now be able to take full advantage of the payroll tax deferral provided for in the CARES Act without being required to stop deferring the payment of those taxes if and when their PPP loan is forgiven.

We will need to wait until the President signs the PPP Flexibility Act into law and the SBA and Treasury interprets the Act before we can provide additional guidance to our clients.

Employee Spotlight – Sandra Baron

Wheeler Accountants is excited to announce Sandra Baron as our employee of the quarter. Sandra joined our firm less than one year ago, and quickly proved her dependability through a willingness to support her colleagues and identify obscure solutions to their problems. In a quarter filled with unpredictable new challenges, Sandra has stepped forward into a leadership position for our administrative team. When her peers have questions, she always offers her expertise. When a new project presents itself, Sandra is always one of the first involved.

We are proud to have Sandra as a member of our team!