Much has changed in the tax landscape over the past week, so we have some updates to our earlier message.
For Individual Taxes
- Stimulus payments are on the way for those who qualify. Individuals whose adjusted gross income (AGI) is $75,000 or less qualify for a $1,200 cash payment; couples with AGI of $150,000 or less qualify for $2,400. An additional $500 may be paid for each qualifying child. Payment eligibility is based on recent tax information available to the Internal Revenue Service, based on either the 2018 or 2019 tax return filed.
- Retirement funding rules have changed. The Required Minimum Distribution rules for qualified plans and individual retirement accounts (IRAs) are suspended for 2020 to preserve their asset value. Distributions of up to $100,000 related to COVID-19 can be taken and the related income tax will be payable over a three year period. And the 10% penalty for those under 59 ½ will not be assessed. The amount of the distributions can be recontributed back to the plan without affecting that year’s contribution limits.
- Charitable giving deductions can be taken as a deduction against AGI for the 2020 tax year, even if you don’t itemize. The limit for non-itemizers is $300. The 50% AGI limitation on deductible charitable contributions is waived for 2020.
For Business Taxes
Small Business Administration’s Economic Injury Disaster Loans (EIDL)
- Small business owners across the United States can apply for a low-interest loan during the current public emergency. This money may be used to pay fixed debts, payroll, accounts payable and other bills. The interest rate is 3.75%, 2.75% for non-profits. Repayment can be stretched as long as 30 years to keep payments affordable.
- Loans can be approved by the SBA based solely on an applicant’s credit score; loans smaller than $200,000 can be approved without a personal guarantee. Borrowers can receive an emergency cash advance ($1,000 per employee up to $10,000) that can be forgiven if that money is spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, interest on mortgage or lease payments or repaying obligations that can’t be met due to revenue losses.
- A form to apply for EIDL relief can be found here: https://covid19relief.sba.gov/#/ Once you have submitted the application, you should await contact from the SBA with more information.
Paycheck Protection Program(PPP) – Specific forms regarding PPP need to be coordinated with your participating lender that take your information and then process the loan request on your behalf.
- Maximum loan amount must be the lesser of 2.5 average month’s eligible payroll costs, or $10,000,000 with a 1% interest with the loan maturing in 2 years. No personal guarantee or collateral is required for this loan. Lenders are expected to defer fees, principal and interest for no less than six months and no more than one year.
- The federal government will forgive the amount of the loan (subject to rules) that a recipient can document was used to pay: payroll costs; mortgage interest; rent, and; utilities, in each case for up to eight weeks following the issuance of the loan.
- The self-employed, sole proprietors, freelance and gig economy workers are eligible to apply for this program. Businesses, even without a personal guarantee or collateral, can get a loan as long as the business was operational on February 15, 2020.
If you have questions that pertain to how taking advantage of these changes may affect your taxes, your business taxes, or any other tax matter, don’t hesitate to reach out.