Neilley & Co. CPA Blog

Hands down, this has been the most unusual tax season in my 28-season career!  Normally it would now be one week and counting to the end, but not so this year.  Here are a few quick notes about important changes and planning opportunities brought about because of the pandemic.

2019 Tax Returns:  July 15 is the new April 15. You can wait three extra months to file your 2019 return and pay any balance due without interest or penalty, no extension needed.  Ohio and most cities have followed suit.  Ditto for most other states, but check your local department of revenue for updates.

2020 Estimated Tax:  If you pay quarterly estimated taxes, bear in mind that at this time, only the first quarter federal estimate has been pushed back to July 15^th.  This leaves an awkward situation where your second quarter estimate is due one month before your first quarter estimate.  I expect we’ll see another IRS announcement on that too, but nothing yet.  Ohio and most cities have pushed back both the first and second quarter estimate due dates to July 15^th.

IRA Contributions:  You have until July 15^th to make 2019 IRA contributions.  If you are eligible to deduct a traditional IRA contribution, doing so would reduce your AGI, and potentially increase your stimulus rebate amount if you’re over the $75,000/$150,000 AGI limits (single & separate vs. joint returns) for the full rebate.  If you already filed your 2019 return, you still have until July 15^th, but would need to amend your return to claim any additional deduction for a Traditional contribution (not for a Roth or non-deductible traditional contribution).  We don’t know for sure, but we suspect an amended return won’t change your rebate if you didn’t get the full amount based on the original, but this is still a good long-term savings strategy.

HSA Contributions:  Just like IRAs, you now have until July 15^th make additional contributions if you have an HSA-eligible health insurance plan and didn’t already contribute the maximum amount allowed for tax year 2019.  These too reduce your AGI; if a lower AGI would increase your rebate, here’s another good reason to put more in if you can.  If you’ve already filed your 2019 return, you’ll need to amend to reflect the deduction.  As with the IRA, we don’t know that an amended return will help in terms of your rebate, but there are many other advantages to maximizing this contribution if you can.

RMDs:  For those over 70, and for those receiving inherited IRAs from a non-spouse, required minimum distributions have been waived for this year.  If you are set up for automatic withdrawals and want to postpone or skip this year’s RMD, contact your institution to make arrangements.  If you already took your distribution and would like to put it back, there are a couple ways to do that; again, contact your institution for details.

 Opportunities:  If your income is going to be lower this year, there may be some strategies you can use to take advantage of the situation.  Don’t take these as advice, they will depend on your specific situation, and are just “idea starters.”  But for example, if you’re retired, this might be a good year to take more out of your IRA at a lower tax cost, and invest while the market is down to realize greater capital gains as it rebounds.  (Capital gains will probably be taxed a lower rate when you cash them in vs. the higher tax rate on IRA distributions.)  Or perhaps do a rollover from a traditional IRA to a Roth, when both the value AND your taxable income are lower than usual.  How about harvesting capital gains in your portfolio (yes, they may still be there) at a lower tax rate?  If you have a business or rental property, a number of other strategies may be possible as well.  Call us to schedule a phone appointment if you’d like to discuss what might work well in your particular situation.

Our Schedule:  Our normal tax return processing time has slowed considerably this year for a number of reasons.  Since the pandemic hit, we haven’t had our normal full team complement due to various personal situations.  We have had to divert enormous time and attention to the CARES Act and other urgent federal and state developments, especially to help our business clients adapt.  And as we do finish returns, it takes significantly longer to make delivery arrangements due to Ohio’s stay at home order.

Throughout these most unusual of times, we are working diligently to serve you.  We appreciate your patience, and will continue to complete tax returns as quickly as we can, given the limitations on our team and the time needed to meet the most urgent needs.  As we noted above, there is no need to file an extension if we don’t complete your returns by April 15th, and we will continue working on them afterward.  If you have particular questions or concerns about the timing (or anything else), please get in touch.

As many of you know, we usually close the office for a few days after April 15^th.  Even though the deadline has been pushed back this year, our team is still feeling a lot of strain from the situation we’re all dealing with, so we are going to take a break and close as usual on Thursday and Friday, April 16^th and 17^th.   We will resume normal hours on Monday April 20^th.

A final note to small businesses: We are here to help you not only survive through this partial shut down, but to thrive when things start to ramp up again.  As hard as the current circumstances are, there are opportunities here for those who will look for them.  As coach John Wooden once said, “Things turn out best for those who make the best of how things turn out.”  Contact us if you’d like to explore how we can help you come out of this even stronger and more successful than you were before.

We are closely monitoring developments, emerging details and planning opportunities surrounding the current pandemic, and post frequent updates on our blog as we learn more.  Check back often, or follow us on LinkedIn, Facebook or Twitter for alerts.

 

I have been reminded lately of a poem I heard years ago that has always stuck with me.  It seems especially appropriate to share right now, and I urge everyone to take its message to heart:

One ship drives east and another drives west
With the selfsame winds that blow.
Tis the set of the sails
And not the gales
Which tells us the way to go.
Like the winds of the seas are the ways of fate,
As we voyage along through the life:
Tis the set of a soul
That decides its goal,
And not the calm or the strife.

Ella Wheeler Wilcox

SBA Loan Updates: Not all banks are up and running yet on the PPP loans (see our April 2^nd post for more info).  The ones that are, seem to be accepting applications only from their existing customers.  Even then however, they don’t have all their systems in place to process the loans.  It’s a little like the airline letting all the ticketed passengers onto the plane, but they’re still trying to get the engines bolted on before they can take off.

There seems to be a sort of run on the bank, so to speak, to get these loans, partly because Treasury predicts they’ll run out of funding and not be able to fund them all.  So even companies that thought they could hold on for a month or two before deciding what to do, are lining up to get a loan while they can, just in case.  There is already talk of additional funding, perhaps that will ease fears and let things settle down a bit.

We’re also seeing more businesses applying for the EIDL loan advance to hedge their bets about getting a PPP loan, which will likely take longer.  Originally SBA said the EIDL advance would be issued within three days of applying, but so far that hasn’t happened.  Now they’re shooting for a week, but it may take longer as they get their systems up and running to catch up.

Rebate Checks:  IRS says the $1,200 rebates to individual taxpayers will begin going out by April 17^th.  However, if you did not use direct deposit (refund) or direct debit (balance due) on your 2018 or 2019 return, it may be August (!) before you receive a paper check.  IRS plans to update their irs.gov website so you can update your bank information for direct deposit if needed, but as of this morning it hasn’t been posted yet.

The full rebate will go to taxpayers who filed a joint return and reported Adjusted Gross Income (AGI*) of $150,000 or less, and $75,000 or less for everyone else.  The rebate phases out above those amounts, so you may still receive a partial rebate with an AGI of $198,000 or $99,000, respectively. IRS will look first at your 2019 return if you have filed it, or 2018 if you haven’t.  If you haven’t filed your 2019 return yet and it would qualify you for a larger rebate than your 2018 AGI would, that’s a reason to file as soon as possible.  Conversely, if your 2019 AGI would reduce your rebate compared to 2018, you’ll receive more if you hold off filing.  You have the flexibility to wait since the filing deadline has been pushed back from April 15^th to July 15^th this year.

If you receive Social Security benefits and aren’t required to file a return due to low income, you’ll still get a rebate without filing one.  If you owe back taxes, the rebate will not be used to offset those obligations.

(*AGI is your total income after certain deductions like IRAs, self-employed health insurance etc., but before your standard or itemized deductions.)

Unemployment Tidbits: In just the last two weeks, over 468,000 Ohioans applied for unemployment.  By comparison, for all of 2019, 364,000 claims were filed.  You can understand the system is being strained to accommodate the increased demand.  ODJFS, which administers Ohio unemployment, has added 300 employees to handle processing these claims, and is looking to add another 1,000.  They have also expanded server capacity by 20 times.  If you have problems getting on the site, their system may be slow, but there may also be bottlenecks in the internet service that gets you from your computer to theirs.  Patience required.

Although the way has been cleared for self-employeds to file for unemployment, that application process isn’t open yet.  States are still waiting on the feds for instructions how that is going to work, and once they do have the necessary guidance, it will probably take some time for them to set up the application and approval process.  Once it is in place, they say you’ll get benefits retroactive to your first date of eligibility.

If you apply, use mass layoff code 2000180.  If you already applied, no need to go back and add this.

Essential businesses are still hiring, visit https://jobsearch.ohio.gov/wps/portal/gov/jobsearch/

2020 Taxes: Unemployment benefits are taxable income, at least under current law. Will there be an exception made for this year?  If so, Congress probably won’t consider that until later in the year due to more urgent issues at the moment.  If you can get by with a little less, we suggest having 10% federal income tax withheld.  If your benefits are made nontaxable later, you’ll get the tax withheld back as a refund with next year’s return, just as you would with wage withholding.

Looking Ahead:  As I have said before, we do all need to stay informed of the current situation and developments, but don’t get bogged down in that.  I recommend limiting your time listening to the news to a bare minimum, ditto for social media that is politically slanted or spreading the most recent “snake oil” cures which seem to abound.
Too much time on those things tends to create a feedback loop that only draws us ever deeper into fear, despair and panic.  Instead, let’s focus our time and attention on things that lift us up: connecting with and supporting neighbors and loved ones, and making constructive plans for what we’re going to do when this calms down.

I don’t know for sure what “normal” is going to look like when we come through this, but I’m confident better times are indeed ahead.  If we can be of help to you in any way in the meantime, please get in touch.

We are closely monitoring developments, emerging details and planning opportunities surrounding the current pandemic, and post frequent updates on our blog as we learn more.  Check back often, or follow us on LinkedIn, Facebook or Twitter for alerts.

The CARES Act passed by Congress last week, and the Families First Act a couple weeks before that, introduced a number of new employment credits, loan programs and grants for small businesses and non-profits.  They make for a dizzying array of options, and it can be confusing trying to figure out how they differ, where they overlap, and how they interact with one another.  On top of that, there are a lot of details and answers to “what if” type questions which no one knows yet.  It all leaves me feeling a bit like we’re in that old game show, “Let’s Make a Deal!”  For those who aren’t familiar, the show ended with a contestant having to pick door #1, door #2 or door #3 to win their prize.  The trick is, all they knew for sure was that a fabulous grand prize was behind one of the doors, not much of any prize behind another, and something in between behind a third, with no clue which was which.

There is no way we can set everything straight for you here, but for any particular business situation, there is a best choice.  We have developed a model to help us analyze individual business situations and sort out which will work better.  However, remember that before you make any financial decisions, you need to step back and think strategically about your business.  You have to be clear about what your ultimate goal really is, before you can chart the best course to get there.  We are here to help with both strategy and analysis!

Loans: There are two types of SBA loan programs geared toward helping businesses through the pandemic: the Economic Injury Disaster Loan (EIDL), and the Paycheck Protection Program Loan (PPPL).  The National Federation of Independent Business (https://www.nfib.com/) has some really great resources available to the general public, including a chart comparing the two loan programs side by side.  I recommend you visit there for more details; I won’t repeat it all here, but would like to make just a few points.

Timing: One school of thought says that, if you have enough financial reserves to get by for the next month or two, it might be worth waiting until the smoke starts to clear and more details are available.  With more time, you might make a better decision how to proceed.  However, there is a funding cap and loans may run out.  Plus, we don’t know for sure how long it will take to receive your loan proceeds, although everyone is hopeful it will be fairly quick… that is, by government standards.  We suggest submitting an application sooner rather than later just to get the process started.  By the time you learn how much you’re approved for, you won’t have to accept the loan at all, and may have some time before you need to make a final decision how much to borrow (if any at all).

Lender: You obtain an EIDL directly from the SBA.  The application process for an EIDL has been open for a couple weeks already.  It’s very simple, and available online at https://covid19relief.sba.gov/#/.  The PPPL on the other hand, is administered through a bank or other lender.  In theory, banks will begin accepting PPPL applications on April 3^rd (April 10^th for independent contractors), but it may take longer as they wait for guidance from SBA and develop their own internal processes.

Uses: PPPLs tend to be geared toward businesses with more payroll, and are more restrictive than EIDLs in what expenses they can be used for.  However, both the PPPL and EIDL can be used by independent contractors and sole proprietors who have no payroll.

Forgiveness: Upon applying for an EIDL, you may opt to receive an advance within three days of up to $10,000, even if your loan is ultimately not approved.  The amount of the advance is determined by SBA, and may be forgiven in whole or in part, essentially converting it to a grant, if you use it for specific expenses.  The PPPL may be forgiven to the extent you use it for specific expenses during a selected 8-week window of time between February 15^th and June 30^th; there is also a requirement to maintain head count to receive the maximum forgiveness.  Depending on your situation, the potential forgiveness could be higher with a PPPL, but the EIDL advance may be available sooner.

Available Credit:  For an SBA loan, there is usually a requirement that the borrower have no access to credit elsewhere, but this has been waived for both the PPPL and EIDL.

Collateral: None for either.  If you receive an EIDL over $25,000 however, SBA will file a general security interest lien against your business.

Personal Guarantees: None for a PPPL, and none for an EIDL under $200,000.

Door #3: Choose both!  As best we understand, taking one loan doesn’t necessarily lock you out from taking the other as well.  However, there is no double dipping; you can’t use both loans to pay the same expenses.  There is also interaction between the two as to the amount of loan forgiveness and the underwriting process itself.

Terms:  An EIDL carries an interest rate of 3.75%, the PPPL is .5% (one-half of one percent).  Your first payment may be deferred up to one year for an EIDL, and 6 months for a PPPL.  EIDL payments may stretch over as many as 30 years, but only 2 years for a PPPL.  There is no prepayment penalty under either.

Credits:  This will really take a separate article of its own to sort through, but very briefly, be aware that the PPPL and the Employee Retention Credit introduced by the CARES Act are mutually exclusive, you can only use one or the other.  That’s another reason to take your time and make sure you understand the pros and cons of all your choices so you can determine which is the better path for you.

Looking Forward:  It is still unclear how and when our current business environment will start moving toward whatever our new normal is going be.  That makes planning difficult, yet it is more important than ever.  My advice remains the same: don’t panic.  Focus on the future you want to build for you and your business, while of course staying alert to present circumstances.  You need to make smart decisions, strategic decisions.  That requires a mind that is focused and clear, and often, objective input from a trusted advisor.

Let Us Help:  We have advised hundreds of businesses over the years, helping them through all sorts of challenges and opportunities.  We can help you navigate these complex new opportunities to find the best strategic path forward for your particular business, as well as help with loan applications, cash flow projections, budgeting and more.  We would welcome a conversation to explore whether we could help you not only survive these difficult times, but thrive!  Feel free to call or email us to schedule a brief initial phone appointment to explore possibilities.