TAX RELIEF & STIMULUS: CARES ACT 1 Roger A Jones, CPA Founding - - PDF document

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TAX RELIEF & STIMULUS: CARES ACT

Roger A Jones, CPA Founding Partner

Roger is one of the founding partners of Hauser Jones & Sas and emphasizes strategy, business owner succession, mergers and acquisitions, complex audits, and transactional tax strategies. Roger is instrumental in providing the firms Business Owner Succession Services and leads the firm’s small business outreach efforts. Roger is a member of the AICPA, the WSCPA and a member of the Institute of Internal Auditors. A Puget Sound native, Roger graduated from the University of Washington with a Bachelor’s degree in Accounting. He is married and the father of six kids, the youngest of 7 siblings and enjoys nine grandkids.

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Jennifer Roberts, CPA Senior Tax Manager

Jennifer joined Hauser, Jones & Sas in 2017. She has more than 20 years of experience in the financial industry. Her favorite part of being a CPA is the ability to work directly with people and their businesses; helping with their tax planning and consulting needs. Jennifer leverages her prior experience as an IRS auditor by representing her clients throughout the entire IRS audit process, allowing her to help resolve numerous issues. She has also worked with several attorneys to assist with specialized accounting projects required to help resolve legal cases involving partnerships, estates and trusts. Jennifer lives in her hometown in Kirkland, WA. She graduated from the University of Washington with a Bachelor’s degree in Accounting.

Heather Martin, CPA Tax Manager

Heather joined the team in December 2018, after 19 years with a CPA firm in Seattle and five years with a national accounting firm. Heather has expertise in providing tax and advisory services to high-worth individuals and small businesses, as well as assisting with trusts and estates. She believes in learning a client’s story and building a solid relationship to best understand and meet their needs. Heather enjoys being a trusted advisor to her clients. Heather graduated from the University of Washington with a Bachelor’s degree in Accounting and is a member of the WSCPA . She is married, the mother of 2 college kids, and enjoys time with her family, as well as outdoor recreation, dancing and gardening.

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Anne Smith, EA Client Accounting Services Manager

Anne joined the team in 2015 and has worked in the tax and accounting industry for 25 years. She has worked in both public and private accounting, assisting local business with their accounting, procedures, planning and reporting. Anne is experienced in day to day accounting, payroll, state agency filings, state agency audits, business and personal tax reporting. She has a wide range of experience assisting local businesses to develop accounting systems and procedures, and consulting businesses throughout all phases from business start-ups to planning for the sale of closely held businesses. Anne is an IRS Enrolled Agent and a member of Washington Society of Certified Public Accountants Anne graduated from University of Phoenix with a Master’s Degree in Business and Accounting. Anne lives with her husband and dogs and enjoys remodeling her home and training agility.

Jiyon Han, CPA Senior Tax Manager

Jiyon received her BA from Yonsei University in Korea before relocating to Seattle. Her practice encompasses tax and consulting services for various types of business entities as well as high net worth individuals. She represents and supports clients during IRS

• examinations. Since starting her career in 2000, she has

built a portfolio of clients in a wide range of industries including professional service, construction, real estate investment, restaurant and manufacturing. Jiyon lives with her husband and two children in Sammamish and enjoys watching pro sports in addition to her children’s games.

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ABOUT HAUSER JONES AND SAS, PLLC

Team of 27 FTE with 2 offices [Bellevue & Puyallup] Serving Clients primarily in WA, OR, AK, ID

We Serve Individuals, Small Business, and Not-for-Profits

 Ownership succession services  Tax Compliance  Tax Strategy [Planning]  Audits & Reviews  Consulting & Forecasting  Internal Audit & Compliance  Client Acctg. Services (CAS)  Strategic Planning  Executive Services

2020 CARES Act - $2 Trillion Where Does the Money Go?

Direct Aid

$260 B Unemployment Insurance $150 B State Aid $32 B Grants to Air Carriers & Workers $350 B Supplemental Including $150 B Heath Care Funding

Business Loans

$50 B Economic Stabilization (Loans & Industry Relief) $25 B Passenger Airlines $4 B Air Cargo Carriers $17 B National Security Businesses $377 B Small Business Loan Forgiveness Grants & Other Grants

Tax Provisions

$292 B Recovery Rebate $10 B Retirement & Charitable $276 B Business Tax Breaks $170 B Loss Limitations $55 B ER Retention Credit $26 B NOL Provisions $13 B Business Interest Deductions $12 B Defer ER Payroll Tax

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Today’s Agenda on the CARES Act

• Introductions
• Tax Relief Provisions for Individual Taxpayers
• Tax Relief for Corporate Taxpayers, Partnerships & other Business Entities
• Tax Credits and Deferrals – Payroll Related
• Family First Corona Virus Response Act
• SBA Small Business Lending Programs

Tax Relief for Individuals

• Filing and Payment Deadline Moved to 7/15/2020
• Cash Stimulus Payments
• Retirement Plan Provisions [(401K) Plans etc.]
• Above the Line Charitable Contribution Deduction
• Student Loan Payment Deferral
• Pandemic Unemployment Assistance

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Tax Relief for Individuals

• Deadline to FILE and PAY 2019 federal income taxes moved to July 15, 2020
• 2020 Estimated payments - 1st and 2nd Quarter deadline moved to July 15, 2020
• IRS continues to process and pay refunds

Tax Relief for Individuals - Cash Stimulus Payments

Cash Stimulus Payments – Maximum Benefit =

• $1,200 for single and HOH taxpayers (up to $75,000 and $112,500 AGI),
• $2,400 for MFJ taxpayers (up to $150,000 AGI)

BONUS: an additional $500 per dependent under 17!!! Note: Phase-outs apply for income levels over AGI threshold The benefit phases out at a rate of $5 for every additional $100 in income Not eligible if

• Nonresident alien,
• Claimed as dependent on another return,
• Estate/trust
• No valid SSN

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Tax Relief for Individuals - Cash Stimulus Payments

• Reduced payment or not eligible if you make too much $$
• Single Taxpayer = Phase out over $75,000 - $99,000 AGI max
• MFJ Taxpayer = $150,000 - $198,000 AGI max
• HOH = $112,500 - $136,500 AGI max.

Notes: Stimulus payment is an advance of a 2020 tax credit It may be adjusted based on 2020 federal income tax return data Based on 2018 tax-returns [unless 2019 is already filed] Stimulus payment will be direct deposited for those that used this feature for 2018 or 2019 returns Automatic payments begin next week, followed by letter from IRS

Tax Relief for Individuals - Cash Stimulus Payments

Coming next week:

• Get My Payment shows

Economic Impact Payment date

• Provide bank info to help with

direct deposit https://www.irs.gov/coronavirus/economi c-impact-payments

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Tax Relief for Individuals – Retirement Plans

• Retirement Plan “Early Distributions”:
• Temporary waiver of the 10% penalty on early distributions up to $100,000 [If coronavirus related].
• Must Still Pay TAX on distributions!! [3-year payment window] + 3 yrs. to recontribute.
• Eligibility: Anyone Who Takes an Early Distribution and:
• Has a positive diagnosis (self, spouse, dependent) or
• Has adverse financial consequences from quarantine due to:

 business closure,  layoff or reduced hours.

Note:

• The “penalty waiver period” ends in 180 days (about 170 days left to take an early distribution)

Tax Relief for Individuals – Retirement Plans

• Retirement Plan - Required Minimum Distributions
• Temporarily waives the required minimum distributions for

2020 (including beneficiaries).

• Retirement Plan - Loans
• Max loan amount is increased from $50,000 to $100,000

for the 180-day period beginning after Act enactment

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Tax Relief for Individuals – Other Cool Benefits!

• Charitable Contribution - Be Generous with your Stimulus Checks!!
• $300 charitable contribution ”above the line” even if you do not itemize.
• No AGI limitation for total charitable contributions 2020.
• Student Loans
• Federal student loan payments are deferred for six months [without penalty].
• Employers Can Pay Employee’s Student Loan Debt
• Tax Free Benefit to employee up to $5,250/Year [$7,000 tax equivalent]
• From enactment to 1/1/2021

Tax Relief for Individuals – Other Cool Benefits!

• Unemployment Assistance is Expanded:
• Provides unemployment to self-employed workers & independent

contractors [i.e. not employees]

• Allows payments up to $600 per week for up to four months
• Extends the duration for benefits by another 13 weeks

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Tax Relief for Businesses

• Net Operating Loss Carryback Rules are Relaxed – [Tax Planning

Opportunities]

• Qualified Improvement Property (“QIP”) – reinstated retroactively.
• Payroll Taxes & Payroll Payments - Tax Credits & Deferrals
• State and Local Taxes Extended Due Dates

Tax Relief for Businesses – Net Operating Losses (NOL)

OLD RULES: NOL arising after Dec. 31, 2017 could only be carried forward

• The NOL carryover and carryback was limited to 80% of net income.

NEW CARES Act RULES: NOL from 2018-2020 can be carried back five years

• No 80% limitation on NOL’s during 2018-2020

Note: Planning Opportunities may be significant.

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Tax Relief for Businesses – Net Operating Losses (NOL)

NEW CARES Act RULES: NOL from 2018-2020 can be carried back five years

• 3 Buckets for NOLs to consider for tax planning:

Tax Relief for Businesses – Net Operating Losses (NOL)

NEW CARES Act RULES: NOL from 2018-2020 can be carried back five years

• What does this mean?
• Can carry back to years

with higher tax rates

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Tax Relief for Businesses – Net Operating Losses (NOL)

NEW CARES Act RULES: NOL from 2018-2020 can be carried back five years

• What does this mean?
• Example:

Tax Relief for Businesses – Net Operating Losses (NOL)

NEW CARES Act RULES: NOL from 2018-2020 can be carried back five years

• No 80% limitation on NOL’s during 2018-2020

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Tax Relief for Businesses – NOL’s

PLANNING OPPORTUNITIES Corporations can apply for IMMEDIATE refunds from NOL carrybacks [2018 & 2019]

• Especially valuable to corporate taxpayers able to offset income in 2017 during 35%

federal tax rate.

• Fiscal years ending in 2018 can revoke prior year election to forgo an NOL carryback.
• Must be done within 120 days of enactment of CARES act (by July 27, 2020).
• Limited to 2-year carryback.
• Note: Some Exclusions Apply - Ask your HJ&S Advisor

Tax Relief for Businesses – Qualified Impr. Property (QIP)

DEFINITION: QIP is 15-year property and is eligible for 100% “bonus depreciation” [i.e. Immediate Deduction]. It Includes:

• Any improvement to the interior portion of a non-residential building.
• QIP includes qualified
• leasehold improvement property,
• restaurant property,
• retail improvement property.
• Notes:
• Effective date is RETROACTIVE to 2018 and after

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Business Tax Relief – Qualified Improvement Property (QIP)

Tax Planning Opportunity: Amend 2018- & 2019-year tax returns to claim 100% bonus depreciation.

Business Tax Relief – QIP Meets NOL

 Tax Planning Opportunities

If you constructed QIP in 2019 and have not filed your 2019 federal income tax returns can treat such assets as QIP in your 2019 federal return. Note: The extended deadline of July 15, 2020 should provide time to identify QIP assets and adjust accordingly. Corporate taxpayers should consider filing a Form 4466 by April 15, 2020, for a quick refund of estimated tax payments [to the extent they were overpaid by at least 10% of your expected tax liability]

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Business Tax Relief – QIP Meets NOL

 If You Already Filed Your 2019 tax returns [and filed for extension] may

file a superseding 2019 return prior to the due date and claim bonus depreciation. Note: IF no extension was filed then you may file an amended 2019 return to claim the bonus depreciation.

Business Tax Relief – QIP Meets NOL

 Taxpayers who constructed QIP in 2018 should consider amending

those returns to treat such assets as bonus-eligible.

 For C corporations - claiming the bonus depreciation on an

amended return can potentially generate NOLs that can be carried back five years when tax rates were 35%. [even though the carryback losses were generated in years when the tax rate was 21%].

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Business Tax Relief – Payroll, Tax Credits & Deferrals

• Employee Retention Credit
• Payroll Tax Deferral
• Family First Coronavirus Response Act
• Paid Sick Leave Refundable Credit
• Paid Family Leave Refundable Credit

Business Tax Relief – Employee Retention Credit

• Designed to encourage businesses to keep employees on payroll
• Refundable tax credit of up to 50% of wages paid
• 50% of qualifying wages up to $10k limit per employee
• Wages paid March 13, 2020 – December 31, 2020
• Credit Calculation Depends on Size of Employer [100 employee

threshold]

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Business Tax Relief – Employee Retention Credit

• Qualifications:
• Full or partial suspension by government order due to COVID-19, or
• Gross receipts fall below 50% of comparable quarter in 2019
• Once GR exceeds 80% of comparable quarter, no longer qualify after

end of quarter.

• Wages not eligible if:
• Wages counted as paid sick leave or paid leave payroll tax credits
• Employer receives covered paycheck protection program (PPP) loan under CARES

Act Section 1102

Business Tax Relief – Employee Retention Credit

How to Report:

• Q1 - Report qualified wages and related health insurance costs on quarterly

employment tax returns

• Q2 – Report qualified wages and related health insurance costs on Form 941

Expedite Benefits:

• Reduce required payroll tax deposits by amount of credit.
• Receive advance payment by filing Form 7200 to IRS
• Note: Especially Important if you DO NOT obtain a PPP loan.

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Business Tax Relief – Payroll Tax Deferral

Deferral of 6.2% Employer Portion of Social Security taxes. Payment Terms

• 50% due 12/31/2021
• 50% due 12/31/2022

Not eligible if:

• You receive forgiveness of a

loan under the PPP.

Family First Corona Virus Response Act - Paid Leave Credit

REQUIRED to pay sick leave

• Some payments qualify for tax credits
• Portion of Health Insurance cost counts towards the credit
• No – ER payroll taxes liabilities (exempt/credit)
• Both part and full time
• Applies to Self-employed (no credit for health)

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Family First Corona Virus Response Act - Paid Leave Credits

When Sick Leave Must be paid:

• Employee is unable to work or telework due to a need for leave

When Emergency Family Medical Leave must be paid:

• Need to care for minor under 18 years if home due to Covid-19.
• Up to 12 week paid.
• Applies to staff employed at least 30 days.

Note: No credit if the office is closed or furloughed employees Reduced if Employee Retention Credit taken under CARES Act

Family First Act - Paid Leave Credits

Documentation Requirements

• From employee To employer to support leave
• Unable to work or telework when employer has work

Small Company Exemption

• Small companies less than 50 employees whose existence is threatened
• Health care professionals/emergency responders

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Paid Leave Credit (Continued)

• i. Employee is subject to a government-mandated quarantine or isolation order related to

COVID-19

• ii. Employee’s health provider orders self-isolation due to concerns related to COVID-19
• iii. Employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis
• iv. Employee is caring for an individual subject to a quarantine/isolation order by the

government or a health care provider

• v. Employee is caring for a son or daughter whose school or place of care is closed, or whose

child-care provider is unavailable because of COVID-19

vi.

Employee is experiencing any other “substantially similar condition” as specified by the Secretary of Health and Human Services

260 days

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Self-Employed (based on 2020)

• r reduce Qtr ES

State and Local B&O Tax Relief

Washington B&O Tax Provisions

• Interest automatically waived through 4/17 (may be updated)
• Monthly Filers – Must request extension of time to pay
• Still file timely if possible
• Call 360-705-6705
• Quarterly Filers – Q1 due date extended to 6/30/20
• Annual filers – 2019 due date extended to 6/15/20

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State & Local B&O Tax Relief

• City of Seattle B&O
• Extended due date for Q1 & Q2 to 10/31/20
• Extends payment, not filing
• Businesses with gross receipts < $5M
• City of Bellevue B&O
• Extended due date for Q1 and Q2 to 10/31/20
• Extends payment and filing
• Businesses with gross receipts <$5M
• King , Snohomish, Pierce - County Property Tax Payments
• Now due 6/1/2020

State Employment Taxes

• Penalty waiver if filed late due to COVID-19.
• No extension of filing or payment available.
• No 1 week waiting period for claims.
• Pandemic Unemployment Insurance (PUA) from DOL.
• Additional $600 per week to eligible filers starting mid-April.
• SE Individuals will be eligible. Available mid-April.

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Department of Labor and Industries (DOL)

• Reports must be filed on time.
• Employers can apply for a 90-day payment plan of Q1

premiums.

• Employees in health care and first responders that contract COVID-

19 while being at work are eligible to file a reimbursement claim with DOL.

• No other employer types are currently eligible.

Four Major SBA Loan Relief Programs

SBA’s Emergency Injury Disaster Relief Loan (EIDL) SBA’s Loan Payment Deferral Program SBA’s Payroll Protection Program (PPP) Federal Reserve New $600 Billion Loan Program [the “Main Street Lending Program or MSLP]

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EIDL –ECONOMIC INJURY DISASTER LOAN Disaster Loans -(the Benefits)

What Are the Benefits?

• 30-year term for repayment,

[no prepayment penalty]

• Low interest rate (3.75% or 2.75% for non-profits)
• Larger Loans up to $2,000,000
• 1-year deferral of any payments.

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Disaster Loans -(the Benefits)

What Are the Benefits?

• Provides Time to Reestablish Your Business
• $10,000 available for forgiveness Max.
• [But – limited to max of $1,000 per employee.]
• Instant stability - long-time to repay.
• Application date is extended to September 30, 2020.

Disaster Loans (sample payments)

What Are the EIDL Payments?

$2,000,000 loan = $9,262/monthly payment (after 1 year): $1,000,000 loan = $4,631/monthly payment (after 1 year): $500,000 loan = $2,316/monthly payment (after 1 year):

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Disaster Loans - When to Apply

Who Is This Good For?

• Any business who is now closed due to Covid but will eventually re-open

down the road. “When temporary re-open is not a viable option” “non-essential businesses”

• Restaurants (with no take-out option)
• Residential construction
• Dentists, hairstylists, therapists, etc.
• Developers

Disaster Loans - Challenges

What Are the Drawbacks?

• More traditional underwriting
• NO FORGIVENESS.
• 3.75% interest rate.
• Loans limited to $2,000,000
• Need to cash flow payments after the first 12 months.
• Must document “need” or size of loan
• Must Apply through SBA [But SBA is distracted with PPP]

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Small Business Debt Relief – 6 months of forgiveness

Immediate relief [with non-disaster SBA Loans] 7(a) loan, [not PPP] 504 loans, Microloans Benefit: SBA will cover principal, interest and waive fees for 6mos. Also available to new borrowers for NEW loans funded by September 28, 2020

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SBA’s PPP Loans (the Modern Stimulus)

What Are the Benefits?

• IT’S GOOD GOVERNMENT STIMULUS!!
• Easy Application.
• No personal guarantee, no collateral, no credit score.
• 100% forgivable.
• 2-year term, payments deferred for 6 months on unforgiven

amounts.

• 1% interest rate if not paid back or forgiven.
• NOT TAXABLE WHEN FORGIVEN!!!

PPP Loans (the Drawbacks)

What Are the Drawbacks?

• ITS A GOVERNMENT BAILOUT!! – Remember TARP??
• Must USE IT ON PAYROLL to get forgiveness (75% rule).
• The loan amount is limited to 2.5x ave. monthly payroll
• Must pay back in two years (if not forgiven).
• Hard to Find a Banker
• Many lenders have stopped extending these loans already.
• Time is of the essence.

Expect Higher Taxes Because of This After the Next Election…

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PPP Loan - Most Important Documentation

Small Businesses – Use Your Payroll Records See Details & Example next two slides Independent Contractors – Form 1099 Sole proprietor – (no employees) 2018 Form 1040 [Use Schedule C] Partnerships Partnerships – Form 1065 [Use Form K-1]

PPP Loan - Includable Costs

How to Define – “payroll cost”

• Gross Wages, commissions, bonuses & tips
• Healthcare benefits
• Vacation and sick leaves not covered by Family First Act
• Retirement contribution
• State and local taxes assessed on compensation
• See Example Next Slide

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Sample Payroll Calculation

Payroll for 2019 from W-2 and W-3

• Ave. monthly

payroll for 12.31.19 Gross Salaries from Payroll Records 1,200,000 $ 100,000 $ Less employees greater than $100,000 Primary Stockholder (180,000) (15,000) Add back employees and owners at $100,000 100,000 8,333 Adjusted Gross Payroll 1,120,000 93,333

• Employer Payroll Payments
• Medical and Dental insurance

18,960 1,580 Disability Insurance 4,000 333 H.S.A. 22,000 1,833 Union dues

• 401k

50,000 4,167 Washington Unemployment, L&I , PFML 17,000 1,417 Total eligible compensation for 2019 1,231,960 $ 102,663 $ PPP Multiplier 2.5 Loan Amount 256,658 $ Sample HJ&S Client Paycheck Protection Program (PPP) Calculation

What If My PPP Loan is Funded?

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NOW WHAT?

PPP Loan Forgiveness - Application TIPS

TIP 1: You must file a timely forgiveness application with your lender. Tip 2: If possible – deposit your PPP loan proceeds into a separate, designated bank account. Tip 3: If you cannot do TIP 2 – Instruct your payroll provider to run a “stub-period” payroll to coincide with the day immediately after your PPP loan is funded. Tip 4: Keep the PPP payroll runs totally separate for 8 weeks and assign special coding to it. Tip 5: Make it easy on your lender to say, “I forgive you.” Keep excellent PR records. All check copies. Etc. Tip 6: Prepare a complete and easy to follow PPP loan forgiveness application. Tip 7: Don’t ignore the “25% bucket” – [Rent, Utilities, Mortgage Interest] Tip 8: Ask your CPA firm to certify your forgiveness application.

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PPP Loan Forgiveness Requirements The amount eligible for forgiveness is subject to reduction if during the eight-week period the business:

1) employs fewer full-time employees per month on average than it did during the prior year or 2) Reduces salary or wages by more than 25% for any employee earning less than $100,000 annually compared to their compensation in the most recent full quarter [unless such reduction is eliminated no later than June 30, 2020].

PPP Loan Forgiveness Requirements The amount of the PPP Loan eligible for forgiveness is the amount expended by the business during the eight-week period after the start date of the PPP Loan on: (i) payroll costs (75%) and (ii) mortgage interest payments, lease payments and utility payments (25%). [to the extent the arrangements were in place prior to February 15, 2020]

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4/10/2020 33 Time for Attendee Questions

We Have Answers -

 Feel free to contact any of us at HJ&S. Also feel free to

schedule an appointment for individual consultation. 425-889-1778.

 More information at our website:

www.hauserjonesandsas.com



Ellen @ 253-370-7524 or esas@hauserjonesandsas.com



Roger @ 425-890-4932 or rjones@hauserjonesandsas.com

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The HJ&S Team is Here to Help!

www.hauserjonesandsas.com

Ellen M. Sas, CPA esas@hauserjonesandsas.com And Roger A. Jones, CPA rjones@hauserjonesandsas.com (425) 890-4932

Thank You!!

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