Question: What needs to be done by July 15th?
Answer: The short answer is “almost everything.” The long answer begins with the laundry list below:
- File your 2019 tax return or file an extension for your return.
- Pay any remaining 2019 tax estimates.
- Pay any 2019 penalties (i.e. 10% early IRA withdrawal penalty).
- Make your 2019 IRA or Roth IRA contributions.
- Make your 2019 Health Savings Account contributions.
- Pay your 2020 1st Quarter Estimated Tax Payment.
- Pay your 2020 2nd Quarter Estimated Tax Payment.
- Make any retroactive payments to retirement plans (employers).
Question: What are the rules regarding Required Minimum Distributions in 2020?
Answer: The bottom line is that they are waived. This means you do not have to take one. If you have already taken one, you may still have the opportunity to pay it back via a rollover. Normally you have 60 days to do this, however, if it falls into the category of a “Coronavirus Related Distribution (CRD),” you have the 60 days or until August 31st no matter when you took it this year.
Question: What is a Coronavirus Related Distribution (CRD)?
Answer: This is the ability to withdrawal up to $100,000 from a qualified retirement account in 2020 with a little help from Uncle Sam. If you would normally incur the 10% penalty for an early withdrawal, this is waived. You also have some options on the income tax related to the distribution. You can choose a “rollover” and put it back in a qualified retirement account within 3 years. You can choose not to use a rollover and spread the taxes over 3 years. Or, you can keep it and pay the taxes all in 2020.
Question: What are the requirements for a CRD (Coronavirus Related Distribution)?
Answer: It’s important to know that it doesn’t matter whether or not you actually need the funds. Here’s what does matter:
- You have been diagnosed with COVID-19.
- Your spouse or other member of your household was diagnosed with COVID-19.
- Any of the individuals described in number one and two had a job offer rescinded or start date for a job delayed due to COVID-19.
- Any of the individuals described in number one and two has experienced a reduction in income due to COVID-19 or has experienced adverse financial consequences.
Question: Help me understand the forgiveness expansion behind the PPP loan.
Answer: There are two ways the Paycheck Protection Program forgiveness expansion evolved. First, you only have to use 60% of the funds you received for payroll purposes rather than the initial 75%. Second, you now have 24 weeks rather than 8 weeks to use the funds for forgiveness items.
Question: Will the grant money I received from the EIDL loan be taxable?
Answer: This is not yet clear. There are two schools of thought here: The first is that the Economic Injury Disaster Loan is revenue to you and should be able to be offset by expenses; therefore, making it tax-free would be considered a double tax benefit. The second is that it was for relief and considered a grant; therefore, it should not be taxable. The bottom line…we shall see.
Question: I used both the EIDL and PPP loans. What else is available to me?
Answer: Don’t forget to use the “Tax-Free Disaster Payments” for your employees. These are tax-deductible to you and tax-free to the employee. Below is a list of potential expenses due to this Pandemic that would qualify:
- Unreimbursed medical expenses for COVID-19 treatment.
- Health related expenses such as hand sanitizer and disinfectants.
- Child or dependent care, tutoring for school and daycare.
- Alternative transportation due to commuting safely.
- Caring for family members diagnosed with COVID-19.
- Funeral expenses.
- Increased utility expenses.
- Other increased home expenses due to working remote such as the set up of a home office.
- Increased housing expenses due to quarantine needs from household members.
Don’t forget to claim that the business expenses you might have incurred while using your vacation home during this time would qualify as well. And if you have any questions, give us a call – we’re here to help.