Taxable Talk

UPDATE: Late on April 1st, the IRS reversed course. To the question, “I am not typically required to file a tax return. Can I still receive my payment?” The IRS now states,

Yes. The IRS will use the information on the Form SSA-1099 or Form RRB-1099 to generate Economic Impact Payments to recipients of benefits reflected in the Form SSA-1099 or Form RRB-1099 who are not required to file a tax return and did not file a return for 2018 or 2019. This includes senior citizens, Social Security recipients and railroad retirees who are not otherwise required to file a tax return.

Since the IRS would not have information regarding any dependents for these people, each person would receive $1,200 per person, without the additional amount for any dependents at this time.

Thus, as of April 1, 2020, seniors and others do not have to file a tax return.

The IRS released its guidance today on the “Economic Impact” payments. We were told that the IRS would look at Social Security Records, so taxpayers who did not have a filing requirement would not have to file.

Wrong. From the IRS Release:

I am not typically required to file a tax return. Can I still receive my payment.

Yes. People who typically do not file a tax return will need to file a simple tax return to receive an economic impact payment. Low-income taxpayers, senior citizens, Social Security recipients, some veterans and individuals with disabilities who are otherwise not required to file a tax return will not owe tax.

The IRS will soon release guidance on that at irs.gov/coronavirus.

Call me unhappy. This tax season was bad to begin with, and then we have the Covid-19 outbreak, and now make-work.

As I’m sure all of you are aware, Congress passed legislation sending money to Americans, along with a lot of other tax related components. Here’s a summary.

The Stimulus: Each non-dependent will receive a $1,200 “Recovery Rebate” provided their Adjusted Gross Income (AGI) is $75,000 (single) or less; this doubles if married, and the phase-out begins at $112,500 if “Head of Household”. Above this level, it lowers by $50 per $1,000 earned. Thus, it phases out at $99,000 (single) and $198,000 (MFJ). There is an additional $500 for each child dependent.

The IRS will use 2019 AGI to determine the payment. If you have not filed 2019, the IRS will look at 2018. Let’s say you’re ineligible based on both 2018 and 2019, but this year’s income would make you eligible. You will get a refundable tax credit on your 2020 tax return.

The payment does not have to be paid back. Assume your AGI in 2019 is $70,000 (single), but in 2020 it’s $170,000; you do not have to pay back the $1,200.

The IRS will also look at social security records for seniors who don’t have a filing requirement.

UPDATE: The IRS announcement on how the payments will be made states that in order to obtain the stimulus payments, you must file a tax return. I have a short blog post on this lousy development.

UPDATE: The IRS reversed course, and now will look at social security records for senior and others who don’t normally file tax returns.

When will the stimulus come? Back in 2008 with stimulus checks, direct deposits were distributed from May 2 to May 16 with paper checks sent from May 16 to July 11. Note that the stimulus was passed in February, so it took ten weeks for distribution of checks. While Secretary of the Treasury Mnuchin is hoping to see distribution starting in April, I strongly suspect we’re looking at late May at the earliest, with June far more likely. (I will update this once a schedule is announced.)

UPDATE: In a press release today, the IRS states that the checks will begin to be distributed “in the next three weeks”. The IRS plans to offer a web based system for individuals to provide their banking information if it’s not on file. See the press release here.

Can I game the system? I made a lot more in 2019 than 2018. Yes, you can. You can file an extension on your 2019 taxes (paying the tax you owe by July 15th), and then file your return you owe later. The IRS will look at your 2018 return.

Unemployment Insurance: The legislation includes an expanded $600 per week of benefits for up to four months, and federal funding of benefits for those who are not normally eligible for unemployment (such as independent contractors and the self-employed). Additionally, the federal government will fund an additional 13 weeks of unemployment through year-end for those whose state benefits have ended.

I’m self-employed (or a professional poker player). Can I apply for unemployment? Yes, but don’t be surprised if there are issues. Unemployment is handled by each state (in Nevada, it’s by the Department of Employment, Training, and Rehabilitation). DETR has a special page for benefits for COVID-19 (I assume most states do). But remember, it may take a while for the bureaucrats to fully implement the new law.

Estimated Tax Deadline: The first three quarters of federal estimated tax payments are due on October 15, 2020.

UPDATE: The first quarter federal estimated tax payment is due on July 15th; second quarter is due on June 15th. I was sent the wrong version of the final legislation.

SBA Loans (Paycheck Protection Program). Small businesses may take out loans up to $10 million to cover payroll and other expenses from February 15 to June 30. Loans can be forgiven in certain situations.

Unfortunately, SBA loans are a pain. In good times these take many weeks to be processed. While I’m hopeful we’ll see a nimble SBA, don’t count on it.

SBA loans work through banks that have partnered with the SBA, so check with your financial institution to see.

UPDATE: SBA Paycheck Protection Program loans can be applied for beginning Friday, April 3rd for sole proprietors and small business owners and on Friday, April 10th for independent contractors and the self-employed.

Can a Professional Gambler Apply for an SBA Covid-19 Loan? No, the guidelines specifically prohibit loans to anyone who receive more than one-third gross annual revenue from legal gambling activities. (This provision also prohibits small casinos from such loans.) (My thanks to @NotWittyQuips on Twitter for pointing this out.)

Other Individual Tax Changes: There were some other changes that will benefit Americans:

• IRA Required Minimum Distribution rules are waived for 2020.
• There are no 10% early withdrawal penalties on most retirement account distributions for 2020.
• Some employer payments of up to $5,250 for student loans are not income for employees in 2020.
• There is a new up to $300 charitable contribution deduction that will be taken on the face of Form 1040 (likely as an “Adjustment to Income”) for those who do not itemize their deductions. This new deduction is permanent.

Net Operating Losses: Businesses (and it appears) individuals can take Net Operating Losses (NOLs) from 2018, 2019, or 2020 and fully carry them back two to five years. Note that this provision is retroactive, so a firm with an NOL in 2018 can amend their previous 2013 – 2016 return(s) to receive a refund. The 80% limit was suspended as part of this legislation.

I’m a professional poker player and had an NOL in 2018 from my business expenses. Can I take the NOL? No, the legislation did not change the 2017 provision that overrode the Mayo v Commissioner decision.

Other Business Provisions: There are many other business provisions contained in the legislation:

• Employers are eligible for a 50% refundable payroll tax credit on wages paid up to $10,000. The business must have a 50% (minimum) decrease in gross receipts as compared to the previous year (looked at by quarter). The credit is available for all wages for firms with 100 or fewer employees, and for employees retained but not working for employers with more employees.
• The Net Interest Deduction Limitation is changed from 30% of earnings before EBITDA to 50% of earnings before EBITDA.
• The excise tax on alcohol to produce hand sanitizer is waived for 2020.
• Employer payroll tax payments may be delayed until January 1, 2021 with 50% of the deferred amount due on December 31, 2021 and the other 50% due at the end of 2022.
• Corporation federal estimated taxes are delayed until October 15, 2020.

Pork: It’s Congressional legislation, so there’s pork in the bill. Someone else can talk about that, but I’d guess $200 billion is wasted on that.

I’m sure I’ve missed some items–the legislation is 880 pages long. There’s a four page summary of tax provisions. The Tax Foundation has a good summary of the legislation, too. Remember, federal legislation changes the federal tax code. Some states will conform with all of the legislation; some will not conform at all.

UPDATE: Please see this post that has the final versions.

We prepare tax returns for individuals throughout the United States, so we have to keep track of the deadlines–and that’s a task right now. So we created a spreadsheet with the information so we can see this at a glance (there’s also a pdf version).

These may be of use to others, so we’re sharing them. We’re going to try to update this every Monday. Note that we believe the deadlines noted are accurate, but this is (obviously) a fast-changing situation. Deadlines that are before July 15th are in bold.

As of this morning, Arkansas, Hawaii, Michigan, New Hampshire, New Jersey, Rhode Island, Tennessee, and Vermont have not extended their state deadlines.

UPDATE March 30th: Arkansas has extended its deadline to July 15th. The CARES act extended the first three quarters of federal estimated payments to October 15th. The CARES act extended just the first quarter estimated payment to July. I have updated the spreadsheet and pdf for these changes.

Yesterday, the IRS released guidance on the July 15th due date. The IRS guidance confirmed my previous post that not all tax filings have been extended. Among the clarifications:

• Estate and Gift Tax returns (Form 706 and 709) were not extended. This means that if you are filing a Gift Tax return for 2019 you need to either extend your personal return by filing Form 4868 or file a Gift Tax Extension, Form 8992. This is another trap for the unwary: taxpayers who file their individual returns timely in, say, June and concurrently file a Form 709 Gift Tax Return will be filing the Gift Tax return late.
• The deadline to file tax extensions (Form 4868 for individuals and Form 7004 for C-Corporations and trusts/estates) is July 15th.
• Second quarter estimated payments are due (for the moment) on June 15th (1st quarter estimated payments are due on July 15th). However, the stimulus bill that will likely pass Congress appears to change the deadline for the 1st through 3rd quarter federal estimated payments to October 15th.
• The deadline to contribute to an IRA or Roth IRA is now July 15th.
• You can contribute to an HSA for 2019 until July 15th.
• If you are filing a claim for refund for 2016, that claim still must be filed by April 15, 2020 to be timely.
• The IRS changes do not change state tax deadlines. However, many (likely most) states will move to the July 15th deadline.

Kudos to the IRS for getting this out quickly.

One other comment on payments: Tax software companies are working with the IRS to modify tax software to allow scheduling of tax payments after April 15th. This will likely take a couple of weeks to get done as this must be tested by both the software companies and the IRS.

UPDATE: The IRS can now handle payment scheduling through July 15th, and the software company we used announced we can schedule federal tax payments for dates up to July 15th. I’m not sure what will happen with estimated tax payments or the various states at this point, but that’s definitely a step forward.

Friday night, the IRS made it official regarding income tax returns due on April 15th; they are now due on July 15th. However, not all returns have been extended.

First, while I expect most states to conform to this deadline it may take a week or two for this to occur. The AICPA is maintaining a list. Local property taxes are also still due as normal (in most areas).

But when we look at federal returns, not everything was extended. Let’s look at this form by form:

• Forms 1040, 1040-NR, 1040-SR, 1041, and 1120: These are now due on July 15th.
• Forms 1040-ES: This is where it gets confusing. First quarter payments due on April 15th have been extended to July 15th. However, second quarter payments due on June 15th are still due on June 15th. There is legislation pending in Congress that would extend the deadline for paying the first three quarters of estimated tax payments to October 15th. Some states (e.g. California) have extended second quarter payments to July 15th.
• Forms 1065 and 1120-S: These were due on March 16th and were not extended.
• Forms 706 (Estate Tax) & 709 (Gift Tax): These are now due on July 15th per IRS Notice 2020-20.
• Form 720 (Excise Tax): These are still due on the original due dates.
• Form 941 and Other Payroll Tax Forms: These are still due on the normal dates.
• Form 990 (Non-Profits and Charities) Series: These are due on May 15th. As of today, they have not been extended.
• Form 3520A: This was due on March 16th and was not extended.
• Form 3520: This is still due on April 15th. However, an extension of time for Form 1040 extends the time for Form 3520. It’s unclear whether anyone not filing an extension has until July 15th to file Form 3520. The simple solution for anyone filing Form 3520 is to extend your return by filing Form 4868 or Form 7004.
• Forms 4868/7004 (Tax Extensions): These are now due (assuming the underlying return has been extended) on July 15th. It is unclear how long an extension will be for (will extended returns be due on October 15th or January 15, 2021?).
• Forms 8804/8805: The due dates of these have not changed from April 15th.
• Form BE-10 Series: These are still due on May 29th. This is the required every five-year survey of US ownership of foreign entities.
• Backup Withholding Payments: These are still due as normal.
• FBAR (FINCEN Form 114): This was not extended. However, while the FBAR is due on April 15th, there is an automatic extension until October 15th.

I’m sure I missed a tax or two (and I’ll expand this as needed), but there are traps for the unwary.

Secretary of the Treasury Mnuchin tweeted this morning (literally two minutes after I finished the previous post):

At @realDonaldTrump’s direction, we are moving Tax Day from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.

— Steven Mnuchin (@stevenmnuchin1) March 20, 2020

It will likely take a few days for the official IRS guidance to appear on this, but this was really the only course of action that could be done. I would expect every state to quickly conform to this change.

UPDATE: Two minutes after I finish this post Secretary Mnuchin announced that the tax deadline has been extended until July 15th.

I don’t want the deadline extended just to have it extended; however, it’s a necessity given what almost all tax professionals and their clients are going through today. Almost no tax professionals are seeing clients face-to-face. Many professionals have had to close their offices, or are working from home with reduced (or no staff). Given that over half of all tax returns are prepared by professionals, we’re between a rock and a hard place.

I’ve lost 25% of my staff. Now, we’re not a big firm but I suspect that between staff reduction and slower speeds of working from home, the 25% reduction in what we can do is typical of most tax firms (and it might even be better than most). I know we’re not getting to everything by April 15th.

Additionally, you are supposed to estimate your income when filing an extension. (Technically, if you don’t do that your extension can be ruled invalid by the courts and/or IRS.) That’s simply not going to happen this year. Yet the only thing firms will be able to do is simply file $0 extensions–there won’t be time to do anything else.

Consider firms in California. Yesterday, Governor Newsom ordered all businesses (except ‘essential’ businesses–and tax firms aren’t) closed, with sheltering at home. There will be firms where extensions don’t get filed!

My understanding is there is legislation pending in Congress that would extend the deadline to July 15th. Under the circumstances we’re in, Secretary Mnuchin should simply announce that the filing deadline and all payment deadlines (except wage withholding) are extended to July 15th. Right now, second quarter estimated payments are still due on June 15th!

Americans have a lot more to deal with than filing tax returns. Secretary Mnuchin, it’s time to do the right thing.

The IRS issued Notice 2020-17 extending tax payments until July 15th for most individual and corporate taxpayers. The Department of the Treasury also issued a press release noting the deferment of payments.

Again, the tax filing deadline has not been extended from April 15th. It may be in the future–while I can still work, many areas of the country (such as the San Francisco Bay Area and the Puget Sound) are under virtual lockdown. It would make a lot more sense to simply extend the deadline…but that has NOT happened.