Archives for July 2020

Due to COVID-19, the IRS postponed almost all tax payments due in the past few months until July 15, 2020.

What’s Due on July 15

The following payments are due by July 15, 2020:

• Your 2019 individual tax return balance due,
• Your 2019 calendar-year C corporation balance due, and
• Your 2020 first and second quarter estimated tax payments.

If you don’t pay on July 15, you’ll start to accrue penalties and interest on the above amounts beginning on July 16, 2020.

And don’t forget that even if you file an extension for your 2019 tax returns, you still have to pay your 2019 balance due by July 15, 2020, to avoid penalties.

Mailing Payments

We don’t recommend mailing your federal tax payments if you can avoid it. With the IRS mail backlog from the COVID-19 shutdown, it could take a long time to get processed, or the IRS could misplace the payment.

If you decide to pay your 2019 individual balance due by check:

• Make the check payable to “United States Treasury” and put your Social Security number and “2019 Form 1040” on the memo line of the check.
• Mail the payment to the correct address.

If you decide to pay your 2020 individual estimated tax payments by check:

• Complete the Form 1040-ES payment voucher.
• Write one check totaling your combined first and second quarter payments.
• Make the check payable to “United States Treasury” and put your Social Security number and “2020 Form 1040-ES” in the memo line of the check.
• Mail the payment to the correct address.

And, remember, the IRS will consider your payments timely made if postmarked on or before July 15, 2020.

Electronic Payments

You have two ways to make your tax payments electronically:

1. IRS Direct Pay
2. Electronic Funds Tax Payment System (EFTPS)

We like the IRS Direct Pay system more than EFTPS for filing your individual tax return and making estimated tax payments.

In addition, IRS Direct Pay recently changed to allow you to schedule payments up to one year in advance, so you can pre-schedule all your quarterly estimated tax payments.

Don’t Overpay Your Estimates

Due to the economic troubles from COVID-19, cash is king. The last thing you want to do is send too much to the IRS in estimated tax payments while not having enough to meet your personal needs.

You’ll avoid an estimated tax payment penalty on your 2020 individual return as long as one of the following occurs:

• You owe less than $1,000 in tax on your 2020 return after subtracting your withholding and credits, or
• You paid at a minimum the smaller of 90 percent of your 2020 total tax or 100 percent of your 2019 total tax.

If you will have both lower income and lower tax in 2020 compared to 2019, you would overpay if you use 2019 as your estimated tax payment benchmark. In this case, estimate your 2020 tax to avoid overpaying your estimated tax.

Example: In 2019, Paula had Schedule C net income of $100,000. In 2020, Paula projects having Schedule C net income of $80,000. She has no other income or deductions.

If Paula simply pays 100 percent of her 2019 total tax, she has to make a $12,098 estimated tax payment on July 15, 2020.

If Paula estimates her 2020 income and tax benefits, then she only needs to send in $6,118 as an estimated tax payment, saving her $5,980 in overpaid estimated taxes.

If you need help and guidance with your tax payments, please contact Manay CPA, Inc. for a virtual appointment. Manay CPA is here in Atlanta to help and serve you in all 50 states.

Good thoughts for you and your loved ones.

Burcu Bree Manay, CPA, MPAc, CTC
President & Managing Partner

Keeping Up With the Net Operating Loss Rules

When a trade or business’s deductible expenses exceed its income, a net operating loss (NOL) generally occurs. When filing your 2019 income tax return, you might find that your business has an NOL — and you may be able to turn it to your tax advantage. But the rules applying to NOLs have changed and changed again. Let’s review.

Pre-TCJA

Before 2017’s Tax Cuts and Jobs Act (TCJA), when a business incurred an NOL, the loss could be carried back up to two years. Any remaining amount could then be carried forward up to 20 years.

A carryback generates an immediate tax refund, boosting cash flow. A carryforward allows the company to apply the NOL to future years when its tax rate may be higher.

Post-TCJA

The changes made under the TCJA to the tax treatment of NOLs generally weren’t favorable to taxpayers. According to those rules, for NOLs arising in tax years ending after December 31, 2017, most businesses couldn’t carry back a qualifying NOL.

This was especially detrimental to trades or businesses that had been operating for only a few years. They tend to generate NOLs in those early years and greatly benefit from the cash-flow boost of a carryback. On the plus side, the TCJA allowed NOLs to be carried forward indefinitely, as opposed to the previous 20-year limit.

For NOLs arising in tax years beginning after December 31, 2017, the TCJA also stipulated that an NOL carryforward generally can’t be used to shelter more than 80% of taxable income in the carryforward year. (Under previous law, generally up to 100% could be sheltered.)

COVID-19 response

The NOL rules were changed yet again under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. For NOLs arising in tax years beginning in 2018 through 2020, taxpayers are now eligible to carry back the NOLs to the previous five tax years. You may be able to file amended returns for carryback years to receive a tax refund now.

The CARES Act also modifies the treatment of NOL carryforwards. For tax years beginning before 2021, taxpayers can now potentially claim an NOL deduction equal to 100% of taxable income (rather than the 80% limitation under the TCJA) for prior-year NOLs carried forward into those years. For tax years beginning after 2020, taxpayers may be eligible for a 100% deduction for carryforwards of NOLs arising in tax years before 2018 plus a deduction equal to the lesser of 1) 100% of NOL carryforwards from post-2017 tax years, or 2) 80% of remaining taxable income (if any) after deducting NOL carryforwards from pre-2018 tax years.

Complicated rules

The NOL rules have always been complicated and multiple law changes have complicated them further. It’s also possible there could be more tax law changes this year affecting NOLs. Please contact us for further clarification and more information.

Charitable Giving in a Time of Crisis

The novel coronavirus (COVID-19) pandemic has created much financial stress, but the crisis has also generated an intense need for charitable action. If you’re able to continue donating during this difficult period, the Coronavirus Aid, Relief, and Economic Security (CARES) Act may make it a little easier for you to do so, whether you’re a small or large donor.

Tax benefits

From an income tax perspective, the CARES Act has expanded charitable contribution deductions. Individual taxpayers who don’t itemize can take advantage of a new above-the-line $300 deduction for cash contributions to qualified charities in 2020. “Above-the-line” means the deduction reduces adjusted gross income (AGI). You can take this in addition to your standard deduction.

For larger donors, the CARES Act has eased the limitation on charitable deductions for cash contributions made to public charities in 2020, boosting it from 60% to 100% of AGI. There’s no requirement that your contributions be related to COVID-19.

Careful steps

To be able to claim a donation deduction, whatever the size, you need to ensure you’re giving to a qualified charity. You can check a charity’s eligibility to receive tax-deductible contributions by visiting the IRS’s Tax-Exempt Organization Search.

If you’re making a large gift, it’s a good idea to do additional research on the charities you’re considering so you can make sure they use their funds efficiently and effectively. The IRS tool provides access to detailed financial information about charitable organizations, such as Form 990 information returns and IRS determination letters.

Even if a charity is financially sound when you make a gift, there’s no guarantee it won’t suffer financial distress, file for bankruptcy protection or even cease operations down the road. The last thing you likely want is for a charity to use your gifts to pay off its creditors or for a purpose unrelated to the mission that inspired you to give in the first place.

One way to manage these risks is to restrict the use of your gift. For example, you might limit the use to assisting a specific constituency or funding medical research. These restrictions can be documented in a written gift or endowment fund agreement.

Generous impact

Indeed, charitable giving is more important than ever. Contact Manay CPA for help allocating funds for a donation and understanding the tax impact of your generosity.