One of the many provisions of the American Rescue Plan which is expected to be signed into law in the coming days is the exclusion from Federal income tax on the first $10,200 of unemployment benefits paid in 2020. (This is only for benefits paid in 2020, and does not apply to any benefits paid in 2021.) It is currently unknown if any states will handle these payments similarly.

We will be available to amend 2020 returns which have already been filed to recover the tax on these benefits, but only after the scheduled April 15, 2021 deadline for the current income tax filing season. That should give everyone sufficient time to determine how these adjustments should be made and whether the particular state(s) involved may also require amendment. Note that there will be preparation fees associated with these amendments.

Be sure to contact us to discuss this, but please wait until after our tax season rush has concluded.

There have been multiple news reports about the US Department of Homeland Security (DHS) and the Cybersecurity and Infrastructure Security Agency (CISA) confirming that malicious threat actors have been and are actively exploiting vulnerabilities in SolarWinds Orion products, primarily by leveraging the SUNBURST malware.

SolarWinds Orion is an IT monitoring solution.

Rosenthal & Rosenthal does not now, nor have we ever used any SolarWinds products. As a result, our clients’ information is not vulnerable to these exploits.

We strongly advise our enterprise clients who may be using the Orion platform to review available firewall updates to keep your internal systems secure. As always, we stand ready to assist in assessing the overall security of your network infrastructure.

More information (including CVE links) may be found on the CISA page.

There’s no doubt that the world has grown much smaller in recent decades. The internet has made it easier than ever to open accounts in foreign countries and to invest in various activities outside the US. With this greater investment flexibility comes greater reporting responsibility. You should be prepared for your tax return work. Here are some helpful guidelines:

If you have an ownership interest in or signature authority over a financial account (bank account, brokerage account, etc.) located in a foreign country, there is a simple checkbox on Form 1040, Schedule B which must be properly answered Yes. It is merely a disclosure of the existence of such an account or accounts. No additional tax is triggered by making this disclosure, however, failure to disclose is subject to penalty. There is no minimum balance threshold for this disclosure. A foreign bank account, open at any time during the year, holding the equivalent of $1 requires this box to be checked Yes.

If the maximum amount in all such foreign accounts is $10,000 or more, the accounts and their maximum balances must be disclosed in a separate filing, FinCEN 114. Note that if a single account with, say, the equivalent of $6,500 was transferred in full to a different account, this would trigger the FinCEN 114 filing, as the maximum amount in each of those two accounts, when added together, would have converted to $13,000. Again, like the checkbox on Form 1040, Schedule B, the FinCEN 114 is merely a disclosure form, and does not impose any type of tax on these assets; however, failure to file a FinCEN 114 when one should have been filed is subject to substantial penalty.

Another often overlooked source of foreign disclosure is an interest in a foreign investment (partnership, individual stock holding, income producing property). No matter the value of these assets, they must be properly disclosed on Form 8938.

A vacation home in a foreign country is not a foreign financial asset, and unless used as a rental activity, is not subject to reporting.

Don’t confuse foreign investments with stock traded on a foreign exchange but held in a US brokerage account (such as British ADRs). As the US brokerage account will be reporting to the IRS, there is generally no need to report these holdings separately. For the purposes of foreign disclosure, we are discussing assets held in a foreign country which would not otherwise be reported to the IRS or to FinCEN (Financial Crimes Enforcement Network).

This is another area where self-prepared returns using consumer software can fall far short of providing the guidance necessary to properly handle the situation. Only a qualified tax professional has the knowledge and skill to successfully guide you through these issues. When handled properly, in a timely manner, these are usually relatively simple filings. The key is being forthcoming with your tax advisor, and heeding his or her advice and recommendations.

Need to contact us before tax season to get some of these issues straight? Please feel free.

The COVID-19 pandemic has raised a number of perplexing tax issues, and it doesn’t seem like there’s an end in sight. A good example is the state and local wage reporting conundrum for businesses and for workers.

Working from home has a unique set of perqs, but it also has its pitfalls. Combine those pitfalls with how many people were effectively “stuck” in their second homes, often in remote locations from their tax homes (across state lines, in many cases), and the income tax reporting can get very tedious.

For employers with remote workers, it is entirely possible that the location(s) of those workers may have triggered a nexus in a state (or states) where those employers would not otherwise be considered to “have employees.” This means that these businesses will have to report wages and should possibly have withheld income taxes in those locations, have registered with the related authorities, and possibly have paid contributions to state unemployment insurance funds there.

For employees, the situation is not any easier. It’s possible that income tax returns will have to be filed in states where those taxpayers may have maintained a second home, but where they have never before generated any income.

The AICPA has provided the following guidance for taxpayers, which states, in essence:

1. Compile a list of any states where you’ve worked remotely during 2020.
2. If you didn’t track the specific number of days worked in other states, try to approximate the number of days as best you can.
3. Depending upon the state, income taxes may also be levied by cities, counties, municipalities, school districts, or other jurisdictions. Make sure you also track this level of detail.
4. Consult a qualified tax advisor. He or she should be able to help determine relevant questions to ask based upon where services were performed and for how long.
5. Check your state tax withholding (for as many states as may be required) and make any necessary adjustments. If your withholding (in any one of them) is too low, you may owe (additional) state taxes, interest, and penalties when you file your 2020 return(s).
6. Going forward, be sure keep an ongoing record of all jurisdictions where you work remotely.

Again, this is not something that do-it-yourself, off-the-shelf tax software can provide. Only a qualified professional has the skills to advise as to the best course of action in these matters. There is no one-size-fits-all solution to issues such as these, but rather, each situation (for employers and for employees) must be considered on its own.

Rosenthal & Rosenthal, LLC is a public accounting firm comprised of principals who are Enrolled Agents, recognized to practice before the Internal Revenue Service. We stand ready to assist in these troubling times. Feel free to contact us to discuss your concerns.

Penalties for failure to file 1099 documents (information returns) with the IRS and failure to furnish recipients with their copies have increased dramatically in recent years. In 2021, for small businesses (less than $5M in average annual receipts in the most recent three years), these penalties can run as high as $280 for failure to file plus $280 for failure to furnish – per document – up to a maximum penalty of $1,130,500 in the aggregate for each of these issues.

New for 2020 is the 1099-NEC to report non-employee compensation. This information was previously reported on 1099-MISC, but has now been split out onto a separate information return. Who must file 1099-NEC, and who must be furnished one? These are questions to ask of a qualified professional. Even individuals who own rental property may be subject to 1099-NEC (and 1099-MISC) reporting, depending upon circumstances.

If you have a payroll service, do not assume that 1099 preparation is included with your basic level of service! In most cases, your payroll service will be completely unaware of any subcontractors or others who must be furnished documents, and don’t expect your payroll service rep to be able to provide answers as to whom should be furnished a 1099.

Your checkbook management software likewise can’t provide any guidance for you in this regard.

Planning to do these internally? To be considered correctly filed, information returns must be complete and accurate. That means full names and addresses, ID numbers (TIN, SSN, etc.), amounts, and in the cases of forms W-2G, 1097-BTC, 1098, 1098-C, 1098-E, 1098-F, 1098-MA, 1098-Q, 1098-T, 1099-A, 1099-B, 1099-C, 1099-CAP, 1099-DIV, 1099-G (excluding state and local income tax refunds), 1099-INT, 1099-K, 1099-LS, 1099-LTC, 1099-MISC (excluding fishing boat proceeds), 1099-NEC, 1099-OID, 1099-PATR, 1099-Q, 1099-QA, 1099-R, 1099-S, 1099-SA, and 1099-SB, a valid telephone number providing direct access to an individual in a position to answer questions about the statement must appear somewhere on it. [N.B.: This is not a complete list of requirements. Please do not rely on this as any type of instruction guide.] Get guidance from Jimmy John Owner online for your business.

As a reminder, forms 1099-NEC are due out to recipients no later than January 31, and must be filed with the IRS no later than January 31, as well. Forms 1099-MISC are due out to recipients no later than January 31, and must be filed with the IRS no later than February 28. Extensions of time to file with the IRS are available (the first 30-day extension is automatic, but must still be submitted on Form 8809; a second 8809 may be submitted to request another 30 days), but there is no extension of time to furnish documents to recipients.

Generally, we prepare information returns for our business clients as part of our standard service portfolio. If you have a need for this service à la carte, we can surely discuss your needs. Contact us for more information.

2020 has turned many things upside down, not the least of which is year end tax planning. Where in years past, it was generally good strategy to accelerate deductions into the current year (and defer income, for those on cash basis), it might make more sense this year to wait on those larger expenditures until after January 1, and instead accelerate income (where possible) into 2020.

Rehiring? The Work Opportunity Tax Credit (WOTC) is slated to expire December 31. This is a one-time (use it or lose it) tax credit for hiring from targeted groups (long-term unemployed, veterans, vocational rehab referrals, and a few more). While this credit could be extended, we have heard nothing affirmative, so this may be your last chance to snag it.

These are topics for discussion with a qualified professional (do-it-yourself tax prep software or whatever software you might use to manage your business checking account can’t do this). We invite you to contact either of our offices for a consultation. You can also get inspiration from Robert “Bob” Bratt who manages his business empire successfully.

Key collection and compliance activities have been temporarily suspended by the IRS in the wake of the COVID-19 pandemic. These include existing installment arrangements, pending arrangements, offers in compromise, non-filer programs, and others. In general, activity has been postponed until July 15, 2020, however the impact on running statutes of limitations has yet to be fully determined.

See the second link, below, for specific information.

Further information

Here are some helpful links for more information, which should be updated on a regular basis:

https://www.irs.gov/coronavirus
https://www.irs.gov/newsroom/irs-unveils-new-people-first-initiative-covid-19-effort-temporarily-adjusts-suspends-key-compliance-program

This is the second installment in our series directed to our clients who are financially affected by the 2020 Coronavirus pandemic.

This post focuses on information specific to small business financial assistance and compliance matters.

Due dates

Federal and State filings and payments

Please see the first article in this series and refer to the commentary there regarding filing due dates, as these apply to business filing deadlines, as well.

Reconciliation of Federal and State filing dates

Where applicable and as possible, we will be filing State extensions so as to take full advantage of the Federal postponement to July 15. This would pertain to those clients who have filings due to states which have not moved their due dates to at least July 15.

Note that some tax filings have no availability of extension (Sales and Use Tax is a good example). Please refer to the state information link in the first article in this series for additional information and a good reference for state information.

Paycheck Protection Program

Note that this Program was re-funded by Congress and the SBA resumed accepting applications from participating lenders on Monday, April 27, 2020 at 10:30am EDT.

The Paycheck Protection Program is in reality an SBA loan. As such, businesses must apply through a local bank or SBA lending institution for these funds. Specifically, any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Not all lenders are participating, so you should check with yours as to its status.

The Program provides for loan forgiveness if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. Note that of the foregoing categories, at least 75% of loan proceeds must be used for payroll in order to qualify for forgiveness. Also, current IRS guidelines preclude the deductibility of any expenses which have been offset with forgiven loan money.

COVID-19-affected eligible businesses include:

• Any small business concern that meets SBA’s size standards (either the industry based sized standard or the alternative size standard) – typically, this will cover more than just what most of us consider “a small business”;
• Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
  • 500 employees, or
  • That meets the SBA industry size standard if more than 500
• Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
• Sole proprietors, independent contractors, and self-employed persons (but note that these entities must have one or more employees; this is not for independents without payroll expense – and payroll means payroll, not subcontractors)

When not forgiven, these loans have a 2 year term at 1% interest.

The loan application itself may be downloaded here, though you should request your lender’s form for filing.

Lenders participating in the Paycheck Protection Program by state as of May 1, 2020 are listed here.

Further information

Here are some helpful links for more information, which should be updated on a regular basis:

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/
https://www.irs.gov/coronavirus
https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know
https://www.drakesoftware.com/archive/economic-impact-payments-the-facts/

We’re receiving some interesting and widely varying reports from our clients concerning their experiences with the IRS’ Get My Payment portal, generally depending upon the status of their 2018 or 2019 return filings. Here’s a quick rundown as of 5pm EDT April 17, 2020:

• If the most recent return filing (2018 or 2019) was a refund with direct deposit requested, the EIP (Economic Impact Payment) has generally been received.
• If the most recent return filing (2018 or 2019) was a balance due return (with or without direct debit, as direct debit information is not valid for the purpose of direct deposit), the EIP has not been received.
• Clients checking the Get My Payment portal may receive puzzling results, such as entering basic info in order to add the bank account for direct deposit and then being presented with a message stating, “Payment Status Unavailable.”
• Some clients seem to get further along in the process of entering information than others, but still may end up with the dreaded, “Payment Status Unavailable” message.
• Clients who have already received their payments seem to be able to get through and the information is correctly reported (i.e., payment has been made, and confirming the last few digits of the bank account number).

According to the Get My Payment Frequently Asked Questions page, the portal data is updated daily. So, continue to check, but no more than once per day, as you are not likely to see any changes until the following day.

As part of the COVID-19 pandemic relief, the April 15, 2020 individual income tax deadline (and the deadline for calendar year C corporations) has been postponed until July 15. No extensions of time to file are necessary. No payments are due today.

If you are a client of ours and have not received an update as to the status of your 2019 return preparation, DO NOT WORRY. All work which has been received to date is in queue and will be processed.

Filing deadlines vary by state. For more information, please see our previous post on this topic:

2020 Coronavirus (COVID-19) Economic Impact: Information for all taxpayers