COVID-19 has changed our lives in many ways, and some of the changes have tax implications. Here is basic information about two common situations.

1. Working from home.

Many employees have been told not to come into their workplaces due to the pandemic. If you’re an employee who “telecommutes” — that is, you work at home, and communicate with your employer mainly by telephone, videoconferencing, email, etc. — you should know about the strict rules that govern whether you can deduct your home office expenses.

Unfortunately, employee home office expenses aren’t currently deductible, even if your employer requires you to work from home. Employee business expense deductions (including the expenses an employee incurs to maintain a home office) are miscellaneous itemized deductions and are disallowed from 2018 through 2025 under the Tax Cuts and Jobs Act.

However, if you’re self-employed and work out of an office in your home, you can be eligible to claim home office deductions for your related expenses if you satisfy the strict rules.

2. Collecting unemployment

Millions of Americans have lost their jobs due to COVID-19 and are collecting unemployment benefits. Some of these people don’t know that these benefits are taxable and must be reported on their federal income tax returns for the tax year they were received. Taxable benefits include the special unemployment compensation authorized under the Coronavirus Aid, Relief and Economic Security (CARES) Act.

In order to avoid a surprise tax bill when filing a 2020 income tax return next year, unemployment recipients can have taxes withheld from their benefits now. Under federal law, recipients can opt to have 10% withheld from their benefits to cover part or all their tax liability. To do this, complete Form W4-V, Voluntary Withholding Request, and give it to the agency paying benefits. (Don’t send it to the IRS.)

We can help

We can assist you with advice about whether you qualify for home office deductions, and how much of these expenses you can deduct. We can also answer any questions you have about the taxation of unemployment benefits as well as any other tax issues that you encounter as a result of COVID-19.

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Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2020. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

Thursday, October 15

• If a calendar-year C corporation that filed an automatic six-month extension:
  • File a 2019 income tax return (Form 1120) and pay any tax, interest and penalties due.
  • Make contributions for 2019 to certain employer-sponsored retirement plans.

Monday, November 2

• Report income tax withholding and FICA taxes for third quarter 2020 (Form 941) and pay any tax due. (See exception below under “November 10.”)

Tuesday, November 10

• Report income tax withholding and FICA taxes for third quarter 2020 (Form 941), if you deposited on time (and in full) all of the associated taxes due.

Tuesday, December 15

• If a calendar-year C corporation, pay the fourth installment of 2020 estimated income taxes.

Thursday, December 31

• Establish a retirement plan for 2020 (generally other than a SIMPLE, a Safe-Harbor 401(k) or a SEP).

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As the presidential election rapidly approaches, we have unpacked the proposed “Biden Tax Plan”.  This outline is designed to be a simple overview of provisions and does not provide planning technics to combat such provisions. We will publish additional commentary and planning strategies should these provisions appear to become law.

This is not an endorsement for either candidate but instead intended to provide information regarding the potential tax policy if Joe Biden wins the presidential election. This outline does not compare, contrast or provide any commentary on the current “Trump Tax Plan” enacted into law. Since, tax policy is enacted by Congress the outline provided below is speculation and hinges on the control of the House and Senate.

We have developed this overview from information provided by the Tax Foundation (https://bit.ly/3dXj2CO  ) , the Democratic Party 2020 Platform (https://bit.ly/31HBcDz ) and the information distributed by the Joe Biden campaign (https://bit.ly/35sbMLk #). We encourage every taxpayer to read the information contained in these documents to obtain a better understanding under these proposed policy changes. The House Ways and Means (the tax committee of the House of Representatives and currently controlled by the Democrats) has not published any proposal of policy change or position at this time.

Individual Tax Proposal

• Imposes a 12.4 percent Old-Age, Survivors, and Disability Insurance (Social Security) payroll tax on income earned above $400,000, evenly split between employers and employees.
• Reverts the top individual income tax rate for taxable incomes above $400,000 from 37 percent under current law to the pre-Tax Cuts and Jobs Act level of 39.6 percent.
• Tax long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6 percent on adjusted gross income above $1 million.
• Eliminates step-up in basis for capital gains, Currently, when assets are inherited the beneficiary receives them at the current fair market value. This policy would impose a tax on the beneficiary when selling appreciated assets which were inherited.
• Limit the tax benefit of itemized deductions to 28 percent of value for those earning more than $400,000, which means that taxpayers earning above that income threshold with tax rates higher than 28 percent would face limited itemized deductions.
• Restores the Pease limitation on itemized deductions for taxable incomes above $400,000. The Pease limitation is law which reduces the total amount of itemized deductions as income rises.
• Phases out the qualified business income deduction (Section 199A also known as the 20% deduction) for filers with taxable income above $400,000.
• Expands the Earned Income Tax Credit (EITC) for childless workers aged 65+
• Provides renewable-energy-related tax credits to individuals.
• Expands the Child and Dependent Care Tax Credit (CDCTC) from a maximum of $3,000 in qualified expenses to $8,000 ($16,000 for multiple dependents) and increases the maximum reimbursement rate from 35 percent to 50 percent.
• For 2021 and as long as economic conditions require, increases the Child Tax Credit (CTC) from a maximum value of $2,000 to $3,000 for children 17 or younger, while providing a $600 bonus credit for children under 6. The CTC would also be made fully refundable, removing the $2,500 reimbursement threshold and 15 percent phase-in rate.
• Reestablishes the First-Time Homebuyers’ Tax Credit, which was originally created during the Great Recession to help the housing market. Biden’s homebuyers’ credit would provide up to $15,000 for first-time homebuyers.
• Expands the estate and gift tax by restoring the rate and exemption to 2009 levels. This would affect individual estates of more than $3.5 million (currently around $11.3 million) and raise the top estate tax rate on the excess to 45% from 40%.
• We assume most references to the $400,000 income threshold applies to married couples and effectively would be half that amount for “unmarried” taxpayers.

Business Tax Proposal

• Increases the corporate income tax rate from 21 percent to 28 percent
• Creates a minimum tax on corporations with book profits of $100 million or higher. The minimum tax is structured as an alternative minimum tax—corporations will pay the greater of their regular corporate income tax or the 15 percent minimum tax while still allowing for net operating loss (NOL) and foreign tax credits
• Doubles the tax rate on Global Intangible Low Tax Income (GILTI) earned by foreign subsidiaries of US firms from 10.5 percent to 21 percent.
• In addition to doubling the tax rate assessed on GILTI, Biden proposes to assess GILTI on a country-by-country basis and eliminate GILTI’s exemption for deemed returns under 10 percent of qualified business asset investment (QBAI).
• Establishes a Manufacturing Communities Tax Credit to reduce the tax liability of businesses that experience workforce layoffs or a major government institution closure
• Expands the New Markets Tax Credit and makes it permanent.
• Offers tax credits to small business for adopting workplace retirement savings plans.
• Expands several renewable-energy-related tax credits, including tax credits for carbon capture, use, and storage as well as credits for residential energy efficiency, and a restoration of the Energy Investment Tax Credit (ITC) and the Electric Vehicle Tax Credit.
• End tax subsidies for fossil fuels.
• Impose a new 10 percent surtax on corporations that “offshore manufacturing and service jobs to foreign nations in order to sell goods or provide services back to the American market. This surtax would raise the effective corporate tax rate on this activity up to 30.8 percent.
• Establishing an advanceable 10 percent “Made in America” tax credit for activities that restore production, revitalize existing closed or closing facilities, retool facilities to advance manufacturing employment, or expand manufacturing payroll.

Projected Impact

Based on the modeled impact of these provisions, tax revenue would be increased by around $3 trillion over the next ten years. The total after tax income would reduce by almost 2% distributed more heavily to the top 10% income group. The bottom 20% of income earners will experience a .2% reduction in after-tax income. The Gross Domestic Product (GDP) is projected to decrease by 1.62% over this period.

If you have any questions regarding the proposed tax policies or the impact on your specific situation, please do not hesitate to contact us at (912) 353-7800

Whether it’s a smart phone, tablet or laptop, mobile devices have become the constant companions of today’s employees. And this relationship has only been further cemented by the COVID-19 pandemic, which has thousands working from home or other remote locations.

From a productivity standpoint, this is a good thing. So many tasks that once kept employees tied to their desks are now doable from anywhere on flexible schedules. All this convenience, however, brings considerable risk.

Multiple threats

Perhaps the most obvious threat to any company-owned mobile device is theft. That could end a workday early, hamper productivity for days, and lead to considerable replacement hassles and expense. Indeed, given the current economy, thieves may be increasing their efforts to snatch easy-to-grab and easy-to-sell technological items.

Worse yet, a stolen or hacked mobile device means thieves and hackers could gain possession of sensitive, confidential data about your company, as well as its customers and employees.

Amateur criminals might look for credit card numbers to fraudulently buy goods and services. More sophisticated ones, however, may look for Social Security numbers or Employer Identification Numbers to commit identity theft.

5 protective measures

There are a variety of ways that businesses can reinforce protections of their mobile devices. Here are five to consider:

1. Standardize, standardize, standardize. Having a wide variety of makes and models increases risk. Moving toward a standard product and operating system will allow you to address security issues across the board rather than dealing with multiple makes and their varying security challenges.

2. Password protect. Make sure that employees use “power-on” passwords — those that appear whenever a unit is turned on or comes out of sleep mode. In addition, configure devices to require a power-on password after 15 minutes of inactivity and to block access after a specified number of unsuccessful log-in attempts. Require regular password changes, too.

3. Set rules for data. Don’t allow employees to store certain information, such as Social Security numbers, on their devices. If sensitive data must be transported, encrypt it. (That is, make the data unreadable using special coding.)

4. Keep it strictly business. Employees are often tempted to mix personal information with business data on their portable devices. Issue a company policy forbidding or severely limiting this practice. Moreover, establish access limits on networks and social media.

5. Fortify your defenses. Be sure your mobile devices have regularly and automatically updated security software to prevent unauthorized access, block spyware/adware and stop viruses. Consider retaining the right to execute a remote wipe of an asset’s memory if you believe it’s been stolen or hopelessly lost.

More than an object

When assessing the costs associated with a mobile device, remember that it’s not only the value of the physical item that matters, but also the importance and sensitivity of the data stored on it. We can help your business implement a cost-effective process for procuring and protecting all its technology.

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If your small business is planning for payroll next year, be aware that the “Social Security wage base” is increasing.

The Social Security Administration recently announced that the maximum earnings subject to Social Security tax will increase from $137,700 in 2020 to $142,800 in 2021.

For 2021, the FICA tax rate for both employers and employees is 7.65% (6.2% for Social Security and 1.45% for Medicare).  

For 2021, the Social Security tax rate is 6.2% each for the employer and employee (12.4% total) on the first $142,800 of employee wages. The tax rate for Medicare is 1.45% each for the employee and employer (2.9% total). There’s no wage base limit for Medicare tax so all covered wages are subject to Medicare tax.

In addition to withholding Medicare tax at 1.45%, an employer must withhold a 0.9% additional Medicare tax from wages paid to an employee in excess of $200,000 in a calendar year.

Employees working more than one job

You may have employees who work for your business and who also have a second job. They may ask if you can stop withholding Social Security taxes at a certain point in the year because they’ve already reached the Social Security wage base amount. Unfortunately, you generally can’t stop the withholding, but the employees will get a credit on their tax returns for any excess withheld.

Older employees 

If your business has older employees, they may have to deal with the “retirement earnings test.” It remains in effect for individuals below normal retirement age (age 65 to 67 depending on the year of birth) who continue to work while collecting Social Security benefits. For affected individuals, $1 in benefits will be withheld for every $2 in earnings above $18,960 in 2021 (up from $18,240 in 2020).

For working individuals collecting benefits who reach normal retirement age in 2021, $1 in benefits will be withheld for every $3 in earnings above $46,920 (up from $48,600 in 2020), until the month that the individual reaches normal retirement age. After that month, there’s no limit on earnings.

Contact us if you have questions. We can assist you with the details of payroll taxes and keep you in compliance with payroll laws and regulations.

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Many businesses now offer, as part of their health care benefits, various types of accounts that reimburse employees for medical expenses on a tax-advantaged basis. These include health Flexible Spending Accounts (FSAs), Health Reimbursement Arrangement (HRAs) and Health Savings Account (HSAs, which are usually offered in conjunction with a high-deductible health plan).

For employees to get the full value out of such accounts, they need to educate themselves on what expenses are eligible for reimbursement by a health FSA or HRA, or for a tax-free distribution from an HSA. Although an employer shouldn’t provide tax advice to employees, you can give them a heads-up that the rules for reimbursements or distributions vary depending on the type of account.

Pub. 502

Unfortunately, no single publication provides an exhaustive list of official, government-approved expenses eligible for reimbursement by a health FSA or HRA, or for a tax-free distribution from an HSA. IRS Publication 502 — “Medical and Dental Expenses” (Pub. 502) comes the closest, but it should be used with caution.

Pub. 502 is written largely to help taxpayers determine what medical expenses can be deducted on their income tax returns; it’s not meant to address the tax-favored health care accounts in question. Although the rules for deductibility overlap in many respects with the rules governing health FSAs, HRAs and HSAs, there are some important differences. Thus, employees shouldn’t use Pub. 502 as the sole determinant for whether an expense is reimbursable by a health FSA or HRA, or eligible for tax-free distribution from an HSA.

Various factors

You might warn health care account participants that various factors affect whether and when a medical expense is reimbursable or a distribution allowable. These include:

Timing rules. Pub. 502 notes that expenses may be deducted only for the year in which they were paid, but it doesn’t explain the different timing rules for the tax-favored accounts. For example, a health FSA can reimburse an expense only for the year in which it was incurred, regardless of when it was paid.

Insurance restrictions. Taxpayers may deduct health insurance premiums on their tax returns if certain requirements are met. However, reimbursement of such premiums by health FSAs, HRAs and HSAs is subject to restrictions that vary according to the type of tax-favored account.

Over-the-counter (OTC) drug documentation. OTC drugs other than insulin aren’t tax-deductible, but they may be reimbursed by health FSAs, HRAs and HSAs if substantiation and other requirements are met.

Greater appreciation

The pandemic has put a renewed emphasis on the importance of employer-provided health care benefits. The federal government has even passed COVID-19-related relief measures for some tax-favored accounts.

As mentioned, the more that employees understand these benefits, the more they’ll be able to effectively use them — and the greater appreciation they’ll have of your business for providing them. Our firm can help you fully understand the tax implications, for both you and employees, of any type of health care benefit.

If you’re getting close to retirement, you may wonder: Are my Social Security benefits going to be taxed? And if so, how much will you have to pay?

It depends on your other income. If you’re taxed, between 50% and 85% of your benefits could be taxed. (This doesn’t mean you pay 85% of your benefits back to the government in taxes. It merely that you’d include 85% of them in your income subject to your regular tax rates.)

Crunch the numbers

To determine how much of your benefits are taxed, first determine your other income, including certain items otherwise excluded for tax purposes (for example, tax-exempt interest). Add to that the income of your spouse, if you file joint tax returns. To this, add half of the Social Security benefits you and your spouse received during the year. The figure you come up with is your total income plus half of your benefits. Now apply the following rules:

1. If your income plus half your benefits isn’t above $32,000 ($25,000 for single taxpayers), none of your benefits are taxed.

2. If your income plus half your benefits exceeds $32,000 but isn’t more than $44,000, you will be taxed on one half of the excess over $32,000, or one half of the benefits, whichever is lower.

Here’s an example

For example, let’s say you and your spouse have $20,000 in taxable dividends, $2,400 of tax-exempt interest and combined Social Security benefits of $21,000. So, your income plus half your benefits is $32,900 ($20,000 + $2,400 +1/2 of $21,000). You must include $450 of the benefits in gross income (1/2 ($32,900 − $32,000)). (If your combined Social Security benefits were $5,000, and your income plus half your benefits were $40,000, you would include $2,500 of the benefits in income: 1/2 ($40,000 − $32,000) equals $4,000, but 1/2 the $5,000 of benefits ($2,500) is lower, and the lower figure is used.)

Important: If you aren’t paying tax on your Social Security benefits now because your income is below the floor, or you’re paying tax on only 50% of those benefits, an unplanned increase in your income can have a triple tax cost. You’ll have to pay tax on the additional income, you’ll have to pay tax on (or on more of ) your Social Security benefits (since the higher your income the more of your Social Security benefits that are taxed), and you may get pushed into a higher marginal tax bracket.

For example, this situation might arise if you receive a large distribution from an IRA during the year or you have large capital gains. Careful planning might be able to avoid this negative tax result. You might be able to spread the additional income over more than one year, or liquidate assets other than an IRA account, such as stock showing only a small gain or stock with gain that can be offset by a capital loss on other shares.

If you know your Social Security benefits will be taxed, you can voluntarily arrange to have the tax withheld from the payments by filing a Form W-4V. Otherwise, you may have to make estimated tax payments. Contact us for assistance or more information.

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A strong, discernible brand is important for every business. Even a company that never undertakes a formal branding effort will, over time, establish a brand through its communications with customers and interactions with the public. For this reason, it’s a good idea to regularly take a fresh look at your brand and determine whether tweaks or even a major overhaul may be in order.

Who are you?

When reassessing your brand, consider the strengths of your business and whether these have evolved over time — or very recently. Some companies have pivoted during the COVID-19 pandemic to address the changed circumstances of daily life. Look at strong suits such as:

• Distinctive skills, such as excellence in product design,
• Exceptional customer service,
• Providing superior value for your price points, and
• Innovation in your industry.

You need to match your business’s passions and strengths to your customers’ needs and wants. To that end, ask current customers what they like about doing business with you. Survey both customers and prospects about what they consider when making buying decisions.

What’s your personality?

Look at any widely known brand and you’ll see a logo and branding effort that conveys a certain personality. Some companies want to appear creative and playful; others want to communicate stability and security.

What personality will draw today’s customers to your business? You may think that every company in your line of business has pretty much the same target audience. If that’s true, you must come up with an edge that differentiates your company from its rivals.

Businesses tend to have various points of contact with customers ranging from business cards to print advertisements or catalogs to the front page of your website to social media accounts. All play a role in your brand’s personality. Review what your company does at each point of contact, considering whether and how these efforts accurately and effectively represent the business’s core values and emphasize its strengths. Doing so will give you more insight into the best way to portray your personality through your brand.

What’s the competition up to?

No company is an island. Your competitors have brands all their own — and they’re after your target audience. So, in creating or refining a brand, you’ll need to identify their tactics and come up with countermeasures. To do so, engage in competitive intelligence gathering by looking at their:

• Latest products or services,
• Current prices and special offers,
• Marketing and advertising methods, and
• Social media activities.

Sometimes a full rebranding campaign may be necessary to differentiate yourself from a competitor. For example, let’s say a major player has entered your market and you’re worried about visibility, or perhaps your brand is blurring together with a competitor’s.

Are you making an impression?

In the end, branding can make a big difference in whether your business gets lost in the shuffle or makes a singular impression. Our firm can help you assess your marketing budget, including allocations for branding, and identify opportunities for cost-effective improvements.

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Does your employer provide you with group term life insurance? If so, and if the coverage is higher than $50,000, this employee benefit may create undesirable income tax consequences for you.

“Phantom income”

The first $50,000 of group term life insurance coverage that your employer provides is excluded from taxable income and doesn’t add anything to your income tax bill. But the employer-paid cost of group term coverage in excess of $50,000 is taxable income to you. It’s included in the taxable wages reported on your Form W-2 — even though you never actually receive it. In other words, it’s “phantom income.”

What’s worse, the cost of group term insurance must be determined under a table prepared by IRS even if the employer’s actual cost is less than the cost figured under the table. Under these determinations, the amount of taxable phantom income attributed to an older employee is often higher than the premium the employee would pay for comparable coverage under an individual term policy. This tax trap gets worse as the employee gets older and as the amount of his or her compensation increases.

Check your W-2

What should you do if you think the tax cost of employer-provided group term life insurance is undesirably high? First, you should establish if this is actually the case. If a specific dollar amount appears in Box 12 of your Form W-2 (with code “C”), that dollar amount represents your employer’s cost of providing you with group-term life insurance coverage in excess of $50,000, less any amount you paid for the coverage. You’re responsible for federal, state and local taxes on the amount that appears in Box 12 and for the associated Social Security and Medicare taxes as well.

But keep in mind that the amount in Box 12 is already included as part of your total “Wages, tips and other compensation” in Box 1 of the W-2, and it’s the Box 1 amount that’s reported on your tax return

Consider some options

If you decide that the tax cost is too high for the benefit you’re getting in return, you should find out whether your employer has a “carve-out” plan (a plan that carves out selected employees from group term coverage) or, if not, whether it would be willing to create one. There are several different types of carve-out plans that employers can offer to their employees.

For example, the employer can continue to provide $50,000 of group term insurance (since there’s no tax cost for the first $50,000 of coverage). Then, the employer can either provide the employee with an individual policy for the balance of the coverage, or give the employee the amount the employer would have spent for the excess coverage as a cash bonus that the employee can use to pay the premiums on an individual policy.

Contact us if you have questions about group term coverage or how much it is adding to your tax bill.

While you probably don’t have any problems paying your tax bills, you may wonder: What happens in the event you (or someone you know) can’t pay taxes on time? Here’s a look at the options.

Most importantly, don’t let the inability to pay your tax liability in full keep you from filing a tax return properly and on time. In addition, taking certain steps can keep the IRS from instituting punitive collection processes.

Common penalties

The “failure to file” penalty accrues at 5% per month or part of a month (to a maximum of 25%) on the amount of tax your return shows you owe. The “failure to pay” penalty accrues at only 0.5% per month or part of a month (to 25% maximum) on the amount due on the return. (If both apply, the failure to file penalty drops to 4.5% per month (or part) so the combined penalty remains at 5%.) The maximum combined penalty for the first five months is 25%. Thereafter, the failure to pay penalty can continue at 0.5% per month for 45 more months. The combined penalties can reach 47.5% over time in addition to any interest.

Undue hardship extensions

Keep in mind that an extension of time to file your return doesn’t mean an extension of time to pay your tax bill. A payment extension may be available, however, if you can show payment would cause “undue hardship.” You can avoid the failure to pay penalty if an extension is granted, but you’ll be charged interest. If you qualify, you’ll be given an extra six months to pay the tax due on your return. If the IRS determines a “deficiency,” the undue hardship extension can be up to 18 months and in exceptional cases another 12 months can be added.

Borrowing money

If you don’t think you can get an extension of time to pay your taxes, borrowing money to pay them should be considered. You may be able to get a loan from a relative, friend or commercial lender. You can also use credit or debit cards to pay a tax bill, but you’re likely to pay a relatively high interest rate and possibly a fee.

Installment agreement

Another way to defer tax payments is to request an installment payment agreement. This is done by filing a form and the IRS charges a fee for installment agreements. Even if a request is granted, you’ll be charged interest on any tax not paid by its due date. But the late payment penalty is half the usual rate (0.25% instead of 0.5%), if you file by the due date (including extensions).

The IRS may terminate an installment agreement if the information provided in applying is inaccurate or incomplete or the IRS believes the tax collection is in jeopardy. The IRS may also modify or terminate an installment agreement in certain cases, such as if you miss a payment or fail to pay another tax liability when it’s due.

Avoid serious consequences

Tax liabilities don’t go away if left unaddressed. It’s important to file a properly prepared return even if full payment can’t be made. Include as large a partial payment as you can with the return and work with the IRS as soon as possible. The alternative may include escalating penalties and having liens assessed against your assets and income. Down the road, the collection process may also include seizure and sale of your property. In many cases, these nightmares can be avoided by taking advantage of options offered by the IRS.

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