Work Opportunity Tax Credit extended through 2020Posted on March 5th, 2020
Business owner, please be aware that a recent tax law extended a credit for hiring individuals from one or more targeted groups. Employers can qualify for a valuable tax credit known as the Work Opportunity Tax Credit (WOTC).
If you’re a business owner, be aware that a recent tax law extended a credit for hiring individuals from one or more targeted groups. Employers can qualify for a valuable tax credit known as the Work Opportunity Tax Credit (WOTC).
The WOTC was set to expire on December 31, 2019. But a new law passed late last year extends it through December 31, 2020.
Generally, an employer is eligible for the credit for qualified wages paid to qualified members of these targeted groups: 1) members of families receiving assistance under the Temporary Assistance for Needy Families program, 2) veterans, 3) ex-felons, 4) designated community residents, 5) vocational rehabilitation referrals, 6) summer youth employees, 7) members of families in the Supplemental Nutritional Assistance Program, 8) qualified Supplemental Security Income recipients, 9) long-term family assistance recipients and 10) long-term unemployed individuals.
For each employee, there’s a minimum requirement that the employee has completed at least 120 hours of service for the employer. The credit isn’t available for certain employees who are related to the employer or work more than 50% of the time outside of a trade or business of the employer (for example, a maid working in the employer’s home). Additionally, the credit generally isn’t available for employees who’ve previously worked for the employer.
There are different rules and credit amounts for certain employees. The maximum credit available for the first-year wages is $2,400 for each employee, $4,000 for long-term family assistance recipients, and $4,800, $5,600 or $9,600 for certain veterans. Additionally, for long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit, over two years, of $9,000.
For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum WOTC credit available for summer youth employees is $1,200 per employee.
Here are a few other rules:
- No deduction is allowed for the portion of wages equal to the amount of the WOTC determined for the tax year;
- Other employment-related credits are generally reduced with respect to an employee for whom a WOTC is allowed; and
- The credit is subject to the overall limits on the amount of business credits that can be taken in any tax year, but a 1-year carryback and 20-year carryforward of unused business credits is allowed.
Make sure you qualify
Because of these rules, there may be circumstances when the employer might elect not to have the WOTC apply. There are some additional rules that, in limited circumstances, prohibit the credit or require an allocation of it. Contact us with questions or for more information about your situation.
The new COVID-19 law provides businesses with more reliefPosted on April 1st, 2020
On March 27, President Trump signed into law another coronavirus (COVID-19) law, which provides extensive relief for businesses and employers. Here are some of the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Employee retention credit
The new law provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.
Employer eligibility. The credit is available to employers with operations that have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers that have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.
The credit isn’t available to employers receiving Small Business Interruption Loans under the new law.
Wage eligibility. For employers with an average of 100 or fewer full-time employees in 2019, all employee wages are eligible, regardless of whether an employee is furloughed. For employers with more than 100 full-time employees last year, only the wages of furloughed employees or those with reduced hours as a result of closure or reduced gross receipts are eligible for the credit.
No credit is available with respect to an employee for whom the employer claims a Work Opportunity Tax Credit.
The term “wages” includes health benefits and is capped at the first $10,000 paid by an employer to an eligible employee. The credit applies to wages paid after March 12, 2020 and before January 1, 2021.
The IRS has authority to advance payments to eligible employers and to waive penalties for employers who don’t deposit applicable payroll taxes in anticipation of receiving the credit.
Payroll and self-employment tax payment delay
Employers must withhold Social Security taxes from wages paid to employees. Self-employed individuals are subject to self-employment tax.
The CARES Act allows eligible taxpayers to defer paying the employer portion of Social Security taxes through December 31, 2020. Instead, employers can pay 50% of the amounts by December 31, 2021 and the remaining 50% by December 31, 2022.
Self-employed people receive similar relief under the law.
Temporary repeal of taxable income limit for NOLs
Currently, the net operating loss (NOL) deduction is equal to the lesser of 1) the aggregate of the NOL carryovers and NOL carrybacks, or 2) 80% of taxable income computed without regard to the deduction allowed. In other words, NOLs are generally subject to a taxable-income limit and can’t fully offset income.
The CARES Act temporarily removes the taxable income limit to allow an NOL to fully offset income. The new law also modifies the rules related to NOL carrybacks.
Interest expense deduction temporarily increased
The Tax Cuts and Jobs Act (TCJA) generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income.
The CARES Act temporarily and retroactively increases the limit on the deductibility of interest expense from 30% to 50% for tax years beginning in 2019 and 2020. There are special rules for partnerships.
Bonus depreciation for qualified improvement property
The TCJA amended the tax code to allow 100% additional first-year bonus depreciation deductions for certain qualified property. The TCJA eliminated definitions for 1) qualified leasehold improvement property, 2) qualified restaurant property, and 3) qualified retail improvement property. It replaced them with one category called qualified improvement property (QIP). A general 15-year recovery period was intended to have been provided for QIP. However, that period failed to be reflected in the language of the TCJA. Therefore, under the TCJA, QIP falls into the 39-year recovery period for nonresidential rental property, making it ineligible for 100% bonus depreciation.
The CARES Act provides a technical correction to the TCJA, and specifically designates QIP as 15-year property for depreciation purposes. This makes QIP eligible for 100% bonus depreciation. The provision is effective for property placed in service after December 31, 2017.
Careful planning required
This article only explains some of the relief available to businesses. Additional relief is provided to individuals. Be aware that other rules and limits may apply to the tax breaks described here. Contact us if you have questions about your situation.
IRS PROVIDES AUTOMATIC EXTENSION IF AFFECTED BY COVID 19Posted on March 22nd, 2020
The Secretary of the Treasury has determined that any person with a Federal income tax payment or a Federal income tax return due April 15, 2020, is affected by the COVID-19 emergency for purposes of the relief described in this section III (Affected Taxpayer). The term “person” includes an individual, a trust, estate, partnership, association, company or corporation, as provided in section 7701(a)(1) of the Code.
For an Affected Taxpayer, the due date for filing Federal income tax returns and making Federal income tax payments due April 15, 2020, is automatically postponed to July 15, 2020. Affected Taxpayers do not have to file Forms 4868 or 7004. There is no limitation on the amount of the payment that may be postponed.
The relief provided in this section III is available solely with respect to Federal income tax payments (including payments of tax on self-employment income) and Federal income tax returns due on April 15, 2020, in respect of an Affected Taxpayer’s 2019 taxable year, and Federal estimated income tax payments (including payments of tax on self-employment income) due on April 15, 2020, for an Affected Taxpayer’s 2020 taxable year.
No extension is provided in this notice for the payment or deposit of any other type of Federal tax, or for the filing of any Federal information return.
As a result of the postponement of the due date for filing Federal income tax returns and making Federal income tax payments from April 15, 2020, to July 15, 2020, the period beginning on April 15, 2020, and ending on July 15, 2020, will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to file the Federal income tax returns or to pay the Federal income taxes postponed by this notice.
Interest, penalties, and additions to tax with respect to such postponed Federal income tax filings and payments will begin to accrue on July 16, 2020.
Can you deduct your Medical expenses for 2019Posted on December 2nd, 2019
As we all know, medical services and prescription drugs are expensive. You may be able to deduct some of your expenses on your tax return but the rules make it difficult for many people to qualify. However, with proper planning, you may be able to time discretionary medical expenses to your advantage for tax purposes.
The basic rules
The medical expense deduction for 2019 can only be claimed to the extent your unreimbursed costs exceed 10% of your adjusted gross income (AGI). You also must itemize deductions on your return. If your total itemized deductions for 2019 will exceed your standard deduction, moving or “bunching” non-urgent medical procedures and other controllable expenses into 2019 may allow you to exceed the 10% floor and benefit from the medical expense deduction. Controllable expenses include refilling prescription drugs, buying eyeglasses and contact lenses, going to the dentist and getting elective surgery.
In addition to hospital and doctor expenses, here are some items to take into account when determining your allowable costs:
- Health insurance premiums. This item can total thousands of dollars a year. Even if your employer provides health coverage, you can deduct the portion of the premiums that you pay. Long-term care insurance premiums are also included as medical expenses, subject to limits based on age.
- Transportation. The cost of getting to and from medical treatments counts as a medical expense. This includes taxi fares, public transportation, or using your own car. Car costs can be calculated at 20¢ a mile for miles driven in 2019, plus tolls and parking. Alternatively, you can deduct certain actual costs, such as for gas and oil.
- Eyeglasses, hearing aids, dental work, prescription drugs and professional fees. Deductible expenses include the following:
o cost of glasses,
o hearing aids,
o dental work,
o psychiatric counseling,
and other ongoing expenses in connection with medical needs. Purely cosmetic expenses don’t qualify.
o Prescription drugs (including insulin) qualify, but over-the-counter aspirin and vitamins don’t. Neither do amounts paid for treatments that are illegal under federal law (such as marijuana), even if state law permits them.
o The services of therapists and nurses can qualify as long as they relate to a medical condition and aren’t for general health.
o Amounts paid for certain long-term care services required by a chronically ill individual also qualify.
4. Smoking-cessation and weight-loss programs. Amounts paid for:
o participating in smoking-cessation programs and for prescribed drugs designed to alleviate nicotine withdrawal are deductible. However, nonprescription nicotine gum and patches aren’t.
o A weight-loss program is deductible if undertaken as treatment for a disease diagnosed by a physician. Deductible expenses include fees paid to join a program and attend periodic meetings. However, the cost of food isn’t deductible.
You can deduct the medical costs that you pay for dependents,
o your children.
o other individuals, such as an elderly parent.
If you have questions about medical expense deductions, contact us at 954-967-0969 or www.jdaviscpa.com.
Do you know your tax filing status?Posted on November 20th, 2019
Time to plan for your 2019 Tax Liability
For tax purposes, December 31 is the most important day of the year for taxpayers. It means more than New Year’s Eve celebrations. It affects the filing status box that will be checked on your tax return for the year. When you file your return, you do so with one of five filing statuses, which depend in part on whether you’re married or unmarried on December 31.
More than one filing status may apply, and you can use the one that saves the most tax. It’s also possible that your status options could change during the year.
Your filing statuses and who can claim them is listed below:
- Single. This status is generally used if you’re unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law.
- Married filing jointly. If you’re married, you can file a joint tax return with your spouse. If your spouse passes away, you can generally file a joint return for that year.
- Married filing separately. As an alternative to filing jointly, married couples can choose to file separate tax returns. In some cases, this may result in less tax owed.
- Head of household. Certain unmarried taxpayers may qualify to use this status and potentially pay less tax. The special rules that apply are described below.
- Qualifying widow(er) with a dependent child. This may be used if your spouse died during one of the previous two years and you have a dependent child. Other conditions also apply.
Head of household status
Head of household status is generally more favorable than filing as a single taxpayer. To qualify, you must “maintain a household” that, for more than half the year, is the principal home of a “qualifying child” or other relative that you can claim as your dependent.
A “qualifying child” is defined as someone who:
- Lives in your home for more than half the year,
- Is your child, stepchild, foster child, sibling, stepsibling or a descendant of any of these,
- Is under 19 years old or a student under age 24, and
- Doesn’t provide over half of his or her own support for the year.
Different rules may apply if a child’s parents are divorced. Also, a child isn’t a “qualifying child” if he or she is married and files jointly or isn’t a U.S. citizen or resident.
Maintaining a household
For head of household filing status, you’re considered to maintain a household if you live in it for the tax year and pay more than half the cost of running it. This includes property taxes, mortgage interest, rent, utilities, property insurance, repairs, upkeep, and food consumed in the home. Don’t include medical care, clothing, education, life insurance or transportation.
Under a special rule, you can qualify as head of household if you maintain a home for a parent of yours even if you don’t live with the parent. To qualify, you must be able to claim the parent as your dependent.
You must generally be unmarried to claim head of household status. If you’re married, you must generally file as either married filing jointly or married filing separately, not as head of household. However, if you’ve lived apart from your spouse for the last six months of the year and a qualifying child lives with you and you “maintain” the household, you’re treated as unmarried. In this case, you may be able to qualify as head of household.
If you have questions about your filing status, contact us.at 954-967-0969 or on the web at www.jdaviscpa.com
Why you Should Maximize your 401K contributionPosted on November 16th, 2019
Reduce your taxes and save for your retirement by contributing to a tax-advantaged retirement plan. If your employer offers a 401(k) or Roth 401(k) plan, it is smart to contribute the maximum allowedto build your nest egg.
If you are not contributing the allowable maximum, increase your contribution rate between now and year end. Tax-deferred compounding (tax-free in the case of Roth accounts), can have a significant impact on the size of your retirement dollars.
A 401(k) plan allows an employee to defer a certain amount of pay each year and will also allow an employer to contribute, if they choose to, an amount on behalf of the employee to the plan. The contribution limit for employees for 2019 is $19,000. Employees who attain the age of 50 or older by year end are also permitted to make additional “catch-up” contributions of $6,000, for a total limit of $25,000 in 2019.
The IRS just announced that the 401(k) contribution limit for 2020 will increase to $19,500 (plus the $6,500 catch-up contribution).
A traditional 401(k) offers many benefits, including these:
• Contributions are pretax, reducing your modified adjusted gross income (MAGI), which can also help you reduce or avoid exposure to the 3.8% net investment income tax.
• Plan assets can grow tax-deferred — meaning you pay no income tax until you take distributions.
• Your employer may match some or all of your contributions pretax.
Take a look at your contributions for this year. If your current contribution rate will leave you short of the limit, try to increase your contribution rate through the end of the year to get as close to that limit as you can afford. Keep in mind that your paycheck will be reduced by less than the dollar amount of the contribution, because the contributions are pretax — so, income tax isn’t withheld.
Employers may also include a Roth option in their 401(k) plans. If your employer offers this, you can designate some or all of your contributions as Roth contributions. While such contributions don’t reduce your current MAGI, qualified distributions will be tax-free.
Roth 401(k) contributions may be especially beneficial for higher-income earners, because they don’t have the option to contribute to a Roth IRA. Your ability to make a Roth IRA contribution in 2019 will be reduced if your adjusted gross income (AGI) in 2019 exceeds:
• $193,000 and your filing status in 2019 is married-filing jointly, or
• $122,000, and your filing status in 2019 is that of a single taxpayer.
Your ability to contribute to a Roth IRA in 2019 will be eliminated entirely if you’re a married-filing-jointly filer and your 2019 AGI equals or exceeds $203,000. The cutoff for single filers is $137,000 or more.
How much and which type
Do you have questions about how much to contribute or the best mix between regular and Roth 401(k) contributions? Contact us. We can discuss the tax and retirement-saving considerations in your situation.
Will your 1099 Forms Be Ready to File Timely?Posted on November 16th, 2019
By January 31, 2019, one month after the new year begins, your business may be required to comply with rules to report amounts in excess of $600 paid to independent contractors, vendors and others. You may have to file copies of 1099-MISC forms with the IRS for almost everyone that you pay $600 or more in non-employee compensation and provide them with their copies to file their returns. This task can be time consuming and tedious and there are penalties for not complying, so now is a good time to begin gathering information to help ensure a smooth filing.
There are many types of 1099 forms. For example, 1099-INT is sent out to report interest income and 1099-B is used to report broker transactions and barter exchanges. Employers must provide a Form 1099-MISC for nonemployee compensation by January 31, 2020, to each noncorporate service provider who was paid at least $600 for services during 2019. (1099-MISC forms generally don’t have to be provided to corporate service providers, although there are exceptions.)
A copy of each Form 1099-MISC with payments listed in box 7 must also be filed with the IRS by January 31. “Copy A” is filed with the IRS and “Copy B” is sent to each recipient.
There are no longer any extensions for filing Form 1099-MISC late and there are penalties for late filers. The returns will be considered timely filed if postmarked on or before the due date.
A few years ago, the deadlines for some of these forms were later. But the earlier January 31 deadline for 1099-MISC was put in place to give the IRS more time to spot errors on tax returns. In addition, it makes it easier for the IRS to verify the legitimacy of returns and properly issue refunds to taxpayers who are eligible to receive them.
Hopefully, you’ve collected W-9 forms from independent contractors to whom you paid $600 or more this year. The information on W-9s can be used to help compile the information you need to send 1099-MISC forms to recipients and file them with the IRS. Here’s a link to the Form W-9 if you need to request contractors and vendors to fill it out: https://bit.ly/2NQvJ5O.
Form changes coming next year
In addition to payments to independent contractors and vendors, 1099-MISC forms are used to report other types of payments. As described above, Form 1099-MISC is filed to report nonemployment compensation (NEC) in box 7. There may be separate deadlines that report compensation in other boxes on the form. In other words, you may have to file some 1099-MISC forms earlier than others. But in 2020, the IRS will be requiring “Form 1099-NEC” to end confusion and complications for taxpayers. This new form will be used to report 2020 nonemployee compensation by February 1, 2021.
Help with compliance
But for nonemployee compensation for 2019, your business will still use Form 1099-MISC. If you have questions about your reporting requirements, contact us.at 954-967-0969
2019 Q4 tax calendar: Key deadlines for businesses, other employers and individualsPosted on September 25th, 2019
Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2019. 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.
A calendar-year C corporation that filed an automatic six-month extension is due on April 15, 2019. You must file a 2018 income tax return (Form 1120) and pay any tax, interest and penalties due. Make contributions for 2018 to certain employer-sponsored retirement plans.
On or before October 31, 2019, report income tax withholding and FICA taxes for third quarter 2019 (Form 941) and pay any tax due. (See exception below under “November 12.”)
November 12 Report income tax withholding and FICA taxes for third quarter 2019 (Form 941), if you deposited on time (and in full) all the associated taxes due.
Third Quarter Florida Unemployment tax is due on or before October 31, 2019
January 31, 2020
Quarter 4 941 is due on or before January 31, 2020
Annual 940 and 944 returns are due on January 31, 2020.
Third Quarter Florida Unemployment tax is due on or before January 31, 2020.
There are two deposit schedules which are monthly and semi-weekly.
Monthly depositors September payments are due on or before October 15, 2019.
Monthly depositors October payments are due on or before November 15, 2019.
Monthly depositors October payments are due on or before December 15, 2019.
Semi-weekly Depositors payments are as follows:
Payrolls done on Wednesday, Thursday and/or Friday are due by the following Wednesday
Payrolls done on Saturday, Sunday, Monday and/or Tuesday are due by the following Friday
December 16 If a calendar-year C corporation, pay the fourth installment of 2019 estimated income taxes.
Key Deadlines for Individuals
1040 Tax Returns on Extension are due on or before October 15, 2019
Estimated Taxes for Quarter 4 is due on or before January 15,2020.
Need Assistance with your payroll Call us at 954-967-0969 or visit us on the web at https://www.jdaviscpa.com,
Need Summer Help? You May Qualify For a Valuable Tax CreditPosted on June 24th, 2019
Do you need to hire help this summer?
Employers may be eligible for the Work Opportunity Tax Credit (WOTC) if you hire employees from certain targeted groups. This includes youth whom you bring in this summer for two or three months.
The maximum credit employers can claim is: $2,400 to $9,600 for each eligible employee.
10 targeted groups
An employer is generally eligible for the credit only for qualified wages paid to members of 10 targeted groups:
- Qualified members of families receiving assistance under the Temporary Assistance for Needy Families program.
- Qualified veterans.
- Designated community residents who live in Empowerment Zones or rural renewal counties.
- Qualified ex-felons.
- Vocational rehabilitation referrals.
- Qualified summer youth employees.
- Qualified members of families in the Supplemental Nutrition Assistance Program.
- Qualified Supplemental Security Income recipients.
- Long-term family assistance recipients.
- Qualified individuals who have been unemployed for 27 weeks or longer.
For each employee, there’s also a minimum requirement that the employee have completed at least 120 hours of service for the employer, and that employment begin before January 1, 2020. Also, the credit isn’t available for certain employees who are related to the employer or work more than 50% of the time outside of a trade or business of the employer (for example, working as a house cleaner in the employer’s home). The credit is not generally available for employees who have previously worked for the employer.
How to Calculate the Savings
For employees other than summer youth employees, the credit amount is calculated based on the following rules.
- The employer can take into account up to $6,000 of first-year wages per employee ($10,000 for “long-term family assistance recipients” and/or $12,000, $14,000 or $24,000 for certain veterans).
- If the employee completed at least 120 hours but less than 400 hours of service for the employer, the wages taken into account are multiplied by 25%. If the employee completed 400 or more hours, all of the wages taken into account are multiplied by 40%. Therefore, the maximum credit available for the first-year wages is $2,400 ($6,000 × 40%) per employee.
- It is $4,000 [$10,000 × 40%] for “long-term family assistance recipients”; $4,800, $5,600 or $9,600 [$12,000, $14,000 or $24,000 × 40%] for certain veterans.
In order to claim a $9,600 credit, a veteran must be certified as being entitled to compensation for a service-connected disability and be unemployed for at least six months during the one-year period ending on the hiring date. Additionally, for “long-term family assistance recipients,” there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit, over two years, of $9,000 [$10,000 × 40% plus $10,000 × 50%].
The “first year” described above is the year-long period which begins with the employee’s first day of work. The “second year” is the year that immediately follows.
For summer youth employees, the rules described above apply, except that you can only take into account up to $3,000 of wages, and the wages must be paid for services performed during any 90-day period between May 1 and September 15. That means that, for summer youth employees, the maximum credit available is $1,200 ($3,000 × 40%) per employee. Summer youth employees are defined as those who are at least 16 years old, but under 18 on the hiring date or May 1 (whichever is later), and reside in an Empowerment Zone, enterprise community or renewal community. We can help The WOTC can offset the cost of hiring qualified new employees. There are some additional rules that, in limited circumstances, prohibit the credit or require an allocation of the credit. And you must fill out and submit paperwork to the government.
Contact us at 954-967-0969 for assistance or more information about your situation. Visit us on the web at www.jdaviscpa.com.
2019 Tax ChangesPosted on May 20th, 2019
A variety of tax-related limits affecting businesses are annually indexed for inflation, and many have gone up for 2019.
Here’s a look at some that may affect you and your business.
Section 179 expensing:
• Limit: $1.02 million (up from $1 million)
• Phaseout: $2.55 million (up from $2.5 million) Income-based phase-ins for certain limits on the Sec. 199A qualified business income deduction:
• Married filing jointly: $321,400-$421,400 (up from $315,000-$415,000) Married filing separately: $160,725-$210,725 (up from $157,500-$207,500) Other filers: $160,700-$210,700 (up from $157,500-$207,500)
• Employee contributions to 401(k) plans: $19,000 (up from $18,500)
• Catch-up contributions to 401(k) plans: $6,000 (no change)
• Employee contributions to SIMPLEs: $13,000 (up from $12,500)
• Catch-up contributions to SIMPLEs: $3,000 (no change)
• Combined employer/employee contributions to defined contribution plans (not including catch-ups):
a. $56,000 (up from $55,000)
b. Maximum compensation used to determine contributions: $280,000 (up from $275,000)
c. Annual benefit for defined benefit plans: $225,000 (up from $220,000)
d. Compensation defining “highly compensated employee”: $125,000 (up from $120,000)
e. Compensation defining “key employee”: $180,000 (up from $175,000)
Other employee benefits
• Qualified transportation fringe-benefits employee income exclusion: $265 per month (up from $260)
• Health Savings Account contributions:
a. Individual coverage: $3,500 (up from $3,450)
b. Family coverage: $7,000 (up from $6,900)
c. Catch-up contribution: $1,000 (no change)
d. Flexible Spending Account contributions:
e. Health care: $2,700 (up from $2,650)
f. Dependent care: $5,000 (no change)
Additional rules apply to these limits, and they are only some of the limits that may affect your business. Please contact us at (954) 967-0969 for more information.