We at Verdeja, De Armas, Trujillo (VDT) have created a COVID-19 Crisis Department to assist you with your financial questions and tax concerns. The following information was compiled to give you a summary of relevant matters from the recent CARES Act. Should you have any further questions please do not hesitate in contacting us.

GENERAL:

1. Paycheck Protection Program

Criteria

More inclusive and extensive than SBA loans, qualifying entities include small businesses, sole proprietorships, independent contractors, and self-employed individuals. No personal or business collateral is required, it is acceptable to have access to credit elsewhere, the funding covers more restrictive set of purposes, and your loan can be forgiven if you follow the terms.

Other matters:

The funds must be used to retain workers and maintain payroll or make mortgage, lease, and utility payments. SBA will ask applicants for certain financial reports, including documentation related to payroll and operating expenses over the previous 12 month period. An average monthly payroll cost is calculated based on eligible payroll costs as defined by the Act. The maximum loan amount offered to applicants is 2.5 times that monthly average payroll cost, but no more than $10 million. In the 8 weeks following the loan signing date, a borrower is eligible for loan forgiveness in an amount equal to the expenses paid related to these payroll costs, mortgage interest, rent, and utilities.

2. Emergency EIDL (Economic Injury Disaster Loan) Program

Criteria

Qualifying entities include small businesses including private nonprofit organizations under 500 employees, sole proprietorships, independent contractors, and self-employed individuals. May require personal guarantees for certain amounts.

3. Recovery Rebate for Individuals

Criteria

Eligibility will be based on 2019 or 2018 tax returns, or Social Security Benefit statement. Individuals are eligible for entire payment amount so long as their adjusted gross income (AGI) does not exceed $75,000 (150,000 if married). Once over those thresholds, you lose $5 of payment amount for every $100 your AGI exceeds such thresholds.

Other matters:

Individuals who are claimed as dependents on another’s tax return are not eligible for payment. Payments will be made between now and December 31, 2020. Any payment received from the program acts as an advanced payment of credit you will compute again on your 2020 tax return. In other words, in 2021 you will recompute amount owed based on 2020 data. If the payment you receive today is less than what you are owed based on 2020 data, the excess amount is treated as credit reducing your 2020 tax liability. On the other hand, if the advanced payment is greater than what you’re owed for 2020, no credit is received and you will have to repay excess amount to IRS.

TAX PROVISIONS:

1. Special Rules for Using Retirement Funds for Coronavirus Costs

Eligibility:

Coronavirus-related distributions can be taken for the following reasons:

• You, your spouse or dependent has been diagnosed with COVID-19
• You’ve experienced adverse financial consequences as a result of being quarantined, furloughed or laid off, or your work hours have been reduced.
• You’re unable to work because of a lack of child care.
• You’ve had to close or reduce the hours of a business as a result of the virus.
• You’ve been financially impacted by other factors determined by the treasury secretary.

Other matters:

To ease the tax burden, if you pull money from your retirement account, you have up to three years to pay taxes on the withdrawals. You can repay all or a portion of the distribution within three years, and the repayments will not be counted toward the annual contribution limits.In addition, Loan limits from retirement plans have been increased from $50,000 to $100,000. The existing rule that loans may not exceed half the vested account balance has been removed. New and existing loan payments can be deferred for a year.Finally, you are required by law to take withdrawals from your IRA, SIMPLE IRA, SEP IRA or retirement plan such as a 401(k) once you reach 72 (It was 70½ before 2020). But the CARES Act waives required minimum distribution payments for 2020, including for inherited IRAs.

2. Changes to Charitable Contributions

Other matters:

For taxpayers that DO itemize, the new law temporarily increases the limit (60% of Adjusted Gross Income) on charitable giving for 2020. Charitable contributions in 2020 will be allowed to be deducted up to 100% of the taxpayer’s AGI, with any excess contributions available to be carried over for the next five years. For corporate donors, the 10% charitable giving limit of adjustable taxable income would increase to 25%.

3. Qualified Improvement Fix (QIP)

What it means:

Prior to the technical correction, taxpayers were required to depreciate QIP over a period of almost four decades. The technical correction allows for the QIP to be expensed 100% in the year placed in service, beginning with the 2018 tax year. For example, prior to the correction, a taxpayer who spent $1 million to improve their building would have received a depreciation expense of $25,641 per year (likely even less in the initial year, depending on the month placed in service). The technical correction allows the taxpayer to deduct the full $1 million for that year instead. It is expected that the Treasury Department and IRS will issue procedural guidance regarding the technical correction and how taxpayers may retroactively claim the missed depreciation expense. For now, taxpayers would have to file an amended tax return or file an accounting method change on Form 3115 with their 2019 return to “catch up” the bonus depreciation. Certain partnerships are restricted from amending their tax returns, so filing Form 3115 with their 2019 return may be better option unless another alternative is offered.

4. Employee Retention Credit

Eligibility:

A business is eligible for the credit in either of the following two ways: 1) The operation of the business was fully or partially suspended during any calendar quarter during 2020 due to orders from an appropriate government authority resulting from COVID-19, or 2) The business remained open, but during any quarter in 2020, gross receipts for that quarter were less than 50% of what they were for the same quarter in 2019.

What it means:

The business will be entitled to a credit for each quarter, until the business has a quarter where it’s recovered sufficiently that its receipts exceed 80% of what they were for the same quarter in the previous year. For each eligible quarter, the business will receive a credit against its 6.2% share of Social Security payroll taxes equal to 50% of the “qualified wages” paid to each employee for that quarter, ending on December 31, 2020.

5. Delay of Payment of Employer Payroll Tax and Self-Employment Tax

What it means:

An employer that incurs its 6.2% share of Social Security tax in 2020 may: 1) defer payment of that until 2021 and 2020, but 2) receive an immediate credit against those yet-to-be-paid payroll taxes via the sum of the emergency medical leave credit, sick leave credit, and new employee retention credit.

6. Changes to Net Operating Loss Rules 

What it means:

Net Operating Losses from tax years 2018, 2019, and 2020 can now be carried back for five years, or instead, elect to carry forward the loss. In addition, any losses generated for years 2019 and 2020 will be allowed to offset 100% of taxable as opposed to 80% under the prior TCJA law.

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