Dunham Associates CPAs

What if I am unable to file my 2019 income tax return that would have been due on April 15 by July 15, 2020? If you are an individual, you can request an automatic extension to file your Federal income tax return if you can’t file by the July 15 deadline. The easiest and fastest way to request a filing extension is to electronically file Form 4868 through your tax professional. Businesses, including trusts, must file Form 7004. You must request the automatic extension by July 15, 2020. If you properly estimate your 2019 tax liability using the information available to you and file an extension form by July 15, 2020, your tax return will be due on October 15, 2020. To avoid interest and penalties when filing your tax return after July 15, 2020, pay the tax you estimate as due with your extension request.

Stimulus payments The payment is an advance payment of a 2020 tax credit; The maximum credit is $1,200 per individual ($2,400 MFJ) plus $500 per qualifying child under 17 years old; The credit is phased out by 5% ($5 for every $100 over the limit) for AGIs exceeding: o $150,000 for MFJ phased out at $198,000 if there are no children;... o $112,500 for HOH filers phased out at $146,500 if the HOH has one child; o $75,000 for all other taxpayers phased out at $99,000; and o For every child claimed, add an additional $10,000. For people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The stimulus payment will be deposited directly into the same banking account reflected on the return filed; For taxpayers who did not provide direct deposit information, in the coming weeks the Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online so that individuals can receive payments immediately as opposed to checks in the mail; and For individuals who did not file a 2018 or 2019 return, the IRS is developing a simplified process for them to file. Here is a link to the IRS's FAQs on these payments: www.irs.gov//economic-impact-payments-what-you-need-to-know See more

REAL PROPERTY TAXES The state does not have the authority to extend the payment of property taxes because critical local services such as schools, fire, and police are dependent on this revenue. The California Association of County Treasurers and Tax Collectors have stated that they can waive penalties, costs, or other charges resulting from tax delinquency due to reasonable cause related to this crisis.4 Note: April 10 falls on a Friday, but offices may be closed in some areas due to the COVID-19 virus. Contact the County office for more information. Payments may be made by mailing in a check (postmarked by April 10), paying online either by e-check (no fee) or by credit card (2.5% fee) through the county website, or paying by the phone system.

Stimulus payments The payment is an advance payment of a 2020 tax credit; The maximum credit is $1,200 per individual ($2,400 MFJ) plus $500 per qualifying child under 17 years old; The credit is phased out by 5% ($5 for every $100 over the limit) for AGIs exceeding: o $150,000 for MFJ phased out at $198,000 if there are no children;... o $112,500 for HOH filers phased out at $146,500 if the HOH has one child; o $75,000 for all other taxpayers phased out at $99,000; and o For every child claimed, add an additional $10,000. For people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The stimulus payment will be deposited directly into the same banking account reflected on the return filed; For taxpayers who did not provide direct deposit information, in the coming weeks the Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online so that individuals can receive payments immediately as opposed to checks in the mail; and For individuals who did not file a 2018 or 2019 return, the IRS is developing a simplified process for them to file. Here is a link to the IRS's FAQs on these payments: www.irs.gov//economic-impact-payments-what-you-need-to-know See more

Payroll Protection loans In addition to the tax provisions we previously reported, the CARES Act provides for Payroll Protection loans of up to $10 million to COVID-19 impacted businesses: The loans are guaranteed 100% by the Small Business Administration (no personal guarantees or collateral required); Businesses with 500 or fewer employees can borrow 2.5 times their average monthly payroll, up to a maximum of $10 million; The loans may be forgiven for amounts used to... cover basic operating expenses such as payroll costs, rent and mortgage, and utilities for up to eight weeks from the loan origination date; Loan forgiveness will be reduced by reductions in employee compensation or layoffs of employees over the last year; The canceled debt will not generate taxable income; Businesses that take these loans will not qualify for the Employer Retention Credit; Any loan amount that isn't forgiven has a maximum term of 10 years and a maximum interest rate of 4%; and At press time, the SBA had not provided information to banks on the loan process, but we expect that to happen soon. See more

The optional standard mileage rates for business use of a vehicle will decrease slightly in 2020 after increasing significantly in 2019. For business use of a car, van, pickup truck, or panel truck, the rate for 2020 will be 57.5 cents per mile in 2020, down from 58 cents per mile last year after increasing from 54.5 cents per mile in 2018. Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.

IRS Releases 2020 Qualified Retirement Plan Amounts: The IRS has released cost-of-living adjustments to pension plans and other retirement-related items for 2020: (1) elective deferral limit for employees participating in 401(k), 403(b), and most 457 plans has increased from $19,000 to $19,500; ... (2) catch-up contribution limit for employees aged 50 and over participating in 401(k), 403(b), and most 457 plans has increased from $6,000 to $6,500; (3) limit on annual contributions to a SIMPLE plan has increased from $13,000 to $13,500; and (4) defined contribution plan limit has increased from $56,000 to $57,000. See more

IRS Cracks Down on Abusive Syndicated Conservation Easements: The IRS has announced that it will significantly increase enforcement actions related to abusive syndicated conservation easements. According to the agency, coordinated examinations are being conducted. In addition, investigations have been initiated by the Criminal Investigation Division. These actions cover billions of dollars of potentially inflated deductions, as well as hundreds of partnerships and thousands... of investors. The IRS also is investigating promoters, appraisers, tax return preparers, and others involved in marketing abusive syndicated conservation easements. The agency reminds taxpayers that certain syndicated conservation easements are listed transactions and subject to substantial penalties. To avoid penalties, taxpayers should file an amended return that fully removes the improper contribution and related tax benefits. See more

Social Security Wage Base Increases for 2020: The Social Security Administration (SSA) has announced that the maximum earnings subject to the Social Security component of the FICA tax will increase from $132,900 to $137,700 for 2020. This means that for 2020, the maximum Social Security tax that employers and employees will each pay is $8,537.40 ($137,700 x 6.2%). A self-employed person with at least $137,700 in net self-employment earnings will pay $17,074.80 ($137,700 x 12.4%) for the Social Security part of the self-employment tax. The Medicare component remains 1.45% of all earnings, and individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly, $125,000 for married filing separately) will pay an additional 0.9% in Medicare taxes.

Section 179 of the Internal Revenue Code permits businesses to deduct the cost of personal property in one year. During 2017, the maximum amount that can be deducted under Section 179 is $500,000. Starting in 2018, the Section 179 maximum is increased to $1 million. The $1M amount is reduced by the amount by which the cost of property placed in service during the year exceeds $2.5M (but not below zero) . One significant limitation on Section 179 is that rental property owners... could not use it to deduct the cost of personal property used in residential rental units. The TCJA eliminates this restriction starting in 2018. Thus, starting in 2018, landlords may use Section 179 to deduct up to $1 million in personal property in rental units each year. For example, Section 179 may be used to deduct appliances and furniture in rental units. Section 179 may also be used to deduct improvements to non-residential building roofs; as well as HVAC, fire protection, alarm, and security systems added after the building was first placed in service. However, Section 179 may not be used to deduct the cost of such property in residential buildings. See more

IRS Warns Delinquent Taxpayers about Passport Revocation/Denial: The IRS warns taxpayers with seriously delinquent tax debts that they may be unable to obtain or renew a passport. A seriously delinquent tax debt is one that exceeds $52,000 and for which a notice of lien has been filed. To avoid delays in travel plans, taxpayers who receive Notice CP508C should take prompt action to resolve their tax issues. The IRS has clarified that, among other reasons, it will not certi...fy a taxpayer as owing a seriously delinquent tax debt if he or she (1) is in bankruptcy; (2) is a victim of tax-related identity theft; (3) has an account that is not collectible due to hardship; (4) is located in a federally declared disaster area; or (5) has a pending installment agreement or offer in compromise.

Rental real estate activities Under a new proposed safe harbor, a rental real estate enterprise would be treated as a trade or business for purposes of Sec. 199A if at least 250 hours of services are performed each tax year with respect to the enterprise. The IRS says this includes services performed by owners, employees, and independent contractors and time spent on maintenance, repairs, rent collection, payment of expenses, provision of services to tenants, and efforts to... rent the property. However, hours spent in the owner’s capacity as an investor, such as arranging financing, procuring property, reviewing financial statements or reports on operations, and traveling to and from the real estate will not be considered hours of service with respect to the enterprise. A rental real estate enterprise is defined, for purposes of the safe harbor, as an interest in real property held for the production of rents. A rental real estate enterprise may consist of multiple properties. The interest must be held directly or through a disregarded entity. Taxpayers either must treat each property held for the production of rents as a separate enterprise or must treat all similar properties held for the production of rents as a single enterprise. Commercial and residential real estate cannot be combined in the same enterprise. The proposed safe harbor would require that separate books and records be maintained for the rental real estate enterprise. Property leased under a triple net lease or used by the taxpayer (including an owner or beneficiary of a relevant passthrough entity) as a residence for any part of the year under Sec. 280A would not be eligible under the proposed safe harbor. See more

IRS Provides Section 199A Safe Harbor for Rental Real Estate: In a Notice that includes a proposed Revenue Procedure, the IRS has provided a safe harbor under which a rental real estate enterprise will be treated as a trade or business for purposes of the Qualified Business Income (QBI) deduction. To qualify for the safe harbor, (1) separate books and records must be maintained for each enterprise; (2) 250 or more hours of rental services must be performed; and (3) contempo...raneous records must be maintained. The safe harbor does not apply to real estate used by the taxpayer as a residence under IRC Sec. 280A or real estate rented under a triple net lease. An enterprise that fails safe harbor requirements may still qualify as a trade or business under the regulations. Taxpayers may rely on the safe harbor, which generally applies to tax years ending after 12/31/17, until the proposed Revenue Procedure is published in final form. See more

Update on government shutdown The IRS has released updated information for activities that will (or will not) be conducted during filing season if the government shutdown continues. Here are some of the key items of concern to tax practitioners. The IRS will: Continue activities to implement the Tax Cuts and Jobs Act; Process electronic and paper-filed returns (including amended returns);... Issue refunds; Respond to taxpayer tax season questions (there is no mention of practitioners, so we should probably assume the practitioner priority line will not be staffed); and Continue to send out automated notices. The IRS will not: Process transcript requests (though they will for disaster victims, and for existing POAs through e-services); Conduct any audit functions (unless the SOL is in danger of expiring); or Process new POA requests. See more