Section 278 of Subtitle B, COVID-related Tax Relief Act of 2020, clarifies that otherwise deductible expenses paid with proceeds of a PPP loan that is forgiven remain tax deductible.
the IRS clarifies that when a taxpayer satisfies all of the requirements (having qualified expenses during 2020) and expects to apply for forgiveness of the related PPP loan, those expenses aren't tax-deductible for 2020, even when the application for forgiveness isn't made until 2021.
Here are some of the most significant changes, with suggested year-end tax planning moves for 2020, assuming the proposals are enacted.
Most significantly, the final regulations are effective for required minimum distributions for tax years after 2021. Under the proposed regulations, the new rules would be effective for tax years after 2020.
Taxpayers located in California wildfire counties get tax return due date extension.
The requirement to reduce debt forgiveness for reductions of full-time equivalent employees or reductions in salaries or wages has been waived for these borrowers.
The SBA has issued PPP loan forgiveness guidelines for owner employees, home office expenses, subleased space and related party rent expenses
Normally distributions from IRAs that are required minimum distributions aren’t eligible to be rolled over. Required minimum distributions are amounts that are required to be distributed that are based on the life expectancy of the account owner once the account owner reaches age 70 ½ or usually based on the initial beneficiary’s life expectancy for an inherited IRA account.
As a relief measure, the CARES Act suspended required minimum distributions for 2020. The reason was the value of many IRAs had fallen and distributions would deplete the value of the account. The CARES Act was passed on March 27, 2020, so many IRA owners and beneficiaries had already taken distributions.
In addition to the prohibition from rolling over required minimum distributions, there are two other restriction blocking potential rollovers of the distributions. (1) Beneficiaries of inherited IRAs are prohibited from making rollovers and (2) Taxpayers are limited to one IRA rollover for a 12-month period.
The IRS provided additional relief from these requirements in Notice 2020-51. The IRS designates restoration of 2020 IRA required minimum distributions as “repayments.” As repayments, the restoration of the funds to an IRA is not a rollover. Since they are not rollovers, beneficiaries of inherited IRAs are permitted to make restorations and the limitation to one IRA rollover for a 12-month period doesn’t apply.
In order to qualify for this relief, a restoration must be completed by August 31, 2020.
If the deadline is missed, the only way to restore the funds will be as a rollover, subject to the once in a 12-month period limit and not available for inherited IRA accounts.
If you have a question about this matter, consult your tax advisor.
The U.S. Supreme Court has agreed to hear California v. Texas (U.S. Supreme Court Docket 19-840.) This case challenges the constitutionality of the Affordable Care Act, nicknamed Obamacare.
If the Supreme Court rules the Affordable Care Act to be unconstitutional, taxes and penalties enacted as part of the Act could be eliminated and taxpayers could apply for refunds of those taxes. These include an extra 0.9% Medicare tax and the 3.8% net investment income tax.
Consider sending a protective claim to the IRS by July 15, 2020 for the tax year 2016. Spidell Publishing has posted a suggested simple form for a claim. Here is a URL for the form. http://www.mmsend63.com/link.cfm?r=4MGaSk-8do9OSq5rWJozRA~~&pe=MLxUYHWRMJTah2hlVsRhufQV3c6p4SCiez5_l6NGi1-_VLwkya4_xaxcLOOmNGM5Qkg_z_cN4pc5N38k-Y3xTA~~&t=QIJYj7V5qtg-xGkCJ-dZlw~~
You might remember the Supreme Court previously upheld the Affordable Care Act as constitutional during 2012 in National Federation of Independent Businesses v. Sebelius, because the penalties enacted in that Act to enforce the Mandate that everyone have medical insurance were considered to be taxes and Congress has the power to levy taxes under the U.S. Constitution.
One of the provisions of the Tax Cuts and Jobs Act of 2017 was to change the penalty rate to zero.
The Fifth Circuit Court of Appeals ruled on December 18, 2019 that since the “tax” for the Mandate no longer applies, the Mandate is unconstitutional, and so is the Affordable Care Act.
California and other states are contesting the decision of the Fifth Circuit Circuit Court of Appeals.
This is a last-minute development. Personally, I question whether the U.S. Supreme Court would retroactively strike down the Affordable Care Act when they previously upheld it and the penalty “tax” applied before 2019. But I could be wrong. If you don’t file a protective claim and the U.S. Supreme Court rules Obamacare was unconstitutional during 2016, you won’t be able to recover the taxes for that year.
Tax return preparers are probably already occupied with finishing 2019 income tax returns and extensions for the July 15, 2020 deadline.
If you paid these taxes and can get through to your tax advisor, discuss this matter with her or him.
President Trump signed legislation (S.4116) on July 4, 2020 extending the application deadline for Paycheck Protection Program (PPP) loans from June 30, 2020 to August 8, 2020.
Paycheck Protection Program loans were enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act.)
Certain businesses can apply for up to $10 million. If certain requirements are met, the loan principal will be forgiven, tax free. At this time, expenses paid using the loan proceeds are not tax deductible.
At this time $130 billion of $660 billion allocated hasn’t been committed for loans, yet.
If you haven’t been approved for a PPP loan and would like to apply, see your banker.