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April 2020

Tax Deadline Extension FAQ’s

As I am sure you know by now, the 2019 tax deadline has been extended to July 15, 2020. We here at Tax Credit Group get a lot of questions about what that means for our clients and their taxes. So now seems like a great time to pull some of those answers together and put them in the same place.

Does that mean I cannot file my taxes before July 15, 2020?

Absolutely not. Just like all tax deadlines, the IRS will not penalize you for filing your taxes early. The extension means that the IRS is giving you until July 15, 2020, to file and pay your taxes without penalty.

What about my state taxes?

Most states have extended their tax deadlines to July 15, 2020, to match the federal deadline, however, a small handful of states have alternate deadlines. Here’s a list according to AICPA:

Hawaii July 20
Idaho June 15
Iowa July 31
Mississippi May 15
New Hampshire June 15
Virginia May 1 to file, June 1 to pay

 

What if I am owed a refund?

If the federal government owes you money, then filing early is not a problem. The IRS will process your refund based upon when you file, not upon the July 15, 2020 deadline. Therefore, if you are owed money, it’s in your best interest to file early and get a refund now.

What about the deadline to contribute to my IRA?

According to the IRS, the deadline to contribute to your IRA retirement account was also extended with the tax filing deadline extension. That means you have until July 15, 2020, to make contributions to your IRA and have them count against your 2019 taxes.

What about the deadline to contribute to my Health Savings Account (HSA)?

The same goes for the HSA.

What about tax estimates for next year?

If you are one of those people that owe taxes every year and pay estimates to off-set what you owe, then you need to be aware of the new deadlines for 2020 tax estimates. According to the IRS, “…first quarter 2020 estimated income tax payments due April 15, 2020, and second quarter 2020 estimated income tax payments due June 15, 2020, have both been postponed to July 15, 2020.  Make a single payment in an amount sufficient to cover both your first and second quarter estimated tax payments on or before July 15, 2020.”

The tax deadline was extended to help alleviate some of the pressure taxpayers were feeling because of the novel coronavirus and the business shutdowns that followed. If you have other questions or concerns, you can find more answers to your questions on the IRS website. And if you still need help, you can always contact us here at Tax Credit Group.

Alternatives to Employee Layoffs

Businesses around the world are hurting right now and many business owners are struggling with the dilemma of whether to layoff employees now or try to ride things out with the hope that they’ll get better. It’s an unenviable decision. For most employers, these people are like a second family and it’s not easy to let go of them. Which is why you sometimes need to think outside the box to get things done.

None of the solutions below are ideal, but if you’re looking for an alternative to layoffs, one of them might be your best option.

Freeze hiring, raises, and bonuses

If you have not already, make sure that you halt all payroll increases. That means freezing all hiring and raises and cutting out bonuses. You’re trying to maintain or decrease the amount you spend each week on payroll, not increase it.

Cut part-time staff and contractors

One way to make cuts to payroll without losing core team members is to eliminate part-time staff and contractors. Cutting hours or letting go of either can help lower your payroll. Just remember that these staff members and contractors may not be available again if you want to hire them back in the future.

Create a virtual office

For some businesses, the physical location is closed, and employees are working from home. If this is your situation, consider whether it’s working and working well. Can your business successfully operate in the long-term with a virtual office and online meetings? If the answer is yes, then you might be able to cut rent out of your expenses and funnel that rent into other expenses like payroll.

Pay cuts

Pay cuts are a way to lower your payroll while still keeping part or all of your staff. However, pay cuts may foster dissatisfaction among your employees, especially if those cuts remain in place well after the business recovers.

Your ability to issue pay cuts to full-time employees will depend on the employment laws within your state as well as the contract you have in place with that employee. Be sure to contact your human resources specialist before you issue something like pay cuts across the board.

Furloughs

Similar to pay cuts, furloughs are also something you’ll need to contact your human resources specialist about before you institute them.

Furloughs are kind of like a temporary layoff. You’re giving an employee unpaid leave for an undetermined amount of time, but you’re planning on reinstating their pay when things get better. According to SHRM, the benefit of furloughs over layoffs is, “employers do not have to pay for recruiting, selecting, socializing and training new employees because the furloughed workers can pick up where they left off.”

What if I have to layoff employees?

If there’s no way around it and you have to layoff your employees, then there are ways to make it easier on the employee.

  • Be polite and empathetic. Make sure you state upfront that this has to do with the health of the business and that the employee did nothing wrong. Offer to be a reference for the employee during his or her future job search.
  • Have a list of resources available for them including where to apply for unemployment and other services.

These are difficult times and if you have a good relationship with your employees, they will understand that you’re trying to do your best by them.

Note: The above are options that you should explore, but please remember that they are general insights and not advice for your specific company. If you’re looking for advice that would directly relate to your business, please feel free to contact us here at Tax Credit Group or contact your financial adviser.

The Employee Retention Credit in the CARES Act

With shutdowns across the country, America has entered unchartered waters, and everyone is trying to figure out what it means for them. Lawmakers are doing what they can to help, but what ends up coming out of Washington, DC are massive pieces of legislation that cover millions of people but are difficult to understand.

The latest legislation, the Coronavirus Aid, Relief and Economic Security Act (CARES Act), is huge. 335 pages to be exact. It’s aimed at helping almost every American that’s suffering because of the COVID-19 outbreak and that means there’s a lot to dig in to. For a small business, it’s tough to know what’s for you and what’s not.

What should small business owners look at in the CARES Act?

If you’re a small business owner that’s struggling to do right by your employees whether the doors remain open or not, then the Employee Retention Credit within the CARES Act is what you want to be focusing on first.

As the IRS website states, the credit “…is designed to encourage Eligible Employers to keep employees on their payroll, despite experiencing economic hardship related to COVID-19…” In other words, don’t fire them, the IRS will try to help you keep them.

What do I need to know about the Employee Retention Credit?

There are three keys to the Employee Retention Credit:

  • The credit is 50 percent of the qualified wages and that includes qualified health plan expenses.
  • It applies to qualified wages paid after March 12, 2020, and before January 1, 2021.
  • The maximum amount you can claim for each employee is $10,000 which means $5,000 in credit.

How do you know if your business is eligible for the Employee Retention Credit?

To be an eligible employer, you need to conduct business in 2020 and face one of two hardships.

One, you’re forced to fully or partially suspend your business operations because a government authority told you to. That means the mayor of your city or your state’s governor issued a stay at home order that affected your business.

Or two, you see a significant decline in gross receipts during a calendar quarter. The decline must be 50% or greater to be considered significant. So, if the gross receipts from Q1, Q2, and Q3 of 2019 significantly better than those in Q1, Q2, and Q3 of 2020 then you would be considered an eligible business.

The self-employed are not eligible for this credit.

What else should I know about the Employee Retention Credit?

The cool thing about the Employee Retention Credit is that it’s a tax credit, which means it’s fully refundable. A fully refundable credit is awesome because it means if your credit exceeds the amount that you owe in taxes, then you get that money back.

The credit is applied to the employer owed portion of social security taxes, in other words, the social security taxes that are paid by the employer on behalf of the employees.

The federal government has worked out a system of allowing employers to divert funds currently owed to the federal government in taxes to employee wages. But doing that is a lot more complex than it sounds. If you need to use taxes you currently owe to pay your employees, I suggest that you talk to your tax adviser or contact us here at Tax Credit Group before you start. There may be some ins and outs of the system that you may not understand, and it would be good to talk them through with someone who does understand.

Tax Credit Group has tried to follow all of the things happening on Capitol Hill during this crisis and we’ve tried to share with you as much as we can. If you’re looking for details on the other small business help that’s coming out of Congress, then take a look at the blog post we did on the Families First Coronavirus Act in March.

We also gathered together some of the key federal sites to look at for COVID-19 updates as they come out of Congress. You can find that here.

And if you’re one of the lucky businesses that are growing during this time and looking to hire new employees, I strongly urge you to consider hiring people that qualify for the Work Opportunity Tax Credit. It’s a credit that a lot of employers are missing out on because they simply don’t know about it.

Why the Work Opportunity Tax Credit (WOTC) Could be the Relief Your Business Needs

While most businesses across the country have come to a grinding halt as “stay at home” orders are put into place, there are some essential businesses that are desperate for employees. Grocery stores, delivery businesses and the like are searching for employees and can’t seem to find enough to fill the need.

If you’re one of them, now is the best time to take a look at the Work Opportunity Tax Credit (WOTC). It could open up a whole new pool of potential employees to your business.

What is the Work Opportunity Tax Credit (WOTC)?

As we’ve talked about in previous posts, the Work Opportunity Tax Credit (WOTC) is a credit that’s given to employers who hire employees from certain groups. Groups like veterans, ex-felons, the long-term unemployed and people on food stamps.

One of the best things to know about the WOTC is that it is unlimited. Whether you hire ten workers or one hundred that fall into these specific groups, you’re allowed to take a tax credit for the first year of that person’s employment as long as that person meets the IRS requirements. You can find out more about those exact requirements here.

For people not so savvy about taxes, that’s even better than a tax deduction. A tax credit is a dollar for dollar match. In simple math terms, if you owe $10,000 in taxes and you have $10,000 worth of tax credits, you’re net zero in what you owe.

Why is the WOTC even more beneficial now?

It’s crazy to think, but the WOTC may be even more beneficial to businesses now than it was at the start of 2020. That’s because there are some very interesting things happening on Capitol Hill and it could mean double the benefits for employers.

While the actual wording from the IRS is still being worked out, the WOTC may be able to work in conjunction with the Employee Retention Credit under the CARES Act. The CAREs Act is the $2 trillion bill that was signed into law by the President on March 27, 2020. If the employer can claim both the WOTC and the Employee Retention Credit at the same time, that employer would have multiple tax credits for the same employee.

It’s something we’re keeping a close eye on here at Tax Credit Group.

Why should I hire WOTC employees?

Which leads to the question that many employers ask: if it’s so great, why aren’t more companies taking advantage of the WOTC?

The answer is they don’t know about it.

Major corporations like Boeing and Lockheed Martin are taking advantage of the WOTC. They are two of the leading employers of military veterans (CNBC) and also employ many people with disabilities (Monster.com). Companies like these are making the most of the tax credits because they employ people who understand the intricacies of taxes and tax credits.

It’s the smaller businesses that miss out on tax credits and they shouldn’t be because they need the savings more. Businesses like these need a company like us to help them see the tax credits they’re missing, including the WOTC.

Aside from the tax credit, what’s the benefit of hiring WOTC employees?

Tax credit aside, WOTC employees bring with them other benefits.

We’ve written about the benefits of hiring ex-felons and military veterans in the past. Those are two good reference articles as you look to hire from these key groups. If you’re an employer that’s simply trying to figure out how a role in the military would translate into something beneficial to your company, check out our post on translating military service to the civilian job market.

Conclusion

We here at Tax Credit Group understand that the novel coronavirus has brought about new and frightening situations for small businesses. For some, it means explosive growth as an essential business. For others, it means shutdown and uncertainty.

In both cases, there are bills at the federal and state levels that are designed to help. We’ve created a couple of resources for you as your business moves forward including how to prepare your business for the possibility of coronavirus. There’s also a post that gathers all the key resources for small businesses in one place.

Tax Credit Group is monitoring everything that’s happening at the federal level very closely. As of April 1, 2020, the Families First Coronavirus Response Act and CAREs Act are both up and operating. Reach out to us and we’d be happy to look at what that means for your business. We’ll also look for any state and local help that may be available to you.

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