The US Department of Labor (“DOL”) issued a notice that covered employers are required to share regarding the recently passed paid sick leave provisions. At present, the DOL is soliciting questions from employers and employees as the agency prepares to draft enabling regulations to address how to implement these paid-leave provisions. As shown by this solicitation for comments and questions, there are many open questions about how an employer is to respond to requests for coverage. Learn more here.
The Small Business Administration has relaxed requirements for small businesses whose operations have been disrupted by COVID-19. SBA Disaster Relief loans may be used to “…pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%.” Read more here.
COVID-19 is creating unprecedented business disruptions around the globe, and it is important to take this situation seriously. Acting with urgency is crucial, but having a plan of attack will mitigate confusion down the road. Click here to learn more.
In an attempt to mitigate the unfolding COVID-19 public health emergency, state and local governments have started issuing “lockdown” or “stay-at-home” orders. Generally, the state lockdown orders have directed that all businesses utilize telecommuting or work-from-home procedures to the maximum extent practicable. Where telework is impractical, some states are only permitting essential businesses to remain open. Companies with operations in these jurisdictions must understand the scope of applicable restrictions and whether their operations are essential and should continue during the lockdown. Learn more from attorney Michelle DiCintio.
OFP Shareholder Shiva Hamidinia provides a run-down to help businesses determine whether they are deemed essential as the country works to maintain social distancing protocols to help stem the spread of COVID-19. Click here to learn more.
As COVID-19 continues to stir economic uncertainty, businesses are concerned about possible defaults under their credit facilities and some businesses may want to consider how they are using credit vehicles to support ongoing operations. Click here to learn more.
Businesses and individuals now will have until July 15th to file and pay their Federal income taxes. This means that you have an additional three months to plan and prepare your returns without having incurring penalties on up to $1 million in tax owed. Businesses will have the same period to pay amounts due on up to $10 million in tax owed. Learn more from attorney Catherine Schott Murray.
On March 18, 2020, the Families First Coronavirus Response Act was signed into law and will become effective not later than 15 days later, April 2, 2020. There are some differences between what was ultimately passed and what was summarized in our early article from March 16, 2020. Learn more from attorney Marina Blickley.
Construction and many other contractors who cannot telework may be receiving stop-work orders or facing other unique challenges on their government contracts in the face of COVID-19. Impacts may be exacerbated for personnel working in the field who may not be receiving guidance from the government due to unavailability of their Contracting Officers (CO) or Contracting Officer Representatives (COR). Learn more from attorney Shiva Hamidinia.
The end of the year is always a busy time of the year particularly in estate and tax planning. 2019 was no exception as on December 20th, the Setting Every Community Up for Retirement Enhancement Act (“the SECURE Act”) was signed into law. The SECURE Act took effect on January 1, 2020 and makes significant changes to qualified individual retirement account (“IRA”) planning, including the elimination of the stretch IRA for inherited IRAs, among other changes. Treasury Regulations have not yet been issued, so some of the details in the SECURE Act are still unknown and the gaps are not yet filled.
Before summarizing the elimination of the stretch IRA provisions, a few of the other key changes under the SECURE Act included the following:
The age for required minimum distributions (“RMDs”) to be drawn from retirement accounts is increased from 70 ½ to 72 years old.
The prohibition of retirement contributions after reaching 70 ½ is repealed.
Penalty-free withdrawals of up to $5,000 from retirement accounts to cover the costs of childbirth or adoption are permitted.
529 college savings plans can be used to cover the costs of apprenticeships and up to $10,000 can be withdrawn to help repay qualified student loans.
The pre-Tax Cuts and Jobs Act rates for the ‘kiddie tax’ is reinstated meaning that excess income will be taxed at a parent’s rate and not the trust and estate rates.
As mentioned, the most significant change under the SECURE Act is the elimination of the ability to stretch an inherited IRA (or 401(k) or 403(b)) with certain exceptions. The default rule now is that inherited IRAs must be fully distributed by the end of the 10th year following the death of the account owner. For example, if an account owner dies in 2020, leaving his or her IRA to a named beneficiary (who is not one of the defined exceptions), all monies from that IRA must be distributed by the end of 2030. The prior rule allowed beneficiaries to use their life expectancy to determine any required payout.
There are a few exceptions to this new default rule. Individuals who are permitted to stretch the inherited retirement account over their lifetime include:
The surviving spouse of the account holder.
A child of the account holder who has not yet reached the age of majority (in most jurisdictions, age 18). However, once the child reaches the age of majority, the default rule of 10 years kicks in.
Disabled individuals (which does include special needs trusts for such disabled individuals).
A chronically ill individual.
An individual who is not more than 10 years younger than the account holder.
The result of the new default rule for those who do not fall into an exempt category is that there will be less tax-deferred growth in the retirement account and an increase in income taxes because the rate of withdrawal has been accelerated.
There are some strategies available, which will be explained in more detail in later articles, that could help mitigate the increased tax liability. Those strategies include:
Qualified charitable distribution (“QCD”) – For those charitably inclined, an individual who is more than 70 ½ could make a gift directly to a charity by way of a QCD from his or her IRA. Such gifts are limited to $100,000 per year.
Charitable Remainder Trusts (“CRTs”) – Again for those charitably inclined, using a CRT may be an option to provide an income to a beneficiary during a specified time with a charity or charities receiving the remainder once the time period has passed.
Roth conversions – Much discussion is being had about individuals reviewing whether converting their tax-deferred IRAs to Roth IRAs is appropriate, which would alleviate the concern that beneficiaries will receive a huge tax bill.
Life insurance – Individuals may want to consider withdrawals from an IRA to pay premiums on a life insurance policy that instead could be left to their designated beneficiary tax free.
These strategies are heavily dependent on the specific circumstances faced by each IRA account holder and should be reviewed carefully.
Lastly, for many who have had their estate planning prepared, that plan may be structured around a revocable living trust with the revocable living trust being designated as the beneficiary of the IRA. As a result, those beneficiary designations and the terms of the trust need to be revisited as unintended income tax consequences may result because of the new 10 year default payout rule.
As for next steps, if you haven’t reviewed your beneficiary designations and your estate plan recently, you should consult with your team of professional advisors who can help explore the options available to you based on your situation. #estateplanning #SECUREAct #taxplanning @bgnthebgn @OFPLAW
(h/t to my colleague,David A. Lawrence, Esq. who recently attended the Annual Virginia Tax Roundtable and provided the summary below.)
It’s time, once again, to share some of the tidbits that I gleaned from
the Annual Virginia Tax Roundtable. Each year, a small group of
Virginia tax lawyers convenes to meet with the Virginia Tax
Commissioner, his staff, and the Attorney General’s staff to talk about
what the Tax Department is thinking, the challenges that they are
facing, and ideas for improved tax administration in Virginia.
In addition to responding to changes ushered in by the 2017 Tax Act, Virginia taxpayers and tax preparers should take note of several new and existing factors that could complicate your tax filing efforts.
Identity Theft & Refund Fraud Continues at High Levels
rise in fraudulent refund filings remains a big issue for the Tax Department,
and the additional scrutiny required to identify those cases continue to slow
processing of Virginia tax returns. The
good news: the Department believes it is
catching more of these fraudulent filings before checks are issued; it denied
more than $32 million in fraudulent 2017 refunds just through October 21, 2018
of this year.
More Retirements & Staffing Challenges
State is continued to be challenged by the retirements of long experienced tax
examiners, and they are trying to hire new examiners as quickly as
possible. Particularly hard hit has been
compliance field audit personnel in Northern Virginia and Tidewater.
of audits, the Tax Department engaged an outside consultant to help it be more
proactive in its compliance and audit activities. It is considering expanding reviews of
Schedule A deductions and Schedule C deductions. Further, the agency has lots of federal
return data, as well as data from other federal programs. Now, according to the Commissioner, the state
just needs a better, more efficient way to use that data for compliance and
audits. Note that fewer appeals are
coming to the Tax Department, and the Tax Department particularly hates dealing
with tax appeals from local jurisdictions.
2017 Tax Act – A Great Revenue Windfall for Virginia
changes made by the federal 2017 Tax Legislation are projected to give a
windfall of additional tax revenue to Virginia from individual filers. The General Assembly loves the extra revenue,
as long as it is not blamed for raising taxes.
There may be some proposals this year in the General Assembly to
increase Virginia’s standard deduction, increase the personal exemption, and/or
permit Virginia itemizing for an individual even if that individual took the federal
standard deduction. There have not been
many inquiries from the Legislature to the Tax Commissioner on the business
side of the 2017 Tax Act. It is expected
that some type of federal conformity, with exceptions, will be in place by mid-February
2019 effective for 2018 and onward.
of the biggest windfalls for the State is the fact that if more individuals use
the federal standard deduction, they are currently required to use the Virginia
standard deduction, which is very low.
Furthermore, for those who do itemize, the repeal and limitation of
those itemizable deductions also produces more revenue for Virginia. Finally, the limitations on loss deductions,
net interest deductions, and NOL deductions produce additional revenue for
Virginia. On the other hand, Virginia
loses revenue with the increased Section 179 Expensing and the fact that more
“small” businesses will be able to use the cash method of accounting.
Registering with the SCC Triggers Virginia Tax Filings for Businesses
Department confirmed that if a non-Virginia corporation or entity registers
with the Virginia SCC as a foreign entity, it automatically must start filing
Virginia income tax returns, even if it has no income.
Department keeps pumping out lots of rulings on Virginia residents versus
non-residents for taxation purposes.
They are all fact specific, and make it difficult for former residents
to be treated as non-Virginia tax residents when they continue to maintain ties
to Virginia after they have left the state (particularly if they try to leave
the State just prior to the year in which a large sale transaction occurs).
A Brave New World in Collecting Sales Tax from Out of State Businesses – the Wayfair Decision
U.S. Supreme Court’s decision in Wayfair this past year effectively overturned
the requirement for “physical presence” in order for a state to subject nonresident
businesses to collect sales taxes for other states.
a result of the Court’s decision, if a business had a physical presence in a state,
then that state may still require that business to collect and pay sales tax on
sales made into that state. Additionally,
states that have statutes similar to the one at issue in Wayfair, where an out-of-state
business has numerous sales into a state (either in raw numbers of transactions
or in the amount of dollars), then that state may now require those out-of-state
sellers to collect and pay sales tax on sales made into that state.
has not acted yet to implement the Wayfair decision, but most other states have
acted with various thresholds. This
revenue raiser will likely be added to this coming General Assembly’s
legislative calendar. As an example of
taxable nexus, the Wayfair situation subjected a company to collect and pay
sales taxes to a state where the company had either at least $100k in sales or
at least 200 transactions in that State.
This will have a big impact on internet sellers, software sellers, and other “free shipping” product sales. A future question raised by the Wayfair case is whether states will try to use it to expand that ruling into the income tax and local tax area. The Supreme Court used old “income tax” nexus cases as part of its logic in support of the Wayfair decision. So expect more to come.
Currently there is a lot of focus on the Mega Millions that has a jackpot of $1.6 billion (and climbing) and many discussions are being had detailing what one would do if they won. Imagine the possibilities! Some of the considerations include making gifts and loans to friends and family members.
Although chances of winning are 1 in 302.5 million, if you do win and you are in a position to consider making gifts or loans to friends and family members, there are a few key points to remember to minimize any gift tax consequences. As highlighted in an earlier article, we each have the ability to gift during our lifetimes without incurring gift tax. The current exemption is $11.18 million per person above which a 40% flat tax is imposed. In order to utilize that exemption, a gift tax return is required.
Furthermore, each of us has the ability to gift up to $15,000 per person to an unlimited number of people each year. If you are married, a married couple can gift up to $30,000 per person each year. These annual gifts do not count against the lifetime exemption, and are therefore a separate method in which gifting can be made.
IRS regulations also permit you to pay the tuition expenses for a full-time or part-time student directly to the “qualifying educational organization” without having to claim an exemption from gift tax or incurring gift tax. Tuition expenses do not include books, supplies, dorm fees, board or other such expenses that are not direct tuition expenses.
In addition, you can pay for “qualifying medical expenses” that include expenses for diagnosis, cure, treatment, prevention as well as amounts paid for medical insurance. This exemption does not include any expenses that were reimbursed ultimately by medical insurance. Again, such expenses can be paid directly and you would not have to claim your lifetime exemption or incur gift tax.
And what about making loans to friends and family? Be sure that any loan you make is not deemed to be a gift. That is, the loan should impose interest at current fair market values. Applicable Federal Rates (AFR) for October range from 2.55% for short term loans (up to 3 years) to 2.99% for long term loans (over 9 years). Loans can be structured in myriad different ways.
Also, don’t forget about cash gifts to charity. The charitable deduction on your income tax returns was increased under last year’s tax reform act to 60% of your adjusted gross income for 2018, up from 50% of your AGI. The charities of your choice would also help facilitate a lifetime gift and/or planned gift depending your wishes.
So, while you are thinking about what you would do if you won a million dollars or more in the lottery, be sure to keep in mind a few gift or loan options that are available to you and good luck! #megamillions #winningthelottery #lottery #gifttax #estateplanning #taxplanning #planyourjourney
Welcome to the New Year! As with any new year, there are usually changes to a variety ofimportant numbersfor estate planning and elder law purposes. This year the applicable exclusion amount from Federal estate tax is set at $11.18 million per person thanks totax reform. The lifetime exclusion from gift tax is also $11.18 million per person and the exemption from generation skipping transfer tax is $11.18 million. The annual exclusion from gift tax will be at least $14,000.
For local jurisdictions that have estate tax, the District of Columbia increased its estate tax exemption from $1,000,000 to $2,000,000 last year and this year has increased the threshold further to match the Federal exemption. Maryland’s exemption from estate tax has increased to $4,000,000. Virginia continues to have no state level estate or inheritance tax.
In the elder law field, theMedicaidspousal impoverishment numbers were released increasing the minimum community spouse resource allowance (CSRA) to $24,720 and the maximum CSRA to $123,600. The maximum monthly maintenance needs allowance is now $3,090.00 while the minimum remains at $2,030.00. The minimum home equity limit is now $572,000 and the maximum is $858,000, but be aware that local jurisdictions may apply these limits differently.
If you have questions regarding the new limits and how they may impact your estate planning, your should consult your professional advisor. #estateplanning #taxplanning #elderlaw #taxreform #HappyNewYear @bgnthebgn
As the year draws to an end, many of you look to make your charitable donations or are advising individuals regarding their charitable donations. Of course, there are a variety of ways in which one can make such a charitable gift. The IRS recently published IR 2017-191, which is part of a series of articles providing taxpayers with relevant information so they can be ready for the next tax season. In this recent article, the IRS reminded taxpayers of certain aspects of charitable giving in an effort to help taxpayers avoid problems come tax time. I have summarized these helpful tips below.
For starters, individuals can only receive a tax deduction if the charity to which they donate is an ‘eligible organization.’ The IRS has a website,Select Check, that is a searchable online database of ‘eligible organizations’ that can be used to verify the status of an organization.
Next, charitable donations can only be deducted if the taxpayer itemizes their deductions. For some this can be a hassle because that means maintaining accurate records and receipts. If the gift is larger than $250 to the charity, then a written acknowledgement is required. The IRS has providedPublication 526on charitable contributions to help explain what records are necessary.
Additionally, if an individual is looking to donate tangible personal property like clothing or household items, those items have to be in ‘good used or better’ condition. Household goods include furniture, furnishings, electronics, appliances and linens. The taxpayer must obtain a detailed receipt in which the donated items are described for donations worth $250 or more. Items in which a deduction of more than $500 is claimed usually have to include a qualified appraisal.
Another factor to keep in mind is if the taxpayer receives any ‘benefit’ in the form of merchandise, meals, tickets or other items. The value of such ‘benefit’ will reduce the available deduction amount. For example, a contributor membership to the Kennedy Center is valued at $120, but only $80 of that amount is eligible to be deducted.
One alternative to keeping lots of records and receipts from every organization is the creation of a donor advised fund. An individual can make a single larger contribution to his or her donor advised fund and from that donor advised fund make specific charitable donations. There are a variety of terms and conditions to follow, but the single contribution means that is what is reported on one’s tax returns.Hereis just one person’s rationale behind the creation of a donor advised fund that also allowed her to get more involved with her community.
Ultimately, any gift is welcomed by the charity and you should feel free to reach out to the charity or your professional advisor if you have questions or need assistance in making year-end charitable donations. #GivingTuesday @CFNOVA @bgnthebgn #donoradvisedfunds #taxplanning #charitablegiving
The IRS recently announced the estate and gift exemption levels for 2018 and they continue to increase as per legislation passed in January 2013. The applicable exclusion amount from Federal estate tax will increase to $5.6 million per person allowing a married couple to shelter $11.2 million from Federal estate tax, the rate for which is currently set at 40%. The lifetime exemption from gift tax remains coupled with the exemption from Federal estate tax, and therefore, this exemption will also increase to $5.6 million per person. The annual gift exclusion amount will also increase for the first time since 2013 and will be $15,000 per person. Virginia continues to not impose a state level estate tax. Maryland’s exemption from estate tax will increase to $4 million while the District of Columbia’s now $2 million exemption will rise to meet the Federal exemption beginning in 2018 so long as there is a revenue surplus.
Additionally, in the last article, the fate of the proposed valuation discounting regulations was still up in the air. However, Treasury issued a second report to the President in which those regulations were withdrawn. Therefore, the availability of valuation discounting on certain transfers of interests held in closely held or family owned businesses remains available and is currently no longer under threat.
For seniors and those with disabilities, a cost-of-living adjustment (COLA) for Social Security and Social Security Income (“SSI”) will increase monthly benefits by 2.0%. In addition, the cap on the amount of earnings subject to payroll tax will increase to $128,700. Finally, the tax brackets, standard deductions, Pease and PEP limitations, kiddie tax and other credit and deduction levels for 2018 were announced. Many are watching the tax reform debate to see if any of these numbers will change, so stay tuned… #taxreform #estateplanning #estatetax #taxplanning #taxtime #COLA2018 @bgnthebgn
A year ago Treasury proposed new regulations to Section 2704 of the Internal Revenue Code that would significantly reduce or eliminate the ability to use valuation discounting in certain transactions where business interests are transferred. The proposed regulations would mean that the parties to those types of transactions could incur estate or gift tax. Towards the end of last year, a public hearing on the regulations was held in which many expressed concerns about how these proposed regulations would impact small businesses and the like. However, at the time the future of the regulations was unknown given the change of administration,
Earlier this year, the President issued Executive Order 13789 in which the President instructed Treasury to review all “significant tax regulations” and identify those regulations that (a) impose an undue financial burden, (b) add undue complexity to our tax laws, and (c) exceed statutory authority of the IRS. Treasury issued Notice 2017-38 in which the proposed regulations to Section 2704 were identified as meeting these criteria. A comment period followed the issuance of the Order and has now closed. During the comment period, a study was submitted by The S Corporation Association that showed the detrimental impact of such regulations should they be finalized. A final report is due to the President within the next month that is to suggest possible reforms to the identified regulations ranging from modification to the regulations to a full appeal. Until the future is certain, valuation discounting remains available. #valuationdiscounts #2704regulations #businessvaluations #estateplanning #businessplanning @bgnthebgn
Earlier this month the IRS issued IR-2017-16 to provide taxpayers with information regarding refunds. In particular, the IRS was interested in debunking a few myths that may be circulating out on the internet about refunds. First, the IRS has indicated that the statement “all refunds are delayed” is false. More than 90% of refunds are issued within the normal timeframe, which is less than 21 days. However, some refunds may be delayed including for those taxpayers claiming the earned income tax credit (EITC) or the additional child tax credit (ACTC). Delays for refunds on those returns are until mid-February. Other refunds may be held because of increased security to reduce and prevent identity theft and refund fraud.
Second, the IRS has indicated that either calling the IRS or the individual’s tax advisor is not the best way to determine the status of a refund. Instead, taxpayers should go online to “Where’s My Refund?” or use the IRS2Go mobile app. The IRS will update the status of refunds once a day, which is typically done overnight.
Next, the IRS stated that ordering a tax transcript will not help taxpayers determine the statue of a refund. The tax transcript may not contain any relevant information as to the amount or timing of a refund. Additionally, the IRS reminded taxpayers who have claimed either EITC or ACTC that the projected deposit dates will not be available under after February 15th. So, even if a taxpayer claiming those credits checks online for the status of his or her refund, no information will be available until later in February. The IRS published “What to Expect for Refunds in 2017” for additional information.
Finally, for those claiming either EITC or ACTC, the entire refund, not just the portion associated with the credits, will be delayed until after February 15th as dictated by law. Again, the IRS directs taxpayers online to “Where’s My Refund?” or the IRS2Go mobile app for status updates on a refund. #taxseasonishere #taxplanning #whereismyrefund @bgnthebgn