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The Effects of the CARES Act

How the New Tax Law, CARES, Impacts Individuals

IRS and Congress have given individuals a number of ways to build up their cash reserves and/or pay less in taxes. Here are a few opportunities for taxpayers.

Stimulus checks from the IRS

Many of you received stimulus checks in the last month as a result of new laws designed to help you weather the economic downturn.  These Economic Impact Payments are not treated as income and you will not owe taxes on your payment. 

If you were eligible for a larger payment than what was received, the IRS will provide an opportunity on your 2020 return (filed in 2021) to make an adjustment to get any additional money you were due.  Conversely, if the IRS finds that someone received a larger payment than what they should have, the taxpayer will not be required to pay it back.

Dipping into retirement

Taxpayers have the ability to withdraw up to $100,000 from retirement accounts without paying the 10 percent penalty if the distribution is COVID-19 related (you need it to care for spouse and dependents or you experience adverse effects of quarantine/not allowed to work) from January 1, 2020 through December 31, 2020.  Income is included over a three-year period, unless the taxpayer elects otherwise.  If the amount is repaid, it is treated as a trustee-to-trustee rollover. 

Not dipping into retirement

Required Minimum Distributions (RMDs) for retirement accounts have been suspended.  If you are normally required to take a minimum distribution from your retirement account, you can skip it during the 2020 year. 

IRS payments for back taxes

If you are on a payment plan with the IRS for back taxes, you can suspend payments between April 1st and July 15th.  Interest on the amount due will continue to accrue.

Tax payments for 2020 taxes

Payment due dates for Q1 (normally due on 4/15) and Q2 (normally due on 6/15) estimated tax payments have been adjusted to July 15, 2020.

Deadlines

Since retirement contributions are tied to the tax return due date, the deadline for making a contribution to your IRA for 2019 has also been extended to July 15, 2020.

HSA and Archer MSA contributions for 2019 must be made no later than July 15, 2020.

Student loans

Federal student loan payments are suspended through September 30, 2020 and will not accrue interest during this time period.

Employers can offer to pay an employee’s student loans and other educational assistance up to $5250 without the benefit being taxable to the employee. 

Charitable contributions

Charitable contribution deductions will be reported differently on the 2020 tax return.  In the past, a taxpayer would have to itemize their deductions in order to get a tax break from making a charitable contribution.  For 2020, you can deduct up to $300 in cash donations without having to itemize your deductions.  Additionally, the maximum limit of how much a taxpayer can deduct has been eliminated.

For more information, please contact the team at P.T. Anderson Accounting.

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Is it Time to Upgrade Your Accounting System?

Calculating Machine, Calculator, Computer, Old, Defect

5 Signs You Need to Upgrade Your Accounting System

To maximize profits in your business, all of your business functions need to run smoothly, including your accounting department. Your accounting system is at the core of your accounting function. If it is old or lacks the features you need, your business may suffer.  Here are five warning signs you can look for to determine if it’s time to upgrade or replace your current accounting system with something more cost-effective. 

  1. Not enough users

If your current system limits the number of users you can have in the system at any one time, this could be a major enough reason in itself to switch to a larger option. Luckily, most accounting software companies include an accountant user for free, so at least this type of user doesn’t have to count toward your total requirements. 

If you’re not sure how many users you currently have a license for, we can help you check on that. It might be as easy as buying more licenses if you’re not at the maximum capacity.  But if you are at maximum, it may be time to look for a better accounting system with room for you and your business to grow. 

  1. Outdated

 If your accounting system runs on desktop-based software that’s upgraded every year and you have not paid for or installed the upgrades, then your system is outdated.  If it’s been sunsetted, that means the software vendor no longer supports the software. You are at major risk for the software crashing, getting buggy, getting hacked, or worse, permanently breaking. 

The cost of getting the system current may be better spent looking for a new alternative, or moving to a cloud-based system where updates occur automatically. 

  1. Lack of functionality or scale

It is commonly the case that your business has grown so much that it’s outgrown your original accounting solution. That’s good news!  It’s time to find a solution that will scale better for your business. 

You might be missing important features that are costing you more time and money than if you were on a system that offered those features. Common time-wasting activities in accounting include too much time spent on data entry and/or Excel spreadsheets to make up for what the accounting system can’t do.

  1. Lack of reporting and analytics

If you’re unable to receive the reports and analytics you want to run your business better from your current accounting system, it may be time to switch. With better data comes better decision-making and if lack of data is costing you money, then it’s time to find a more robust system.

  1. Lack of integrations

Thousands of apps exist to expand accounting systems’ core functionality. If your current accounting system lacks integration capabilities or does not have apps that are built to integrate with it, you may be missing out on additional functionality.  This include mobile apps; it’s quite common now to do much of your accounting work from your mobile phone.  Does your current accounting system have any of these red flags?  Contact P.T. Anderson Accounting so we can help you find a best fit for your accounting needs.

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Special Edition: New Tax Deadline for 2020

When is income tax filing deadline for 2020? | Paul Pahoresky ...

New Tax Deadline Is Official — July 15, 2020

Both the IRS and Treasury have announced that the deadline to file AND pay your individual federal income tax for the tax year of 2019 has been extended to July 15, 2020. 

Many states have extended their deadlines as well; please check with us to determine the deadline applicable to you if you live in a state that requires state income tax filing and payment.

If you cannot file your return by July 15, 2020, we can help you file an extension until October 15, 2020. The payment is still due by July 15, however. 

If you are due a refund, we encourage you to file as soon as possible so you can get that cash influx as early as possible.

For a while last week, we relied on a tweet from Treasury to document this news. But news releases were posted over the weekend to both the IRS site: https://www.irs.gov/newsroom/tax-day-now-july-15-treasury-irs-extend-filing-deadline-and-federal-tax-payments-regardless-of-amount-owed and Treasury: https://home.treasury.gov/news/press-releases/sm953 documenting the changes in deadlines.

There’s a lot to worry about right now. If one of the things you’re worried about is your taxes, let us take that worry off your plate so you can focus on other things. P.T. Anderson Accounting is here to provide assistance and guidance for you.

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Special Edition: Communicating With Your Clients Amid COVID-19

Building Resilience into Your Small Business

If you currently own or manage a small business, you’ve probably experienced an extremely high demand or you’re preparing for the worst – to be shuttered by law for a few weeks or longer. 

In either case, your business needs a whopping dose of resilience right now. Here are four steps to safeguard your business and discover where you need to build resiliency. 

1 – Protect Your Employees

The most important thing to do is to protect your employees.  OSHA demands that we give them a safe working environment, and the definition of this just changed! If possible, make it mandatory for workers to work at home, and if not, get your workers protective gear and make sure your workplace is cleaned constantly. 

There are brand new laws regarding sick leave; you will need to learn them and incorporate them into your policies.

If possible, try to continue paying your workers for as long as it’s safe for your business. 

If you need to lay off workers, encourage them to pursue opportunities where demand has surged. As of this writing, Walmart is hiring 150,000 workers and Amazon is hiring 100,000 workers. Educate them to go where the demand is. 

2 – Execute Your Business Continuity Plan

If you’re saying “What’s a business continuity plan?” right now, you’re not alone.  Most small businesses don’t have one. If you have any kind of disaster plan in place, brush off the cobwebs and start from it. 

A business continuity plan helps you create a process that you can follow before and after your company experiences a disaster of any kind. Many businesses have plans to recover from weather-related catastrophes, fire, and theft. These plans can be adapted to our new situation.

A business continuity plan can have many parts. For our current situation, cash flow planning can be an important first step. You can use multiple scenarios, for example, revenue levels, to determine how much cash you might need for the next few months. 

You may need to evaluate inventory, supply chain, project backlogs, staffing, cash, and other areas of your business to project how things will change from normal operations. You will need to protect your various business functions – HR, IT, accounting, operations, and administration – during this time. 

Once you’ve drilled down to the tactics of how you’ll move forward, you’re ready for the next step.

3 — Communicate to Your Stakeholders

Are you open? Closed? Changed hours of business? Changed the way you greet clients? Changed your services? Added delivery services?  Customers and prospects need to know, so post a notice on your website letting them know what your business’s situation is. 

If you don’t, you’ll confuse your current customers and miss out on new business.  Everyone is wondering what’s open and what’s not right now. And if you’re open, they’re wondering how you’ve changed your cleaning methods and other procedures to keep them safe. 

You may also need to reach out to your suppliers to keep them informed of your plans. 

4 – Think About Recovery

What will recovery look like when it comes?  The good news about our current situation is that we have more time to plan than we would if a fire or weather brought things down suddenly.  We also will not have a disruption in electricity, water, or the local supply chain in as severe an impact compared to a weather event. 

What we may not have in this case is customers (or we’ll have too many of them). When customers finally start coming back, what will look different in our world?  Will we need to operate differently?  How will our services change?

In both the continuity plan and the recovery plan, we truly need to be innovative thinkers. We may need to evolve our business model to be something else that people want once we reopen.

Your Business Continuity Plan

If you need help building your resiliency, or even just projecting your cash flow for the next few months, please reach out to the team at P.T. Anderson Accounting to find out more and let us help. 

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What You Need to Know About the SECURE Act

Inherited IRAs and the SECURE Act of 2019

At the end of 2019, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) was signed into law, modifying RMD (required minimum distribution) rules for inherited IRAs and retirement accounts. 

Under the SECURE Act, inherited IRAs and retirement accounts must be distributed and taxed within 10 years of the original owner’s death.  Prior to the SECURE Act, inherited IRAs were frequently referred to as “stretch” IRAs, as they allowed non-spouse beneficiaries to take relatively small distributions over the course of the beneficiary’s life.  The benefit to this was the ability to keep the bulk of the investment in a tax deferred or tax free (Roth IRA) environment. 

By capping the lifespan of the inherited IRA at 10 years, the IRA beneficiary’s ability to grow the account over decades in either a tax-free or tax-deferred environment has been significantly impacted.  Additionally, the new rules put a burden on beneficiaries in the form of tax acceleration by greatly increasing a beneficiary’s taxable income–especially in situations where the beneficiary has income of their own—resulting in a higher tax rate. 

Exceptions to the SECURE Act

  • The 10-year period does not apply to surviving spouses—they can treat the inherited IRA as if it were their own
  • Disabled beneficiaries are exempt from the 10-year period
  • Non-spouse heirs (example:  unmarried partner, sibling) who are less than 10 years younger than the original IRA owner can treat the inherited IRA as if it were their own
  • Minor children, while still a minor, are exempt from the 10-year timespan.  However, as soon as they become adults (age of adulthood is determined by the state in which they live) the 10-year period begins and they must fully distribute the IRA within that timeframe

Positive Changes

  • The SECURE Act increases the age at which a taxpayer must begin taking required minimum distributions from age 70 ½ to 72.  This allows taxpayers to continue their retirement savings for a longer period of time

Under old tax law, a taxpayer could make IRA contributions until they reached age 70 ½.  This has been modified by SECURE Act; now, workers of any age can contribute to a retirement account.  This change will make it easier for seniors to make contributions and back-door Roth IRA contributions.

If you need help minimizing your taxes on your retirement income, it’s best to make a plan and create projections based on your desired distributions. Contact P.T. Anderson Accounting to set up your tax planning session.