Retain IRS Letters Received in January

January 3, 2022 by David Moseman

ADVISORY – Retain IRS Letters Received in January

In January 2022, the Internal Revenue Service (IRS) will be sending out two letters to taxpayers:

Letter 6419 – Advance Child Tax Credit Payments– This letter will contain the total amount of advance Child Tax Credit payments taxpayers received in 2021. You should keep this and any other IRS letters about advance Child Tax Credit payments with your tax records.
Letter 6475 – Economic Impact (Stimulus) Payment– This letter will contain the total amount of the third Economic Impact Payment and any Plus-Up Payments received. You should keep this and any other IRS letters about your stimulus payments with your tax records.

It is important that you retain these letters and provide them to your tax professional in order for them to obtain the correct economic impact payment and advance child tax credit payment dollar amounts needed to prepare your tax returns. Entering incorrect advance child tax credit or economic impact payment amounts will cause delays in processing your tax returns and issuing refunds.

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.

SBA Clarifies COVID-19 EIDL Application Deadlines

November 28, 2021 by David Moseman

On Friday, November 19, 2021, the U.S. Small Business Administration (SBA) released updated guidance regarding applications for loans, advances, and appeal requests with the COVID-19 Economic Injury Disaster Loans (EIDL) program.

While the December 31 deadline remains in place, the SBA strongly recommends that businesses seeking a Supplemental Targeted Advance submit their application no later than December 10, 2021. The agency cannot continue to process Supplemental Targeted Advance applications after December 31, which means that applications received close to that date might not complete the review process in time.

In contrast, EIDL and Targeted EIDL Advance applications received by December 31 will continue to be processed after that date until all funds are exhausted. The SBA will accept and review reconsideration and appeal requests received on or before December 31, provided that the reconsideration or appeal is received within six months from the date of decline for reconsiderations and 30 days from the date of reconsideration decline for appeals — provided funding is still available. The COVID-19 EIDL programs are designed to provide funding access to small businesses hurt economically during the COVID-19 pandemic:

COVID-19 EIDL loans have a 30-year term with fixed interest rates of 3.75% for small businesses, including sole proprietors and independent contractors, and 2.75% for not-for-profits. Loan payments are deferred for the first two years, though interest will accrue. Payments on interest and principal will then take place over the final 28 years of the loan. Loan proceeds can be used for any normal operating expenses and working capital, including payroll, purchasing equipment, and paying debt.
A Targeted EIDL Advance of up to $10,000 is available to businesses that are located in low-income communities, have 300 or fewer employees, and suffered a revenue loss of more than 30% due to COVID-19.
A Supplemental Targeted Advance is available to Targeted EIDL Advance recipients that have 10 or fewer employees and saw revenues drop at least 50% due to COVID-19. The cap on the advance is $5,000, meaning that businesses face a total cap of $15,000 if they receive both types of advance grants. Neither of the advance grants needs to be repaid.

The guidance issued by the SBA comes shortly after the agency announced major modifications to the EIDL program designed to make the money more accessible to more businesses. The most significant change was raising the cap on EIDL loans from $500,000 to $2 million.

The Eternal Question: Roth IRA or Traditional IRA?

November 14, 2021 by David Moseman

Creating a tax-favored savings account is an important part of saving for retirement. The individual retirement account is a popular choice. But IRAs come in two basic flavors: regular and Roth. What are the differences, and which is right for you?

Contributions

The contributions to both traditional IRAs and Roth IRAs are capped at an amount set by the IRS. These limits change annually. Additional rules depend on the type of account:

In a traditional IRA, contributions are made before taxes are paid. Investments grow tax-free and are not taxed until funds are withdrawn. This makes a traditional IRA a good choice for taxpayers who believe their marginal tax rate during retirement will be lower than it has been during their working years.
In a Roth IRA, contributions are made after taxes are paid. Investments grow tax-free and are not subject to any further taxes when they are withdrawn. In effect, taxes on the funds in a Roth IRA are prepaid. However, contributions must come from earned income. Income from rentals, interest, pensions or annuities, stock dividends, or capital gains are not permitted.
In a “backdoor Roth IRA,” the income limits on Roth IRAs are avoided. High-income earners sometimes take advantage of a loophole by opening a traditional IRA and later rolling it over to a Roth IRA. This complex option may be eliminated in future tax legislation.

Withdrawals

Traditional IRA: Mandatory withdrawals must start by April 1 of the year after you turn 72. The amounts of these mandatory withdrawals, called required minimum distributions, are taxed when they are withdrawn. The RMD amount is calculated by dividing the value of the IRA by a life expectancy factor determined by the IRS.
Roth IRA: Because contributions are made with after-tax dollars, withdrawals from a Roth IRA are not taxed. In addition, there is no set age for starting to make withdrawals.

Early distributions

Traditional IRA: Account holders can begin taking money out of the account at the age of 59 1/2. With certain specified exceptions, funds removed before full retirement eligibility incur a 10% penalty on the amount withdrawn and are taxed at standard rates.
Roth IRA: Because you’ve already paid taxes on your Roth IRA contributions, you can withdraw that money at any time without incurring taxes or penalties. However, you are still subject to a 10% penalty for early withdrawals on earnings in the account.

Diversification

Some taxpayers opt to fund both types of IRAs. Taxpayers who engage in this practice believe they will benefit from having some money in a traditional account in case tax rates go down and having some money in a Roth IRA in case tax rates go up. Anyone thinking about diversifying their retirement savings in this way should carefully examine exactly what their actual benefits will be.

Other options

This article focuses on traditional and Roth IRAs, but other retirement savings vehicles are available, including 401(k) plans, Roth 401(k) plans and Simplified Employee Pension IRAs. Also, there may be other provisions or exceptions applicable to you. The bottom line? Get professional advice before making decisions about retirement savings.

Hurricane Ida Victims Get Tax Relief

November 7, 2021 by David Moseman

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual or public assistance. Currently, this includes the entire state of Louisiana and taxpayers in other Ida-impacted localities designated by FEMA. These other localities in neighboring states will automatically receive this relief.

Please refer to the current list of eligible localities reported on the IRS disaster relief page.

This tax relief postpones various filing and payment deadlines that occurred starting on August 26th. Individuals and businesses will have until January 3rd to file returns and pay taxes originally due during this period. Those who had a valid extension to file their 2020 return by October 15th now have until January 3rd.

However, because tax payments related to these 2020 returns were due on May 17, 2021, those payments are ineligible for relief.

The January deadline also applies to quarterly estimated income tax payments due on September 15th and the quarterly payroll and excise tax returns normally due on November 1st. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on November 15th.

Businesses with valid extensions to file also have the additional time including, among others, calendar-year corporations whose 2020 extensions expire on October 15th.

Penalties on payroll and excise tax deposits due on or after August 26th and before September 10th will be abated if the deposits are made by September 10th.

The IRS will automatically provide filing and penalty relief to any taxpayer with an IRS address of record in the disaster area. If an affected taxpayer receives a late-filing or late-payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

Taxpayers qualifying for relief who live outside the disaster area should call the IRS at (866) 562-5227. This includes relief workers affiliated with a recognized government or philanthropic organization.

SBA Quadruples Economic Injury Disaster Loan Cap to $2 Million

October 26, 2021 by David Moseman

On September 9, 2021, the Small Business Administration (SBA) announced major modifications to the COVID-19 Economic Injury Disaster Loans (EIDL) program, including raising the loan cap from $500,000 to $2 million and adding business debt payments to the list of ways businesses can use the loan proceeds. A new regulation was added limiting entities that are part of a single corporate group to receive a combined total of no more than $10 million in COVID-19 EIDL loans. For purposes of this limit, entities are part of a single corporate group if they are majority owned, directly or indirectly, by a common parent. The following key changes were announced. All are effective immediately:

Increasing the COVID-19 EIDL cap from $500,000 to $2 million: Loan funds can be used for any normal operating expenses and working capital, including payroll, rent/mortgage, utilities, purchasing equipment, and paying debt incurred at any time (past, present and future).
Implementation of a deferred payment period: The SBA will ensure small business owners will not have to begin COVID-19 EIDL repayments until two years after loan origination. Payments are deferred for the first two years (during which interest will accrue), and payments of principal and interest are made over the remaining 28 years. The agency previously had implemented an 18-month deferment period for loans made during 2021.
Establishment of a 30-day exclusivity window: To ensure Main Street businesses have additional time to access these funds, the SBA said it is implementing a 30-day exclusivity window of approving and disbursing funds for loans of $500,000 or less. Approval and disbursement of loans over $500,000 will begin after the 30-day period.
Expansion of eligible use of funds. COVID EIDL funds will now be eligible to prepay commercial debt and make payments on federal business debt.
Simplification of affiliation requirements: To ease the COVID-19 EIDL application process for small businesses, the SBA established more simplified affiliation requirements to mimic those of the $28.6 billion Restaurant Revitalization Fund.

A few other key points to the program have remained the same:

The COVID-19 EIDL program, which runs through December 31, offers 30-year loans with fixed interest rates of 3.75% for small businesses, including sole proprietors and independent contractors, and 2.75% for not-for-profits.
Collateral is required for all loans greater than $25,000.
Loans over $200,000 will require a personal guaranty.

Employee Retention Credit Changes for Q3 and Q4 2021

September 9, 2021 by David Moseman

By Tammy Maguire, Principal Updates to the Employee Retention Credit (ERC) were issued by the IRS on Wednesday, August 4, 2021 in Notice 2021-49. The updates focus on the third and fourth quarter ERC calculations. A significant change to the program is the credit is only eligible on the employer portion of Medicare tax; the employer share of Social Security has been removed. The two main qualifying factors remain unchanged:

A business whose trade or business’s operations were fully or partially suspended due to governmental authority limiting due to COVID-19; or
A business whose revenue has declined by more than 20% in a calendar quarter 2021 vs. 2019.

The Notice expands the eligible employers to include recovery startup businesses. A recovery startup business is further defined as:

An employer who is otherwise not eligible based on previous first two qualifying factors;
Business commenced after February 15, 2020;
Average annual gross receipts is no more than $1M for the three taxable years preceding the quarter in which the credit is claimed.
To determine, the taxpayer would annualize revenue for whatever timeframe the business was in operation.

The calculation of the credit will remain at 70% of eligible wages up to $10,000 (maximum credit of $7,000); however, there is a quarterly credit limit of $50,000 for a recovery startup business.

Retain IRS Letters Received in January

SBA Clarifies COVID-19 EIDL Application Deadlines

The Eternal Question: Roth IRA or Traditional IRA?

Hurricane Ida Victims Get Tax Relief

SBA Quadruples Economic Injury Disaster Loan Cap to $2 Million

Employee Retention Credit Changes for Q3 and Q4 2021

SERVICES

Bethel, CT

SHELTON, CT

Darien, CT

STAY CONNECTED