by Pete McAllister | Accounting News, CARES Act, COVID-19, News, Relief Bill, Stimulus, Stimulus Package, Tax
President Trump recently signed a second stimulus package—called the Consolidated Appropriations Act, 2021 (Act)—into law. The legislation includes over $300 billion in aid for small businesses. Below is a breakdown of some of the business tax changes and extenders in the new COVID-19 relief bill.
Payroll Tax Credit for Paid Sick and Family Leave
The refundable payroll tax credit for paid and sick family leave, established in the Families First Coronavirus Response Act, is extended until March 31, 2021. The tax credits are modified so that they now apply to practically any payments made to workers for these purposes.
Payroll Tax Repayment
The time frame for employees to repay deferred employment taxes under the President’s executive order, which was issued in August 2020, has been extended from April 2021 to December 31, 2021.
Employee Retention Credit
The Employee Retention Credit (ERC) under the CARES Act has extended to July 1, 2021. Further, the refundable tax credit has increased from 50% to 70%, the per-employee wages limitation has increased from $10,000 per year to $10,000 per quarter, and the determination of a large employer for purposes of the ERC has increased from 100 to 500 employees.
30-Year Depreciation of Certain Residential Rental Property
The new law determines that the recovery period relevant to residential rental property placed in service before Jan. 1, 2018, and held by an electing real property trade or business, is 30 years.
Business Meal Deduction
Rather than the current 50% business expense deduction for meals, the bill temporarily allows a 100% expense deduction for meals provided by restaurants in 2021 and 2022.
Deduction for Energy Efficient Commercial Buildings
The deduction for energy-efficient improvements to commercial buildings, such as lighting, heating, cooling, ventilation, and hot water systems was made permanent. The amount will be inflation-adjusted after 2020.
Changes to the Work Opportunity Tax Credit
If employers hire workers who are members of one of more of ten targeted groups under the Work Opportunity Tax Credit (WOTC) program, they are permitted to use an elective general business tax credit. Previously applicable to hires before 1/1/2021, the TCDTR extends the credit through 2025.
Employer Payments of Student Loans
Section 127, which permits employers to provide certain educational assistance to employees on a tax-free basis, was modified under the CARES Act to authorize the payment by an employer of principal or interest on specific employee qualified education loans through December 31, 2020. The Consolidated Appropriations Act expands this through December 30, 2025. As the pandemic subsides, employers may want to consider this valuable tax-free benefit.
Health and Dependent Care Flexible Spending Arrangements
The bill allows taxpayers to roll over unused funds in their health and dependent care flexible spending accounts from 2020 to 2021 and from 2021 to 2022. This arrangement also permits employers to grant employees a 2021 midyear prospective adjustment in contribution amounts.
by Jean Miller | COVID-19, Credit Card Debt, Debt, News
For the greater part of 2020, millions of Americans have faced furloughs and layoffs, subsequently relying on credit cards to keep their heads above water. Here’s how to get out from under those ballooning balances.
The Coronavirus Effect on Debt
When the stimulus checks were dispersed last spring, millions of citizens used those relief funds to pay down debt. However, a number of Americans who’ve been laid off or have had hours cut this year don’t have a financial safety net, so they’ve had to fall back on credit cards. Add to this the number of Americans who lost jobs with employer-sponsored health insurance and are now dealing with unpaid medical bills because of the pandemic, and it’s no wonder why so many Americans are struggling under the weight of debt now more than ever.
Strategies to Pay Down Credit Card Debt
If you’ve had to rely on credit cards this year, steps you can take to diminish your balance include:
Communicate with Creditors
At the start of the pandemic many credit card companies began advertising COVID-related assistance programs. Some of these have since expired, but it’s still worth looking into with each credit card company. You will most likely have to prove that you’re experiencing hardship, but most companies are willing to provide at least some short-term measures of relief, such as flexible payments or a lower interest rate.
Request a Lower Interest Rate
Credit card companies are unlikely to reduce APRs by a lot, but every little bit helps. And if you’ve improved your credit score, you have a greater chance of securing a lower rate.
Transfer Balances
By transferring the balance on a high-interest credit card to one with a low or 0% introductory interest rate, you can slash the overall interest you’ll pay on your debt. Just be sure to pay down the balance during the duration of the rate decrease, or you risk landing right where you started—a high balance coupled with a high interest rate.
Pay Off High Interest Credit Cards
If you need to pay off debt on more than one credit card, there are two conventional approaches to do it effectively.
The first is called the debt snowball, which involves paying off the card with the smallest balance first. Once that card is paid off, apply that monthly payment to the monthly payment of the card with the next highest balance. Each payoff builds momentum until you work your way to paying off the card with the largest balance.
The second strategy for paying off credit cards is called the avalanche method, which aims to tackle debts on the cards with the highest interest rates first. While the debt snowball can provide bite-sized mental victories, this method helps to better curtail interest payments over the life of your credit card debt.
by Daniel Kittell | Accounting News, COVID-19, CPA, News, Resources, Tax, Tax Planning - Individual, Tax Preparation - Individual
Since early March, the COVID-19 pandemic has been making a substantial financial impact on millions of people across the country. With 22 million jobless claims in just one month and a slowly moving economy, many homeowners are left wondering if their properties will see a decline in value as workers continue to lose their jobs and minimize personal spending. Spring is traditionally the prime time for buying and selling homes, but thanks to COVID-19, listings have dropped significantly.
What We Already Know
Beginning in March, mortgage rates have fluctuated significantly. They’ve fallen to record lows—the average for a new 30-year fixed-rate mortgage currently falls near 3.33% – and may continue to drop. For those who already own homes, applications to refinance their homes are up almost 168% from March 2019.
Mortgage rates and home values, while related, are two separate entities. History shows us that home prices are likely to fall during recessions, but to what degree is specific to your local market. If available homes in a particular area are already highly sought-after (places like San Francisco, Los Angeles, or Seattle), it is unlikely homeowners will see their property values go down much at all. That said, with such low mortgage rates available, buyers who haven’t suffered from layoffs or unemployment could find their opportunity to purchase a property. If there is still a demand for homes in an area, home prices are likely to remain steady.
Past research from Zillow shows us that during previous pandemics in the US that home prices remained stable with only small declines in home prices. The research also showed that there were fewer real estate transactions and NOT sales happening at a loss.
COVID-19 is already an oddity, and its impact cannot be denied around the world. With that, all homeowners with interest in selling should be prepared for the likelihood of home values dropping until this pandemic passes and the economy settles. While a drop in home values could leave sellers in a challenging situation, it’s also not ideal for anyone who may be looking to draw upon their home equity in the not-so-distant future.
While so much of our lives remain up in the air, and while the economy is so unsettled, this is an opportunity to pull back and see what happens. If the panic around COVID-19 dies down sooner than anticipated, buyers and sellers may not even notice a change in the market.
by Pete McAllister | Accounting News, COVID-19, News, Resources, Retirement, Tax, Tax Planning - Individual, Tax Preparation - Individual
The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress at the end of March provides direct economic assistance to Americans during the COVID-19 pandemic. In the bill, certain provisions allow people to withdraw from their retirement accounts, including their 401(k)s and IRAs, without the usual early withdrawal penalty. Individuals must have been directly affected by coronavirus – through personal, spousal, or dependent diagnosis or furloughed, laid off, or reduced hours from their job to be eligible for the fee-free withdrawals.
While pulling from retirement funds seems like a simple and fast fix, it may not be the best option based on an individual’s circumstances. Those who stand to suffer the most amid the pandemic are those who are nearing retirement and those already in retirement. The unexpected ups and downs, current unemployment, and new potential health costs in this unprecedented time leave many Americans wondering how they’ll be able to retire comfortably in the current economic climate.
Consider these Options to Counteract the Effects of COVID-19 on Retirement Funds
Keep Current Costs Low
Take a look at current expenses and determine if anything can be eliminated or reduced. Any unused subscriptions? Are you paying for the right amount of insurance? Consider shopping around for lower rates. Can you negotiate any current bills – cell phone, credit cards, internet, anything with an interest rate, even your cable? Hold off on any major home or equipment upgrades and work with what you already have before adding on another expense.
Use Your Home
Assess your risks for taking out a second mortgage or a reverse mortgage. If your mortgage is already paid off, look into home equity loan options. A cash-out refinance may also be available if you’re still paying the mortgage. Over one-third of Americans have their wealth tied up in their homes, so it may be worth it to see if downsizing your home is an option. If so, it might be possible to pay for your smaller home in cash and use the remaining proceeds from the sale of your old for any outstanding debts or liabilities as you near retirement. The location of your home should also be considered – the cost of living can vary significantly from state to state, so moving to a new state or country may bring you more bang for your buck.
Plan for the Long-Term
Health care and long-term care can be an extreme cost for senior citizens. Assisted living and nursing home facilities usually top $60k+ for just one year. Long-term care insurance is costly but can help prepare you and your loved ones to pay the necessary costs. With Americans living longer each year, it’s worth it to plan on trying to stretch your retirement savings to last until age 90. Calculate how much you (and/or a spouse) would need with the assumption you’ll live to be 90. It’s also worth looking at final expense insurance, which could help cover final expenses at the end of your life. Planning for the event in advance can take the financial stress off family members left behind, whether it’s through final expense insurance or setting up a savings account with the express purpose of paying for any final expenses.
While we’re in a global pandemic, everything isn’t all doom and gloom. COVID-19 has hit the country, and our bank accounts hard, but people will bounce back after this economic crisis – much like investors after other recessions in our nation’s history.
