Tax Planning and Preparation Archives

Updated 3/23/20 A Message from PWB CPAs & Advisors on COVID-19

March 17, 2020 By PWB CPAs

3/23/19

IRS Deadlines, State Deadlines and SBA Loan Information

Here is a recap of current developments and resources:

Federal Filing Dates

Treasury Secretary Steven Mnuchin has officially extended the tax filing deadline to July 15, 2020, giving taxpayers more time to file their taxes in the midst of the coronavirus pandemic. Taxpayers do not need to file Forms 4868 or 7004 to qualify for the delay in filing returns.

Please see the Further Guidance section at the end of this message for more details regarding IRS deadlines.

State Filing Dates

Each state will make its own decision on its tax return filing and tax payment dates. Minnesota Governor Walz and Commissioner Bauerly have stated they are working to shift the Minnesota income tax filing deadline to July 15^th. Please check with your state and local taxing authorities for updates.

SBA Business Loan Availability

U.S. Small Business Administration (SBA) disaster loans now available. This may be one of a few financing options you have available between your local bank and the SBA, depending on your individual situation and whether you already have a line of credit in place. The Electronic Loan Application process requires submission of several documents and we advise that you begin the process as soon as possible.

SBA Economic Injury Disaster Loan web page: https://disasterloan.sba.gov/ela/Information/EIDLLoans

Although the tax deadline has been extended, we ask that you send in your tax information as soon as possible so we can get started, if you haven’t done so already. Lenders will ask for your most recent tax returns and likely year-to-date financials if applying for credit, so we want you to be in a good position to provide this information. Our staff are working diligently from their home offices to meet the needs of our clients during this challenging time.

Additional Resources

Access the ADP Employer Preparedness Toolkit .
Information for small businesses affected by coronavirus: sba.gov/coronavirus
All coronavirus-related federal government resources: usa.gov/coronavirus
MN DEED’S COVID-19 information and resources for businesses COVID-19 update page.

Further Guidance

For more detail on IRS deadlines, here is the full text our alliance partner Eide Bailly’s analysis:

Notice 2020-18, released by the IRS late March 20, 2020, follows up Treasury Secretary Steven Mnuchin’s Twitter announcement earlier in the day that the IRS is postponing the April 15 deadline for filing federal income tax returns until July 15, 2020. This new notice supersedes an earlier IRS notice (Notice 2020-17) that did not, as anticipated, delay the date for filing returns due on April 15, 2020, but did defer federal income tax payments until July 15, 2020, subject to certain limits.

This new guidance automatically extends the due date for filing 2019 income tax returns due April 15, 2020 until July 15, 2020. Taxpayers do not need to file Forms 4868 or 7004 to qualify for the delay in filing returns.

In addition, unlike the earlier notice, federal income tax payments (including payments of self-employment tax) in any amount can be deferred to July 15, 2020. The $1Million and $10Million limits required in Notice 2020-17 have been removed. The amount able to be deferred to July 15, 2020 includes the balance due for a taxpayer’s 2019 federal income tax return, and the 2020 estimated tax payment payable on April 15, 2020.

Taxpayers eligible for the new extension of the time to file, and deferral of tax payable, include individuals, trusts, estates, partnerships, associations, companies, and corporations that have a federal income tax payment or income tax return due on April 15, 2020. The IRS will automatically waive the usual interest and penalties that apply to late tax payments and late filing of returns so long as the deferred payments are made by July 15, 2020. Any tax amount due to be paid at the end of the deferral period, and not paid, will accrue interest and potential penalties beginning July 16, 2020.

At this time, we do not have any guidance available on whether extensions will need to be filed on July 15, 2020 to extend a return filing to the usual extended deadlines or a later date.

Each state will need to separately address its own extensions of tax filing and payment dates. The AICPA is keeping an up-to-date listing of state filing guidance in response to the coronavirus here. The Federation of Tax Administrators also has links to state filing guidance here.

The extension of time does not apply to other types of federal returns, such as those for payroll taxes, excise taxes and gift or estate taxes. The relief provided in Notice 2020-18 is solely available with respect to federal income tax payments (including payments of tax on self-employment income) and Federal income tax returns due on April 15, 2020, for the 2019 tax year and estimated Federal estimated payments (including payments of tax on self-employment income) due on April 15, 2020 for the 2020 tax year.

Stay safe and remember we’re here for you.

3/19/19

April 15 Tax Deadline Update

On March 18, 2020, the IRS released Notice 2020-17, its guidance addressing the April 15 tax deadline in connection with the Coronavirus Emergency Declaration. Taxpayers will generally be allowed to defer tax payments due on April 15, 2020, until July 15, 2020. You can read the official release here.

The notice makes clear that the guidance is being provided only for income tax by stating, “No extension is provided in this notice for the payment or deposit of any other type of Federal tax, or for the filing of any other tax return or information return.”

Who Can Defer Tax Payments?

Individuals and married taxpayers filing joint returns who expect to owe $1 million or less when they file their 2019 form 1040 can delay payment of the tax due on April 15, 2020 until July 15, 2020. Corporations, including each consolidated group, owing $10 million or less on their form 1120 can also delay payment of the tax due on April 15, 2020 until July 15, 2020.

The IRS is also deferring payment of 2020 quarterly estimated tax payments, which would otherwise be due April 15, 2020, for calendar year individuals and corporations. However, the amount able to be deferred will be aggregated with the income tax deferral amount for applying the total amount available for deferral. The total of the income tax deferred and the estimated tax payment deferred cannot exceed the stated limitation amount. For individuals, the federal tax payments that can be deferred include the tax on self-employment income.

The IRS will automatically waive the usual penalties that apply to late tax payments as long as the deferred payments are made by July 15. Any amounts due in July in excess of the $1 million or $10 million limits will be subject to interest, penalties and any other applicable additions to tax.

Do Returns Need to be Filed by April 15?

At this point the IRS has not extended the filing deadline for individual and corporation calendar year 2019 returns. Therefore, returns should be filed or extended as required by April 15, 2020, in the usual manner. While an extension defers the filing date until October 15, 2020, any taxes owed, up to the specified maximum amounts, will still need to be paid by July 15, 2020, to get the penalty, interest or failure to file relief.

What About State Tax Deadlines?

Each state is separately addressing its own extensions of tax filing and payment dates. For state tax developments related to the Coronavirus outbreak, see the AICPA list here for updates.

At this time the Minnesota Department of Revenue has not yet delayed the April 15th income tax payment due date. Minnesota is, however, granting a 30-day Sales and Use Tax grace period for businesses identified in Executive Order 20-04. During this time the department will not assess penalties or interest. Identified businesses with a monthly Sales and Use Tax payment due March 20, 2020, will have until April 20 to make that payment. These customers should still file their return by March 20. At this time, this grace period for penalty and interest is only for monthly filers and only for the March 20 payment. Identified businesses can request additional relief from penalty and interest for reasonable cause after April 20.

3/17/19

As we continue to monitor the COVID-19 situation, we want to take a few minutes to reach out to our clients, friends, and community.

As we’re sure you are aware, we are in the heart of the busiest time of year and are focused on serving and advising you. We sincerely hope that you, your families, and your team members are staying healthy and taking the necessary precautions to continue to stay healthy.

Here is an update on the steps we are taking to ensure to the best of our ability that we keep you and our team members healthy.

We have the right technology.

PWB CPAs & Advisors has the technology in place to allow our team members to work from virtually anywhere with an internet connection. Our professionals are equally effective working remotely as they are in the office, and many of our staff will be working remotely.

We are limiting face-to-face meetings.

While our offices will remain open, we encourage you to use alternative methods of delivering information and communicating with your PWB professional. We have a number of tools available to enable us to exchange information securely together.

Client Portal. Most of you have this set up with us and are familiar with its use. If you do not have a portal, one can be easily established for you by contacting your PWB professional.
Encrypted email. We can send you an encrypted email that protects the content and you can reply with your confidential information, knowing that it will remain encrypted.
SafeSend Return delivery system. This is our secure on-line tax return delivery system, allowing you to receive, review and sign your tax returns on-screen. Of course, you can also receive your returns in your client portal.
Remote meetings. We use Microsoft Teams as a unified communication system. This system is available to us wherever we are working. We can also use this tool for virtual meetings with our clients, where we can share video and screens. Just about like being there!
In the event of a mail service disruption, we also offer free credit card payments and electronic fund transfer/ACH.

We are monitoring federal, state, and local government updates.

Should there be a quarantine, we will do everything in our control to ensure that we are still available by phone, email, or video, with as little disruption to our services as reasonably possible.

PWB is committed to serving and advising you today as always. You are welcome to contact the firm with any questions or concerns at 763-550-1100.

Brian Peterson
Kevin Whitaker
Jan Bjork

IRS Form W-4 Changes for 2020 – Here’s What You Need To Know

January 8, 2020 By PWB CPAs

The IRS has announced substantial improvements to the IRS Form W-4, Employee’s Withholding Certificate, for 2020. These changes will have a significant impact on employees and employers, but do not worry, we’re here to help you get through it.

If you are an employee

The new form and revised withholding calculations could affect your tax withholding and year-end refund or tax due amounts when you file your annual income tax return. The form is designed to be both easier and more accurate, permitting easy adjustments for anticipated tax credits, other income, and deductions. If you would like to adjust your withholding to account for these factors, you will now be able to simply enter your full-year estimated amounts on the Form W-4.

Form W-4 Highlights

There are three options for employees with multiple jobs or two-earner families:
- Simplified worksheet in the W-4 instructions
- Enhanced IRS online Withholding Estimator
- New checkbox to automatically adjust for multiple jobs or two-earner families
New filing status — Head of Household
New adjustment entries:
- Full-year child and dependent tax credits
- Full-year other income; and,
- Full-year deductions

In addition, you will still be able to authorize an additional dollar amount to withhold from each pay period, for any reason.

If you are an employer

Understanding these changes and being able to communicate them to your employees is crucial, not to mention required to keep you compliant. That’s why we’re passing along a comprehensive IRS 2020 Form W-4 Employer Toolkit, courtesy of our partners at ADP. The toolkit is loaded with important information, like:

An employer guide designed to help you understand and prepare for the changes.
Instructions for complying with new 2020 withholding calculations and procedures.
Frequently asked questions for you and your employees.
Legislative updates and blog articles about the changes and their impact on employers.
Webcasts loaded with information about the change and prepping for year end.

In addition, the IRS provides an Income Tax Withholding Assistant spreadsheet to help small employers calculate the amount of federal income tax to withhold from their employees’ wages.

There’s no time to waste, as these changes will affect your first filings in 2020.

Have questions? We’re here to help! Contact your PWB advisor at 763-550-1100 or reach out to Derek Dittmer, our dedicated representative, at ADP Payroll and HR Solutions for more information and preferred partner pricing: 320-309-2180 derek.dittmer@adp.com

Plan For 2020 To Be Your Best Year Yet!

December 10, 2019 By PWB CPAs

A little planning goes a long way.

The holidays are upon us, and the new year is around the corner. Yes, it can be a frenetic time of year. But don’t let that keep you from planning ahead. Taking a moment to strategize now could make 2020 your best (and most peaceful) year yet.

Schedule Your Planning Session

Tax Planning

Within the past year, have you…

Sold or purchased a business or real estate?
Received or exercised stock options?
Been self-employed, or received income from a flow-through business?
Experienced cash-flow issues due to unforeseen tax liabilities?
Recorded significant investment gains or losses?

If you answered yes to any of the above, tax planning is especially important. We can conduct a tax projection to estimate your 2019 liability or refund, and offer tax-planning strategies for you to implement before year-end.

A tax projection is the best way to plan for your specific situation. For general tax-reducing tips, be sure to download our free Tax Planning Guide.

Business Planning

What will the new year bring for your business? Prioritize goals and put them into action with support from a PWB business consultant. Here’s how we can help you prepare for 2020:

Obtain timely and accurate financial statements through one of our Outsourced Bookkeeping options
Conduct a financial performance review to increase profit, benchmark yourself against industry standards, and value your business
Create a 2020 budget for disciplined spending
Streamline internal accounting processes for better controls and efficiency
Evaluate your payroll platform and benefits structure
Determine how the new revenue recognition and lease accounting standards could affect your business

Year-End Financial Statements

Consistent, annual financial statements can help to prepare your company for a future sale. They can also provide some level of comfort to absentee owners. Certain industries, regulators, contracts, and grants require them. Involving PWB with your year-end financial statements benefit your company in several ways. Here are a few examples:

Secure better terms from lenders
Lower your insurance premium bill
Access more credit from vendors
Strengthen credibility with your customers

Make the most of 2020

Even a small amount of planning can pay off in big ways. And it doesn’t have to take up a lot of your time. We’re here to help you make it happen as quickly and as painlessly as possible. [Cue sigh of relief.] Call your PWB accountant today to get started.

Contact PWB

763-550-1100

Navigate the Tax Rules for Boats and RVs

May 16, 2019 By PWB CPAs

Will you be cruising the waters on your boat or camping out in your RV this year? Besides the pleasure you can enjoy through your personal property, you may also be eligible for tax breaks, if certain requirements are met.

Following is a brief rundown of four prime tax-saving opportunities.

1. Chartering activities. It’s common for some boat owners to charter out their vessels for sightseeing or fishing excursions when they’re not being used personally. In other words, this becomes a sideline business that allows you to recoup some of your expenses.

Notably, you can use expenses to offset the taxable income from chartering activities, including the cost of fuel, repairs, insurance, supplies, equipment, mooring and storage, and even fishing gear or binoculars. Plus, you’re entitled to a generous depreciation allowance for the vessel itself.

Of course, your deductions are based on the percentage of boat use that’s business-related. For example, if you charter out the boat 50% of the time, you can deduct 50% of the expenses.

Finally, be aware that you could run into troubled tax waters if the activity is treated as a hobby, rather than a business. Under the Tax Cuts and Jobs Act (TCJA), hobby expenses are generally disallowed for 2018-2025. Also, a business operation may trigger other tax consequences (for example, self-employment tax for a sole proprietor).

2. Mortgage interest. Typically, you can deduct mortgage interest on a qualified residence, like the main place where you live, but you’re also entitled to interest deductions on a second home, like a vacation home. Surprisingly, the “residence” can also be a boat or a RV.

To qualify for this tax break under the tax code, the boat or RV must have sleeping, cooking and toilet facilities. So, if your boat has a galley, sleeping quarters and a head, you should be in the clear. You can’t just barbecue on a boat’s deck or throw a sleeping bag down below. Most RVs have the requisite facilities for this deduction.

Keep in mind that the TCJA imposes new limits on mortgage interest deductions for itemizers. It lowers the threshold for new acquisition debt from $1 million to $750,000, but prior loans are grandfathered. It also generally eliminates the deduction for home equity debt.

3. Charitable donations. Maybe you want to upgrade your boat or RV or your passion for boating or camping is waning. In any event, you might decide to donate the boat or vehicle to charity. Assuming certain requirements are met and you itemize deductions, this could provide a tax windfall.

As a general rule, you can deduct the current fair market value (FMV) of the boat or RV on the date of the donation. For instance, if you bought the RV for $80,000 years ago and it’s now worth $50,000, you deduct $50,000 on your personal return.

But don’t leave matters to chance. Obtain an appraisal from an independent professional. An appraisal is required anyway for property donations above $5,000.

Other special rules may come into play. For instance, the charity must use the boat or RV to further its tax-exempt function. Deal with a qualified charitable organization that is experienced with these types of donations.

4. Sales tax. Depending on your situation, you may be able to deduct the sales tax you pay when you purchase a boat or RV, although the rules have been complicated by the TCJA.

Previously, you could deduct all of your state and local property taxes, plus either your state and local income tax or sales tax. But now the total annual deduction for state and local tax (SALT) payments is limited to $10,000 for 2018-2025.

If you opt to write off sales tax instead of income tax as part of your annual SALT deduction, be aware that you can use either the actual tax paid, based on records, or an amount from a convenient IRS table. Generally, the actual expense method will produce a bigger deduction. Caveat: If you choose the table amount, you can add on sales tax from certain “big-ticket items” — like boats and vehicles!

To Summarize

These are just four ways you may benefit tax-wise from boats or RVs. At other times, you might use the property as transportation for hire or even claim home office deductions if you qualify under the strict letter of the law. Moral of the story: Be aware of all the tax-saving possibilities for these prized possessions.

Could Medicare Premiums Lower Your Taxes?

January 28, 2019 By PWB CPAs

Health care is a top concern for many Americans, especially people who are age 65 and older. While these individuals qualify for basic Medicare insurance, they may need to pay additional premiums to get the level of coverage they desire.

Those premiums can add up to a substantial annual sum, especially if you’re married and both you and your spouse are paying them. But the silver lining is that paying those premiums may help your tax situation.

Medicare Basics

For starters, many people are unclear about Medicare health insurance programs and options. Here’s a brief overview.

Medicare Part A. This coverage is commonly known as hospital insurance. It covers inpatient hospital care, skilled nursing facility care and some home health care services.

Part A is free to people over age 65 who paid Medicare taxes for 40 or more quarters during their working years. They’re considered to have already paid their Part A premiums via Medicare taxes on wages and/or self-employment income.

People who didn’t pay Medicare taxes for enough months while working generally must pay for Part A coverage. The premium amount depends on how many quarters the individual paid taxes into the program.

If you paid Medicare taxes for 30 to 39 quarters during your working years, the 2019 Part A premium is $240 per month ($2,880 for the full year).
If you paid Medicare taxes for less than 30 quarters, the 2019 Part A premium is $437 per month ($5,244 for the full year).
The same Part A premiums apply to a spouse who paid Medicare taxes for less than 40 quarters while working.

Medicare Part B. This coverage is commonly called Medicare medical insurance. It mainly covers doctors and outpatient services. Medicare-eligible individuals must pay monthly premiums for this benefit. The premium amount depends on the individual’s modified adjusted gross income (MAGI) for two years earlier.

For example, your 2019 premiums depend on your 2017 MAGI. This term refers to the adjusted gross income (AGI) amount plus any tax-exempt interest income.

To get Part B coverage, you have to pay a base premium, which is $135.60 per month ($1,627 for the full year) for 2019. Plus, higher income individuals must pay a surcharge.

For 2019, the Part B surcharge applies to:

Singles with 2017 MAGI in excess of $85,000, and
Married individuals who filed 2017 joint returns with MAGI in excess of $170,000.

Surcharges accrue on a graduated schedule. That is, the more MAGI you earned in 2017, the higher your Part B costs will be for 2019. Including the surcharge (if you owe it), the 2019 Part B monthly premiums for each covered person can be $189.60 ($2,275 for the full year), $270.90 ($3,251 for the full year), $352.20 ($4,226 for the full year), $433.40 ($5,201 for the full year) or $460.50 ($5,526 for the full year).

The maximum premium for 2019 applies to:

Singles with 2017 MAGI in excess of $500,000, and
Married individuals who filed 2017 joint returns with MAGI in excess of $750,000.

Medicare Part D. This option is for private prescription drug coverage. Base premiums vary depending on the plan you select. Higher-income individuals must pay a surcharge in addition to the base premium.

For 2019, the Part D surcharges depend on your 2017 MAGI, and they increase based on the same scale as Part B surcharges. The good news is that the 2019 surcharges are slightly lower than for 2018, except for those in the highest income category. The 2019 monthly Part D surcharge amounts for each covered person can be $12.40, $31.90, $51.40, $70.90 or $77.40.

Medigap. Medicare Parts A and B don’t cover all health care expenses. Coverage gaps include co-payments, co-insurance and deductibles. So, some people opt to buy a so-called “Medigap” policy. This is private supplemental insurance that’s intended to cover some or all gaps.

In most states, insurance companies can sell only standardized Medigap policies that offer the same basic benefits. Some policies offer additional benefits for an additional cost. Premiums vary depending on the plan you select.

Important note: Before you travel outside the United States, find out whether Medicare will cover you while you’re away. Generally, the coverage is limited or nonexistent. If you don’t have coverage when traveling overseas, you can purchase supplemental policies to cover medical expenses incurred outside the United States, including evacuations.

Medicare Advantage. Federal Medicare benefits may be provided through Part A and Part B coverage or through a so-called “Medicare Advantage plan” offered by a private insurance company. Medicare Advantage plans are sometimes called Medicare Part C.

Medicare pays the insurance company to cover your Medicare Part A and Part B benefits. The Medicare Advantage insurance company then pays your claims. A Medicare Advantage plan may also include prescription drug coverage (Medicare Part D), and it may cover dental and vision care expenses that are not covered by Medicare Part B.

Medicare Advantage Plans can include:

HMOs that only cover medical service providers that are in the plan’s network,
PPOs that encourage you to use in-network providers, and
Private fee-for-service plans that generally allow you to go to any medical service provider that accepts the plan’s payment terms.

When you enroll in a Medicare Advantage plan, you continue to pay Medicare Part B premiums to the government. You may need to pay a separate additional monthly premium to the insurance company for the Medicare Advantage plan, but some Medicare Advantage plans don’t charge an additional premium. The additional premium, if any, depends on the plan you select.

Important note: Medigap policies don’t work with Medicare Advantage plans. So, people who join a Medicare Advantage plan should discontinue their Medigap coverage.

Tax Deductions for Medicare Premiums

Premiums for Medicare health insurance can be combined with other qualifying health care expenses for purposes of claiming an itemized deduction for medical expenses on your individual tax return.

For 2018, you could deduct medical expenses only if you itemized deductions and only to the extent that total qualifying expenses exceeded 7.5% of AGI. For 2019, the itemized deduction threshold for medical expenses increases to 10% of AGI, unless Congress extends the 7.5% hurdle.

The Tax Cuts and Jobs Act nearly doubled the standard deduction amounts for 2018 through 2025. For 2019, the standard deduction amounts are $12,200 for single filers, $24,400 for married joint-filing couples and $18,350 for heads of households. So, fewer individuals will claim itemized deductions.

However, having significant medical expenses (including Medicare health insurance premiums) may allow you to itemize and collect some tax savings.

Important note: Self-employed people and shareholder-employees of S corporations can generally claim an above-the-line deduction for their health insurance premiums, including Medicare premiums. So, they don’t need to itemize to get the tax savings from their premiums.

For More Information

Contact your tax advisor if you have additional questions about Medicare coverage options or claiming medical expense deductions on your personal tax return. Your advisor can help determine the optimal overall tax-planning strategy based on your personal circumstances.