Drafting your will using online tools can lead to unwanted outcomes

Posted on May 8, 2020May 8, 2020 by CCG

The novel coronavirus (COVID-19) pandemic has refocused people’s thoughts on the health and safety of their families. In addition to taking the necessary steps today to protect your loved ones, it’s equally important to consider their financial security in the future.

If you don’t have a will, drafting one should be your first step in developing a comprehensive estate plan. Because of stay-at-home orders in many states, it may be tempting to turn to online do-it-yourself (DIY) tools that promise to help you create a will (and other estate planning documents). Even though this may be a relatively cheap option, using these online tools is risky except in the simplest cases.

A will that isn’t executed properly under state law isn’t legally binding. Therefore, your assets may be divided according to state intestacy laws, regardless of your intentions. And, if you have young children, a court may appoint their legal guardian.

No “one-size-fits-all” solution

Despite what you might have read online, there’s no single prototype for wills. It’s complicated because the laws can vary widely from state to state. For instance, some states recognize oral wills, while others don’t. Or a state may require two or even three attesting witnesses.

One common mistake of DIY wills is leaving out important provisions that can lead to challenges in the future. Case in point: If the will doesn’t include a residuary clause addressing amounts that are “left over” after estate debts and tax payments have been settled, an unspecified party could walk away with a large sum of money. It might even be a family member you had wanted to “disinherit.”

Turn to a professional

The bottom line is that there is too much risk by taking shortcuts when it comes to drafting your will. Have your will drafted and executed by a reputable attorney. Questions? Contact us.

Do you have tax questions related to COVID-19? Here are some answers

Posted on May 8, 2020May 8, 2020 by CCG

The coronavirus (COVID-19) pandemic has affected many Americans’ finances. Here are some answers to questions you may have right now.

My employer closed the office and I’m working from home. Can I deduct any of the related expenses?

Unfortunately, no. If you’re an employee who telecommutes, there are strict rules that govern whether you can deduct home office expenses. For 2018–2025 employee home office expenses aren’t deductible. (Starting in 2026, an employee may deduct home office expenses, within limits, if the office is for the convenience of his or her employer and certain requirements are met.)

Be aware that these are the rules for employees. Business owners who work from home may qualify for home office deductions.

My son was laid off from his job and is receiving unemployment benefits. Are they taxable?

Yes. Unemployment compensation is taxable for federal tax purposes. This includes your son’s state unemployment benefits plus the temporary $600 per week from the federal government. (Depending on the state he lives in, his benefits may be taxed for state tax purposes as well.)

Your son can have tax withheld from unemployment benefits or make estimated tax payments to the IRS.

The value of my stock portfolio is currently down. If I sell a losing stock now, can I deduct the loss on my 2020 tax return?

It depends. Let’s say you sell a losing stock this year but earlier this year, you sold stock shares at a gain. You have both a capital loss and a capital gain. Your capital gains and losses for the year must be netted against one another in a specific order, based on whether they’re short-term (held one year or less) or long-term (held for more than one year).

If, after the netting, you have short-term or long-term losses (or both), you can use them to offset up to $3,000 ordinary income ($1,500 for married taxpayers filing separately). Any loss in excess of this limit is carried forward to later years, until all of it is either offset against capital gains or deducted against ordinary income in those years, subject to the $3,000 limit.

I know the tax filing deadline has been extended until July 15 this year. Does that mean I have more time to contribute to my IRA?

Yes. You have until July 15 to contribute to an IRA for 2019. If you’re eligible, you can contribute up to $6,000 to an IRA, plus an extra $1,000 “catch-up” amount if you were age 50 or older on December 31, 2019.

What about making estimated payments for 2020?

The 2020 estimated tax payment deadlines for the first quarter (due April 15) and the second quarter (due June 15) have been extended until July 15, 2020.

Need help?

These are only some of the tax-related questions you may have related to COVID-19. Contact us if you have other questions or need more information about the topics discussed above.

The CARES Act liberalizes net operating losses

Posted on May 8, 2020May 8, 2020 by CCG

The Coronavirus Aid, Relief, and Economic Security (CARES) Act eliminates some of the tax-revenue-generating provisions included in a previous tax law. Here’s a look at how the rules for claiming certain tax losses have been modified to provide businesses with relief from the novel coronavirus (COVID-19) crisis.

NOL deductions

Basically, you may be able to benefit by carrying a net operating loss (NOL) into a different year — a year in which you have taxable income — and taking a deduction for it against that year’s income. The CARES Act includes favorable changes to the rules for deducting NOLs. First, it permanently eases the taxable income limitation on deductions.

Under an unfavorable provision included in the Tax Cuts and Jobs Act (TCJA), an NOL arising in a tax year beginning in 2018 and later and carried over to a later tax year couldn’t offset more than 80% of the taxable income for the carryover year (the later tax year), calculated before the NOL deduction. As explained below, under the TCJA, most NOLs arising in tax years ending after 2017 also couldn’t be carried back to earlier years and used to offset taxable income in those earlier years. These unfavorable changes to the NOL deduction rules were permanent — until now.

For tax years beginning before 2021, the CARES Act removes the TCJA taxable income limitation on deductions for prior-year NOLs carried over into those years. So NOL carryovers into tax years beginning before 2021 can be used to fully offset taxable income for those years.
For tax years beginning after 2020, the CARES Act allows NOL deductions equal to the sum of:

100% of NOL carryovers from pre-2018 tax years, plus
The lesser of 100% of NOL carryovers from post-2017 tax years, or 80% of remaining taxable income (if any) after deducting NOL carryovers from pre-2018 tax years.

As you can see, this is a complex rule. But it’s more favorable than what the TCJA allowed and the change is permanent.

Carrybacks allowed for certain losses

Under another unfavorable TCJA provision, NOLs arising in tax years ending after 2017 generally couldn’t be carried back to earlier years and used to offset taxable income in those years. Instead, NOLs arising in tax years ending after 2017 could only be carried forward to later years. But they could be carried forward for an unlimited number of years. (There were exceptions to the general no-carryback rule for losses by farmers and property/casualty insurance companies).

Under the CARES Act, NOLs that arise in tax years beginning in 2018 through 2020 can be carried back for five years.

Important: If it’s beneficial, you can elect to waive the carryback privilege for an NOL and, instead, carry the NOL forward to future tax years. In addition, barring a further tax-law change, the no-carryback rule will come back for NOLs that arise in tax years beginning after 2020.

Past year opportunities

These favorable CARES Act changes may affect prior tax years for which you’ve already filed tax returns. To benefit from the changes, you may need to file an amended tax return. Contact us to learn more.

Give employees a voice to report fraud

Posted on May 8, 2020May 8, 2020 by CCG

Before the novel coronavirus (COVID-19) pandemic struck, employees who suspected occupational fraud in their organizations had multiple options for notifying their employers. For example, they could use interoffice mail to send information anonymously or meet with HR personnel in person.

Reporting options for employees working from home are more limited — particularly if they wish to remain anonymous. The current working environment only highlights the necessity for a fraud hotline or online portal that workers can access anywhere, anytime. If your business doesn’t already offer a confidential reporting mechanism, start thinking about how you can establish one.

Limiting damage

Confidential fraud hotlines are one of the best ways to nab workplace criminals. The Association of Certified Fraud Examiners has determined that the average organization with a hotline discovers fraud within 12 months, versus 18 months for those without hotlines. Hotlines also limit losses — $98,000 less in losses for employers that offer them.

One of the reasons hotlines are important is because, in most cases, subordinates or coworkers know or suspect fraud long before owners or members of upper management do. Yet they may not say anything for fear of reprisal. Anonymity, therefore, is essential.

Getting started

Establishing a hotline doesn’t have to be hard, but it does require some planning. Consider taking the following steps:

Identify an executive sponsor. Your hotline or portal will require a modest expenditure. If you aren’t the company’s owner or a financial decisionmaker, identify an executive sponsor to make the case for the investment.

Develop a project charter. A charter documents the business benefits of deploying a hotline or portal — for example, reducing financial losses and empowering employees.

Form a steering committee. In addition to executives and technology experts, include legal and HR representatives. They can help ensure that the processes you put in place don’t violate employee rights and applicable laws.

Review technology options. Determine your business’s needs and identify the vendors that can meet them. Learn which systems similar companies use or ask your financial and legal advisors for suggestions.

Up and running

Once you launch an anonymous reporting channel, make sure you position it so that all employees and other stakeholders can access it easily. If, for example, you company has overseas operations, work with local experts to overcome language, cultural and other barriers that might prevent workers from using a hotline.

And be sure to publicize your reporting mechanism at every appropriate opportunity. Executives might routinely mention it in all-company emails and in public speeches, and you should provide information (and links, if applicable) in your employee handbook and on your intranet. For help putting a hotline or portal in place, contact us.

Adjust your expectations of business interruption coverage

Posted on May 1, 2020May 1, 2020 by CCG

A natural place to turn when disaster strikes is insurance. The very reason you pay premiums and deal with the paperwork is to have these risk management policies in place when necessary. But, when it comes to business interruption coverage, you may have to adjust your expectations if you intend to file a claim because of the novel coronavirus (COVID-19) pandemic.

Differing views

Business interruption insurance generally provides cash flow to cover revenues lost and expenses incurred while normal operations are suspended because of an applicable event. So, many business owners are now asking an unavoidable question: Is the COVID-19 pandemic an applicable event?

Many insurers are saying no, claiming the “force majeure” legal defense. This refers to situations in which unexpected external circumstances prevent a party to a contract — in this case, the insurance company — from meeting its obligations.

Insurers are also citing policy language that stipulates coverage applies only when a policyholder suffers a loss of income as a result of physical loss or damage to covered property. COVID-19 doesn’t qualify as a physical loss, they argue. In addition, insurers contend their policies don’t cover loss of income because of market conditions or an economic slowdown.

Lawsuits have already been filed challenging the insurance companies. Attorneys, representing business owners, are arguing that the recent rise of SARS, MERS and the Avian flu have given insurance companies ample opportunity to anticipate a global pandemic.

Attorneys have additionally pointed out that the virus can attach itself to physical surfaces. Thus, they contend, it does result in a physical loss as businesses are losing revenue and incurring expenses for disinfection and prevention.

Preparatory steps

As these lawsuits play out, you may wonder whether it’s worth your time to file a business interruption claim related to the pandemic. The answer depends on your policy’s language, as well as the facts and circumstances of your company’s situation.

To decide whether and how to proceed, review your policy carefully. Look at the type of losses covered, as well as exclusions and limitations. You may want to consult an attorney, as insurance policy language and structure can be confusing.

If you decide to move ahead with a claim, you’ll need to document the adverse financial impact of the pandemic, including:

Loss of income, as defined under your policy,
Customer attrition rates, and
Incremental expenses incurred, such as site security or cleaning services.

Many policies require policyholders to notify the insurer of a loss within a certain period, so you may need to move quickly.

No easier

Even before the COVID-19 crisis, receiving a payout for a business interruption claim was typically not a cut-and-dried affair. Suffice to say, doing so hasn’t gotten any easier. We can help you assess and document financial losses and expenses before deciding whether to file a claim.

IRA account value down? It might be a good time for a Roth conversion

Posted on May 1, 2020May 1, 2020 by CCG

The coronavirus (COVID-19) pandemic has caused the value of some retirement accounts to decrease because of the stock market downturn. But if you have a traditional IRA, this downturn may provide a valuable opportunity: It may allow you to convert your traditional IRA to a Roth IRA at a lower tax cost.

The key differences

Here’s what makes a traditional IRA different from a Roth IRA:

Traditional IRA. Contributions to a traditional IRA may be deductible, depending on your modified adjusted gross income (MAGI) and whether you (or your spouse) participate in a qualified retirement plan, such as a 401(k). Funds in the account can grow tax deferred.

On the downside, you generally must pay income tax on withdrawals. In addition, you’ll face a penalty if you withdraw funds before age 59½ — unless you qualify for a handful of exceptions — and you’ll face an even larger penalty if you don’t take your required minimum distributions (RMDs) after age 72.

Roth IRA. Roth IRA contributions are never deductible. But withdrawals — including earnings — are tax-free as long as you’re age 59½ or older and the account has been open at least five years. In addition, you’re allowed to withdraw contributions at any time tax- and penalty-free. You also don’t have to begin taking RMDs after you reach age 72.

However, the ability to contribute to a Roth IRA is subject to limits based on your MAGI. Fortunately, no matter how high your income, you’re eligible to convert a traditional IRA to a Roth. The catch? You’ll have to pay income tax on the amount converted.

Saving tax

This is where the “benefit” of a stock market downturn comes in. If your traditional IRA has lost value, converting to a Roth now rather than later will minimize your tax hit. Plus, you’ll avoid tax on future appreciation when the market goes back up.

It’s important to think through the details before you convert. Some of the questions to ask when deciding whether to make a conversion include:

Do you have money to pay the tax bill? If you don’t have enough cash on hand to cover the taxes owed on the conversion, you may have to dip into your retirement funds. This will erode your nest egg. The more money you convert and the higher your tax bracket, the bigger the tax hit.

What’s your retirement horizon? Your stage of life may also affect your decision. Typically, you wouldn’t convert a traditional IRA to a Roth IRA if you expect to retire soon and start drawing down on the account right away. Usually, the goal is to allow the funds to grow and compound over time without any tax erosion.

Keep in mind that converting a traditional IRA to a Roth isn’t an all-or-nothing deal. You can convert as much or as little of the money from your traditional IRA account as you like. So, you might decide to gradually convert your account to spread out the tax hit over several years.

Of course, there are more issues that need to be considered before executing a Roth IRA conversion. If this sounds like something you’re interested in, contact us to discuss with us whether a conversion is right for you.

Hiring independent contractors? Make sure they’re properly classified

Posted on May 1, 2020May 1, 2020 by CCG

As a result of the coronavirus (COVID-19) crisis, your business may be using independent contractors to keep costs low. But you should be careful that these workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be an expensive mistake.

The question of whether a worker is an independent contractor or an employee for federal income and employment tax purposes is a complex one. If a worker is an employee, your company must withhold federal income and payroll taxes, pay the employer’s share of FICA taxes on the wages, plus FUTA tax. Often, a business must also provide the worker with the fringe benefits that it makes available to other employees. And there may be state tax obligations as well.

These obligations don’t apply if a worker is an independent contractor. In that case, the business simply sends the contractor a Form 1099-MISC for the year showing the amount paid (if the amount is $600 or more).

No uniform definition

Who is an “employee?” Unfortunately, there’s no uniform definition of the term.

The IRS and courts have generally ruled that individuals are employees if the organization they work for has the right to control and direct them in the jobs they’re performing. Otherwise, the individuals are generally independent contractors. But other factors are also taken into account.

Some employers that have misclassified workers as independent contractors may get some relief from employment tax liabilities under Section 530. In general, this protection applies only if an employer:

Filed all federal returns consistent with its treatment of a worker as a contractor,
Treated all similarly situated workers as contractors, and
Had a “reasonable basis” for not treating the worker as an employee. For example, a “reasonable basis” exists if a significant segment of the employer’s industry traditionally treats similar workers as contractors.

Note: Section 530 doesn’t apply to certain types of technical services workers. And some categories of individuals are subject to special rules because of their occupations or identities.

Asking for a determination

Under certain circumstances, you may want to ask the IRS (on Form SS-8) to rule on whether a worker is an independent contractor or employee. However, be aware that the IRS has a history of classifying workers as employees rather than independent contractors.

Businesses should consult with us before filing Form SS-8 because it may alert the IRS that your business has worker classification issues — and inadvertently trigger an employment tax audit.

It may be better to properly treat a worker as an independent contractor so that the relationship complies with the tax rules.

Be aware that workers who want an official determination of their status can also file Form SS-8. Disgruntled independent contractors may do so because they feel entitled to employee benefits and want to eliminate self-employment tax liabilities.

If a worker files Form SS-8, the IRS will send a letter to the business. It identifies the worker and includes a blank Form SS-8. The business is asked to complete and return the form to the IRS, which will render a classification decision.

Contact us if you receive such a letter or if you’d like to discuss how these complex rules apply to your business. We can help ensure that none of your workers are misclassified.

5 ways to protect remote workers — and your business — from cyberattacks

Posted on May 1, 2020May 1, 2020 by CCG

Many businesses were unprepared when the novel coronavirus (COVID-19) pandemic required them to close their physical offices and shift to remote operations. Your company, for example, may have had to scramble to set up a virtual private network (VPN) or move files to the cloud. And while adapting to working from home, employees may have let your usual security procedures slide.

From a cybercrime perspective, working from home generally isn’t as safe as working in the office. So you need to look for ways to protect your disbursed workforce and prevent criminals from gaining access to your digital assets.

Here are five ideas:

Invest in education. Require remote employees to participate in security-related training that covers “old-school” phishing scams as well as new COVID-19 variations. As schemes emerge (check the Federal Trade Commission’s website at ftc.gov for the latest), notify employees and remind them what to do if they think they’ve fallen victim to a scam.

Enable automatic updates. To keep the operating systems of employee computers safely patched, remind workers to enable automatic software updates. Also, double-check that every employee-assigned device is fortified with current malware and antivirus software.

Revisit access privileges. To maintain productivity, most employees need access to the same systems at home as they had in the office. However, consider reviewing which workers have access to certain files, network controls and cloud accounts — and whether they really need access now. Remember that when employees work from home, their partners, children and visitors may have easy access to their computers. To protect your company, ensure systems generate user audit trails that can be followed in the event of a breach.

Protect WiFi connections. While working from home, employees use their personal WiFi connections to access your company’s IT environment. Unfortunately, many people use the default WiFi password or a simple password that hackers can easily break. To foil fraud perpetrators, employees should change it to a complex combination of letters and other characters. If possible, require them to use a VPN with two-factor authentication.

Secure your videoconferences. Most videoconferencing services employ multiple layers of security. But some platforms offer greater protection than others. Before choosing one, perform a simple Google search to read user reviews and security bug reports. Once you’ve selected a service, communicate security protocols before allowing employees to use it for company business.

Finally, provide employees with access to a technical support desk so they can report problems — and get solutions — as quickly as possible. Working from home may be new for a lot of Americans, but fraud is a familiar foe for most. If can be defeated with appropriate knowledge and tools.

IRS extends some (but not all) employee benefit plan deadlines

Posted on April 24, 2020April 24, 2020 by CCG

The IRS recently issued Notice 2020-23, expanding on previously issued guidance extending certain tax filing and payment deadlines in response to the novel coronavirus (COVID-19) crisis. This guidance applies to specified filing obligations and other “specified actions” that would otherwise be due on or after April 1, 2020, and before July 15, 2020. It extends the due date for specified actions to July 15, 2020.

Specified actions include any “specified time-sensitive action” listed in Revenue Procedure 2018-58, including many relating to employee benefit plans. The relief applies to any person required to perform specified actions within the relief window, and it’s automatic — your business doesn’t need to file any form, letter or other request with the IRS.

Filing extensions beyond July 15, 2020, may be sought using the appropriate extension form, but the extension won’t go beyond the original statutory or regulatory extension date. Here are some highlights of Notice 2020-23 specifically related to employee benefit plans:

Form 5500. The relief window covers Form 5500 filings for plan years that ended in September, October or November 2019, as well as Form 5500 deadlines within the window as a result of a previously filed extension request. These filings are now due by July 15, 2020. Notably, the relief window does not include the July 31, 2020 due date for 2019 Form 5500 filings for calendar-year plans. Those plans may seek a regular extension using Form 5558.

Retirement plans. The extended deadlines apply to correcting excess contributions and excess aggregate contributions (based on nondiscrimination testing) and excess deferrals. They also apply to:

Plan loan repayments,
The 60-day timeframe for rollover completion, and
The deadline for filing Form 8955-SSA to report information on separated plan participants with undistributed vested benefits.

The relief for excess deferrals is a change from previous guidance indicating that 2019 excess deferrals still needed to be corrected by April 15, 2020. In addition, while loan relief is already available to certain individuals for specified reasons related to COVID-19, this relief appears to apply more broadly — albeit for a shorter period. The Form 8955-SSA due date is the same as for the plan’s Form 5500, so the extension applies in the same manner.

Health Savings Accounts (HSAs). The notice extends the 60-day timeframe for completing HSA or Archer Medical Savings Account (MSA) rollovers. It also extends the deadline to report HSA or Archer MSA contribution information by filing Form 5498-SA and furnishing the information to account holders. The regular deadline for the 2019 Form 5498-SA would be June 1, 2020, placing it squarely within this relief period.

Business owners and their plan administrators should carefully review Notice 2020-23 in conjunction with Revenue Procedure 2018-58 to determine exactly what relief may be available. For example, the revenue procedure covers various cafeteria plan items, but many deadlines may fall outside the notice’s window. We can provide you with further information about this or other forms of federal relief.

Answers to questions you may have about Economic Impact Payments

Posted on April 24, 2020April 24, 2020 by CCG

Millions of eligible Americans have already received their Economic Impact Payments (EIPs) via direct deposit or paper checks, according to the IRS. Others are still waiting. The payments are part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Here are some answers to questions you may have about EIPs.

Who’s eligible to get an EIP?

Eligible taxpayers who filed their 2018 or 2019 returns and chose direct deposit of their refunds automatically receive an Economic Impact Payment. You must be a U.S. citizen or U.S. resident alien and you can’t be claimed as a dependent on someone else’s tax return. In general, you must also have a valid Social Security number and have adjusted gross income (AGI) under a certain threshold.

The IRS also says that automatic payments will go to people receiving Social Security retirement or disability benefits and Railroad Retirement benefits.

How much are the payments?

EIPs can be up to $1,200 for individuals, or $2,400 for married couples, plus $500 for each qualifying child.

How much income must I have to receive a payment?

You don’t need to have any income to receive a payment. But for higher income people, the payments phase out. The EIP is reduced by 5% of the amount that your AGI exceeds $75,000 ($112,500 for heads of household or $150,000 for married joint filers), until it’s $0.

The payment for eligible individuals with no qualifying children is reduced to $0 once AGI reaches:

$198,000 for married joint filers,
$136,500 for heads of household, and
$99,000 for all others

Each of these threshold amounts increases by $10,000 for each additional qualifying child. For example, because families with one qualifying child receive an additional $500 Payment, their $1,700 Payment ($2,900 for married joint filers) is reduced to $0 once adjusted gross income reaches:

$208,000 for married joint filers,
$146,500 for heads of household,
$109,000 for all others

How will I know if money has been deposited into my bank account?

The IRS stated that it will send letters to EIP recipients about the payment within 15 days after they’re made. A letter will be sent to a recipient’s last known address and will provide information on how the payment was made and how to report any failure to receive it.

Is there a way to check on the status of a payment?

The IRS has introduced a new “Get My Payment” web-based tool that will: show taxpayers either their EIP amount and the scheduled delivery date by direct deposit or paper check, or that a payment hasn’t been scheduled. It also allows taxpayers who didn’t use direct deposit on their last-filed return to provide bank account information. In order to use the tool, you must enter information such as your Social Security number and birthdate. You can access it here: https://bit.ly/2ykLSwa

I tried the tool and I got the message “payment status not available.” Why?

Many people report that they’re getting this message. The IRS states there are many reasons why you may see this. For example, you’re not eligible for a payment or you’re required to file a tax return and haven’t filed yet. In some cases, people are eligible but are still getting this message. Hopefully, the IRS will have it running seamlessly soon.