During the last few months, many individuals, small business owners and companies have applied for and found financial assistance in the form of federal loan programs, tax credits, economic impact payments and an extended tax deadline (July 15, 2020). However, for some, these financial relief options may still not be enough.
Here are five tax changes and relief options that may offer you or your business additional financial assistance during the COVID-19 pandemic:
1.Convert a Traditional IRA to a Roth IRA
If you currently contribute to a Traditional IRA account for your retirement, now may be a good time to consider converting the funds to a Roth IRA.
While you will still have to pay income tax on the converted funds for the year you switch, once the money is in the Roth, future earnings and distributions taken from the account are tax-free.
Some other important factors to consider when making this decision are:
- Will the tax rate you pay in retirement be equal or higher than the rate on conversion? If not, tax-free Roth payments are less advantageous.
- There’s no required minimum distributions (RMDs) this year for Traditional IRAs. Under the stimulus law, RMDs are waived for Traditional IRAs in 2020. Usually, Roth conversions completed during a year subject to RMD rules, require you to first take a distribution from your traditional IRA, but you won’t have to do that this year. There are no RMDs for Roth owners.
- Are the assets in your traditional IRA depressed in value? Switching to a Roth before your assets increase in value will result in a lower conversion tax.
- Additional income from converting may result in higher Medicare premiums or subject more of your Social Security benefits to tax.
- You don’t have to convert the entire amount to a Roth all at once, but once you do, you cannot undo the conversion for tax purposes.
2.Economic Impact Payments
Economic Impact Payments, or tax rebates, are still being distributed. Individuals who get Social Security, Social Security Disability Insurance, veterans’ benefits, Supplemental Security Income or Railroad Retirement benefits should receive payments automatically.
For people who file taxes, the Internal Revenue Service (IRS) will look at 2019 or 2018 returns to see whether the taxpayer qualifies for the rebate. You’ll get your payment faster if the IRS has your direct deposit information.
Keep in mind that there are currently many scams in the form of calls and fake emails from individuals claiming to help people get their stimulus checks faster.
Helpful Tip: Generally, neither the IRS for the U.S. Department of Treasury will ask individuals to provide or verify personal or financial information via phone, email, text or social media. The IRS typically sends a letter regarding tax matters.
3.Charitable Cash Donations
A temporary tax law change is helping individuals who donate large amounts of cash this year. Typically, charitable donations cannot exceed more than 60 percent of your adjusted gross income (AGI), but this percentage is suspended for 2020.
Gifts to donor-advised funds and private nonoperating foundations, as well as carryovers of excess charitable contributions from prior years are excluded.
4.Tax Debt Changes
The IRS has briefly suspended direct debit installment payments and tax levies and changed the way back taxes are paid.
- Taxpayers making payments to the IRS as direct debit installments don’t have to make payments until July 15. However, the suspension doesn’t happen automatically, and taxpayers must contact their banks to suspend the payments through the new summer deadline. You will then be responsible for notifying your bank at least two weeks prior to July 15 to reinstate payments and avoid the risk of defaulting on the agreement.
- The IRS has also suspended new tax levies from April 1 through July 15, but it will not automatically release or pause existing levies. Taxpayers who are experiencing economic hardship and unable to pay reasonable living expenses because of a tax levy during this time can contact the IRS, or their revenue officer, to request a release or pause on the levy. What is a tax levy? According to IRS.gov, An IRS tax levy permits the legal seizure of your property to satisfy a debt.
- Taxpayers can now choose how to allocate voluntary partial payments on back taxes for prior years; however, the IRS still has control on applying involuntary payments, such as levies.
5.Raleigh Small Business COVID-19 Relief Funds
Are you the owner of a small business in Raleigh? You may qualify to apply for relief funding.
The City of Raleigh government has partnered with Carolina Small Business Development Fund (CSBDF) to help small businesses impacted by the coronavirus pandemic. The online application is available now through 11:59 p.m. on Thursday, May 21.
Some important things to note about the program:
- It is not first-come, first-serve. All applications received by the May 21 deadline have an equal chance of being selected.
- Up to $10,000 is available to each applicant until funding sources are depleted. Approved businesses may use funds to cover day-to-day operating expenses.
- There are many qualifications to be eligible, including the business must be in the City of Raleigh, have 49 employees or less, be locally and independently owned, and have a storefront.
Find the complete list of qualifications and the required documentation here .
Additionally you can also find frequently asked questions, links to webinars containing information about the application process and program benefits, and the link to apply here.
Contact Anthony Hoffmaster, CPA, CES, MST, by phone 919-435-4413 or email to discuss financial assistance options, including federal loan programs, tax credits, economic impact payments and other available financial relief options.