SBA Disaster Assistance in Response to the Coronavirus

In response to the coronavirus (COVID-19) pandemic affecting the small business community across the country, the U.S. Small Business Administration (SBA) is offering low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury. Substantial economic injury means the business is unable to meet its obligations and pay its ordinary and necessary operating expenses. $50 billion in funding has been set aside for the program.

SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance per small business and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.  The loans can be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.

Loans will be underwritten by the federal SBA program. The interest rate is 3.75% for small businesses, and 2.75% for non-profit organizations.  Businesses with credit available elsewhere are usually not eligible for these loans, but they have now opened them up to where that regulation no longer applies. The loans offer long-term repayment terms in order to keep payments affordable, up to 30 years, and will be determined on a case-by-case basis based upon each borrower’s ability to repay.

While the loans are offered through a federal program, the SBA coordinates directly with state Governors to provide the loans. Governors apply to be considered a “designated state or territory” through SBA so their local businesses can receive this assistance. Once a declaration is made by SBA, information on the application process will be made available to the affected communities and updated online here.

Most states and territories are still in the process of applying to be a designated area for Economic Injury Disaster Loan assistance. As part of this process, many states are asking businesses to fill out and submit surveys on the state of their business to better understand the need in their area. The list of designated areas will continue to grow as states and territories apply and are approved.  Please check www.sba.gov for updates as more states are added.

Click here to apply for disaster assistance through SBA.gov.

Click here for the SBA Coronavirus Disaster Assistance Page for more information.

Our team is here to help you navigate these difficult and unprecedented times. We are consistently monitoring the resources available to our clients and how they can be utilized by those we serve. Please reach out to your dedicated Scheffel Boyle team member for more information.

Missouri Announces Payment and Filing Relief Amidst COVID-19 Pandemic

In a press release dated March 21st, 2020, Missouri Governor Parson announced the extended payment and filing deadlines for Missouri state income tax. The decision mirrors that of the Internal Revenue Service in response to the evolving issues surrounding COVID-19 (coronavirus).

Key takeaways surrounding the Governor’s announcement are as follows:

  • the Missouri state income tax filing deadline has been moved from April 15 to July 15, 2020
  • all individuals, C corporations, and trusts and estates will also be granted an extension to July 15, 2020 for payment of income tax due
  • estimated tax payments for the tax year 2020 normally due on April 15, 2020 will also be extended to July 15, 2020
  • no penalties or interest will be assessed until July 16, 2020 and extensions are able to be filed until July 15, 2020 for your 2019 return

Missouri’s decision comes after the Federal deadline extension was announced last week. Our team is closely monitoring this situation as it evolves. As of today, March 23rd, Illinois has yet to announce any extension of filing or payment deadlines. Our team will keep you updated if Illinois follows Missouri’s lead on this issue.

Asset Protection is Just as Important as Tax Planning

Like many financially savvy individuals, you’re probably already thinking about filing your tax return next year. But don’t overlook another critical and equally important aspect of financial planning: asset protection. Here are some fundamental strategies to consider.


Buy Liability Insurance

Liability insurance policies help protect your assets from the financial risks associated with personal liability that results from an adverse legal judgment. Auto and homeowner’s policies, for example, usually include some liability coverage. Increasing your liability coverage beyond the standard amounts will provide additional asset protection.

Personal liability umbrella insurance can give you even more liability coverage above the limits of your auto and homeowner’s policies. For instance, if you were sued for causing a car accident or found liable for injuries suffered by a visitor to your home, umbrella insurance could provide coverage up to the policy limits (such as $1 million).

Look to Statutory Protection

Federal or state law exempts certain kinds of property and assets from creditor liens. Thus, some assets you own may automatically be protected due to statutory guidelines. Qualified retirement plans are this type of asset, as are IRAs and 401(k) plans, life insurance proceeds and Section 529 college savings plans. But keep in mind that inherited assets may not have the same degree of protection.

The amount of home equity that’s protected (generally called the “homestead exemption”) depends on state law. In some states, it’s very generous, but in others it’s extremely limited, given the value of homes today. In a couple of states, there’s no protection. Consult with an attorney about your state’s laws.

Establish a Trust

Assets placed in an irrevocable trust can’t be removed, nor can the trust terms be changed. Thus, you’ve effectively relinquished control over the assets and put them out of reach of your creditors. The asset transfer must be done in advance of the act that created the liability, or the transfer could be nullified. In other words, the time to think about setting up such a trust is before you need to take advantage of it.

An irrevocable trust also can help you protect assets for your children and grandchildren. Consider structuring the trust in a way that effectively gives future generations the benefit of the assets without transferring ownership of them to your heirs. This can shield those assets from your descendants’ future creditors.

If you decide to use trusts as part of your asset protection strategy, remember that they may be subject to higher income tax rates and additional tax filing requirements. Trusts also may be costly to set up and require expert legal counsel to administer and maintain.

Obtain Expert Assistance

The details involved in implementing asset protection strategies can be complex. We can offer you guidance in your case.

 

Sidebar: Asset Ownership Structure is Key

Ownership of your assets plays an important role in whether they can be seized by creditors. Thus, it might be wise in some situations to transfer ownership of certain assets to your spouse. If you’re at a high risk of liability — for example, you’re a business owner — one strategy might be to retain ownership of assets with statutory protection, as mentioned in the main article, and transfer ownership of all other assets to your spouse.

Friends Trivia for the Troops

Could we BE more excited?!

What could be better than a night of Friends Trivia? Well, we channeled our inner UNAGI and thought, Friends Trivia for the Troops of course! All proceeds and donations received from this event will go toward our Scheffel Boyle Shares project for the year of assembling care packages for troops deployed overseas. Please consider participating for a night of fun and philanthropy!

Friends Trivia for the Troops
Big Daddy’s Edwardsville
Wednesday, November 13th
Registration Opens at 6:30, Trivia Starts at 7pm

Reserved seating is SOLD OUT! Overflow seating will be available that evening first come, first serve for a limited number of tables on a heated, enclosed patio.

Be sure to follow the event on Facebook to get updates!


Want to earn some mulligans?

Bring a donation for our Troops from the wishlist below and you’ll earn mulligans! Max of 5 mulligans per team.

  • High-quality socks (black crew length)
  • Good soap, shampoo, body wash, or face wash
  • Toothpaste, toothbrushes, and floss
  • Travel-size deodorant
  • Sodoku books and crossword puzzles
  • Instant coffee
  • Crystal Light drink packets
  • Instant sweet tea packs
  • Reese’s, M&Ms, and other candy
  • Fruit snacks
  • Baby wipes
  • Sunscreen
  • Hand sanitizer
  • Lens cleaning cloths
  • Magazines and books
  • Board games
  • Decks of cards
  • Puzzles
  • Batteries (AA and AAA)
  • Slim Jims
  • Protein Bars
  • Gum
  • Sunflower Seeds
  • Twizzlers
  • Beef Jerky
  • Hair ties
  • Bobby pins
  • Dried fruit
  • Stamps
  • Words of encouragement/letters/LOVE

 

Download our event flyer here!

No Surprises: Why You Should Check Your Tax Bracket

Many taxpayers learned some tough lessons upon completing their 2018 tax returns regarding the changes brought forth by the Tax Cuts and Jobs Act (TCJA). If you were one of them, or even if you weren’t, now’s a good time to check your bracket to avoid any unpleasant surprises next April.

Under the TCJA, the top income tax rate is now 37% (down from 39.6%) for taxpayers with taxable income over $500,000 for 2018 (single and head-of-household filers) or $600,000 for 2018 (married couples filing jointly). These thresholds are higher than they were for the top rate in 2017 ($418,400, $444,550 and $470,700, respectively), so the top rate probably wasn’t too much of a concern for many upper-income filers.

But some singles and heads of households in the middle and upper brackets were likely pushed into a higher tax bracket much more quickly for the 2018 tax year. For example, for 2017 the threshold for the 33% tax bracket was $191,650 for singles and $212,500 for heads of households. For 2018, the rate for this bracket was reduced slightly to 32% — but the threshold for the bracket is now only $157,500 for both singles and heads of households.

So, a lot more of these filers found themselves in this bracket and many more could so again in 2019. Fortunately for joint filers, their threshold for this bracket has increased from $233,350 for 2017 to $315,000 for 2018. The thresholds for these brackets have increased slightly for 2019, due to inflation adjustments. If you expect this year’s income to be near the threshold for a higher bracket, consider strategies for reducing your taxable income and staying out of the next bracket. For example, you could take steps to accelerate deductible expenses.

But carefully consider the changes the TCJA has made to deductions. For example, you might no longer benefit from itemizing because of the nearly doubled standard deduction and the reduction or elimination of certain itemized deductions. For 2019, the standard deduction is $12,200 for singles and married individuals filing separately, $18,350 for heads of households and $24,400 for joint filers.

Mark Your Calendar for Upcoming Tax Deadlines!

July 15 — If the monthly deposit rule applies, employers must deposit the tax for payments in June for Social Security, Medicare, withheld income tax and nonpayroll withholding.

July 31 — If you have employees, a federal unemployment tax (FUTA) deposit is due if the FUTA liability through June exceeds $500.

  • The second quarter Form 941 (“Employer’s Quarterly Federal Tax Return”) is also due today. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until August 12 to file the return.

August 15 — If the monthly deposit rule applies, employers must deposit the tax for payments in July for Social Security, Medicare, withheld income tax and nonpayroll withholding.

September 16 — Third quarter estimated tax payments are due for individuals, trusts and calendar-year corporations.

  • If a six-month extension was obtained, partnerships should file their 2018 Form 1065 by this date.
  • If a six-month extension was obtained, calendar-year S corporations should file their 2018 Form 1120S by this date.
  • If the monthly deposit rule applies, employers must deposit the tax for payments in August for Social Security, Medicare, withheld income tax and nonpayroll withholding.

September 30 — Calendar year trusts and estates on extension must file their 2018 Form 1041.

Ensuring Your Long-Term Care Policy is Tax-Qualified

A long-term care insurance policy supplements your traditional health insurance by covering services that assist you or a loved one with one or more activities of daily living. Such activities include eating, bathing, dressing, toileting and transferring (in and out of bed, for example).

Long-term care coverage is relatively expensive, but it may be possible to reduce the cost by purchasing a tax-qualified policy. Generally, benefits paid in accordance with a policy are tax-free. In addition, if a policy is tax-qualified, your premiums are deductible (as medical expenses) up to a specified limit if you qualify.

To qualify, a policy must:

  • Be guaranteed renewable and noncancelable regardless of health,
  • Not delay coverage of pre-existing conditions more than six months,
  • Not condition eligibility on prior hospitalization,
  • Not exclude coverage based on a diagnosis of Alzheimer’s disease, dementia, or similar conditions or illnesses, and
  • Require a physician’s certification that you’re either unable to perform at least two of six ADLs or you have a severe cognitive impairment and that this condition has lasted or is expected to last at least 90 days.

It’s important to weigh the pros and cons of tax-qualified policies. The primary advantage is the premium deduction. But keep in mind that medical expenses are deductible only if you itemize and only to the extent they exceed 10% of your adjusted gross income for 2019, so some people don’t have enough medical expenses to benefit from this advantage. It’s also important to weigh any potential tax benefits against the advantages of nonqualified policies, which may have less stringent eligibility requirements.

Vacation Homes: Do You Understand the Tax Nuances?

Owning a vacation home can offer tax breaks, but they may differ from those associated with a primary residence. The key is whether a vacation home is used solely for personal enjoyment or is also rented out to tenants.


Sorting It Out

If your vacation home is not rented out, or if you rent it out for no more than 14 days a year, the tax benefits are essentially the same as those you’d receive if you own your primary residence. In this scenario, you’d generally be able to deduct your mortgage interest and real estate taxes on Schedule A of your federal income tax return, up to certain limits. Also, you may exclude all your rental income.

But the rules are different if you rent out your vacation home for 15 or more days annually. First, the rental income must be reported. Second, in this scenario, the IRS considers your vacation home to be an investment property and, thus, allows deductions related to the rental of the property, with certain limitations. In addition to mortgage interest and real estate taxes, these deductions generally include insurance, utilities, housekeeping, repairs and depreciation. Also, the deduction for certain categories of expenses cannot exceed the rental income.

If you exceed this number of days of rentals and use your vacation home for personal use, these deductions will be limited by the ratio of actual rental days to the total days of use of the home. Suppose, for example, that you personally use your vacation home for 25 days and rent it for 75 days in a year, so the home is used for 100 total days. Here, you would be allowed to deduct 75% of the expenses listed above as rental expenses. Be aware that a portion of the mortgage interest and real estate taxes may be deductible on Schedule A. In certain circumstances, however, the personal portion of your mortgage interest may not be deductible.

Bottom Line

If you want to maximize the tax benefits of your vacation home, limit your personal use of the home to no more than 14 days or 10% of the total rental days. If you want to personally use the home more than this, you can still realize some limited tax benefits. Contact us for details about your specific situation.

Consider the Tax Advantages of Qualified Small Business Stock

While the Tax Cuts and Jobs Act (TCJA) reduced most ordinary-income tax rates for individuals, it didn’t change long-term capital gains rates. They remain at 0%, 15% and 20%.

The capital gains rates now have their own statutory bracket amounts, but the 0% rate generally applies to taxpayers in the bottom two ordinary-income tax brackets (now 10% and 12%). And, you no longer must be in the top ordinary-income tax bracket (now 37%) to be subject to the top long-term capital gains rate of 20%. Many taxpayers in the 35% tax bracket also will be subject to the 20% rate.

So, finding ways to defer or minimize taxes on investments is still important. One way to do that — and diversify your portfolio, too — is to invest in qualified small business (QSB) stock.

QSB Defined

To be a QSB, a business must be a C corporation engaged in an active trade or business and must not have assets that exceed $50 million when you purchase the shares.

The corporation must be a QSB on the date the stock is issued and during substantially all the time you own the shares. If, however, the corporation’s assets exceed the $50 million threshold while you’re holding the shares, it won’t cause QSB status to be lost in relation to your shares.

Two Tax Advantages

QSBs offer investors two valuable tax advantages:

1.      Up to a 100% exclusion of gain. Generally, taxpayers selling QSB stock are allowed to exclude a portion of their gain if they’ve held the stock for more than five years. The amount of the exclusion depends on the acquisition date. The exclusion is 100% for stock acquired on or after Sept. 28, 2010. So, if you purchase QSB stock in 2019, you can enjoy a 100% exclusion if you hold it until sometime in 2024. (The specific date, of course, depends on the date you purchase the stock.)

2.      Tax-free gain rollovers. If you don’t want to hold the QSB stock for five years, you still have the opportunity to enjoy a tax benefit: Within 60 days of selling the stock, you can buy other QSB stock with the proceeds and defer the tax on your gain until you dispose of the new stock. The rolled-over gain reduces your basis in the new stock. For determining long-term capital gains treatment, the new stock’s holding period includes the holding period of the stock you sold.

More to Think About

Additional requirements and limits apply to these breaks. For example, there are many types of businesses that don’t qualify as QSBs, ranging from various professional fields to financial services to hospitality and more. Before investing, it’s important to also consider nontax factors, such as your risk tolerance, time horizon and overall investment goals. Contact us to learn more.

TCJA Inspires Many Business Owners to Reconsider Entity Choice

For tax years beginning in 2018 and beyond, the Tax Cuts and Jobs Act (TCJA) created a flat 21% federal income tax rate for C corporations. Under prior law, C corporations were taxed at rates as high as 35%.

Meanwhile, the TCJA also reduced individual income tax rates, which apply to sole proprietorships and owners of pass-through entities, including partnerships, S corporations, and, typically, limited liability companies (LLCs). The top rate, however, dropped only slightly, from 39.6% to 37%.

What does all of this mean for business owners? Among other things, it means now might be a good time to reconsider your company’s entity choice — if not this year, then perhaps for the 2020 tax year. On the surface, switching to (or staying) a C corporation may seem like a no-brainer. But there are many other considerations involved.

Conventional Wisdom

Under prior tax law, conventional wisdom was that most small businesses should be set up as sole proprietorships or pass-through entities to avoid the double taxation of C corporations. A C corporation pays entity-level income tax and then shareholders pay tax on dividends — and on capital gains when they sell the stock. For pass-through entities, there’s no federal income tax at the entity level.

Although C corporations are still potentially subject to double taxation under the TCJA, their new 21% tax rate helps make up for it. This issue is further complicated, however, by another provision of the TCJA that allows noncorporate owners of pass-through entities to take a deduction equal to as much as 20% of qualified business income (QBI), subject to various limits. But, unless Congress extends it, the break is available only for tax years beginning in 2018 through 2025.

Scenarios to Ponder

There’s no one-size-fits-all answer when deciding how to structure a business. The best choice depends on your company’s distinctive circumstances, as well as your financial situation and objectives as owner.

For instance, if your business consistently generates tax losses, there’s no advantage to operating as a C corporation. Losses from C corporations can’t be deducted by their owners. So, converting to a pass-through entity may make sense because, as their name indicates, these business structures allow losses to pass through to the owners’ personal tax returns.

Another example involves companies that distribute profits to owners. For a profitable business that does so, operating as a pass-through entity generally will be better if significant QBI deductions are available. If not, the pass through entity benefit is diminished, but there is still a slight tax advantage to continuing to be a pass through entity.

Many Considerations

These are only a few of the issues to consider when rethinking your company’s business structure. We can help you evaluate your options.

 

Sidebar: Is your company focused on growth?

Some companies — particularly start-ups and those in “hot” industries — may turn a profit but hold on to those bottom-line dollars to fund future growth. For these businesses, operating as a C corporation generally is advantageous if the corporation is a qualified small business (QSB).

Why? A 100% gain exclusion may be available for QSB stock sale gains. If QSB status is unavailable, operating as a C corporation could still be preferred — unless significant qualified business income deductions would be available at the owner level. (For more on this exclusion, contact us.)