Retirement Distributions and the CARES Act

Tax rules prevent you from stashing away your pre-tax retirement money indefinitely to avoid paying taxes. Some of the rules about pre-tax retirement accounts have changed multiple times, making it a real challenge to keep up. Age and distribution rule changes for annual Required Minimum Distributions (RMDs) from traditional Individual Retirement Account (IRA) and other pre-tax retirement plan distributions are particularly head-spinning.

An RMD is just what it sounds like – a required distribution that is calculated and paid annually based on the taxpayer’s age and pre-tax retirement plan balances. The RMD amount is included in taxable income. The good news – there are online tables to help to calculate the RMD amount that must be taken every year. The bad news – a 50% penalty is assessed by the IRS if the minimum RMD is not taken by the deadline (e.g., April 1, 2020, for tax year 2019). Quite a strong incentive to follow the RMD rules.

Back in December 2019, the Setting Every Community Up for Retirement Enhancement Act (aka “SECURE Act”) was signed into law. The SECURE Act changed several important aspects of distributions from traditional (pre-tax) IRAs, 401(k) plans, 403(b) plans, and other pre-tax retirement plans. For example, the age when RMDs must start increased from 70½ to 72. See my December 11, 2019, blog post for details about SECURE Act changes.

Well, because of COVID-19, portions of the December 2019, the law related to RMDs didn’t stand for long. On June 23, 2020, the IRS announced that, per the Coronavirus Aid, Relief, and Economic Security Act, known as the CARES Act, the RMD is waived for 2020. Taxpayers over 72 who had already taken her or his RMD for 2020 from a pre-tax retirement account has until August 31, 2020, to roll the funds back into the account. Ordinarily, RMD rollbacks need to be done within 60 days of the distribution.

The IRS is also giving taxpayers a couple of other breaks by not counting the RMD repayment toward the rule that prohibits more than one rollover per 12-month period and the restriction on rollovers for inherited IRAs. Nice breaks but more to track. 

Some of the rules about pre-tax retirement accounts have changed multiple times, like RMDs from pre-tax retirement plans that changed twice in less than a year! Keeping up can be hard. Sure, you can hire a tax professional to help you out, but you don’t have to. The best place for all the latest tax information is free and always available –!

Federal (and Some State) Taxes Due July 15

Remember way back on March 21st when the IRS has delayed the 2019 tax deadline to July 15th? Around that time, many states also delayed their 2019 filing deadlines to align with the feds. Well, March 21st might seem like just yesterday, but time flies and the filing and payment deadline is now looming. At this writing, the Treasury Secretary is floating another filing deadline delay. Tax industry experts are opposed, concerned that another delay would make this confusing and exhausting tax filing season even worse.

So, what if you still aren’t ready to file your federal tax return by July 15th? No problem! You can apply for a tax filing extension from the IRS (and your state, too). No need to provide a reason but it does take a little time and effort to get it done correctly, to avoid potential underpayment interest and penalties.

Two important tips about getting a tax filing extension:

  • You Have to Apply

Individual taxpayers use IRS Form 4868 to request an extension to file their federal income tax return until October 15th. A federal extension can be filed directly on the IRS website, e-filed using approved tax software, or in paper form by midnight on July 15th. If you are getting a refund or submit the amount due with your extension (see #2 for more details), the extension request is automatically approved. If you are expecting a refund, you must wait until after your return is filed to get your money back. State extension requirements vary. Check your state tax department website for details.

  • You Must Pay What You Owe

Use the IRS Form 4868 instructions to estimate your income tax liability based on the information you have Compare your estimated tax liability with your tax withholding or quarterly estimated payments and enter the numbers on the extension request form. If you are estimated to owe more federal income tax than you’ve paid in, the balance due must be paid with your extension request. Failure to pay will result in an underpayment penalty and interest on the unpaid amount, accrued daily until it’s paid. That really adds up.

Rushing at the last minute is stressful and causes mistakes. Better to give yourself more time to file your 2019 income tax returns by requesting an extension until October 15th. Need more details about estimating your 2019 tax liability and getting a tax filing extension? Go to the IRS website at

IRS Sends Out Notices Delayed by Pandemic

Just like a lot of businesses, museums, and parks, IRS service centers have been closed for about three months to reduce the spread of the coronavirus. Many IRS services are fully automated and have kept on chugging, like processing e-filed tax returns and sending refunds. However, all IRS services that are performed by a human being stopped cold when services centers closed, including mailing out “balance due” notices to taxpayers.

Most, if not all, of those unmailed balance due notices reflect payment due dates that have already passed. The IRS determined that the time and expense of generating all the notices again with new due dates was too high. So, they are mailing out those “old” notices with an insert of another notice saying that the due date printed on the first notice is extended. What? Based on my experience, taxpayers find it challenging to read one IRS notice – unlikely they will read two.

When you are freaking out about getting an envelope from the IRS is not the best time to grasp this Two Notice Concept. In case this happens to you, here’s what to do:

  • Take a Breath – We are getting used to our “normal” being anything but normal. Don’t let your existing stress from the pandemic escalate. Deeply inhale and exhale to calm yourself, then open the envelope – procrastination will only increase your stress.
  • Read All Contents – Read all contents of the envelope thoroughly. Check the amount(s) due, dates and reasons for underpayment with your records to verify the accuracy of the notice. These notices are boring and long, making it easy to overlook important information.
  • Pay by the New Due Date – If you verify that the balance due notice is accurate, avoid incurring additional interest and penalties by paying the balance by the new due date. For most unpaid income tax balances, the new due date will be July 15, 2020. 
  • Follow-up on Inaccuracies – Any inaccuracies or questions should be followed-up on before paying anything. Notice recipients are directed to visit the listed website or call the phone number on the notice. Unfortunately, IRS phone lines are extremely busy. It’s going to be several weeks before taxpayer service lines are fully staffed.

IRS service centers are re-opening and mailing out all the notices that didn’t make it out the door before the pandemic shutdown. Balance due notices with due dates that have passed will include an insert of another notice saying that the due date printed on the first notice is extended. Confusing? Yes. Need more information than what’s provided here? Check out  

Develop a COVID-19 Workplace Budget

Preparing to open your workplace in the COVID-19 environment is a complicated subject. Expensive, too. Some guidance for keeping your workers and customers safe is available from OSHA and the CDC, but none of it includes guidance for budgeting for all those extra costs. It’s up to you as a business owner to figure it out.

Although federal workplace guidance for COVID-19 doesn’t address budgeting, it can be used as a tool to think through all factors to consider for opening your workplace safely. Identifying the costs that you will need to consider is a good starting point to develop a COVID-19 workplace budget. OSHA and CDC guidance spells out four categories that business owners need to consider to safely open their workplace the COVID-19 environment:

  • Health and Safety Policies

Establishing policies and procedures might not sound like it should be a budgeted expense, but it really is. Not only do you have to decide workplace rules about personal hygiene (e.g., hand washing), distancing to prevent infection, and cleaning the workplace; you also need signage, floor markers and other methods to communicate the policies you have implemented to protect your workers and customers.

  • Health Resources 

Most workplaces do not commonly spend much of their budgets on worker health. In the COVID-19 environment, almost all businesses will need to add expenses for items and services they never considered before, like personal protection equipment, testing to identify infected employees, special cleaning services, and extra supplies for cleaning and disinfecting. These added expenses could be part of your budget for a long time.

  • Human Resource Issues 

New or augmented rules may be needed to support workers and help them feel safe in your workplace. Managing worker needs during a pandemic does not absolve employers from following privacy and nondiscrimination protections. Topics that employers should address include identifying and protecting at-risk employees, informing employees of possible workplace exposure, and protecting employee confidentiality.

  • Operational Impacts 

Costs to operate your business safely will definitely go up, it’s just a question of how much. Physical workplace modifications to achieve social distancing is an obvious cost. You may also need to consider regulatory compliance and legal issues, as well as the risk of legal liability for employee illness or death. You could need to budget for legal or regulatory expertise for input. And don’t forget to factor in the reduced productivity that is bound to occur due to the COVID-19 environment.

Preparing to open your workplace in the COVID-19 environment is complicated and expensive. Federal guidance does not address how to budget for all the extra costs to keep your workplace safe, but you can use it to identify the factors and costs to develop your COVID-19 workplace budget.

Is It Time to Convert to a Roth IRA?

Recent dips in the stock market might have you wondering if this is a good time to convert your eligible pre-tax retirement accounts to a Roth IRA. Your account values have taken a hit, so yes, this could be the perfect time. But is it the right time for you? Well, it depends on your situation.

No matter what, you will have to pay current income tax on any untaxed portions of your Roth IRA conversion amount. Paying taxes on pre-tax contributions and earnings can take a bite out of your account balances but it could be beneficial in the long run if you: 

  • Will be in the same or higher tax bracket when you withdraw.

It’s important to assess what your current tax bracket is and what you anticipate that your tax bracket will be when you plan to withdraw IRA funds. You also want to check whether an IRA conversion would bump you into a higher tax bracket. If the tax bracket bump is slight, the conversion benefits might still outweigh the difference in income tax.

  • Won’t need the converted funds for at least five years.

Converted IRA funds are not available for distribution until after a five-year waiting period from the conversion date. If you are close to retirement age and anticipate needing to tap those funds, you could end up paying a 10% penalty on withdrawals of money from the conversion of an eligible pre-tax retirement plan to a Roth IRA.

  • Can pay the conversion tax in cash.

You will be responsible for paying income taxes on any funds you convert, aside from prior after-tax contributions. It’s important to pay the conversion taxes with non-IRA assets, or you will lose the benefits of tax-free growth on the amount you take out. The cost of the taxes and loss of tax-free growth could outweigh the advantage of converting.

  • Want to leave a tax-free financial legacy to your heirs.

A Roth IRA doesn’t require minimum distributions, which means your account can continue to grow tax-deferred until you pass it on to your heirs. A spouse who inherits a Roth IRA also doesn’t have to take minimum distributions. You also eliminate the income tax your heirs would pay on withdrawals because you already paid it.

Another important thing to note – even if you want to do a full conversion of your traditional IRA to a Roth IRA, you don’t have to do it all at once. Under current tax law, you can split up the conversion amounts to avoid getting pushed into a substantially higher tax bracket.

The decision to convert your eligible retirement funds to a Roth IRA depends on your personal and financial situation and should factor in your potential for a greater ending portfolio value, your estate planning goals, and your tax-risk. Paying taxes on pre-tax contributions and earnings can take a bite out of your account balances but it could be time to convert to a Roth IRA. 

Phishing for your Economic Impact Payment

IRS imposters and other scammers have been out there for years, using any angle they can to get your money. Economic Impact Payments and other COVID-19 funding from the federal government is incredibly tempting to those criminals. To them, those funds are a huge pot of opportunity to scoop up some cash with little extra effort – just a few tweaks to their existing methods, including phishing.I

“Phishing” is wordplay for “fishing” because the scammer uses bait to lure and reel in his prey. The scammer uses fraudulent emails to induce the recipient to share valuable personal information, such as passwords and credit card numbers. Recently, taxpayers have reported being phished with emails purporting to help them get their Economic Impact Payment faster by registering on the link. Of course, the link is to the scammers, not the IRS!

So, how can you identify phishing and what if it happens to you?

  • Check the sender’s email address.

The easiest way to check for phishing is to place your cursor over the sender’s name, revealing the sender’s e-mail address. An address that doesn’t look legitimate is probably a scam. For example, anything other than “” for the IRS is suspect. Another clue is when the sender’s name in the email title doesn’t match the sender’s e-mail address.

  • Look for spelling and grammar errors.

Whether scammers are just in a big hurry, or did poorly in school, phishing emails often contain spelling and grammatical mistakes. Legitimate communications from a charity or an employer are unlikely to be sent in such a sloppy and unprofessional manner. Stilted language or awkward syntax could also indicate a scam.

  • Resist temptation to open or click on a link.

Do not open or reply to any suspicious email, no matter how enticing. Scam email titles could be telling you about all kinds of cash prizes, refunds, or other goodies to tempt you into opening a message that will unleash malicious code that infects your computer or mobile phone. And don’t even think about clicking on a link in a suspicious email!

  • Report to authorities and delete.

Federal authorities and private groups are fighting against phishing scams. They need your help catching these criminals. You can report phishing emails to the Federal Trade Commission at and to the Anti-Phishing Working Group at [email protected]. Forward tax-related emails to the IRS at [email protected]. After reporting, delete the original email.  

Don’t get phished! When you get an e-mail that looks suspicious or is from an unfamiliar sender, stop and check it out before deciding to open it. Don’t fall victim to a scammer phishing for your Economic Impact Payment.

Coronavirus-Related Tax Credits for Employers

Congress and the Treasury Department have rolled out so many programs to help small businesses and workers, it’s almost impossible to keep up with them all. The Families First Coronavirus Response Act (FFRA) is the second of three COVID-19 relief bills passed in March 2020. One of its provisions is a new coronavirus-related tax credit for employers.

The FFRA tax credits are intended to help employers keep employees on their payrolls if they need to take coronavirus-related leave. It’s a real Win-Win situation. Employers can afford to keep good employees. Employees can get paid while they stay home to take care of themselves or a loved one and can avoid feeling forced to choose between their paychecks and their health.

Three important things to know about Coronavirus-Related Tax Credits for Employers:

  1. The credits are refundable. That means if the amount of the credit exceeds the amount of tax owed, the remainder is refunded to the business. In other words, for any calendar quarter where the amount of the credit exceeds the employer portion of the social security tax, the excess amount is treated as an overpayment and refunded to the employer.
  1. Employers must be eligible. FFRA tax credits are available to businesses that provide qualifying paid leave to employees between April 1 and December 31, 2020. The tax credits are intended to cover employer costs for providing employees with coronavirus-related paid sick leave and paid family and medical leave taken by the worker to care for her or himself, or for the worker to care for a family member due to the coronavirus. 
  1. Claim credits on federal employment tax returns. Employers will report their total qualified leave wages for each quarter on their federal employment tax return, IRS Form 941, which has been updated to allow employers to offset taxes with the credit. Cash-strapped employers may request an advance payment of the credit by submitting an IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.

FFRA tax credits are a valuable tool for employers to keep good employees and keep their business going financially. The credits were rolled out along with so many other new provisions, some qualifying employers may not be aware of them. Let’s hope that they have some help navigating provisions in the three COVID-19 relief bills passed in March 2020 – or that they read my blog.

Keep in mind that all three of the COVID-19 relief bills were passed very quickly. New rules and clarifications are coming out regularly. Be sure to check out to get all the latest information. Also, the IRS has posted FAQs about FFRA credits with links to guidance, forms and instructions that are updated as information is clarified at

Opening the Door to a Hacker

We use our computers and other devices every day. Often, we use them to access valuable financial and personal information. Just as often, we are using the same device for work, bill paying, and online searches. Accessing bank and other sensitive sites without appropriate security is just like opening the door to a hacker. 

For weeks, many workers have been unable to work from the office due to COVID-19. That means that they could be working outside the protection of their employer’s computer security, opening the door to hackers even wider. So how can you and workers on your team close the door to hackers, no matter where they are located and what devices they use?

Follow these five tips to close the door to hackers:

  • Anti-Virus Software

Anti-virus software scans computer files or memory for certain patterns that may indicate the presence of malicious software. Anti-virus vendors find new issues and update malware daily, so it is important that you have the latest updates installed on your computer. Set security software to automatically receive and download the latest updates so that it is always current.

  • Firewalls

Firewalls provide protection against hackers by shielding your computer or network and preventing malicious software from accessing your systems. Firewalls can be configured to block data from certain suspicious locations or applications while allowing relevant and necessary data through.

  • Phishing emails

Never, never, ever open a suspicious email or click on a link from an unknown source. You could be a target of a phishing attack and your data could be compromised. Same thing goes for clicking on links in pop-up windows and downloading “free” software from a pop-up. You could be installing the spyware that the pop-up claims to be eliminating. 

  • Public Wi-Fi

Avoid using public hot sites. The money you save on your service plan is not worth opening the door to a hacker. Due to its unsecure nature, online access that you can snag from a business down the street should not be used to pay bills or open confidential client files. Hackers can also masquerade as a public hot site and intercept whatever valuable information they can.

  • Two-Factor Authentication

Many providers now offer two-factor authentication protections to add an extra layer of security. Returning users must enter username and password plus another step, such as entering a security code sent via text. A hacker with your username and password is unlikely to also have the device needed to receive the code and complete the process.

Follow these five tips, and you and your workers will close the door to hackers, no matter where they are located and what devices they use.