Searle Business Solutions

As if everything to do with taxes were not confusing enough, changes in response to the COVID-19 crisis are head-spinning. The IRS has changed the 2019 individual tax filing and payment deadlines to July 15^th and changed the 2020 estimated tax payments twice. Most of the states have changed their deadlines to match the IRS, possibly to avoid taxpayer confusion.

But not Virginia! I love living and working in Virginia but some of our rules are a bit inexplicable. We vote for state and local officials on odd years when everyone else votes on even years. We call ourselves a Commonwealth and almost everyone else is a State. And our normal individual income tax filing deadline is May 1^st instead of the date that is normal for everyone else, April 15^th.

For this filing season, it’s even better. Virginia’s Department of Taxation has announced that:

• Individual income tax returns for 2019 are still due to be filed by May 1, 2020. Taxpayers who are not ready to file by the deadline can get an automatic six-month extension to November 1^st. No application is required to file on extension. Please see the Virginia Tax website for details.

• An extension to file is not an extension to pay. Usually, taxpayers need to pay by the May 1^st due date to avoid underpayment penalties and interest. However, for the 2019 tax year, income tax extension payments must be made by June 1^st to avoid late payment penalties or extension penalties.

• Any income tax payments due from April 1^st to June 1^st – for individuals or businesses – will be considered on time without penalty if paid by June 1^st. Virginia Tax will automatically waive any late payment penalties as long as full payment is made by June 1^st. If not, the penalty waiver will not apply, and late payment penalties will accrue from the original due date.

Virginia’s Department of Taxation is super strict about tracking taxes due and accruing interest and penalties. This tax season’s deadline changes will certainly catch some taxpayers by surprise, resulting in quite a few late filing penalties and underpayment interest. I doubt that they will accept date changes and deadline confusion as an acceptable excuse to remove those extra charges. 

Bottom line, file or extend your Virginia 2019 income tax return by May 1^st and pay anything you owe by June 1^st. Don’t get caught up in all the deadline change confusion. Check the Virginia Tax website or your state’s website to make sure you know the latest updates on what you need to do this tax filing season.

Your head is probably spinning right now, trying to figure out when your 2019 taxes need to be filed and paid, especially if you live in a state that is not following the IRS deadlines changes (looking at you, Virginia). As if that weren’t bad enough, the IRS has changed the due dates for 2020 estimated tax payments at least twice (so far) and several states (and the District of Columbia) are not changing 2020 tax due dates. 

Confused yet? Your safest move is to check the website for your state and www.IRS.gov for the latest information. But no matter what dates your payments are due, determining whether you need to make estimated tax payments for this year doesn’t look different than in the past.  

Three things to know about 2020 estimated taxes:

• Who Needs to Pay Estimated Taxes?

If all your income comes from wages, the taxes that your employer withholds and remits for you probably covers your income tax liability. If you are self-employed or if you receive investment or rental income that is not covered by tax withholdings, you should assess your need to make estimated income tax payments. That starts with projecting your federal and state income tax liabilities for 2020. The IRS website explains what to include and how to estimate your tax at this link 

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes.

• How Much Do You Need to Pay?

Estimated tax payments are based on your estimated income and resulting tax liability. You must pay estimated tax for 2020 if you expect to owe at least $1,000 in tax after subtracting withholding and refundable credits. Withholdings or estimated payments must equal or exceed the smaller of 90% of your 2020 tax liability, or 100% of your 2019 tax liability. Calculate your 2020 tax liability at this link https://www.irs.gov/forms-pubs/about-form-1040-es. See your state’s tax website for information to project your 2020 state tax liability.

• What if You Don’t Pay Enough?

Interest is calculated on any unpaid balance due, accrued daily from the time the tax liability was created, aka when your income was earned or received, and when the tax is paid. Daily interest accruals can really add to your tax bill, so staying on top of any necessary tax payments is essential to managing expenses. Clearly, the IRS is serious about getting paid on time. Figure your 2020 federal income tax bill by using the IRS Withholding Estimator at https://www.irs.gov/individuals/tax-withholding-estimator.

If you paid a lot when you filed your 2019 income tax return or have income with no tax withholdings, you should look at whether you need to pay 2020 estimated taxes. Don’t feel comfortable doing this yourself? The IRS can also help you find a qualified tax professional to help you out, at this link https://www.irs.gov/tax-professionals/choosing-a-tax-professional.

New financial relief packages to address the coronavirus pandemic are in the news all the time these days. It’s hard to keep them all straight. Of all the new programs, many people are looking out for that Economic Impact Payment from the IRS. When the payments were announced by the Secretary of the Treasury, he projected an issue date of about April 6^th. At the time, the IRS said it could take a month.

One month is the estimate for direct deposit payments to hit taxpayers’ bank account, assuming they used direct deposit (or direct debit) for their tax refund or payment. Paper checks could take until August, or longer! So, while you are waiting, here are a few things you might want to know about Your Economic Impact Payment:

• How much will I get?

The Economic Impact Payment amount varies by tax filing status and adjusted gross income (AGI). Single taxpayers with an AGI under $75,000 will receive the full stimulus payment of $1,200. Above $75,000, there is a sliding scale up to $99,000, where it phases out and there is no payment. For a married couple the numbers are doubled. The Head of Household fling status limitation starts at $112,500 and fully phases out at $136,500. The payment is $500 for each qualifying dependent child.

• How will I get my payment?

Taxpayers who used their bank information for their 2019 or 2018 tax refund or payment will get the stimulus payment direct deposited into the same account. Social Security recipients who do not file a tax return will have funds deposited into the account used for their benefits. Otherwise, a check will go to the address on file. The IRS plans to have a website for taxpayers without an account on file to provide that information.

• Will my payment impact my refund when I file my 2020 income return?

The short answer is, “no.” The Economic Impact Payment does not have to be repaid and it will not offset any refund you might be owed when you file your 2020 federal income tax return. The IRS payment that arrives shortly will be calculated on the AGI from 2019 or 2018, not the AGI for tax year 2020, which is not known yet. Therefore, the IRS plans to include a payment “reconciliation” on 2020 federal tax return. Taxpayers who should have received a higher payment because their 2020 AGI was lower will get a “credit.” Taxpayers in the opposite situation – a higher AGI for 2020 – will not have to refund the overpayment.

More tools and details are available about how much of an Economic Impact Payment you will get and when you will get it. The Washington Post has put out a “stimulus calculator” to help people determine the amount of the stimulus payment based on their income and family size. Plus, as usual, the IRS website has you covered: https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know

Most of us are preoccupied with staying at home, learning to work remotely and keeping children from going stir-crazy. Scammers see these grim times as an opportunity to jump on our fears about health and finances. I guess it’s their “job,” but still…

The last thing that people need right now is someone adding to their stress when they are looking for answers about how to pay their bills and maintain their health. But scammers know when people are vulnerable and open to solutions that sound too good to be true. And they’re smart! Scammers pivot from their everyday crimes and refine them for the “fear of the day.”

Only days after pandemic fears became widespread, the Better Business Bureau was already reporting that government imposters are calling about COVID-19 relief. As part of the scam, callers suggest that you might qualify for a special COVID-19 government grant, after first verifying your identity by asking for confidential information. Variations on the scheme involve contacts through text messages and social media posts. 

Other twists on the scam suggest that you can get more money from the government – or get your stimulus check faster – if you share personal details and pay a small “processing fee.” Do not take the bait! Stimulus checks are free money from the government. You do not need to spend money to receive your check. And there are no short-cuts – even for a fee.

The Internal Revenue Service will deposit your check into the direct deposit account you previously provided on your tax return or send you a paper check. The IRS will not call and ask you to verify your payment details. Do not give out your bank account, debit account, or PayPal account information – even if someone claims it is necessary to get your stimulus check. It is a scam. The IRS has information about detecting and reporting imposters trying to take your hard-earned money at https://www.irs.gov/newsroom/tax-scams-consumer-alerts.

Protect yourself! If you receive a call, do not engage with scammers or thieves, just hang up. If you receive texts or emails claiming that you can get your money faster by sending personal information or clicking on links, delete them.

Perhaps one day, scammers will turn their efforts to non-criminal activity. Until then, keep your guard up and don’t let scammers jump on your pandemic fear.

Businesses are all being affected differently by the current coronavirus pandemic. Many are experiencing a steep drop-off in business activity and revenue. Some businesses have stopped operating altogether. But they all have one thing in common – times of crisis require a plan for crisis management, especially when it comes to finances. 

Planning for a crisis will not prevent the crisis from occurring; crisis management is intended to mitigate the impact of the crisis on business finances. It’s analogous to your physical health. Planning for a healthy lifestyle doesn’t prevent illness, but it can reduce the duration and severity of the illness.

Businesses should follow these three steps to mitigate the impact of a crisis on their finances:

• Assess Financial Position

As soon as a crisis occurs or appears to be imminent, business owners should immediately assess overall financial positions related to liquidity and payment commitments. Up-to-date, complete and accurate financial recordkeeping and a monthly review of financial reports will arm business owners with the knowledge to adapt quickly. Immediately knowing the financial status of your business is immensely important, especially during, or leading up to, a crisis.

• Conserve Cash

During times of crisis, cash is king. Even more than usual. When business activity slows down or stops, businesses are less able to predict revenues and cash flow, resulting in a reduced ability to forecast how long cash balances will last. The only thing to do in a crisis is to hang onto cash to avoid missing crucial bill payments, like rent and payroll. Also, verify the availability and interest rate for any existing signature loans or lines-of-credit that could be needed to keep the doors open during a crisis.

• Scrub the Budget

Assuming that a crisis was not baked into this year’s budget – and let’s face it, that almost never happens – many businesses probably budgeted for expense and revenue items that no longer make sense, under the circumstances. Examine each budget category for both revenues and expenses to identify what items will not occur, increase, decrease, or need to be added based on the type and anticipated duration of the crisis.

Businesses that are affected by a crisis can take steps to mitigate its impact on business finances. Assessing the business’ financial position, conserving cash and scrubbing the budget are three steps that businesses can take to adapt quickly to a crisis and withstand a steep drop-off in business activity.