What is the SECURE Act?

A significant law was recently passed that adds tax breaks and makes changes to employer-provided retirement plans. If your small business has a current plan for employees or if you’re thinking about adding one, you should familiarize yourself with the new rules.

The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law on December 20, 2019 as part of a larger spending bill. Here are three provisions of interest to small businesses.

1. Employers that are unrelated will be able to join together to create one retirement plan. Beginning in 2021, new rules will make it easier to create and maintain a multiple employer plan (MEP). A MEP is a single plan operated by two or more unrelated employers. But there were barriers that made it difficult to setting up and running these plans. Soon, there will be increased opportunities for small employers to join together to receive better investment results, while allowing for less expensive and more efficient management services.
2. There’s an increased tax credit for small employer retirement plan startup costs. If you want to set up a retirement plan, but haven’t gotten around to it yet, new rules increase the tax credit for retirement plan start-up costs to make it more affordable for small businesses to set them up. Starting in 2020, the credit is increased by changing the calculation of the flat dollar amount limit to: The greater of $500, or the lesser of: a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan, or b) $5,000.
3. There’s a new small employer automatic plan enrollment tax credit. Not surprisingly, when employers automatically enroll employees in retirement plans, there is more participation and higher retirement savings. Beginning in 2020, there’s a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. This credit is on top of an existing plan start-up credit described above and is available for three years. It is also available to employers who convert an existing plan to a plan with automatic enrollment.

These are only some of the retirement plan provisions in the SECURE Act. There have also been changes to the auto enrollment safe harbor cap, nondiscrimination rules, new rules that allow certain part-timers to participate in 401(k) plans, increased penalties for failing to file retirement plan returns and more. Contact us to learn more about your situation.

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If you want to talk to us about your personal tax situation, please email us via our contact page and visit our website at www.ablonco.com.

© 2020, all rights reserved.

 

Gift and Estate Tax Update

Recap of recent changes

As a result of the large estate tax exemption amount that was set in 2011 at $5 million (increased to $10 million for estates of decedent’s dying in 2018 through 2025), which increases annually for inflation (the amount is $11,180,000 in 2018, and $11,400,000 in 2019), many estates no longer need to be concerned with federal estate tax. Before 2011, the smaller estate tax exemption amount resulted in estate plans that attempted to avoid the estate tax, but were not concerned with minimizing income tax. Now, because many estates will not be subject to estate tax (thanks to that large exemption amount), planning for such estates can be devoted almost exclusively to saving income taxes. While saving both income and transfer taxes has always been a goal of estate planning, it was more difficult to succeed at both when the estate and gift tax exemption level was much lower. Below are some tax planning strategies you may want to revisit in light of the large exemption amount and other recent changes in the law.

Gifts that use the annual gift tax exclusion

One of the benefits of using the gift tax annual exclusion to make transfers during life is to save estate tax. This is because both the transferred assets and any post-transfer appreciation generated by those assets are removed from the donor’s estate. However, because the estate tax exemption amount is so large, estate tax savings may no longer be an issue. Further, making an annual exclusion transfer of appreciated property carries a potential income tax cost because the donee receives the donor’s basis upon transfer. Thus, the donee could face an income tax cost, via a capital gains tax liability, on the possible sale of the gifted property in the future. If there is no concern that an estate will be subject to estate tax, even if the gifted property grows in value, then the decision to make a gift should be based on factors other than estate tax savings. For example, gifts may be made to help a family member with making a purchase or starting a business. But a donor should not gift appreciated property because of the capital gain that could be realized on a future sale of the property by the donee. If the appreciated property is held until the donor’s death, the heir will get a step-up in basis that will wipe out the capital gain tax on any pre-death appreciation in the value of the property.

Planning that equalizes spouses’ estates

In the past, spouses often undertook complicated strategies to equalize their estates so that each could take advantage of the estate tax exemption amount. Generally, a two-trust (a credit shelter trust and marital trust) plan was established to minimize estate tax. “Portability,” or the ability to apply the decedent’s unused exclusion amount to the surviving spouse’s transfers during life and at death, became effective for estates of decedents dying after 2010. As long as the election is made, portability allows the surviving spouse to apply the unused portion of a decedent’s applicable exclusion amount (the deceased spousal unused exclusion (DSUE) amount) as calculated in the year of the decedent’s death. So, if a spouse dies in 2019, when the estate tax exclusion amount is $11,400,000, without having used any exclusion amount over the course of the deceased spouse’s life, the surviving spouse would be able to apply the DSUE amount of $11,400,000 to any taxable transfers made. If the surviving spouse were to die later in 2019, then the surviving spouse will be able to use an exclusion amount of $22,800,000 (both the DSUE and the surviving spouse’s exclusion amount). In this example, if the surviving spouse dies in a later year, the DSUE amount remains fixed at $11,400,000, but the surviving spouse’s basic estate exclusion amount will increase annually. The portability election gives married couples more flexibility in deciding how to use their exclusion amounts.

Estate exclusion or valuation discounts that do not preserve the step-up in basis

Some strategies to avoid inclusion of property in the estate may no longer be worth pursuing. It may be better to have the property be included in the estate or not qualify for valuation discounts so that the property receives a step-up in basis. For example, the special use valuation—the valuation of qualified real property used for farming purposes or in a trade or business on the basis of the property’s actual use, rather than on its highest and best use—may not save enough, or any, estate tax to justify giving up the step-up in basis that would otherwise occur for the property if the special use valuation is not applied. Also, estates where property was transferred to avoid estate inclusion by limiting the transferor’s power or control over the property may now welcome that inclusion because that inclusion would mean a step-up in basis, saving potential future capital gain tax. The gap between the transfer tax rate and the capital gains tax rate has narrowed, making strategies that do not preserve the step-up in basis less desirable.

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If you want to talk to us about your personal tax situation, please email us via our contact page and visit our website at www.ablonco.com.

© 2020, all rights reserved.

Standard Mileage Rate Changes, 2020

The IRS has issued the 2020 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, medical and charitable purposes. Notice 2020-5 provides that the 2020 standard mileage rate for transportation or travel expenses is 57.5 cents (down from 58 cents per mile for 2019) for all miles of business use. For medical driving, the 2020 standard mileage rate is 17¢ per mile. The standard mileage rate is 14 cents per mile for use of an auto in rendering services to a charitable organization.

 

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If you want to talk to us about your personal tax situation, please email us via our contact page and visit our website at www.ablonco.com.

© 2020, all rights reserved.

Year End Tax Law Changes

While you were celebrating the holidays, you may not have noticed that Congress passed a law with a grab bag of provisions that provide tax relief to businesses and employers. The “Further Consolidated Appropriations Act, 2020” was signed into law on December 20, 2019. It makes many changes to the tax code, including an extension (generally through 2020) of more than 30 provisions that were set to expire or already expired.

Two other laws were passed as part of the law (The Taxpayer Certainty and Disaster Tax Relief Act of 2019 and the Setting Every Community Up for Retirement Enhancement Act).

Here are five highlights.

Long-term part-timers can participate in 401(k)s.

Under current law, employers generally can exclude part-time employees (those who work less than 1,000 hours per year) when providing a 401(k) plan to their employees. A qualified retirement plan can generally delay participation in the plan based on an employee attaining a certain age or completing a certain number of years of service but not beyond the later of completion of one year of service (that is, a 12-month period with at least 1,000 hours of service) or reaching age 21.

Qualified retirement plans are subject to various other requirements involving who can participate.

For plan years beginning after December 31, 2020, the new law requires a 401(k) plan to allow an employee to make elective deferrals if the employee has worked with the employer for at least 500 hours per year for at least three consecutive years and has met the age-21 requirement by the end of the three-consecutive-year period. There are a number of other rules involved that will determine whether a part-time employee qualifies to participate in a 401(k) plan.

The employer tax credit for paid family and medical leave is extended.

Tax law provides an employer credit for paid family and medical leave. It permits eligible employers to claim an elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave. The credit is equal to 12.5% of eligible wages if the rate of payment is 50% of such wages and is increased by 0.25 percentage points (but not above 25%) for each percentage point that the rate of payment exceeds 50%. The maximum leave amount that can be taken into account for a qualifying employee is 12 weeks per year.

The credit was set to expire on December 31, 2019. The new law extends it through 2020.

The Work Opportunity Tax Credit (WOTC) is extended.

Under the WOTC, an elective general business credit is provided to employers hiring individuals who are members of one or more of 10 targeted groups. The new law extends this credit through 2020.

The medical device excise tax is repealed.

The Affordable Care Act (ACA) contained a provision that required that the sale of a taxable medical device by the manufacturer, producer or importer is subject to a tax equal to 2.3% of the price for which it is sold. This medical device excise tax originally applied to sales of taxable medical devices after December 31, 2012.

The new law repeals the excise tax for sales occurring after December 31, 2019.

The high-cost, employer-sponsored health coverage tax is repealed.

The ACA also added a nondeductible excise tax on insurers when the aggregate value of employer-sponsored health insurance coverage for an employee, former employee, surviving spouse or other primary insured individual exceeded a threshold amount. This tax is commonly referred to as the tax on “Cadillac” plans.

The new law repeals the Cadillac tax for tax years beginning after December 31, 2019.

Stay tuned

These are only some of the provisions of the new law. We will be covering them in the coming weeks. If you have questions about your situation, don’t hesitate to contact us.

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If you want to talk to us about your personal tax situation, please email us via our contact page and visit our website at www.ablonco.com.

© 2020, all rights reserved.

 

First Quarter Tax Calendar

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2020. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 31

• File 2019 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
• Provide copies of 2019 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
• File 2019 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS.
• File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2019. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
• File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2019. 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 February 10 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)
• File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2019 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. 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 year in full and on time, you have until February 10 to file the return.

February 28

• File 2019 Forms 1099-MISC with the IRS if 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is March 31.)

March 16

• If a calendar-year partnership or S corporation, file or extend your 2019 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2019 contributions to pension and profit-sharing plans.

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If you want to talk to us about your personal tax situation, please email us via our contact page and visit our website at www.ablonco.com.

© 2019, all rights reserved.

 

Small Businesses: It may not be not too late to cut your 2019 taxes

Don’t let the holiday rush keep you from taking some important steps to reduce your 2019 tax liability. You still have time to execute a few strategies, including:

1. Buying assets.Thinking about purchasing new or used heavy vehicles, heavy equipment, machinery or office equipment in the new year? Buy it and place it in service by December 31, and you can deduct 100% of the cost as bonus depreciation.

Converting a C Corp to an S Corp

The right entity choice can make a difference in the tax bill you owe for your business. Although S corporations can provide substantial tax advantages over C corporations in some circumstances, there are plenty of potentially expensive tax problems that you should assess before making the decision to convert from a C corporation to an S corporation.