On August 8th, 2020 the President signed four executive orders related to COVID-19. One of them was a memo deferring payroll taxes.

Payroll taxes are the taxes paid by both, employers and employees, for the Social Security and Medicare national funds. The executive order signed by the President, only refers to the employee social security portion of payroll taxes, which represents 6.2% of an employee's paycheck.

Any employee who earns less than $4,000 every two weeks for these payroll tax deferral. The memo states that this tax deferral will be in effect since September 1, 2020 and until December 31, 2020. But, these taxes will have to be repaid at some point in 2021.

Why may it not be such a good idea?

Well, if you are an employee, your check may be 6.2% larger over the next four months, but you will need to repay the unpaid taxes in 2021. If we are talking at the beginning of the year, it will be in the dead of the winter, numerous people work less hours during the winter, and your paycheck will then be smaller that it has ever been because of your deferred tax deduction.

If you are an employer, and you have employees who opted-in for the payroll tax deferral but no longer work for you, you might be responsible to repay those payroll taxes.

There might be additional ramifications to taking advantage of this deferral, but at this point that is still unclear.

On March 30th, the Federal Government approved the CARES act (Coronavirus Aid, Relief and Economic Security Act) to help the American people cope with the crisis caused by Covid-19. Part of the bill includes loans for small businesses through the Small Business Administration (SBA).

These loans will help businesses overcome the temporary loss of revenue they are experiencing due to pandemic, keep their staff (if they are still considered an essential business and are still operational) or re-hire them. The loans may be used to pay fixed debts, payroll, accounts payable and other bills that could have been paid if the virus didn't happen. Amounts over $25K need collateral. Here are the different types of loans:

Paycheck Protection Program or PPP: This loan is to help keep the workforce employed during the COVID-19 crisis. The business could get as much as 2.5 times their average payroll and this loan could be used for payroll, utilities, rent, and mortgage payments. The first payment can be deferred up to six months and the loan term is two years at a 1% interest rate. This loan is forgivable as loan as you can prove you used at least 75% of the funds for payroll and the rest for other qualified expenses like rent, utilities, and mortgage. You need to request for the forgiveness separately but the guidelines are still not set as to what you need to do. Keep good records and open a separate bank account (if possible) to have everything even more organized, as it will not mix with your regular operating account, then only pay for the expenses that will make this loan forgivable. You can find more information about the PPP here.

Economic Injury Disaster Loan and Loan Advance, also known as EIDL: The Small Business Administration (SBA) has created a loan program funded by the FEMA to help small businesses cope with the loss of revenue caused by the pandemic. Amounts range from $10,000, which is the Economic Injury Disaster Loan Advance, an up to $2 Million, for the Economic Injury Disaster Loan. These loans are available to areas declared as disaster areas, right now, all U.S. states, Washington, D.C. and territories, qualify. The reason for the loan you need to select when applying is Economic Injury. Loans are on a first come first serve basis and you need to apply online at the SBA website. Apply for this loan here SBA EIDL Application 

SBA 7(a) Small Loan: The maximum amount for this type of loan is $350K. This type of loan is processed through a qualified lender but the decisions are made by the SBA (some lenders can make the decide on their own if loan is approved). After the application is submitted, it may take from 5-10 business days for the SBA to make the decision about the loan. You have to give very detailed information about what you're going to use the proceeds of the loan in the application. Loans that are for less than $25K do not need collateral but anything over that amount will need it. Forms SBA 1919 and SBA 1920 are required to be completed to apply for this loan. 

SBA 7(a) Loan: This is almost the same as the previous loan, but the amount of the loan can be up to $5 million and terms up to 10 years. Needs collateral, same forms, same turnaround time. 

SBA Express Loan:  The maximum amount for this type of loan is $350K. Turnaround time is 36 hours and the decision is made by the lender (the bank you are using for the loan). The bank uses its own forms plus Form SBA 1919. Same as the others, anything over $25K needs collateral.

CAP Lines: CAP Lines is an umbrella program that helps small businesses meet their short-term cyclical needs for working capital. One of the CAP Lines is specifically for builders. Builders CAPLine help builders finance direct labor and materials costs and the building their working on or renovating serves as collateral (you would probably have to own the building for that, it doesn't say) and it requires a personal guarantee from the company owners with more than 20% stake at the company. It can be a revolving line of credit, that you use and pay it and can take the money again and again as long as you pay it back. Or it can be a term-loan up to a maximum of 10 years.

For the 7(a) loan, 7(a) small loan, SBA Express loan and CAPLines, the interest rates are negotiable and cannot exceed SBA's maximum rates. They will require two or 3 years of business tax returns, most recent year profit and loss statement, statement of liabilities and most likely, income and expense projections.

I hope this information is useful to you. Let's all keep doing our part to end this virus, keep social distancing and stay home unless you are a medical professional and part of the workforce considered essential. If you are part of the workforce considered essential, we thank you for your service. Stay safe, stay healthy. Together, we can all end this.

The new tax bill highlights.  Congress has passed the largest piece of tax reform legislation since 1986. However, this bill will not affect the taxes for 2017 (the one you file in 2018). In case you’re wondering how you’re affected, here is a short explanation of the main topics on the bill.

TAX RELIEF FOR INDIVIDUALS AND FAMILIES

Lower Tax Rates and Changed Income Ranges: The new tax bill retains the seven tax brackets found in current law but lowers a number of the tax rates. It also changes the income thresholds at which the rates apply. The current brackets are: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%  and the new brackets will be: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Please take a look at these charts to understand this point. Look at the table included in images so you understand the example.

For example, you are married filing jointly (you and your spouse together) and your combined household income is $18,650.00; this means that in 2017 (the ones you file in 2018) you still will pay 15% but in 2018 (the ones you file in 2019) you have to pay only 10%.

Increased standard deduction:  The new tax bill nearly doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 to $12,000 in the new bill. Married couples filing jointly see an increase from $12,700 to $24,000.

These increases mean that fewer people will have to itemize. Currently, about 30% of taxpayers itemize all their deductions. Under the new law, this percentage is expected to decrease.

Increased Child Tax Credit:  For families with children, the Child Tax Credit is doubled from $1,000 per child to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400.

The bill also adds a new, non-refundable credit of $500 for dependents other than children, such as children over age 17, elderly parents or adult children with a disability. Finally, the new tax bill raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000.

Alternative Minimum Tax Exemptions Increased: The alternative minimum tax (ATM), a parallel tax system that ensures people who receive a lot of tax breaks still pay some federal income taxes, remains in place for individuals.

The new tax bill eases the burden of the alternative minimum tax (AMT) by raising the income exempted from $84,500 (adjusted for inflation) to $109,400 married filing jointly and from $54,300 (adjusted for inflation) to $70,300 for single taxpayers, so fewer taxpayers will pay it.

Electric Car Tax: Drivers of plug-in electric vehicles can still claim a credit of up to $7,500. Just as before, the full amount is good only on the first 200,000 electric cars sold by each automaker. GM, Nissan and Tesla are expected to reach that number next year.

ELIMINATIONS OR REDUCTIONS IN DEDUCTIONS

Personal and dependent exemptions:  The new tax bill eliminates the personal and dependent exemptions. Previously, you could claim a $4,050 personal exemption for yourself, your spouse and each of your dependents, which lowered your taxable income. Not anymore. This elimination could reduce or negate the tax relief some families get from other parts of the new reform.

State and local taxes/Home mortgages:  The new tax bill limits the amount of state and local property or SALT deductions, and sales taxes that can be deducted to $10,000. Previously, filers could deduct an unlimited amount for state and local property taxes, plus income or sales taxes.

The bill also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted. Anyone buying a new home will only be able to deduct the first $750,000 of their mortgage debt. That's down from $1 million in the current law.

Healthcare: The new tax bill eliminates the tax penalty for not having health insurance after December 31, 2018. It also temporarily lowers the out-of-pocket medical expenses that can be deducted from the current law floor of 10% to 7.5% for 2017 and 2018. So, for 2017 and 2018, you can deduct medical expenses that are more than 7.5% of your adjusted gross income.

Alimony: Alimony payments, codified in divorce agreements and go to the ex-spouse who earns less money, are no longer deductible for the person who writes the checks. This will apply to couples who sign divorce after Dec 31, 2018.

SELF-EMPLOYED AND SMALL BUSINESSES

The new tax bill also offers a lot of new changes for business. Some of the most impacting ones are:

• A reduction in the top corporate rate from 21% to a new 20% deduction for incomes from certain type of entities, like partnerships, S Corps, LLCs, sole proprietorships
• Limits on expensing of interest from borrowing, almost doubling of the amount small businesses can expense from the 2017 Section 179 amount of $510,000 to $1,000,000,
• Eliminates the corporate alternative minimum tax (AMT).
• The corporate tax rate has been cut from 35% to 21%.