Newsletter from
Steve Richardson & Company, Certified Public Accountants

March 27, 2020

Dear Friends and Clients:

Essential Services

The City of Tuscaloosa and Mayor Maddox consider CPA Firms to be ‘essential services’.  CPAs will play an important role in the efficient distribution of Covid-19 economic benefits.  Our clients need us; we are here for you!

When people are out of work, tax refunds become very important. Too many people in our society live pay-check to pay-check.  Some of our trade and craftsmen are self-employed or otherwise exempt from unemployment.  People are already going hungry; it is going to get worse.  Many small businesses will disappear forever. This crisis is going to hurt – bad.  What are we going to do?  Unfortunately, I do not have good answers.

Covid-19 is frightening. 

I have read estimates that the economic shut down in the USA is costing the economy one-trillion dollars a month! Wow!  The post Covid-19 economic recovery could take five or six years.

The post Covid-19 world will not be the same.

The new law is 800 Pages!

I can’t pretend that I’ve read all 800 pages.  This law is a beast; I mean to say, it is complicated.  There is a lot I do not know.

The ‘I do not know’ part will cause me to write more newsletters.  I plan to write follow-up newsletters for individuals, small businesses and for the church and non-for-profit sector.

The CARES Act

On March 25, by unanimous vote, the Senate passed the third of four coronavirus relief law (CARES Act, H.R. 748, ‘The Act’)

A few additional tax provisions were included in the bill that will prove helpful. These provisions related to:

• the non-taxability of certain loan forgiveness,
• advance refunding of certain tax credits and
• the suspension of certain aviation taxes

I will write more about these as I know more.  The non-taxability of loan forgiveness and advanced refunding of certain tax credits could prove very helpful.  I’m even ok with the suspension of certain aviation taxes; we do need to keep the commercial air carriers flying.

Individual recovery rebates/credits

The crux of the CARES Act is Covid-19 relief direct to individuals.

Under the CARES Act, an eligible individual is allowed an income tax credit for 2020 equal to the sum of:

• $1,200 ($2,400 for eligible individuals filing a joint return) plus
• $500 for each qualifying child of the taxpayer (the child tax credit); the credit is refundable.

As rapidly as possible

These are complicated calculations that related to the 2020 tax year.  The law indicates that the IRS will do these calculations and send money out “as rapidly as possible”, whatever that means.

There is good news

Most eligible individuals won’t have to take any action to receive an advance rebate from IRS. This includes many low-income individuals who file a tax return to claim the refundable earned income credit and child tax credit.

Direct Deposit

IRS may make the rebate electronically to any account to which the payee authorized, on or after Jan. 1, 2018, the delivery of a refund of federal taxes or of a federal payment.

IRS Notification

No later than 15 days after distributing a rebate payment, IRS must mail a notice to the taxpayer’s last known address indicating how the payment was made, the amount of the payment, and a phone number for reporting any failure to receive the payment to IRS.

More Good News!

Tax credits are complex, data driven, calculations.  The IRS will make errors.  The Act has a Get-Out-Jail-Free card!  If the taxpayer received an advance rebate during 2020 that was less than the credit to which the taxpayer is entitled for 2020, the taxpayer will be able to claim the balance of the credit when filing the 2020 return. If, on the other hand, the advance rebate received was greater than the credit to which the taxpayer is entitled, the taxpayer won’t have to pay back the excess. That is because the 2020 credit can’t be reduced below zero.

I hope this means what I think it means.  I think it means this: if the IRS calculates a larger credit than you are entitled to, you do not have to pay it back!  Cool!

No 10% additional tax for coronavirus-related retirement plan distributions

This does not mean that you should withdraw all your retirement savings! Please don’t!!

A coronavirus-related distribution is any distribution (subject to certain dollar limits), made on or after January 1, 2020, and before December 31, 2020, from an eligible retirement plan to a qualified individual. A qualified individual is:

• Who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (CDC),
• Whose spouse or dependent (as defined in Code Sec. 152 ) is diagnosed with such virus or disease by such a test, or
• Who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.

A qualified individual should be most of us.

O-yeah; can’t be more than $100,000 and the income tax on the qualified distributions can be paid over three tax years.

RMD requirement waived for 2020

Need I say more?

$300 above-the-line charitable deduction

Theoretically this is to encourage charitable giving in these bleak times.  I think it’s silly.  I mean $300! Give me a break.  Make it $3,000 or even $30,000 and now we can make a difference.

There are other changes to the tax code designed to enhance charitable giving but, frankly, these relate to wealthy people.  My wealthy clients most often customize their annual giving plans with my direct assistance.

Student Loans!

This is a hot button issue.  The law allows for an employer to pay up to $5,250 per year on an employee’s student loans under an educational assistance program for the employee’s education – Tax Free!  Unfortunately this does not include the student loans or education of employee spouses or dependents.

Not too bad but not nearly enough either.

More to come

This is only one of four major bills related to the Covid-19 crisis.  I will release additional information as I am able to study the materials.

Best regards,

Steve Richardson, CPA