COVID-19
Provisions & Taxes – By Donovan Thiessen, CPA
The amount of legislative relief for taxpayers that was enacted this year, as it
relates to retirement accounts, loans, income tax relief, is staggering. Our office spent several weeks pouring over the Payment Protection Program (PPP), the Economic Injury Disaster Loan (EIDL) and the various tax provisions that have been released, during a tax season that was extended by three months. With no end in sight for the pandemic, it is my hope that this article provides you with broad knowledge and advice as it relates to recent legislative relief for your business and taxes. Retirement Plan Distributions Under Internal Code Section 72, the general tax rules as they relate to IRAs and qualified retirement plans are as follows: • • •
Normal distributions are included as ordinary income in the year of distribution. If you are under the age of 59 1/2, and an exception does not apply, your distribution is subject to a 10% early withdrawal penalty. You have 60 days to “roll-over” balances without tax consequences.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020. As it relates to IRAs and qualified retirement plans, for “coronavirus-related distributions” (definition to follow) made on or after January 1, 2020 and before December 31, 2020, the following changes apply: • • •
Distributions from the plan are included in taxable income ratably over the three years beginning with the year of the distribution. The 10% early withdrawal penalty does not apply. You may recontribute any portion of the distribution during the threeyear period commencing the day after you receive the distribution, and treat it as a tax free rollover.
A coronavirus related distribution is any distribution from a qualified retirement plan, IRS Code Section 403(b) or 457(b) plans, and IRAs made to individuals diagnosed, or whose spouse or dependent is diagnosed with the virus. Additional to those who experience financial harm as of a result of being quarantined, furloughed or laid off, reduced work hours, unable to work due to lack of child care, closing or reducing hours of the business you own and other possible reasons reserved for future IRS guidance. Distributions covered by the CARES act are limited to $100,000. Bonus Depreciation for Qualified Improvement Property Prior to the Tax Cuts and Jobs Act (TCJA), which became effective generally for tax years beginning 1/1/2018, qualified improvement property was considered a specified type of property eligible for bonus depreciation. It appeared as though Congress intended to treat this type of property as eligible for bonus depreciation but the TCJA eliminated this provision for property placed in service after December 31, 2017 as a qualifying bonus depreciation category for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. This property type typically has a 15-year life, and includes leasehold improvements made to spaces you lease. The CARES Act has changed this rule so that qualified improvement property placed in service by the taxpayer after December 31, 2017 is 15-year property and thus is eligible for bonus depreciation. In layman terms, you would capitalize these costs as fixed assets and depreciate 100% of the costs in the year that you place them in service. You should consult your tax advisor if you made significant improvements to your leased property in 2018; an amended tax return could be beneficial. Payroll Protection Program (PPP) This program has evolved since its announcement in March, with new updates generally in favor of the loan recipient. We saw many businesses apply and
Vegas Legal Magazine Fall 2020 | Pg. 69
