As we get closer to the deadline for individuals and businesses to file their income taxes for the previous year, it's very likely you have already begun seeing tax debt relief commercials on TV and hearing them on the radio.
One aspect that you may not have considered is how much of an impact the 2020 general election could have on the tax system as a whole. For example, 2016 saw the election of Donald Trump to the White House, ushering in a swath of changes to the American tax system dubbed the Tax Cuts and Jobs Act of 2017. Though the legislation dealt more with a series of tax cuts that totaled more than $1.5 trillion, it changed a number of deductions that may have impacted your taxes on a personal or professional level.
As Trump sets to face off with whoever breaks through on the Democratic side, the difference in how each party plans to tax the public will be on display. Democratic front-runners Joe Biden, Elizabeth Warren and Bernie Sanders all have similar views in some aspects and completely conflicting views in others. Warren and Sanders want to take a more drastic approach to debt forgiveness, with plans to ax student loan debt from the ledger, for example. We expect all small business owners will be paying attention to the election and its impact on taxes in 2020.
March 2020: Over the last few weeks, the entire planet has had to adjust to life as governments around the world attempt to contain the novel coronavirus, or COVID-19. With thousands of people losing their jobs nearly overnight, the federal government has implemented measures to help taxpayers.
On March 21, the Treasury Department and the IRS announced that it was pushing back the tax filing deadline from April 15 to July 15, 2020. As a result, federal income tax payments that were due in April are being pushed back without any penalties or interest being charged to the individual taxpayer. Officials said the deferment applies to everyone, including "individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax."
The IRS urged taxpayers expecting refunds to file as soon as possible, with IRS Commissioner Chuck Rettig stressing that "filing electronically with direct deposit is the quickest way to get refunds."
"Although we are curtailing some operations during this period, the IRS is continuing with mission-critical operations to support the nation, and that includes accepting tax returns and sending refunds," Rettig said. "As a federal agency vital to the overall operations of our country, we ask for your personal support, your understanding – and your patience."
Under the Families First Coronavirus Response Act, the Treasury Department, IRS, and Department of Labor also announced that small and midsize businesses can take advantage of a pair of refundable payroll tax credits. The credits, officials said, were created to "immediately and fully reimburse them, dollar for dollar, for the cost of providing coronavirus-related leave to their employees."
Under the act, employees can receive up to 80 hours of paid sick leave, as well as paid child care leave when schools are closed or there are no child care providers to help out. Employers will receive full coverage for that paid leave under the act, including health insurance costs, with zero payroll tax liability. Self-employed individuals will get an equal credit.
Companies with fewer than 50 workers are also exempt from existing requirements "to provide leave [to employees] to care for a child whose school is closed, or child care [that] is unavailable in cases where the viability of the business is threatened," according to the IRS.
The Department of Labor issued a temporary nonenforcement policy, allowing employers some time to comply with the new measures. "Under this policy, Labor will not bring an enforcement action against any employer for violations of the act so long as the employer has acted reasonably and in good faith to comply with the act," officials wrote. "Labor will instead focus on compliance assistance during the 30-day period."
April 2020: Along with the delay in the federal tax filing deadline, Congress passed a $2 trillion stimulus package to help various aspects of the U.S. economy deal with the ongoing disruption caused by COVID-19. Dubbed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the bill established the Paycheck Protection Program to provide $350 billion in forgivable SBA loans to keep people employed and receiving paychecks during the crisis. If your small business is one of the lucky ones to receive funding before the program ran dry, you should know that those funds are not going to contribute to your tax debt.
The funding was offered by the government in a bid to deal with the downshifting economy, potential loss of wages and the general financial malaise that's fallen upon the country as a result of the coronavirus. To ensure those funds do the most good possible for small businesses, the CARES Act exempts the loans from taxation once they are forgiven. Canceled debt, or forgiven loans, are usually considered a form of income and taxed accordingly. If your business meets the forgiveness requirements attached to the loan, you will not have to pay taxes on those funds.
If you have tax debt and want to use the PPP funds to help pay that down, that's completely allowed under Section 1102 of the CARES Act, which states the money can be used to pay "interest on any other debt obligations that were incurred before the covered period." While that's good news for your tax debt, it may cause problems when it comes time for the PPP loan to be forgiven. According to Section 1106 of the act, such interest payments are not included in the list of items eligible for forgiveness.
May 2020: As the country continues to deal with the COVID-19 pandemic, those with tax debt should know that they were also considered for relief in the People First Initiative. According to the IRS, the tax filing deadline extension also impacted offers in compromise (OICs).
Under the People First Initiative, taxpayers with pending OIC applications have until the new tax filing deadline of July 15 to provide more supporting information to the IRS. The government agency also is refraining from closing pending OIC requests before the deadline "without the taxpayer's consent."
In addition to a temporary moratorium on pending OIC requests until July 15, the IRS is giving taxpayers with tax debt the ability to suspend their payments on any accepted OICs until the July filing deadline. While this will be a help for many, such deferments will accrue law interest on unpaid balances.
June 2020: Adding to the list of tax debt relief companies offering their services to individuals affected by the COVID-19 pandemic, Benefit Tax Solutions is offering a free tax consultation. According to a recent press release, the company is offering the consultations "to taxpayers in need of tax relief or tax filing help."
According to the company, the initial consultation is free, but the actual service comes at a cost. Exactly how much the fee will end up being depends on each individual case.
Along with the free consultations, Benefit Tax Solutions is having its tax experts help people manage any coronavirus-related tax issues. For instance, they can help people file their taxes before the extended July 15 deadline and answer businesses' and self-employed individuals' questions on filing past-due tax returns.
October 2020: Thanks to ongoing issues at the IRS, taxpayers are receiving CP14 notices from the agency, informing recipients that they owe unpaid taxes to the federal government. The notice could be particularly worrisome for Americans who have been financially impacted by the pandemic. TaxAudit has announced that it is providing guidance and tips to taxpayers who received the notice.
One of the biggest issues, according to experts at TaxAudit, is that the IRS has 20 million backlogged notices and 11 million unopened taxpayer letters – and many of these likely contain payments. Since the IRS hasn't processed payments in a timely fashion, some people have received the CP14 even though they've already paid their back taxes. Arnold van Dyk, TaxAudit's director of tax services, says that sort of thing can cause compounding issues for taxpayers.
"Although the IRS has recognized that these notices have been sent out automatically, and some in error, the burden falls on the taxpayer to rectify the situation," he said. "It's never a good idea to ignore a notice from the IRS, but given their current mail backlog, it may make sense to wait for the situation to resolve itself if you sent a timely payment by mail."
November 2020: In early November, the IRS announced some changes to the Taxpayer Relief Initiative in an effort to help individuals struggling with the ongoing effects of COVID-19. According to the announcement, the IRS considered how it could provide relief to taxpayers in its collection activities, noting that people are still facing some hard times as the end of the year rolls around.
Though repayment methods already existed for taxpayers who owe money to the IRS, the agency said it has expanded those solutions to make repayment easier. These are some of the changes:
- Those with short-term payment plans can have up to 180 days instead of 120 to settle tax liabilities.
- There will be leniency for taxpayers who can't make payment terms for an accepted offer in compromise (OIC).
- The IRS will add certain new tax balances to existing installment agreements for individuals and out-of-business corporate taxpayers.
- Certain qualified individuals who owe less than $250,000 can set up installation payments without providing a financial statement or proof of their monthly pay.
- Since some individuals only owe for the 2019 tax year and may owe more than $250,000, they can qualify to set up an installment agreement.
- Qualified taxpayers with existing direct debit installment agreements (DDIAs) can propose lower monthly installments through the IRS Online Payment Agreement system.
More details about the changes are available on the IRS website.