Newsletters

February 2023

FEMA Postponement

 2022 Income tax returns postponement due date to file and pay is 10.16.23 for Fema California designated counties. There are other areas of the country that are eligible for postponement, but not identified within the body of the information below. 

 Due to the plethora of weather events affecting most of California, Fema designated most California counties as declared disaster zones, except Lassen, Modoc and Shasta.

 California counties identified by Fema go to link below:

 IRS Fema information:

 https://www.fema.gov/disaster/4683/designated-areas

 https://bit.ly/irs-provides-tax-relief-for-victims-of-severe-winter-storms

 California information:

 www.ftb.ca.gov/file/when-to-file/help-with-disaster-relief.html

 The following deadlines falling on or after March 9, 2023, and before October 16, 2023, are granted additional time to file through October 16, 2023:

  • 2022individual income tax returns due on April 18
  • Various 2022business returns normally due on March 15 and April 18 (this means that eligible taxpayers will have until October 16 to make 2022 contributions to their IRAs and health savings accounts)
  • Quarterly estimated tax payments and payroll and excise tax returnsnormally due between March 9 and October 16

In addition, penalties on payroll and excise tax deposits due on or after March 9, 2023, and before March 24, 2023, will be abated as long as the tax deposits are made by March 24, 2023.

If your income tax address for your individual and/or business tax return or if you have an interest in a pass-through entity that is located in a Fema declared zone or Fema California county, then your 2022 Federal government and California income tax returns file and pay tax is automatically postponed to the due date of 10.16.23.

 

Above also applies to 2023 Federal and California estimated taxes 1 to 3. The due date to pay is 10.16.23.

 

Regardless of the Fema postponed due date to file and pay, we should work toward filing at an earlier date.

 

Below, a more detailed explanation and FAQs:

 

On March 17, 2023, the IRS issued yet another storm-related disaster postponement announcement for California taxpayers.1 This means we now have three different disaster relief notices for storms in California (CA-2023-01, CA-2023-02, and CA-2023-03). Unfortunately, the notices apply to different counties, have different applicable periods, and postpone different filing and payment deadlines. The most recent announcement extends the available October 16 postponement deadline (see “Storm-related disaster extensions extended to October 16, 2023” . The only counties that are not currently included in the filing/payment October 16 postponement relief (for now) are Lassen, Modoc, and Shasta. However, for taxpayers in Imperial, Kern, Plumas, and Sierra counties, the relief only applies to deadlines that fall on or after March 9, 2023. California conforms to this extended relief.

The announcement does provide additional payroll deposit relief for taxpayers listed in the most recent notice. Penalties on payroll and excise tax deposits due on or after March 9, 2023, and before March 24, 2023, will be abated as long as the tax deposits were made by March 24, 2023, for taxpayers in all counties except the following: ● Alameda; ● Colusa; ● Contra Costa; ● Lassen; ● Marin; ● Modoc; ● Riverside; ● San Diego; ● Shasta; ● Siskiyou; ● Solano; ● Sutter; ● Tehama; ● Ventura; and ● Yolo.

 

  • Can taxpayers outside the listed counties qualify for relief?

 

Relief from federal and California tax and payment deadlines is available to taxpayers outside the listed counties if their tax preparer is located in one of the listed counties1 (see upcoming box regarding listed counties). The postponement also applies to partners and S corporation shareholders if the partnership or S corporation is located in a listed county and is unable to provide the records necessary to file the partner’s/shareholder’s return. For taxpayers located outside California whose tax records are in one of the listed counties or California resident taxpayers who must file a tax return in another state, we recommend that you contact the applicable state tax department to determine whether postponement relief is available for the other state’s tax return.

 

  • How does taxpayer request relief outside the listed counties?

 

Taxpayers located outside the listed counties who want to request an IRS postponement must:2 ● Call the IRS’s Disaster Hotline at (866) 562-5227; ● Explain that the necessary records are located in a covered disaster area; and ● Provide the FEMA Disaster Number or IRS announcement (CA-2023-01, CA-2023-02, or CA-2023-03) of the area where the tax preparer is located.

 

  • Which payment deadlines are extended?

 

 All payments scheduled for or payments due with tax returns that were originally due on or after January 8, 2023, (December 27, 2022, 24 or March 9 for some counties) and before October 16, 2023, are postponed until October 16, 2023. This includes, but is not limited to, the following payments: ● The balance of the 2022 passthrough entity elective tax due on March 15, 2023, for calendar‑year taxpayers and the 2023 prepayment of the passthrough entity elective tax due on June 15; ● The 2023 estimated tax LLC fee due on June 15, 2023; ● Individual and entity estimated tax payments; and ● Any installment payments that would otherwise be due during the postponement period.

 

  • Are withholding taxes and returns postponed?

 

The postponement does not apply to payroll deposits nor to California real estate or nonresident withholding payments. However, it does apply to IRS Form 8804, Annual Return for Partnership Withholding,6 as well as FTB Form 592, Resident and Nonresident Withholding Statement, and 592-PTE, Pass-Through Entity Annual Withholding Return.

 

  • Does the extension apply to extended returns?

 

 Yes, if a fiscal-year taxpayer had an extended due date that fell within the January 8 through October 15 postponement period, then the original extended due date is automatically extended to October 16, 2023. Taxpayers are not eligible for an additional “automatic” extension beyond the October 16 postponed due date.

All California Counties are listed as affected counties except:  Lassen; Modoc; and Shasta.

Jan. 6 2021

On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law.  The CAA contains both the COVID-Related Tax Relief Act of 2020 (COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR).  In addition to providing for stimulus payments of $600 per taxpayer and qualifying child, the CAA also contains numerous tax provisions and extenders as follows:

Do note that any of the below provisions that are applicable to income tax at the state level, California may not conform.

Individual Provisions

Increased deduction for medical expenses – The CAA permanently decreases the limitation for deducting medical expenses to 7.5% of adjusted gross income (“AGI”).  Previous law only allowed for a deduction of medical expenses in excess of 10% of AGI.

Child Tax Credit & Earned Income Credit (“CTC” & “EIC”) – The CAA allows individuals to use their earned income from 2019, if greater, to calculate their CTC & EIC for 2020.

Charitable contributions for taxpayers who do not itemize deductions – The CARES act, passed earlier in 2020, created a new above-the-line deduction for charitable contributions made in 2020 for taxpayers who do not itemize deductions.  The maximum allowable deduction is $300 ($600 for a married couple).  The CAA extends this rule through 2021.

Income limitations for charitable contributions – Under previous law, charitable contributions to qualified organizations were generally limited to 60% of a taxpayer’s AGI.  The CARES act removed the limitation for 2020; the new Act also removes the limitation for 2021.

Education credits – The CAA removes the above the line deduction for tuition and fees in exchange for an expanded application of the Lifetime Learning credit.  This applies to tax years 2021 and beyond.

Exclusion from income for forgiveness of qualified principal residence indebtedness – Forgiveness of debt is generally included in taxable income.  An exception applied for forgiveness of debt that was used to acquire a personal residence.  The maximum which could be excluded was $2 million for a married couple.  This provision was set to expire in 2020.  The CAA extends this exclusion through 2025, but at a reduced amount of $750,000.

Mortgage insurance premiums – The CAA extends the deduction for qualified mortgage insurance premiums through 2021.

Retirement plan distributions – The CAA allows for distributions from retirement plans of up to $100,000 without being subject to the 10% penalty that applies to early retirement distributions.  The distribution, however, will be subject to income tax over a 3-year period.  This extends the relief provided in the CARES Act & expands the eligibility to all taxpayers.

Payroll Provisions

FSA Plans – Employers may choose to allow a carryover of unused funds from 2020 to 2021 and from 2021 to 2022 or to extend the grace period for spending unused FSA funds to 12 months after the plan year.

Extension of Families First Coronavirus Response Act (“FFCRA”) credits for paid sick and family leave – The FFCRA, passed earlier in 2020, provided employers a payroll tax credit for paid sick and family leave due to COVID-19.  The Act extends this credit through March 31, 2021.

Employer tax credit for paid family and medical leave – Earlier tax law allowed businesses to claim a general business credit for paid family and medical leave up to 12 weeks per year.  The provision was set to expire at the end of 2020; the Act extends this credit through 2025.

Work opportunity credit – The work opportunity credit is available to employers for hiring individuals from certain targeted groups.  The credit was set to expire at the end of 2020.  The CAA extends the credit through 2025.

Expansion of Employee Retention Credit (“ERC”) – The CARES Act provided a 50% credit for companies who continued to pay their employees during a COVID-19 imposed lockdown.  The CAA expands eligibility for the ERC, increases the credit to 70%, and extends the credit through June 30, 2021.

Extension of deferred payroll taxes – President Trump signed an executive memorandum in August 2020 allowing employers to defer the employee’s share of social security taxes between September 1, 2020 and December 31, 2020.  The taxes were required to be repaid through a reduction in the employee’s pay between January 1, 2021 and April 30, 2021.  The CAA extends the required repayment period to December 31, 2021.

Employer payment of student loans – The CAA extends the current CARES act provision which allows employers to repay education loans incurred by their employees, which was set to expire at the end of 2020.  The CAA extends the provision to 2025.  The maximum annual payment is $5,250.

Business Tax Provisions

Deductions for expenses paid using PPP loan proceeds – The CAA clarifies the original intention of the PPP loan program and allows for full deduction of any expense paid for using PPP loan proceeds.

Bringing back the business lunch – The CAA temporarily allows for a full 100% deduction for meals provided by restaurants that are paid or incurred in 2021 or 2022.

Qualified disaster relief contributions – The CAA creates a new category of “qualified disaster relief contributions” for qualifying contributions made to organizations for disaster relief efforts.  Contributions must be made between January 1, 2020 and 60 days after passage of the Act.  Corporations could receive a deduction of up to 100% of taxable income.

Accelerated depreciation of residential rental property for electing real property trade or business – Real property trades or businesses subject to the interest expense limitations of 163(j) may choose to make an election.  Under the election, the interest limitations will not apply; however, the taxpayer must use ADS depreciation rules resulting in a longer useful life and lower depreciation expense each year.  Under prior law, residential rental property placed in service prior to January 1, 2018 was subject to a 40-year ADS useful life.  The CAA changes this to a 30-year ADS useful life if the taxpayer was not subject to ADS prior to January 1, 2018.

December 27, 2020

 

On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law.  The CAA contains both the COVID-Related Tax Relief Act of 2020 (COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR).  In addition to providing for stimulus payments of $600 per taxpayer and qualifying child, the CAA also contains numerous tax provisions and extenders as follows:

Do note that any of the below provisions that are applicable to income tax at the state level, California may not conform.

Individual Provisions

Increased deduction for medical expenses – The CAA permanently decreases the limitation for deducting medical expenses to 7.5% of adjusted gross income (“AGI”).  Previous law only allowed for a deduction of medical expenses in excess of 10% of AGI.

Child Tax Credit & Earned Income Credit (“CTC” & “EIC”) – The CAA allows individuals to use their earned income from 2019, if greater, to calculate their CTC & EIC for 2020.

Charitable contributions for taxpayers who do not itemize deductions – The CARES act, passed earlier in 2020, created a new above-the-line deduction for charitable contributions made in 2020 for taxpayers who do not itemize deductions.  The maximum allowable deduction is $300 ($600 for a married couple).  The CAA extends this rule through 2021.

Income limitations for charitable contributions – Under previous law, charitable contributions to qualified organizations were generally limited to 60% of a taxpayer’s AGI.  The CARES act removed the limitation for 2020; the new Act also removes the limitation for 2021.

Education credits – The CAA removes the above the line deduction for tuition and fees in exchange for an expanded application of the Lifetime Learning credit.  This applies to tax years 2021 and beyond.

Exclusion from income for forgiveness of qualified principal residence indebtedness – Forgiveness of debt is generally included in taxable income.  An exception applied for forgiveness of debt that was used to acquire a personal residence.  The maximum which could be excluded was $2 million for a married couple.  This provision was set to expire in 2020.  The CAA extends this exclusion through 2025, but at a reduced amount of $750,000.

Mortgage insurance premiums – The CAA extends the deduction for qualified mortgage insurance premiums through 2021.

Retirement plan distributions – The CAA allows for distributions from retirement plans of up to $100,000 without being subject to the 10% penalty that applies to early retirement distributions.  The distribution, however, will be subject to income tax over a 3-year period.  This extends the relief provided in the CARES Act & expands the eligibility to all taxpayers.

Payroll Provisions

FSA Plans – Employers may choose to allow a carryover of unused funds from 2020 to 2021 and from 2021 to 2022 or to extend the grace period for spending unused FSA funds to 12 months after the plan year.

Extension of Families First Coronavirus Response Act (“FFCRA”) credits for paid sick and family leave – The FFCRA, passed earlier in 2020, provided employers a payroll tax credit for paid sick and family leave due to COVID-19.  The Act extends this credit through March 31, 2021.

Employer tax credit for paid family and medical leave – Earlier tax law allowed businesses to claim a general business credit for paid family and medical leave up to 12 weeks per year.  The provision was set to expire at the end of 2020; the Act extends this credit through 2025.

Work opportunity credit – The work opportunity credit is available to employers for hiring individuals from certain targeted groups.  The credit was set to expire at the end of 2020.  The CAA extends the credit through 2025.

Expansion of Employee Retention Credit (“ERC”) – The CARES Act provided a 50% credit for companies who continued to pay their employees during a COVID-19 imposed lockdown.  The CAA expands eligibility for the ERC, increases the credit to 70%, and extends the credit through June 30, 2021.

Extension of deferred payroll taxes – President Trump signed an executive memorandum in August 2020 allowing employers to defer the employee’s share of social security taxes between September 1, 2020 and December 31, 2020.  The taxes were required to be repaid through a reduction in the employee’s pay between January 1, 2021 and April 30, 2021.  The CAA extends the required repayment period to December 31, 2021.

Employer payment of student loans – The CAA extends the current CARES act provision which allows employers to repay education loans incurred by their employees, which was set to expire at the end of 2020.  The CAA extends the provision to 2025.  The maximum annual payment is $5,250.

Business Tax Provisions

Deductions for expenses paid using PPP loan proceeds – The CAA clarifies the original intention of the PPP loan program and allows for full deduction of any expense paid for using PPP loan proceeds.

Bringing back the business lunch – The CAA temporarily allows for a full 100% deduction for meals provided by restaurants that are paid or incurred in 2021 or 2022.

Qualified disaster relief contributions – The CAA creates a new category of “qualified disaster relief contributions” for qualifying contributions made to organizations for disaster relief efforts.  Contributions must be made between January 1, 2020 and 60 days after passage of the Act.  Corporations could receive a deduction of up to 100% of taxable income.

Accelerated depreciation of residential rental property for electing real property trade or business – Real property trades or businesses subject to the interest expense limitations of 163(j) may choose to make an election.  Under the election, the interest limitations will not apply; however, the taxpayer must use ADS depreciation rules resulting in a longer useful life and lower depreciation expense each year.  Under prior law, residential rental property placed in service prior to January 1, 2018 was subject to a 40-year ADS useful life.  The CAA changes this to a 30-year ADS useful life if the taxpayer was not subject to ADS prior to January 1, 2018.

Tax Alerts
Tax Briefing(s)

  Rental Real Estate as Qualified Business Income Deduction effective to December 31, 2025

 If you operate a rental real estate business, you may qualify to claim the business income deduction under Section 199A in one of two ways- details in our article detail.

 


For years 2021 and 2022 only,  Meals and entertainment 100% deductible  under certain conditions.  California does not conform and will limit deduction to 50%.

 


Department of the Treasury Secretary Janet Yellen offered members of the House Ways and Means Committee limited insight as to how the Biden Administration will handle the provisions of the Tax Cuts and Jobs Act that are expiring in 2025.


The IRS has released guidance listing the specific changes in accounting method to which the automatic change procedures set forth in Rev. Proc. 2015-13, I.R.B. 2015-5, 419, apply. The latest guidance updates and supersedes the current list of automatic changes found in Rev. Proc. 2023-24, I.R.B. 2023-28, 1207.


The IRS intends to amend the base erosion and anti-abuse tax (BEAT) regulations under Code Secs. 59A and 6038A to defer the applicability date of the reporting of qualified derivative payments (QDPs) until tax years beginning on or after January 1, 2027. Until these reporting rules apply, the current transition period rules for QDP reporting will continue to apply.


In an effort to increase awareness of and participation in the alternative dispute resolution process, the Internal Revenue Service Independent Office of Appeals has formed an Alternative Dispute Resolution Program Management Office.


The IRS has released proposed regulations that provide guidance regarding information reporting of transactions with foreign trusts and receipt of large foreign gifts and regarding loans from, and uses of property of, foreign trusts. Further, the IRS has issued proposed amendments to the regulations relating to foreign trusts having one or more U.S. beneficiaries. The proposed regulations affect U.S. persons who engage in transactions with, or are treated as the owners of, foreign trusts, and U.S. persons who receive large gifts or bequests from foreign persons.


The IRS has released additional Paycheck Protection Program (PPP) loan forgiveness guidance.