GrowthCast Episode 02: Tax Considerations During Disruptive Economic Times

Host John Locke is joined by Nathan Clark, a partner in DHG Federal Tax Specialty Services. Nathan provides updates on legislation that will affect businesses and individuals due to the COVID-19 crisis.

Transcript

Introduction

[00:00:09] JL: Welcome to today's edition of DHG’s GrowthCast. I'm your host, John Locke. At DHG, our strength lies in our technical knowledge, our industry intelligence, and our future focus. We understand business needs and are laser-focused on company goals. In this ever-changing world, DHG's GrowthCast provides insights and thought-provoking conversations on topics and trends that address growth opportunities and challenges in the current and future marketplace. Thanks for joining us as we discuss tomorrow's needs today.

[00:00:42] ANNOUNCER: The views and concepts expressed by today's panelists are their own and not those of Dixon Hughes Goodman LLP. Always consult the advice of your legal and financial professional before taking any action.

Interview

[00:00:58] JL: Today, our guest is Nathan Clark, Tax Partner in DHG’s Charlotte corporate office. Nathan came to DHG over three years ago, after serving 15 years in other large public accounting firms. Nathan is a CPA and a graduate of Appalachian State University. Nathan has assumed a leadership role in helping DHG clients understand the impact of tax reform and has recently transitioned this knowledge into helping clients navigate the impact of COVID-19 on taxes.

Thanks for joining us today, Nathan.

[00:01:31] NC: Welcome. I’m happy to be here. Thank you very much.

[00:01:33] JL: Well, needless to say, there is a lot happening in the world of taxes in the United States, and I'm sure your position and your review of this changes minute by minute. So let's just try to get our listeners up to speed a little bit, and I'm just trying to get a general feel for what's going on in the tax world right now and what is important for us to really start thinking about and acting on.

[00:01:59] NC: Well, you said there’s a lot going on right now and that’s an understatement. There is just so many things happening right now. Developments are coming at us from legislation, from Congress, and I’m just talking about new legislation. I’m not even talking about things related to know what's happening to us as a population with the virus. On top of that, there is just a lot of new developments.

Just last week, there was a phase two stimulus which was geared towards providing businesses with incentives to be able to help them continue to pay employees, so keep funding a paycheck flowing to employees. Then just recently, another stimulus bill was passed, the CARES Act. We’ve got those two pieces of legislation, but on top of that the April 15th deadline is coming up very soon, and that's when a lot of taxpayers are – Their tax returns are due or when they’ll make their first quarterly estimated payments, and so we've gotten extensions on that as well.

A lot of people are asking questions about what's in the new law, what's in these new proposals, what is in these extensions of deadlines applied to. Right now, there's lots of people trying to understand everything that’s happening, all of these new developments.

[00:03:16] JL: Yeah. Well, if you would, Nathan, help us sort through this a little bit. What’s the status of things as we’re here today? What's included in these new laws and proposals, and what do we need to really be looking at between the lines here?

[00:03:32] NC: Sure. The first piece of real tax-oriented legislation was the Families First Coronavirus Relief Act. What that did is it provided a mechanism to enable employers to continue to pay their employees. This is not tax stimulus or economic stimulus to businesses. It was geared towards helping employees continue to receive a paycheck. What the government is doing is providing a tax credit to businesses that’s then supposed to be passed, that is passed along to the individual employees in the form of a paycheck. That’s the biggest piece or at least that's the first piece.

I'll say probably the biggest piece is the CARES Act, which is a $2 trillion recent piece of legislation. It includes a variety of benefits for tax incentives, unemployment benefits, tax initiatives, SBA loans. There’s a wide variety of things in that law as well. We’re still digging in and understanding that. But if you want, I can just run down the list of some of the bigger ticket items that I know people are going to be asking about.

[00:04:37] JL: That would be great, yeah. Thank you.

[00:04:39] NC: I mentioned the payroll tax credits. One of the things we get lots of questions from clients about is these SBA loans, the small business administration loans, which small businesses can apply for. If they meet certain criteria, those loans can revert to become grants, which means they’re not required to be paid back. But there are strings attached. You must keep unemployment at certain levels. Many of our small business clients are inquiring about that.

There’s a new tax credit for encouraging employee retention. If you retain your employees, there is a tax credit available to businesses. There is a delay in paying payroll taxes, so you’ve got an extension on when you have to pay those payroll taxes as a business, and it pushes those out quite far.

One of the things many of our listeners may remember from the Tax Reform Law was what’s often referred to as this retail glitch. Certain assets used to be able to be deducted 100%. But because of a glitch in the tax reform law from 2017, those assets are now depreciated over 39 years, so we went from deducting certain assets upon purchase to having to capitalize and depreciate those over 39 years. It’s referred to as the retail glitch, but it applies to a wide variety of businesses beyond retail. That's a significant benefit that’s expected to be retroactive back to the beginning of 2018 when Tax Reform Law took effect.

There were, in the Tax Reform Law, a number – A couple of provisions that limited businesses’ ability to use their net operating losses, so a haircut was put in place where a net operating loss could only offset 80% of your income. Well, this new law changes that. It lets you deduct more of your net operating losses against taxable income and also lets you carry those NOL, because often that’s what we refer to them in shorthand; net operating loss. It lets you carry those back to prior years and apply those losses against taxable income from prior years. What that means is you can get taxes paid in those prior years refunded to you.

Another benefit that was in the new CARES Act is significant expansion of unemployment benefits, so more people are going to be eligible for unemployment. Then the last piece, which has gotten a lot of coverage in the news is for individuals there's cash payments to individuals for a period of time just to help them bridge maybe the gap between when they were laid off and when they’re able to start working again or maybe when some of the unemployment tax benefits will kick in. That's one of the really big interesting items too.

[00:07:36] JL: Well, speaking of things in the news that are catching the eyes of Americans right now is the extension of our tax deadline. What does that mean for the average American?

[00:07:46] NC: What was given to us was an extension of filing tax returns due on April 15th and paying taxes due on April 15th. What that means is individuals’ tax returns. Those were – Again, all of these items we’re talking about right now were extended from April 15th to July 15th. We’ve got three extra months to file tax returns and three extra months to make payments. That specifically applies to payments on April 15th or returns due on April 15th. That includes your first quarter estimates as well, so you’ve got a little more time there.

[00:08:27] JL: What are some of the upsides and downsides of that extension?

[00:08:31] NC: The upsides are more time. It lets individuals and businesses preserve their cash a little bit longer, which is what a lot of people are really looking forward to or is preserving cash right now just to maintain either being able to pay employees or being able to live off of, and so it gives them more time. The downside is it has created some confusion, because things are happening so quickly. The guidance that’s coming out almost in real time are faster than the government can keep up with it, and this extension was actually announced in a press conference. That's how we first learned about this.

Then a few days later, we get more official guidance in writing. It says how does this apply and what does it applied to. But even then, it still leaves open questions about, “Well, do I still need to file an extension because maybe I want to protect against other things that still may be due April 15th, but I'm not sure about because it’s not real clear?” It’s really just the confusion and uncertainty.

[00:09:37] JL: I guess it would be safe to say that with this changing constantly, listeners really should be in close contact with their tax advisor to monitor this going forward and just not assume that everything's going to be okay till 7/15.

[00:09:52] NC: Yeah, absolutely. I would definitely recommend that. Even though the government has granted an extension, your tax advisor may still recommend, “Let’s go ahead and file an extension.” I would also encourage people to not procrastinate either, because we have an extra three months. But these are strange times, and hopefully this is as bad as it gets. But we don't know what's going to happen in the next three months, and so I would encourage people to remain diligent on preparing their returns and getting them filed as soon as possible and at least complete the returns. Whether you file it, you can sit on it and hold it until July 15th. But I would say go ahead and get all the work out of the way and file it now.

Now, businesses or individuals that are due refunds. There's no reason you can go ahead and file that now as soon as you complete your tax return, because that's another source of cash. If you do a refund, I don't see any reason why you would want to delay filing for that anyway.

[00:10:51] JL: Right. That's just a smart financial move. When you think about all this happening here, the speed in which this is happening, is there anything the average American may not know or should know about the tax extension?

[00:11:04] NC: I mentioned that you we’re not exactly sure what it covers. We know it applies to returns due on 4/15 and estimated payments due on 4/15. Our second quarter estimates are due on June 15th, so many people may be surprised that while my first quarter estimate isn't due until July 15th, but now my second quarter estimate is due on June 15th. So you're going to pay your second quarter estimate before you pay your first.

There are some things like that. Certain informational returns may still be required to file by 4/15, so that's why we’re telling people to extend the returns anyway, just in case to be safe.

[00:11:44] JL: Yeah. As we wrap this up, there’s still a level of uncertainty that's going to prevail in this entire new CARES Act, right? We’re trying to figure this out over the next several weeks. So your final words of advice and encouragement to the average taxpayer and business owner out there as they look to set priorities for the next several weeks and months with their tax planning.

[00:12:08] NC: Yeah. Well, I think it's a really good point is the CARES Act was just passed, so it’s law. But the process where we actually implement law, it requires a lot of extra guidance. The IRS has to issue regulations. Congress instructs the IRS to issue regulations, so it takes time for that whole process to get regulations for it. That can take months and months. Forms have to be updated. There’s just a wide variety of things that other government agencies just have to update to be able to implement the law, so don't expect that because the law is passed, we’ve got all the answers and we can charge forward. If it’ll take some time to evolve things, that doesn't mean we should not be proactive. But I would encourage people to be flexible in their expectations of what does all this mean, because it's evolving.

[00:13:06] JL: Yeah. Well, thanks for your insights and sharing some of the latest information that’s coming down through our government communication channels, and it sounds like we may need to have you back on a upcoming episode of GrowthCast to give us an update, because it sounds like it’s going to changing again probably even before the end of the summer. So thanks for spending time with us today, Nathan, and appreciate all your insights.

[00:13:33] NC: Absolutely and certainly welcome to come back if you want to do this again in four to six weeks or whatever the right interval is.

[00:13:39] JL: Yeah, great.

End of Interview

[00:13:42] JL: You’ve been listening to the CHG GrowthCast today with Nathan Clark, Tax Partner in the DHG Charlotte corporate office. We hope that you’ve learned a few tips on managing your tax liability and planning for the extensions that are coming up here as a result of the COVID-19 economy.

I'm your host, John Locke, and I look forward to reconnecting with you again soon on an upcoming episode of DHG GrowthCast.

About DHG's GrowthCast

At DHG, our strength lies in our technical knowledge, our industry intelligence and our future focus. We understand business needs and are laser focused on company goals. In this ever-changing world, DHG’s Growthcast, provides insights and thought -provoking conversations on topics and trends that address growth opportunities and challenges in the current and future marketplace. Join us in discussing tomorrow’s needs today.

Disclaimer: The views and concepts expressed by today’s guests are their own and not those of Dixon Hughes Goodman LLP. Always consult with your legal and financial professional before taking any action.

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