Temporary changes to Section 125 cafeteria plans due to the coronavirus pandemic allow flexibility for taxpayers participating in cafeteria plans. These changes include extending the claims period for health flexible spending arrangements (FSAs) and dependent care assistance programs and allow taxpayers to make mid-year changes.

Specifically, these temporary changes for taxpayers include:

• extending claims periods for taxpayers to apply unused amounts remaining in a health FSA or dependent care assistance program for expenses incurred for those same qualified benefits through December 31, 2020.
• expanding the ability of taxpayers to make mid-year elections for health coverage, health FSAs, and dependent care assistance programs, allowing them to respond to changes in needs as a result of the COVID-19 pandemic.
• applying earlier relief for high deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactively to January 1, 2020.

Furthermore, temporary relief for high deductible health plans may be applied retroactively to January 1, 2020 and the $500 permitted carryover amount for health FSAs increases to $550. This amount is adjusted annually for inflation.

Please contact the office if you have any questions.

When you sell a capital asset such as a home, household furnishings, and stocks and bonds held in a personal account, the difference between the amount you paid for the asset and its sales price is known as a capital gain or capital loss. Here are ten facts you should know about how gains and losses can affect your federal income tax return.

1. Capital Assets. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset including property such as your home or car, as well as investment property, such as stocks and bonds.

2. Gains and Losses. A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset. You must report all capital gains on your tax return.

3. Net Investment Income Tax. You may be subject to the Net Investment Income Tax (NIIT) on your capital gains if your income is above certain amounts. The rate of this tax is 3.8 percent. For additional information about the NIIT, please call the office.

4. Deductible Losses. You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.

5. Limit on Losses. If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return to reduce other income, such as wages. This loss is limited to $3,000 per year or $1,500 if you are married and file a separate return.

6. Carryover Losses. If your total net capital loss is more than the limit you can deduct, you can carry it over to next year’s tax return.

7. Long and Short Term. Capital gains and losses are treated as either long-term or short-term, depending on how long you held the property. If you hold the property for more than one year, your capital gain or loss is long-term. If you hold it one year or less, the gain or loss is short-term.

8. Net Capital Gain. If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain. Subtract any short-term losses from the net capital gain to calculate the net capital gain you must report.

9. Tax Rate. The tax rates that apply to net capital gain depend on your income but are generally lower than the tax rates that apply to other income. The maximum tax rate on a net capital gain is 20 percent. However, for most taxpayers, a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gain such as unrecaptured Sec. 1250 gains (25 percent) and collectibles (28 percent).

10. Forms to File. You often will need to file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses, with your tax return.

Questions about reporting capital gains and losses? Help is just a phone call away.

The Tax Cuts and Jobs Act (TCJA) prohibits individual taxpayers from claiming miscellaneous itemized deductions for any taxable year beginning after December 31, 2017, and before January 1, 2026. However, proposed guidance has recently been issued clarifying that certain deductions of estates and non-grantor trusts are not miscellaneous itemized deductions and are allowable in figuring adjusted gross income, specifically:

• Costs paid or incurred in connection with the administration of the estate or trust which would not have been incurred otherwise.
• Deductions concerning the personal exemption of an estate or non-grantor trust.
• Deductions for trusts distributing current income.
• Deductions for trusts accumulating income

The proposed guidance also clarifies how to determine the character, amount and manner for allocating excess deductions that beneficiaries succeeding to the property of a terminated estate or non-grantor trust may claim on their individual income tax returns.

Please contact the office with any questions.

Cash is the lifeblood of any small business. Here are some tips to help your business maintain a sufficient cash flow to meet its financial goals and run efficiently:

1. Toughen up your credit policies. Review the payment terms you offer to customers and tighten them up if slow payment is a problem area for your business. For instance, how long are customers given to pay? What action will be taken if a payment is missed? Be sure your credit terms are communicated effectively to customers before transactions are entered into.

2. Routine Credit Check. For many businesses, a routine credit check should be performed before a sales or service transaction is entered into with a new customer. Consider requiring advance payments – at least in part – for new customers.

3. Create a Budget. A budget can be extremely effective in helping you keep track of whether cost and revenue-related goals are being met, but surprisingly, many small businesses do not engage in the budgeting process. Depending on the size and complexity of the business, the budget process might be informal or formal, lengthy, or simple. Projected revenues and expenses should be broken down by months. Budget for next year’s revenues and expenses near the end of each year and review budgeted to actual results monthly.

4. Tighten up billing. If collecting bills has become a problem for your business, you might want to consider increasing the intervals at which customers are billed, e.g., from three months to one month, or from one month to two weeks. Review your accounts receivable weekly or even daily to make sure slow payers are not allowed to slide.

Please call the office if you need help creating a budget or have any questions regarding your company’s cash flow and credit or collection policies.