March 22, 2021

New York State Extends Tax Filing Deadline to May 17, 2021

New York State has extended the due date for personal income tax returns and related payments originally due on April 15, 2021 to May 17, 2021.

This follows the federal tax deadline which was also extended from April 15, 2021 to May 17, 2021. These extensions are due to the continued impact of COVID-19.

What this Means for New York State Individual Tax Filers

  • 2020 personal income tax returns originally due on April 15, 2021, and related tax payments, will not be subject to any failure to file, failure to pay, late payment, or underpayment penalties, or interest if filed and paid by May 17, 2021.
  • Interest, penalties, and additions to tax with respect to such extended tax filings and payments will begin to accrue on May 18, 2021.
  • Taxpayers do not need to file any additional forms or call the Tax Department to request or apply for relief.
  • Taxpayers unable to file by May 17, 2021, can request an automatic extension to file your return which will be due on October 15, 2021, if the extension request is filed by May 17, 2021, and any 2020 tax liability is properly estimated and paid with the extension request.
  • Direct debit payments schedules cannot be changed. To do so, you must cancel your current payment and schedule a new one.

What is Not Covered by this Extension

  • The deadlines for the payment or deposit of any other type of state tax, or for the filing of any state information return, remain unchanged.
  • This relief does not apply to estimated tax payments for the 2021 tax year that are due on April 15, 2021. These payments are still due on April 15, 2021.
  • Remittance of income tax withheld by employers required to be made using Form NYS-1, Return of Tax Withheld, must be made on time.

For questions, please contact:

Meredith Mazzola
Partner, Tax
mmazzola@gibney.com

March 17, 2021

Federal Tax Deadline for Individuals Extended to May 17

The Treasury Department and Internal Revenue Service has announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021 to May 17, 2021. The IRS will providing more formal guidance. Estimated federal tax payments and state tax filings are not extended and are still due by April 15, 2021.

Federal Income Tax Payments

  • Individual taxpayers may also postpone federal income tax payments for the 2020 tax year due on April 15, 2021 to May 17, 2021, without penalties and interest, regardless of the amount owed.
  • This applies to individual taxpayers, including individuals who pay self-employment tax. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17, 2021.
  • Penalties, interest and tax additions will accrue on any remaining unpaid balances as of May 17.

Guidelines for Individual Tax Payers

  • There is no need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief.
  • Those who need additional time to file beyond May 17 can request a filing extension until Oct. 15 by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Filing Form 4868 gives taxpayers until October 15 to file their 2020 tax return but does not grant an extension of time to pay taxes due.
  • Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.

Exceptions

The extension does not apply to estimated tax payments that are due on April 15, 2021. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. If you generally pay estimated taxes, your 2021 first quarter estimated tax payment is still due April 15, 2021.

State Tax Returns

The new federal tax filing deadline of May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax returns or payments.. Taxpayers will need to timely file and pay income tax returns in 42 states plus the District of Columbia according to each state’s applicable due date. State filing and payment deadlines vary and are not always the same as the federal filing deadline. Check with your state tax agencies for those details.

For more information, contact:
Meredith Mazzola
Tax Partner
mmazzola@gibney.com

January 15, 2021

Use It or Lose It: Utilizing Estate Tax Exemption Before It Goes Away

The U.S. imposes an estate tax of approximately 40% on the net estate of U.S. tax residents. The current exemption from estate tax is $11,700,000 per person, leaving very few estates actually subject to the tax. Under current law, the exemption will revert to $5,000,000, adjusted for inflation, on January 1, 2026. However, President elect Biden has proposed reducing the exemption to $3,500,000. After democratic wins in Georgia this change could be made as soon as this year.

Who Does this Affect?

The proposed change affects individuals with estates of $3,500,000 or more or married couples with more than $7,000,000. Your net estate includes the fair market value of all your assets worldwide net debts.

Planning Opportunities

The exemption from estate tax is actually a unified credit against estate and gift tax. This means that right now individuals can make gifts of up to $11,700,000 without incurring a gift tax. Gifts can be made outright to individuals or in trust. So long as the trust is irrevocable and meets certain requirements, the assets will no longer be included in the individual’s estate for estate tax purposes. There are several ways to do this:

Spousal Lifetime Access Trust (SLAT)
A SLAT is one type of irrevocable trust that can effectively transfer wealth outside of your estate while at the same time leaving a safety net for your spouse for his/her lifetime. Many estate tax plans focus on shifting assets to the next generation. While this is an effective strategy, depending on your age and your spouse’s age and your total assets, you may not be comfortable giving away all of your assets to a trust for your children and grandchildren.

While it may be tempting to create a SLAT for each spouse, such a plan should be carefully considered. First, depending on your circumstances it may make sense to keep one spouse’s exemption intact, even if it is reduced. Second, the Internal Revenue Service frowns on what is referred to as reciprocal SLATs, which means that if two SLATs are created they should be substantially different.

Generation Skipping Trusts
For those of you in a position to transfer wealth to the next generation the best option is a generation skipping trust. The trust can be set up to benefit your children and their descendants but if done properly will pass down multiple generations without any additional estate tax.

Whether you transfer assets outright to your children, or to a trust for your spouse or descendants, all appreciation on the assets transferred will be outside your estate for estate tax purposes. Further, in the event the estate tax exemptions decrease, as is likely to happen, if you have a gross estate in excess of $7,000,000 you will be using a portion of your unified credit for gift tax that will not later be available for estate tax. In other words, use it or lose it.

How to Address Uncertainty

Tax legislation could potentially be made retroactive to January 1, 2021. Therefore, careful planning should be done to make sure that if this happens there is not an inadvertent gift tax. This can be done with formula clauses, disclaimer provisions, and QTIP elections in a trust for a spouse. Ideally, legislation will be enacted prospectively but it’s best to be prepared.

Meredith Mazzola
Partner, Tax Group
mmazzola@gibney.com

December 8, 2020

Year-End Tax Planning: Steps to Take Now for 2021

During this election year, with the determination of the Senate seats not taking place until January 2021, taxpayers will be faced with uncertainty in their approach to planning. The outcome of the Senate will play a key role in whether the Biden Administration will move forward with several planned proposals. While it remains unclear whether there will be any significant tax changes next year, these are steps that taxpayers can take during the remainder of 2020 to be well-positioned for 2021 no matter who controls the Senate.

Potential Tax Proposals

There are several tax proposals to consider under the Biden Administration:

  • Capital Gain Tax: Would raise the capital gain rate from 20% to 39.6% for taxpayers with income over $1 million.
  • Charitable Donations: Itemized deductions would be capped at a 28% tax benefit compared to the current 37%, for those earning over $400,000, compared to 37% currently.
  • Estate Tax: Would reduce the gift and estate tax exemption to $3.5 million from $11.58 million.

2021 Considerations: Ways to Plan Now

Taxpayers may consider the following actions now to prepare for 2021:

  • For high-wealth clients, consider making larger gifts in December 2020 to utilize the current estate tax exemption
  • For individuals in the highest tax bracket, make charitable donations in December 2020 to maximize donation deductions
  • Move up any planned sales of assets to accelerate capital gains

We will continue to closely monitor updates in early January 2021 and will provide ongoing guidance on best practices to consider.

April 9, 2020

IRS Employee Retention Credit: What Employers Need to Know

The Internal Revenue Service launched the Employee Retention Credit to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.

What Businesses Qualify

The credit is available to all employers regardless of size, including tax-exempt organizations. State and local governments and their instrumentalities and small businesses who take small business loans do not qualify.

Employers must fall into one of two categories:

  • Business is fully or partially suspended by government order due to COVID-19 during the calendar quarter
  • Gross receipts are below 50% of the comparable quarter in 2019; if gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter
  • Measures are calculated each calendar quarter

How Credit is Calculated

Credit is 50% of qualifying wages paid up to $10,000 in total for wages paid after March 12, 2020, and before Jan. 1, 2021. Wages are not limited to cash payments, and also include a portion of the cost of employer provided health care.

Qualifying Wages

Qualifying wages are based on the average number of a business’s employees in 2019.

  • Employers with less than 100 employees in 2019: Credit is based on wages paid to all employees, regardless if they worked or not; if employees worked full time and were paid for full time work, employers still receive the credit
  • Employers with more than 100 employees in 2019: Credit is allowed only for wages paid to employees who did not work during the calendar quarter

How Employers Can Receive Credit

  • Will be immediately reimbursed by reducing their required payroll tax deposits withheld from employees’ wages by the amount of the credit
  • Must report their total qualified wages and related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter
  • If employment tax deposits are not sufficient to cover the credit, employers may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19

More updates on the Employee Retention Credit, Tax Credits for Required Paid Leave and other information can be found on the IRS Coronavirus page.

April 3, 2020

The CARES Act: Loan Program Options for Small Businesses to Consider

On March 27, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act to alleviate the economic impact of COVID-19 on both individuals and businesses. The legislation provides economic assistance to small businesses through several Small Business Administration (SBA) program options.

Paycheck Protection Program Loans

The Paycheck Protection Program prioritizes Americans employed by small businesses by authorizing up to $349 billion toward job retention and certain other expenses. The program provides qualified small businesses with loans of up to $10 million. The program is retroactive to February 15, 2020 to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.

Who is Eligible?

Qualifying businesses in all U.S. states and territories:

  • Businesses, nwith 500 or fewer employees
  • Certain businesses with greater than 500 employees in certain industries, including the hotel and food industry
  • Sole proprietors and independent contractors
  • Approved franchises listed on the SBA’s registry
  • Businesses receiving funding through a Small Business Investment Company

Guidelines for Loans

  • Loans are up to two months of average monthly payroll costs from the last year plus an additional 25%
  • Maximum loan amount up to $10 million
  • Loans will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent and utilities however at least 75% of the forgiven amount must have been used for payroll
  • Payroll costs must not exceed $100,000 of annual compensation per employee
  • Initial loans have a maturity of 2 years and an interest rate of 1% (loans past the initial term have interest rates capped at 4%)
  • No collateral or personal guarantees are required
  • First payment deferred for six months
  • No borrower or lender fees payable to SBA as before

How to Apply

Small businesses and sole proprietors can apply starting April 3. Independent contractors and self-employed workers can apply starting on April 10.

Applications can be made through any existing SBA lender or federally insured depository institution or credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. Visit www.sba.gov for a list of SBA lenders.

For more information on the program including forms and the interim final rule, please visit the U.S. Department Treasury site. The rules and details remain in flux, so please check back often for additional changes and updates.

Economic Injury Disaster Loans and Loan Advances

The CARES Act expands the Small Business Administration’s long-standing Economic Injury Disaster Loan Program (EIDL) to offer financial support to more businesses experiencing reduced revenue due to the pandemic. Historically, the SBA has offered disaster relief assistance to businesses, homeowners and renters in specific areas where federally declared disasters occurred however, companies in all states and U.S. territories can now apply.

Who is Eligible?

  • Businesses with fewer than 500 employees
  • Cooperatives, ESOPs, and tribal small businesses with fewer than 500 employees
  • Sole proprietors, independent contractors and self-employed persons
  • Nonprofits and veterans organizations

Guidelines for Loan Advances

  • Loans are available up to $2 million to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact
  • The interest rate is 3.75% for small businesses and 2.75% for non-profits
  • Long-term repayments can be up to a maximum of 30 years and are determined on a case by case basis
  • Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay
  • Payments on COVID-19 EIDL loans are deferred for one year
  • Borrowers do not have to prove they could not get credit elsewhere

How to Apply

The SBA offers additional information and details on the SBA site. Unlike the PPP loans, the EIDL submissions are made to SBA, not the banks directly.

Determining the Best Option for Your Business

Every business should consider the various assistance programs available to determine which may work best for both short- and long-term business planning. Remember that many states are also offering loans, grants and incentive programs. Consider all qualification criteria, terms and repayment options.

For questions or more information, please reach out to your Gibney contact or email info@gibney.com.

April 1, 2020

CARES Act: Retirement Plan Distributions and Loans Provisions for Employers

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Employees may be inquiring about whether they can receive distributions or loans from the company’s 401(k) plan to confront financial challenges resulting from the COVID-19 virus. The CARES Act includes several provisions regarding 401(k) distributions and loans that employers may wish to consider.

COVID-19 Related Distribution Provisions

  • A 401(k) plan may allow employees to receive COVID-19-related distributions for any taxable year from an employer that do not exceed $100,000 (aggregate) from all plans maintained by the company.
  • The 10% additional tax that applies to distributions for employers under age 59½ is waived between January 1, 2020 and December 31, 2020.

Who Qualifies for a COVID-19 Related Distribution?

  • Qualified distributions are any distribution from a 401(k) plan or other qualified plan made to an individual under the following circumstances:
  • Has been diagnosed with virus SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention
  • Spouse or dependent has been diagnosed by such test
  • Experiences adverse financial consequences as a result of being quarantined, furloughed, terminated, subject to a reduction of hours or unable to work due to lack of child care, subject to reduced hours of a business owned or operated by the individual or other factors as determined by the Secretary of the Treasury
  • Plan administrators may rely on the employee’s certification that the distribution requirements are met.

Repayment Guidelines

  • Employees may repay the amount of these distributions included in income over the three-taxable-year period beginning with the taxable year the distribution is received
  • Employees may repay the aggregated amount of the distribution (or any portion thereof) by making one or more contributions to their company’s plan or any other eligible retirement plan of which the individual is a beneficiary that accepts eligible rollover contributions
  • Distributions are treated as eligible rollover distributions if they are repaid within three years following the date of the distribution

Temporary Waiver of Required Minimum Distributions

  • The CARES Act temporarily waives required minimum distributions from 401(k) plans and other defined contribution plans and IRAs for participants who were required to receive such distributions in 2020. The waiver does not apply to distributions beginning in calendar years after 2020.

Plan Loans

Plans may increase the amount of loans available to employees who are eligible to receive COVID-19-related distributions:

  • During the 180-day period following the enactment (March 27, 2020), employees may receive plan loans that do not exceed the lesser of $100,000 (increased from $50,000) or 100% (increased from 50%) of the present value of the employee’s nonforfeitable accrued benefit under the plan
  • The due date for the repayment of any outstanding plan loans occurring between March 27, 2020, and December 31, 2020 can be delayed for one year. Plans adopting this provision must adjust subsequent repayments appropriately to reflect the delay in repayment and any interest accruing during the delay

What Employers Should Consider if Making Plan Amendments

Distribution and loan provisions are at the discretion of each company.

If you decide to adjust these provisions, your plan document does not have to be amended until the last day of the plan year beginning in 2022 (December 31, 2022, because your plan is a calendar year plan).

Provisions are effective immediately. It is important to review any changes with service providers to determine any fees associated with provisions.

All provisions will require drafting updated employee communications and updating the plan’s distribution and loan procedures.

Meredith Mazzola
Partner, Tax Group
mmazzola@gibney.com

March 30, 2020

New York State Tax Deadline Extended to July 15

New York State has extended the deadline for personal income tax and corporation tax returns from April 15, 2020 to July 15, 2020. This is in keeping with the federal tax deadline which was extended to July 15. This extension applies to individuals, fiduciaries (estate and trusts) and corporations. Taxpayers will be allowed to defer all related payments due on April 15, 2020 to July 15, 2020, without penalties and interest.

What this Means for Filing Returns

  • Taxpayers do not need to take any additional steps to apply for relief. Returns due on April 15, 2020 will automatically be granted the filing and payment deadline extension and relief from penalties and interest. Taxpayers who are due a refund are still urged to file as soon as possible.
  • 2019 returns due on April 15, 2020, and related payments of tax or installments of tax, including installments of estimated taxes for the 2020 tax year, will not be subject to any failure to file or pay, late payment or underpayment penalties or interest if filed and paid by July 15, 2020
  • If you are unable to file by the new deadline you can request an automatic extension. Your return will be due on October 15, 2020, if the extension request is filed by July 15, 2020 and you properly estimate and pay your 2019 tax liability with your extension request.
  • Interest, penalties, and additions to tax with for extended filings and payments start to accrue on July 16, 2020.
  • If you already filed your 2019 return and scheduled your direct debit payment, it will not be automatically rescheduled to occur on July 15, 2020. You must cancel and schedule a new direct debit payment.
  • Fiduciary income tax returns are due September 30, 2020, for calendar-year taxpayers who request an automatic extension to file by July 15, 2020.

Exceptions

  • No extension is provided for any other type of state tax, or for the filing of any state information return.
  • Payment of income tax withheld by employers using Form NYS-1, Return of Tax Withheld, must be made on time.

For more information, visit: www.tax.ny.gov.

Meredith Mazzola
Partner, Tax Group
mmazzola@gibney.com

March 23, 2020

IRS Filing and Payment Deadline Extended to July 15, 2020: What this Means for Individuals and Corporations

The Treasury Department and Internal Revenue Service have extended the federal income tax filing due from April 15, 2020, to July 15, 2020. The payment deadline was also extended to July 15, 2020.

The Treasury Department and Internal Revenue Service have extended the federal income tax filing due from April 15, 2020, to July 15, 2020. The payment deadline was also extended to July 15, 2020.

These steps are in an effort to provide special payment relief to individuals and businesses in response to the COVID-19 Outbreak. Income tax relief is expanded to all “persons,” including individuals, corporations, partnerships, trusts, and estates.

What This Means for Your Tax Filings

  • Taxpayers can defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all income taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.
  • Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief.
  • Individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868. Businesses who need additional time must file Form 7004.
  • Relief applies to only federal income tax (including tax on self-employment income) payments due April 15, 2020.
  • This does not apply to state tax payments or deposits or payments of any other type of federal tax. State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges taxpayers to check with their state tax agencies for those details or view deadlines here.  As of March 23, 2020, the New York State Tax Department has not extended the deadline to file personal income tax or other tax returns.
  • It is unclear whether relief will apply to gift or estate tax returns or payments.

More information can be found on the IRS Coronavirus Relief page.

January 22, 2019

Estate Tax Planning for New York Residents

The Tax Cuts and Jobs Act increased the Federal Unified Credit for 2019. The estate and gift tax exemption is $11,400,000* per person. What’s better is that for a married couple the Federal exemption is “portable” – this means that an individual can leave $11,400,000 to heirs and married couples can transfer up to $22,800,000 to their children without any estate tax or complicated planning.

New York Estate Tax

What does this mean for New Yorkers? Unfortunately, New York State’s laws are not as generous.  New York only exempts the first $5,740,000* per person.  Additionally, there are two features of the New York estate tax laws that make it challenging to plan for:

  • Unlike the federal exemption, there is no portability between spouses. This means that if you do not utilize the exemption when the first spouse dies you lose it.
  • New York taxes your estate based on a “Cliff”. Once an estate exceeds the exemption amount by 105% New York imposes a tax on the full gross estate, not just the amount over the exemption.

These two items are important to plan for because the New York Estate Tax is significant.  It ranges from 5-16%. Although there are challenges with the New York estate tax laws there are also opportunities.

Planning Opportunities

Make Gifts
New York does not have a gift tax.  With the increased federal exemptions you can make lifetime gifts up to $11,400,000 per person.  This allows for increased lifetime planning. Gifting can be done outright or in trust.  Some gift options to consider:

  • Put assets in trust for certain situations, such as your child is getting divorced, has a chemical dependency issue or is receiving government benefits that could be jeopardized by receiving a lump sum of money.
  • Make gifts to 529 accounts for your grandchildren so that the money can grow without additional income taxes

Add a “Santa Clause”
Plan for the Cliff with a “Santa Clause”.  Many individuals fall into the category of taxpayers whose gross estate falls just over 105% of the New York exemption (currently $6,027,000).  Consider the following example, Jane, a widow has a gross estate of $6,150,000.  Her estate would have to pay New York an estate tax of $529,000.   However, Jane’s will or Living Trust could contain a formula clause which allows her executor or trustee to make a gift charity, decreasing the taxable estate below the Cliff and causing the beneficiaries to end up with more.  For example, the executor could gift  make a gift of just over $125,000 that would cause the estate to only pay tax on the amount over $5,740,000 (less than $30,000).  The net result is that the beneficiaries get more and a charity benefits.

The “Santa Clause” will only benefit a few estates but if your estate hovers around the New York Exemption amount we highly recommend adding it to you estate plan.

Create a Flexible Estate Plan
Some older estate plans fund a credit shelter trust on the death of the first spouse up to the maximum Federal exemption.  If your plan does this the surviving spouse may end up paying New York State estate tax.  We recommend building in a flexible estate plan which allows the surviving spouse to fund a credit shelter trust via a “disclaimer.”  Each spouse would leave each other the remainder of their estate but allow the surviving spouse to “disclaim” or give up a portion of the estate and have it paid to a credit shelter trust.  With such uncertainty over both Federal and New York State estate tax exemption this allows the surviving spouse to tax plan at the time of death when there is certainty.

Utilize the Additional Federal Exemption Against
The increase in the Federal Unified Credit didn’t eliminate the Federal estate tax for all New Yorkers.  For those with gross estates greater than $11,400,000 per person consider utilizing the additional credit by making gifts to Grantor Retained Annuity Trusts (GRATs) or Intentionally Defective Grantor Trusts (IDGTs) to lower or eliminate your Federal estate tax as well.

Next Steps

Review your Estate Plan!  Every situation is different but many can take advantage of these opportunities as well as others.

*The Federal and New York exemptions are scheduled to be increased for inflation annually.