ACCOUNTING
TAX PLANNING DURING CORONAVIRUS OUTBREAK – PART I
The outbreak of COVID-19 (Coronavirus) and the direct affects it is having on all types of business will make couple of months challenging for everyone.
Right now, your highest priority is the health of those you love and yourself. But if you have time to read about some non-medical but important matters related to the health crisis, here is a summary of IRS action already taken and federal tax legislation already enacted to ease tax compliance burdens and economic pain caused by the virus.
Filing and payment deadlines deferred. After briefly offering more limited relief, the IRS almost immediately pivoted to a policy that provides the following to all taxpayers – meaning all individuals, trusts, estates, partnerships, associations, companies or corporations regardless of whether or how much they are affected by COVID-19:
- For a taxpayer with a federal income tax return or a federal income tax payment due on April 15, 2020, the due date for filing and paying is automatically postponed to July 15, 2020, regardless of the size of the payment owed.
- The taxpayer doesn't have to file Form 4686 (automatic extensions for individuals) or Form 7004 (certain other automatic extensions) to get the extension.
- The relief is for (A) federal income tax payments (including tax payments on self-employment income) and federal income tax returns due on April 15, 2020 for the person's 2019 tax year, and (B) federal estimated income tax payments (including tax payments on self-employment income) due on April 15, 2020 for the person's 2020 tax year.
- No extension is provided for the payment or deposit of any other type of Federal tax (e.g. estate or gift taxes) or the filing of any Federal information return.
- As a result of the return filing and tax payment postponement from April 15, 2020, to July 15, 2020, that period is disregarded in the calculation of any interest, penalty, or addition to tax for failure to file the postponed income tax returns or pay the postponed income taxes. Interest, penalties and additions to tax will begin to accrue again on July 16, 2020.
Favorable treatment for COVID-19 payments from Health Savings Accounts. Health savings accounts (HSAs) have both advantages and disadvantages relative to Flexible Spending Accounts when paying for health expenses with untaxed dollars. One disadvantage is that a qualifying HSA may not reimburse an account beneficiary for medical expenses until those expenses exceed the required deductible levels. But IRS has announced that payments from an HSA that are made to test for or treat COVID-19 don't affect the status of the account as an HSA (and don't cause a tax for the account holder) even if the HSA deductible hasn't been met. Vaccinations continue to be treated as preventative measures that can be paid for without regard to the deductible amount.
Tax credits and a tax exemption to lessen burden of COVID-19 business mandates. On March 18, President Trump signed into law the Families First Coronavirus Response Act (the Act, PL 116-127), which eased the compliance burden on businesses. The Act includes the four tax credits and one tax exemption discussed below.
...Payroll tax credit for required paid sick leave (the payroll sick leave credit). The Emergency Paid Sick Leave Act (EPSLA) division of the Act generally requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The pay is up to $511 per day with a $5,110 overall limit for an employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee that is a caregiver.
Here are a couple of helpful Web site links:
- IRS information site. The IRS and tax legislation response to COVID- 19 can be found at https://www.irs.gov/coronavirus
- IRS FAQs Address 90-day Filing and Payment Extension: www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers
- IRS unveils new People First Initiative; COVID-19 effort temporarily adjusts, suspends key compliance program: https://www.irs.gov/newsroom/irs-unveils-new-people-first-initiative-covid-19-effort-temporarily-adjusts-suspends-key-compliance-program
- U.S. Small Business Administration for Economic Injury Loan: https://www.sba.gov/disaster-assistance/coronavirus-covid-19
- Florida Small Business Emergency Bridge Loan Program: https://www.flgov.com/2020/03/16/governor-ron-desantis-activates-emergency-bridge-loan-program-for-small-businesses-impacted-by-covid-19/
To be continued …
Sanjay Gupta, CPA, FCA, who has 30 years of experience in accounting and taxes, is based in Plantation. He can be reached at [email protected] or visit www.sanjayguptacpa.com
FINANCE
UNDERSTANDING LONG-TERM CARE INSURANCE
It's a fact: People today are living longer. Although that's good news, the odds of requiring some sort of long-term care increase as you get older. And as the costs of home care, nursing homes, and assisted living escalate, you probably wonder how you're ever going to be able to afford long-term care. One solution that is gaining in popularity is long-term care insurance (LTCI).
What is long-term care?
Most people associate long-term care with the elderly. But it applies to the ongoing care of individuals of all ages who can no longer independently perform basic activities of daily living (ADLs)--such as bathing, dressing, or eating--due to an illness, injury, or cognitive disorder. This care can be provided in a number of settings, including private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.
Why you need long-term care insurance (LTCI)
Even though you may never need long-term care, you'll want to be prepared in case you ever do, because long-term care is often very expensive. Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements--you would have to exhaust a large portion of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don't pay for most long-term care expenses, you're going to need to find alternative ways to pay for long-term care. One option you have is to purchase an LTCI policy.
However, LTCI is not for everyone. Whether or not you should buy it depends on a number of factors, such as your age and financial circumstances. Consider purchasing an LTCI policy if some or all of the following apply:
- You are between the ages of 40 and 84
- You have significant assets that you would like to protect
- You can afford to pay the premiums now and in the future
- You are in good health and are insurable
How does LTCI work?
Typically, an LTCI policy works like this: You pay a premium, and when benefits are triggered, the policy pays a selected dollar amount per day (for a set period of time) for the type of long-term care outlined in the policy.
Most policies provide that certain physical and/or mental impairments trigger benefits. The most common method for determining when benefits are payable is based on your inability to perform certain activities of daily living (ADLs), such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Typically, benefits are payable when you're unable to perform a certain number of ADLs (e.g., two or three).
Some policies, however, will begin paying benefits only if your doctor certifies that the care is medically necessary. Others will also offer benefits for cognitive or mental incapacity, demonstrated by your inability to pass certain tests.
Comparing LTCI policies
Before you buy LTCI, it's important to shop around and compare several policies. Read the Outline of Coverage portion of each policy carefully, and make sure you understand all of the benefits, exclusions, and provisions. Once you find a policy you like, be sure to check insurance company ratings from services such as A. M. Best, Moody's, and Standard & Poor's to make sure that the company is financially stable.
When comparing policies, you'll want to pay close attention to these common features and provisions:
- Elimination period: The period of time before the insurance policy will begin paying benefits (typical options range from 20 to 100 days). Also known as the waiting period.
- Duration of benefits: The limitations placed on the benefits you can receive (e.g., a dollar amount such as $150,000 or a time limit such as two years).
- Daily benefit: The amount of coverage you select as your daily benefit (typical options range from $50 to $350).
- Optional inflation rider: Protection against inflation.
- Range of care: Coverage for different levels of care (skilled, intermediate, and/or custodial) in care settings specified in policy (e.g., nursing home, assisted living facility, at home).
- Pre-existing conditions: The waiting period (e.g., six months) imposed before coverage will go into effect regarding treatment for pre-existing conditions.
- Other exclusions: Whether or not certain conditions are covered (e.g., Alzheimer's or Parkinson's disease).
- Premium increases: Whether or not your premiums will increase during the policy period.
- Guaranteed renewability: The opportunity for you to renew the policy and maintain your coverage despite any changes in your health.
- Grace period for late payment: The period during which the policy will remain in effect if you are late paying the premium.
- Return of premium: Return of premium or nonforfeiture benefits if you cancel your policy after paying premiums for a number of years.
- Prior hospitalization: Whether or not a hospital stay is required before you can qualify for LTCI benefits.
When comparing LTCI policies, you may wish to seek assistance. Consult a financial professional, attorney, or accountant for more information.
What's it going to cost?
There's no doubt about it: LTCI is often expensive. Still, the cost of LTCI depends on many factors, including the type of policy that you purchase (e.g., size of benefit, length of benefit period, care options, optional riders). Premium cost is also based in large part on your age at the time you purchase the policy. The younger you are when you purchase a policy, the lower your premiums will be.
What to Avoid When Buying a Long-Term Care Insurance Policy
Avoid these |
Here's why |
Non-tax-qualified policies |
Tax-qualified policies provide tax benefits. Moreover, certain minimum standards are required of tax-qualified policies. |
Gatekeepers (e.g., a hospital admission) prior to a claim for benefits |
Gatekeepers make it more difficult to claim benefits. |
Claims-made policies |
A policy is issued now, but your application is evaluated at claim time--when you can be denied coverage. |
Care facility restrictions |
These provisions limit care to home care or nursing home care, rather than including all types of facilities. |
Pre-existing condition exclusions |
These exclusions limit care for a specified period of time for medical conditions that exist before the purchase of the policy. |
Mental or emotional disorder exclusions |
These exclusions deny claims for illness without an organic disease, except for Alzheimer's disease. |
Requirement that more than two activities of daily living (ADLs) can't be performed before you qualify for benefits |
Inability to perform just two ADLs means that benefits from the policy are probably needed. |
Insurance companies that are poorly rated, or companies that generate excessive consumer complaints. |
When the benefits of the policy are needed, you want to make sure that they are available. Research ratings services and call your state's insurance division before you buy your policy. |
Haren Mehta, managing partner of Capital Insurance & Asset Protection in Tampa, can be reached at (813) 679-5204 or email [email protected]
BUSINESS BUZZ
There Is No Such Thing as A Natural Born Leader
One of the biggest myths still being propagated is that some people are born leaders. Nothing could be further from the truth. Great leaders must work toward being one. Yes, you could be born into fame. However, that does not make you a leader. You need to acquire certain skills and traits to be a true leader.
Personally, I believe that to be successful as a leader, you first must know how to serve your team. Here are a few traits that make a great leader:
1. Be a good follower.
This may sound strange, but it is true. You need to be a good follower to be a good leader. You can’t lead effectively if you have no idea what it is like to be follower. You can’t be a leader if you don’t know what followers look for in a leader.
2. You should be selfless.
Good leaders do not think about themselves alone. The problems that belong to any of their followers become their own. People tend to be loyal to people who consider their plight. Part of being selfless is the tendency to serve others. Good leaders are eager to give to their community without expecting anything in return.
3. You need presentation skills.
Have you ever come across any president of a country (past and present) who lacks oratorical ability? The answer will probably be no. Let’s narrow it down to here in the United States. What do Donald Trump, Barack Obama, George Bush, Bill Clinton, and the other past presidents have in common? They are all good talkers. You must have great presentation or communication skills to become a leader. When you talk, people will be eager to listen.
4. Being a good listener is important.
You can’t be a good speaker without being a good listener first. Great leaders have amazing listening skills. From the little you have said, they can deduce what you have not said. Therefore, they are also good at understanding what others are thinking.
5. You must be observant.
Great leaders are also very observant. Very little escapes them. This is why they are able to study their followers very well. This helps them with the delegation of responsibility. If you are not so observant, you may find it difficult to know the capabilities of the people you lead.
6. They take responsibility.
When things go wrong, do you blame others? If you do, then you’re not a leader material. According to Hanisha Patel, president of the Indo US Chamber of Commerce and vice president at CenterState Bank, “a leader is someone who shares the credit for success but takes full responsibility for failure.” A leader blames herself or himself for anything that goes wrong, not any of his followers.
It’s time to rethink the notion of leadership. Even if you were born into the position of authority, you can’t be an effective leader without working on the six qualities listed above. Unfortunately, if you’re not a good leader, you’ll never make a good manager or CEO and people will not follow your lead. Additionally, if you move beyond promoting those with the most competence and start thinking more about those who can get you where you want to go, your company will thrive. Remember that “whoever wants to become great among you must be your servant.”
Dr. Karyn Mathura-Arthur is an agile implementation leader with experience in Operational Excellence, Continuous Process Improvement, Business Transformation, Process Engineering and Organizational Change Management across multiple industries (banking, insurance, healthcare, telecom, government, retail, etc.). For comments and suggestions, email [email protected]