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In this virtual chat, Nikali Luke, a Partner and CPA at Simplified Tax & Accounting Service PC., answers tax and accounting questions related to the ongoing changes from the Coronavirus pandemic.
Nikali Luke specializes in individual and corporation income tax preparation. Additionally, he assists clients with QuickBooks, payroll and other consulting needs.
Learn more: choosesimplified.com
Julie: Good afternoon. Welcome to our special Facebook live series called expert connexions. We are interviewing experts with information and insights to help all of us during this COVID-19 pandemic. I’m Julie Holton, the founder and principal strategist of mConnexions. We are seeing some really incredible things happening in our community. We’re seeing businesses stepping up to help other businesses. People working hard to make sure others are fed, their needs met, so many positives are happening in the Greater Lansing area. We know that it’s not easy. How you’re doing can sometimes change by the hour so we are here to help connect you to community experts with knowledge and resources to share. Today we’re going to talk about taxes. I am joined by Nikali Luke of a partner in CPA at simplified tax and accounting service. Nikali, thank you so much for joining us.
Nikali: I’m glad to do it.
Julie: So alright so much to talk through when it comes to taxes and I know you were just telling me offline that things are just constantly changing. You’re spending a lot of time keeping up with all of the changes. Let’s first start with the federal tax filing deadline which has been extended now to July 15th. Should some taxpayers still file now?
Nikali: I would say yes and I think that if you’re especially if you’re doing refund, which you know a vast majority of taxpayers do get refunds, it makes good sense to file now. No reason to wait on your dollars you know initially the IRS had extended the payment date to July 15th, but not the actual filing date and then they came back and said no we’re going to just push everything out, no actions required, and they just you know moved everything forward to the 15th and I again that’s for the IRS and so but I think even if you do owe, I would rather know in advance and then have some extra time to plan versus waiting until July 14th to figure it all out. So if you have a refund coming, 100% go ahead and file, get that in, and then if you owe again you have the extra time you can still file, and then wait until July to pay if you want to.
Julie: Okay and then we’re talking as you said federal. Do you expect Michigan to follow suit or what are you expecting as far as the state returns?
Nikali: So we haven’t officially heard yet from Michigan. You know all indications are they will follow the IRS rule and move it out till July. Last night I was actually watching governor Whitmer did a town hall and she kind of hinted that it might come up today, but I guess in my gut I feel like they have to follow the IRS or longer there’s no way that they’ll be shorter than the IRS is an extension so my guess is they’ll mimic it here shortly.
Julie: Okay and I think you just said this that I want to make sure that it’s clear do I need to file an extension for myself for my business to file past April 15th or is it automatic?
Nikali: It is automatic, so both the filing, so usually the biggest penalty is actually the failure to file. So you know there’s a failure to pay a penalty, failure in a file, and there’s interest in all three of those and they’ve postponed all three of those until July. So if you do nothing until July there will be no negative implications to you.
Julie: Okay great. So I want to talk also about the coronavirus stimulus package. In the Senate version which we saw passed this week, this relief stimulus bill includes a recovery rebate in the form of a refundable tax credit. Who would this impact as the bill stands right now? It still needs to go to the house which they’re working on today, but who would be impacted by this rebate?
Nikali: So you’ll hear me reference that we’re learning new stuff as we go, but from my understanding really it’s going to be $1200 for any single person, it’ll be $2,400 for any married couple, and then you get $500 per child. What I haven’t seen yet is there is a limit on that. So if I have four children do I get $2,000 or is there some sort of ceiling? Not sure yet, still waiting to hear. There are some income thresholds. So for a single person, if your income is over $75,000, that’s your adjusted gross income, then you might be phased out and that phase-out goes from 75,000 up to a hundred grand. So if you’re below 75,000, you should get the full 1200. If you’re between 75,000 and 100 grand, then you’ll be up somewhere in the middle there. If you’re married those numbers dull, so if you’re under 150, 150 thousand, of AGI as a married couple you should get the full amount and what we’re still, what I’m hearing is that if you have not yet filed your 18 sorry your 19 tax return, then they’re going to base it off your 18. If you’ve already filed your 19 returns I’m going to base it off your 19 and they’re saying that if you had direct deposit of your tax refund on your 19 return, they’re going to directly deposit the stimulus and you should give it a lot faster. They’re saying it could be an extra month or more if you don’t get in direct deposit, but if you have not filed your 19 return yet and you had direct deposit and 18 they’re going to use that as well. So it’s possible you know that you changed the banks between that 18 and now and my understanding is they’re going to try to deposit it. They’re going to send you a letter that says we try to direct deposit it and if you don’t see it then contact us. So you know there’s still a lot of unknowns especially if your income was different. So if you know if in nineteen you will qualify based on your income thresholds, but an 18 you wouldn’t have but you haven’t filed 19 that they don’t know and you won’t get it and my guess is and this is truly a guess I’ve not seen anything yet is that there’ll be some sort of reconciliation of that when we file our 2020 tax returns. You know so if you didn’t get it, but you should have gotten it then my guess is they’ll make that right on the 2020 tax return. What we don’t know is if it’s the opposite, so if your income was lower in 18 and you get the stimulus and then later you file your 19 return and you shouldn’t have got it or they are going to make you pay that back and if they do how are we going to get that? Are they going to get that on the 2020 tax return? So still some unknowns there, but you know the quick overview is $2,400 for married couples, 1200 for a single, $500 for each child in the house, and again that income threshold is 75 grand for a single, and then 150 grand adjusted gross income for married couples.
Julie: Okay obviously so many details that need to be worked out on so many levels with this, but that was really good information especially about the direct deposit. So people should be checking on that. You know I have a question so looking at businesses. What if a business has already filed for 2019 and what if that filing included payment? Are we able to stop payment? You know what that situation looks like, especially for businesses that really right now need that cash flow.
Nikali: Yeah so you know most businesses that I work with, most small businesses don’t pay income tax, most of them are flow-through entities. So really only a C-Corp will pay its own tax. S-Corps, partnerships, or sole proprietorships, single-member LLC’s, all of them are flow-through entities that that means that the income comes from the business, flows to you personally, and then you pay the tax at your personal level, but if you did already submit a payment, if it’s already gone through it’s too late I think. I haven’t seen anything that says they’ll give you your money back. If you scheduled your payment typically those payments are scheduled through the EFTPS system with the IRS, electronic funds transfer payment system, you can go on there anytime before the payment date and cancel the payment. So if you have scheduled those payments you can log in and cancel them and again they’ll be pushed out. If they were due in April they’ll be pushed out until July.
Julie: Okay and how are our 2020 estimated payments being impacted?
Nikali: Good question. This has been a fun one for me, as a tax person. So first quarter, anything due April 15th got pushed out to July, so your first-quarter payments typically do the same time as your prior your tax return, so then we’ve been doing on April 15. So they push that out till July 15th. They have not messed with the second quarter estimated payment, which is due June 15th. So really your second quarter payment is due before your first quarter payment this year which makes no sense, but that’s how they currently have it. So for my clients, I’ve been doubling up their first-quarter pay that will be due in July and then that covers both the first and second quarters and gives us an extra month on that second-quarter payment.
Julie: Okay now we have a lot and I don’t know where this will go, but we have a lot of businesses obviously shut down right now, not able to you know be bringing cash flow in, what if a business can’t pay their upcoming estimated tax payment?
Nikali: You know so there hasn’t been a lot of information coming that says what we’ll do to you if you miss the 15th, July 15th. So my guess is you know if it’s income tax-related, that of all the taxes that a business owes, the income tax side is the one the IRS will be the most understanding with. So if you have payroll taxes, or sales tax, withholding taxes, and you have to pick, I would always pick those payroll taxes, sales taxes first because the IRS will work with you on the income tax from your business operations. Michigan has also done some extensions on sales tax and withholding taxes too. So stay tuned, they’re kind of giving new information as we go, but I know for sure that Michigan sales tax has been extended by one month. Usually, that’s through the 20th of the month, so they let people push that forward one month there. So if you are a retail business and you had a big sales tax payment due but now you’ve closed down, you might be able to hold onto that money for another month even though that sales tax money really isn’t yours you know you hold it from customers and then give it to Michigan but it sounds like Michigan’s willing to give a little bit of time on their side of things as well.
Julie: Okay now you know last week, it feels like a year ago almost, last Wednesday President Trump signed into law the families first coronavirus response Act. Which includes relief for individuals who are self-employed in businesses. Can you talk a little bit about what kind of relief this includes for individual taxpayers?
Nikali: Yeah so you know the one I’m getting a lot of questions about my sole proprietors or small business owners that are not on payroll right. So they have people on payroll and they’ve been able to let them know if they had to lay them off they’re able to go get employment but as someone who’s not on payroll, you’re not able to go to Michigan and claim employment. You know so I had one of my guys today just say I shut everything down, what am I supposed to do? Can I go to get unemployment? My short answer is no, not yet. So both Michigan and the federal government are working on ways that get people some relief. You know well but I’ve then when they file their 19 return or 20 return, but you know that’s that doesn’t that’s not quick enough. So I think you know on the federal level they’re looking at ways to get self-employed people some unemployment but that will be facilitated through Michigan is my guess. You know that they’ll get the funding from the feds to Michigan. Michigan will disperse it and as of right now, as far as I know, as a non-employee, you’re not able to go out there and request unemployment yet.
Julie: Okay what am I missing? We were kind of talking offline a little bit. I’m a writer, I’m a marketer, taxes, this is why I hire someone like you to take care of business taxes and I think there are a lot of people in that situation. What do we need to know? What am I missing right now that we’re focusing on?
Nikali: A couple of things. One thing I wanted to mention we’re about the individual stimulus. My understanding is if you have not filed your 18 individual return then you will not qualify for the stimulus and so our phones are ringing off the hook of people say hey I’ve not filed my 18 return, can I get my 18 and 19 filed right now and you know our offices are closed and so the answer is you can drop it off and we will try, but you know is it going to be in time to get into the system, to get processed by the IRS, and for you to get your stimulus? I don’t know honestly. So I would still say better to file so either if they do a second round of this, if this goes on longer than we anticipate, or if after the smoke clears they do go back and say okay who have we missed? Then at least you’ll be on the radar at that time, but I was just talking to someone in my office and they said it’s you know of all the questions with my phone’s been non-stop ringing, most of them are about that stimulus and one we don’t know everything yet, but number two is we do know that if you didn’t file your 18 return and/or 19, you know one or the other, then you won’t see the stimulus dollars. So that’s one thing on the individual side. On the business side and I’m going to speak a little bit because it’s there’s some legal stuff going on here that I’m not a hundred percent sure on but my understanding is that if you do have employees and they’re still on the payroll as of April 2nd, then you are required to pay them two weeks of paid sick time. So if some and then you will get a reimbursement of that from the federal government. So if you have people on the payroll, you make it to the second, then there are some exclusions if you financially can’t do it, but if you decide you know what I don’t know I’m going to lay the rest of you off, you can’t do that once you get to April 2nd. If they’re on the payroll, then you’re required to continue to pay them with benefits for two weeks and you’ll get a credit when you file your next quarterly payroll tax return. It’ll offset the Social Security and Medicare tax that you owe as an employer and then any additional from my understanding will be refunded. You know I wasn’t sure if they were going to make you carry that credit forward, but it sounds like they will give it back. So really good things for both employees and employers where I want to keep you on board, but my cash flow you know is just making me nervous so this is a way to be able to pay them. It will take some time, but you will get some dollars back eventually from the IRS when you that second-quarter return would be filed in July, so in theory, by the end of July you would get a refund back of the dollars that you had to put out to keep your people employed during that time and really the phone calls I’m getting the most right now are if I do need money, how can I get the money? I hear about there’s money out there really. So you know what I’m seeing is that the SBA, the Small Businesses Authority, is not giving out, they are trying to fast-track loans for people. So I’ve been trying to help my clients do this. The website that had been used last week was miserable. It was you know, I was on at 11:00 p.m. at 6:00 a.m. and it was freezing and it was horrible. So yesterday they did away with the website as far as trying to fill out the forms online. Now you fill them out and you upload them on the SBA website. so there’s actually and if you go to sba.gov there’s a little link at the top it talks about COVID assistance and now the website is much better. So it lists here are the forms you need to file and they made it much easier. Instead of asking for as much information, they’re kind of just taking general information from you and then they’re going to contact you. So kind of like a credit card honestly like you know when you apply for a credit card you don’t know what they’re going to give you. Same concept here. So you will put your information in and then they’ll contact you, give you an offer, if they’re going to extend credit to you, give you an offer and then you guys can work through that together and they even say on there we may ask for more stuff, but we want the basics. Which is the application, personal financial statement for any owner that’s over 20%, some tax documents, which is also a really good reason to have your 19 tax returns done. If it’s done, you can upload it as part of the application. If not, they’ll take 18, but my guess is there would be a lot more questions because they don’t know they need more current information than that. So that’s one reason to also try to get your 19 accounting ready for your tax person if possible and then you can upload that on the website. So my understanding is that it is a 3.75 percent loan. So pretty good interest rate and it’ll be amortized over the years. It looks like you’ll get like the first year with no payments and so they’re trying to make it work, trying to get money out to people. The stuff that is in the stimulus that has not passed yet even better. So my understanding is they’re going to allow the SBA to issue funds through local banks and if those funds are used for the payroll of your people, they may forgive it up to one hundred thousand bucks. So based on how much your average payroll is you may be able to you know and then if it’s up, I think it’s up to a hundred thousand for payroll relief and then your rent and utilities is a business owner to keep your operations at least up-to-date, they’ll also forgive some of that loan for that as well. So rare in the world do you get money and it’s forgiven. So this might be a case where that happens. Which again we are learning tons about the stuff as it’s happening, rapid-fire right now. I have a conference call at three o’clock, I have a conference call on Monday. Trying to make sure that we gather all this, but I just spoke to a local bank and they said that second version, the money that’s used for payroll that will then be forgiven, it’s going to take about three to four weeks before the feds get it to the local banks and the local banks are able to get it out to people, but the rules from what I can see are very specific as far as you have to spend that money within eight weeks and that’s your forgiveness period. So if you have payroll before and then you laid your people off and then you get this money and they’re not back to work yet you may not be able to forgive it. I think they’re going to make some incentives to bring them back earlier. So you know if you miss some of this window, but if you bring your people back early and we may forgive it faster. So lots to learn still on and all, but I think they’re trying their best to get money out to both individuals and businesses as fast as they can.
Julie: Absolutely and I’m thankful to you for taking the time to walk us through this because there’s obviously a lot to process and keep track of. Clearly, they’re really making a lot of efforts on many levels to keep people working, to keep cash moving in our country so that we can keep paying bills. I know a lot of people have been reaching out to us all week-long for the last several weeks and I know you’re hearing from a lot of your client’s business individuals who are very concerned about making ends meet for sure. We do have one question I’m going to throw up on the screen here and I know Tia you had tuned in yesterday when we were talking to Laurie Lonsdorf from the Small Business Development Center and she was also talking about some of these a couple some grants that may be coming, but also loans and so she’s asking, should you go to the SBA site for the grant instead of purelansing.org?
Nikali: Great question. I’m glad you mentioned it. So MEDC came out with two pieces to the puzzle. One I think they’re my understanding of Michigan sixty $10,000 grants and I think that they open that up today. So the application process is from today until March 31st I believe and so I would definitely try uh you know small businesses to try to apply for that with sixty available you know I don’t anticipate a majority of us are going to see those dollars, but the other option looks to be even a better loan. You know so I mentioned that the SBA loan is 3.75 percent. My understanding is the loan is through the MADC will be at a quarter percent. So obviously if you lend me money at 3.75 or at a quarter, I always take a quarter. So I think there’s still more to come from them. I don’t think you can go there yet and apply for the loan. I think you can apply for the grant right now, but I don’t think the loans are quite open yet. I think they’re true they’re hustling and trying the best they can and I was really excited to see those both those options available, got a little bit less excited when I saw there’s only 60 in the grants, again understandably, but so I think that as a small business you should absolutely try to take advantage of that grant if possible and then if that doesn’t go through, I would also at honestly at the same time as soon as you can apply for the MADC loan, apply for that. I would honestly apply it to all three of them. Apply for the SBA, apply for the MADC loan and grant, and then when this second version of the SBA comes out the forgivable portion I would apply for that as well, and they’ve kind of made it clear that you can do both with the SBA. You can apply for the traditional loan and you can also apply for this possible forgiven loan that’s coming out here in a couple of weeks.
Julie: Okay great information. Tia great question. Not one or the other of the three clients saying. Thank you so much again. Is there anything else that you want to make sure we get in now before we wrap-up here.
Nikali: I’m sorry I missed that.
Julie: Is there anything else Nikali that you want to say before we wrap up?
Nikali: I think that trying to make sure you get information from credible sources would be important. So I just was on the IRS website checking on that stimulus to see if there’s anything new that I could give you and it specifically says we don’t have anything yet, do not call us, come back later. So I think if we give them a little bit more time they’ll try to get that information out, but be careful. If your neighbor tells you something, it may not be right. That happens all the time, so just make sure you’re trying to get good information and know that using you know it’s going to be a couple weeks here before we see some really good answers, but it should be pretty soon.
Julie: And I want to make sure you can contact Nikali through his website choosesimplified.com. You can also reach out to him directly through the website, his contact information will be there for you. So Nikali thank you again so much for breaking down this information and we’ll make sure and check back with you as things continue to evolve in this situation.
Nikali: Happy to do it.
Julie: All right so we are working, our team is working right now to line up more interviews for you next week. We’re going to be moving these expert connexions interviews to two days per week. We’re going to focus on Tuesdays and Thursdays so that we can continue to focus on our clients, our communities, our own families, but we will be bringing you two or three interviews each of those days. So already working into our lineup next week, we’re going to hear from two nonprofits, Habitat for Humanity and Project Co room are both turning to some really creative ways to help their constituents and keep their mission moving forward. So you’ll love hearing what they’re up to and I bet it will trigger some new ideas for your business, as your organizations, your nonprofits as well. We’ll also be continuing to talk with the attorneys at Foster Swift. We’ve talked with two of them already on cybersecurity and employment law. So many ways that business and life are being impacted right now and so we are grateful for Foster Swift’s dedication to helping us continue to communicate these messages and you’re going to hear from our own team. If you are tired of seeing just my face from mConnexions, then you are in for a treat because I’m going to have some of my favorite experts join me for a roundtable to talk about marketing and messaging and what we could and should be doing right now. So that’s all on tap for next week. Follow our mConnexions page, watch the events, turn on the notifications, and you will see when these dates and times are scheduled. So from all of us here have a great Friday as much as you can. We’re here if you have questions if you have topics you’d like us to cover, let us know and we will see you back here on Tuesday.