The CARES Act – Special Rule §139
It’s great to see businesses getting back into the swing of things. While it is clear that we are still in for some ups and some downs. What’s worrisome is that many Real Estate Professionals still haven’t taken time during this period we as a nation are faced with to create solid financial plans.
And now is a great time to do that because when the President signed the CARES Act back on March 27th we received a bill that included key Tax Credits as well as Strategies that can help you harness more of those expenses, turning them into increased tax savings.
To help you understand just how tax planning can help you harness more tax savings power, consider this little known rule §139 which actually existed before the CARES Act.
The CARES Act – Special RULES §139
This rule can provide certain tax benefits associated with qualified disaster relief payments. Under that provision, in general, “qualified disaster relief payments” are: a) excludable from gross income; b) not subject to payroll taxes; and c) potentially deductible by the payer.
Qualified disaster relief payments can be for items that include payments for personal, family, living or funeral expenses incurred as a result of a qualified disaster. A qualified disaster includes a federally declared disaster. President’s Trump national emergency declaration invoked the provisions of Code Section 139.
Examples of qualifying RULES §139 expenses include:
- Nanny to cover childcare costs due to the children out of daycare
- Tutoring to cover schooling costs due to children out of school
- AirBNB Rents to cover moving to a “NON-Disaster Area” or to cover a “More Safe” Area (temporary housing)
- Medical Expenses
- Health related expenses (hand sanitizer, face masks, cleaning products)
- And for readability sake we are only tipping the iceberg on what can be an expense here because the qualifying type of expenses are too great to include here.
You’ll also need a well written plan that addresses:
- Reasonable Reimbursements
How it’s submitted
- How it’s paid
- How the employees request reimbursement
- Payments not included on a W-2 or 1099
Of course, The expense has to be reasonable and necessary, It cannot REPLACE compensation, Payments cannot be treated as an expense if replaced by insurance and employee payment cannot be claimed as a deduction for covered expenses.
There is no dollar limit to these payments. As a result, this opens the door for, among other things, employer assistance to distressed employees on a tax-favored basis. And you’ll definitely need to speak with a tax expert who truly understands this rule and your situation to get this one right.
As always, I hope you’ll begin to realize the value of Tax Planning.
A key component of creating lifelong business success depends on your willingness to plan out your success. That means putting Tax Planning at the forefront. Because when taxes go unchecked they eat up the most revenue and create the greatest havoc.
In fact, if more Real Estate Professionals took their tax plans more serious then the volume of Real Estate Success Stories might not just belong to the top 1%.
I hope you find this article helpful in your endeavor to lower your tax bill. If you have any questions or comments feel free to reach out to me here on LinkedIn and make sure to check us out at The Tax Planning Pros