CARES Act – The Business Provisions
U.S. Government Provides Relief to Individuals, Businesses in Midst of COVID-19 Crisis
On March 27, President Donald Trump signed into law a historic $2 trillion stimulus package designed to provide economic relief to individuals and businesses affected by the coronavirus pandemic.
Our aim in this alert is to give a brief overview of both the tax and non-tax provisions of the government’s new stimulus legislation, including what type of assistance is available for individuals and businesses, how to apply for it, and what to do if you become unemployed. This summary is for businesses, we will have a separate post for individuals.
Charitable Deductions
· The 10 percent limitation on charitable donations is increased to 25 percent of taxable income
Qualified Property Improvements
· Businesses will have the option to write off costs that are typically only depreciable over a 30-year period, especially businesses in the hospitality industry
Small Business Administration (SBA) Loans
· Small businesses and non-profits that have 500 employees (full- and part-time) or fewer are eligible to receive SBA loans of up to $10 million
· The loans may be used to cover the cost of payroll, paid leave, group health benefits, mortgage and rent payments, utilities, and interest on other debts
· No collateral or personal guarantees are required
Employee Retention Credit
· Employers are eligible for a payroll tax credit of up to 50 percent of wages paid during the COVID-19 crisis, which is defined as March 13, 2020, through the end of the year, up to a maximum credit of $5,000 per employee
· The credit is limited to employers whose operations have been suspended due to the virus outbreak or whose gross receipts have fallen by more than 50 percent compared to the same quarter in the prior year
Payroll Tax Deferral
· Employers can defer their 6.2 percent portion of the FICA tax (Social Security portion only), delaying payment over two years with 50 percent due in 2021 and the other 50 percent due by 2022.
Net Operating Loss (NOL) Changes
· The Tax Cuts and Jobs Act disallowed the carryback of NOL completely; and before this in 2018, only a two-year carryback was allowed. This bill allows a five-year carryback for losses from 2018, 2019, and 2020; and taxpayers can amend prior year’s returns as well.
· The 80 percent limit on NOLs for these same years is removed, allowing a 100 percent reduction in taxable income.
Business Interest Expense Deductions
· Business interest that falls under Section 163(j) gets an increased deduction limit from 30 percent to 50 percent of taxable income for 2019 and 2020.
· 2019 taxable income can be used to calculate the interest limitation for 2020 if it’s more favorable.
o The above is not applicable to partnership.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. For specifics on how this may apply to you or your business, please book a meeting with us.
