On Friday, March 27 , The President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This is a $2 trillion stimulus bill intended to protect small business and individuals who are a risk of losing income due to the COVID-19 pandemic. Following is part 2 of an outline detailing the major pieces of the bill that may impact small businesses and their owners. The focus of this blog is on the tax implications of the Act.
Qualified Improvement Property:
- Certain non-structural improvements to commercial real estate is eligible for accelerated depreciation
- This fixes a technical error in the Tax Act passed late in 2017
- Tax planning opportunity – the change is retroactive presenting an opportunity to amend 2018 and 2019 returns
Net Operating Loss Carrybacks:
- 2017 Tax Act prohibited loss carryback
- CARES Act permits a five year carryback of losses from 2018, 2019 and 2020
- Tax planning opportunity – if your business sustained a loss in 2018 or 2019, you may be able to carry that loss back and receive a refund of tax paid in prior years
Employer Retention Credit:
- If business operation was fully or partially suspended due to COVID-19 OR if business remained open but during any quarter in 2020 gross receipts were less than 50% of what they were in 2019 THEN
- Business is entitled to a tax credit each quarter until receipts hit 80% of what gross receipts were in 2019
- Credit is allowed against employer share of FICA
- Credit is equal to 50% of the “qualified wages” paid to EACH employee for each quarter
- Qualified wages are wages paid to an employee who is not providing services due to a loss of business
- If business has an average of 100 employees or more– then credit is limited only to those wages paid during the quarter for period when business was shut down
- If business has an average of less than 100 employees – then credit is not only for wages paid to employees during shut down but also for wages paid for each quarter with sharp decline in gross receipt.
- Qualified wages cannot exceed $10,000 per employee
Delay of Payment of Employer Payroll tax and Self Employment tax:
- Payment date of employer FICA taxes for year ending December 31, 2020 is delayed
- 50% is to be paid by 12/31/21
- 50% is to be paid by 12/31/22
- Self-employed taxpayer can also defer paying 50% of self-employment tax
- Not available if employer takes out payroll loans
- A change in the business interest expense limitation rules allowing individuals to deduct a greater percentage of business interest expense
- Employer payment of student loan debt increases to $5,250 tax-free to the employee
- For individuals, cash donations of up to $300 are permitted to be deducted “above the line”.
- Only cash donations qualify
- Only applies to individuals taking the standard deduction and not itemizing deductions
Please contact anyone on the team at Baker Holtz (616-458-1835) to discuss these provisions in more detail and to see how this impacts you and your business.