CARES Act Tax Changes Ease the Burden on Businesses and Individuals

Bonuses for Businesses & Individuals Are Hidden Inside CARES Act:

Tax Credit - Eligible businesses can get a refundable 50% tax credit on wages up to $10,000 per employee. The credit can be obtained on wages paid or incurred from March 13, 2020, through December 31, 2020. Businesses are eligible for an employee retention tax credit if:
• Business operations were fully or partially suspended due to a COVID-19 shut-down order; or
• Gross receipts declined by more than 50% compared to the same quarter in the prior year.

Payroll Taxes Delayed – The bill delays payment of 50% of 2020 employer payroll taxes until December 31, 2021; the other 50% will be due December 31, 2022. For self employment taxes, 50% will not be due until those same dates. Those business and self-employed individuals who ARE NOT forgiven their PPL can delay their payroll tax payments:
• The employer share of Social Security tax owed for 2020, can instead be deferred and paid over the next two years.
• 50% must be paid by the end of 2021 and 50% must be paid by the end of 2022.

Net Operating Loss (NOL) - Rules have been relaxed for businesses. The bill temporarily repeals the 80% income limitation for Net Operating Loss deductions for years beginning before 2021. NOLs in tax years beginning in 2018, 2019, or 2020 can be now be carried back five years. This may improve cash flow and liquidity for some businesses. Pass-through businesses and sole proprietors will also be able to take advantage of the relaxed NOL limitations.

AMT - The bill modifies the AMT credit for corporations to make it a refundable credit for 2018 tax years. Businesses that were due to receive corporate alternative minimum tax (AMT) credits at the end of 2021 can instead claim a refund now, in order to improve cash flow during the COVID-19 emergency.

Businesses Interest Expense – The business interest expense deduction has been increased for taxable years 2019 and 2020. Increased to 50% from 30% of taxable income. Also, taxpayers can elect to use 2019 income in place of 2020 for the computation.

Increased Write Offs - Businesses, especially those in the hospitality industry, will be able to immediately write off costs associated with improving facilities, increasing cash flow.

Retirement Plans -Taxpayers can take up to $100,000 in Coronavirus related distributions from retirement plans without being subject to the 10% additional tax for early distributions and suspends the 20% withholding tax. Eligible distributions can be taken up to December 31, 2020. Coronavirus related distributions may be repaid within 3 years. For these purposes, an eligible taxpayer is one who has been diagnosed with COVID-19, or whose spouse or dependent has been diagnosed with COVID-19, or who experiences adverse financial consequences from being quarantined, furloughed, or laid off, or who has had his or her work hours reduced, or who is unable to work due to lack of child care. Any resulting income inclusion can be taken over 3 years. The bill also allows loans of up to $100,000 from qualified plans, and repayment can be delayed.

The bill temporarily suspends the required minimum distribution rules for 2020. Any RMD required to be made in calendar year 2020 is waived. This includes RMDs due as a death benefit in accordance with the 5- or 10-year rules, and those time limits are extended by one year. If a distribution is made in 2020 that would have been treated as an RMD but for the 2020 waiver, it can be rolled over in accordance with the 60-day rollover rules.

The bill delays 2020 minimum required contributions for single-employer plans until 2021.

Charitable Deductions - The bill creates an above-the-line charitable deduction for 2020 (not to exceed $300). The bill also modifies the AGI limitations on charitable contributions for 2020, to 100% of AGI for individuals and 25% of taxable income for corporations. The bill also increases the food contribution limits to 25%.

Excess Loss Limitations The bill repeals the Sec. 461(l) excess loss limitation added to the Code by the law known as the Tax Cuts and Jobs Act, P.L. 115-97, and it disallows excess business losses of non-corporate taxpayers if the amount of the loss exceeds $250,000 ($500,000 for married taxpayers filing jointly).

Qualified Improvement Property The bill makes technical corrections regarding qualified improvement property under Sec. 168 by making it 15-year property.

Aviation Taxes - Various aviation excise taxes are suspended until 2021.

Health Plans - The rules for high-deductible health plans (HDHPs) are amended to allow them to cover telehealth and other remote care services without charging a deductible.

Excise Tax on Alcohol - For those businesses that pay excise tax on alcohol, the government will make a temporary exception from the excise tax normally applied if that alcohol was used to produce hand sanitizer in 2020.

Student Loans - Among other financial benefits to help manage your money during the coronavirus emergency, the CARES Act offers multiple benefits for those with student loans through September 30, 2020: no federal student loan payment; no interest on your federal student loan payments; and no garnishment of wages, Social Security and tax refunds for student loan debt collection.

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