The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) authorizes stimulus payments to those who qualify. Below is a listing of components that pertain to businesses.
Depreciable Life Reduction for Qualified Improvement Property
For property placed in service after December 31, 2017, the CARES Act defines “qualified improvement property “ as “any improvement made by a taxpayer to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was placed in service.”
This amendment allows this property to be eligible for 100% bonus depreciation and if not electing bonus depreciation, this property has a 15-year life instead of a 39-year life. Special procedures are needed to switch the life when the asset was depreciated in a prior year using a 39-year life. See your SDK contact for details on how to make the change.
Net Operating Losses for Corporations
If you had a net operating loss arising in tax year 2018, 2019 or 2020, the CARES Act allows you to carry it back 5 years. The Act also removes the 80% limitation so that you can now fully offset income.
Charitable Contribution Easing for Corporations during 2020
The Act increases a corporation’s limitation to 25% of taxable income from 10% of taxable income for cash donations and donations of food inventory. Contributions to donor advised funds and supporting organizations are ineligible recipients under this provision.
Payroll Tax Deferral
Employers can defer the 6.2% payroll tax due for the rest of the year until 2021, 2022 (includes self-employed persons). Half of the deferred amount is due at the end of 2021 and other half is due at the end of 2022. Taxpayers are not eligible for this benefit if the taxpayer received an SBA loan that was forgiven under the CARES Act).
Business interest expense limitation under IRC163(j) Changed from 30% to 50% of Adjusted Taxable Income for Tax Years Beginning in 2019 and 2020 (some special partnership rules apply).
Paycheck Protection Program
The program is intended to help small businesses (fewer than 500 workers) to make payroll and cover other costs. A formula for the loan amount is tied to payroll costs and can cover employees making up to $100,000 per year. Loans may be forgiven if used for qualifying expenses (payroll, mortgages, rent, utilities…).
Employee Retention Credit
A credit of up to 50% of the qualified wages paid to a qualified employee may be available. The maximum credit is $10,000 per employee. The credit offsets OASDI payroll tax .
If the credit for a quarter exceeds the OASDI tax, the excess is refunded. The taxpayer must have been carrying on a trade or business in 2020 and either have been ordered by a competent government authority to suspend or reduce business operations due to concern about the spread of COVID-19, or had a decrease in gross receipts of 50% or more compared to the same quarter last year. The credit can be claimed for employees who are retained. Special rules apply for employers with more than 100 employees.
Wages paid between March 13, 2020, and December 31, 2020, qualify. Qualified wages also include contributions to accident and health plans. Employers who take small business loans under the CARES Act are not eligible for the credit.
Extension of Plan Funding deadline for Defined Benefit Plans
A contribution due on a date in 2020 will not be due until January 1, 2021.
Student Loan Benefit
Employers can make tax free payments on employee student loans up to $5,250 while excluding the payment from income. The provision applies for payments made after the CARES Act implementation date and before January 1, 2021.
An additional resource
Congress has approved $350 billion in emergency loans for small businesses to help them keep workers employed. In fact, if small businesses maintain or later restore their payrolls, they may not have to repay some — or possibly any — of the loan. Here’s a Guide and Checklist from the US Chamber of Commerce to help your small business through the process.