March 27, 2020

CARES Act: Business Tax Opportunities

Since the COVID-19 (Coronavirus) made its arrival in the U.S. there have been seismic changes impacting nearly every aspect of daily life. It started slowly with the implementation of new personal health guidelines including social distancing but quickly expanded to forced business closures and stay at home orders. Although necessary these changes have created widespread concern and sharply impacted companies across a variety of industries. This is highlighted by the significant increases in unemployment claims locally and across the state. Congress initially passed the Families First Coronavirus Response Act which added and modified paid sick leave rules along with corresponding employer tax credits. Although helpful, broader legislation was needed to counteract the expected economic fallout. On March 27, President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act, a comprehensive economic stimulus bill that provides almost $2 trillion in assistance to businesses, individuals and organizations. Given the Act’s comprehensive scope, Wilson Lewis has provided a summary of the key business tax opportunities below.

Key Tax Opportunities

• Employee Retention Payroll Credit – This credit is available to eligible companies required to close due to the COVID-19 emergency. Eligible employers can receive a refundable tax credit to be used against employment taxes for each quarter not to exceed 50% of qualifying wages (up to $10,000 per employee). The credit is only available for wages paid after March 12 and before the end of the year. Additional information includes:
  • Eligible Companies – If a company’s operations were fully or partially suspended by a government agency because of COVID-19 or if gross receipts are less than 50% of gross receipts for the same quarter in the prior year.
  • Qualifying Wages – If a company has 100 or fewer full-time employees, then all wages are considered to be qualifying wages. For those with more than 100 employees, qualified wages are wages paid to an employee unable to work because of forced closure or decline in the company’s gross receipts.
  • Exclusion – Any company receiving a Small Business Interruption Loan offered in the Act is excluded from claiming this credit.
• Employer Payroll Tax Delay – There is now a delay of payment for the employer’s portion of social security taxes (and 50% of self-employment taxes). This applies from March 27, 2020, and terminates on January 1, 2021. 50% of the deferred amount is due no later than December 31, 2021, and the remaining 50% due no later than December 31, 2022.
• Corporate AMT Credits – The corporate Alternative Minimum Tax (AMT) was repealed as part of the Tax Cuts and Jobs Act of 2017 (tax reform), but remaining credits are gradually refundable through 2021. The Act changed the rules so businesses with any remaining AMT credits are now permitted to file for an immediate refund.
• Excess Business Loss – The Act has eliminated the loss limitations for pass-through entities (S-corporations, partnerships, etc.) which were implemented in 2017. The Act removed the limitations allowing taxpayers to amend their 2018 and 2019 tax returns and claim any losses in excess of $250,000 for single taxpayers and $500,000 (adjusted for inflation) for joint filers in excess of prior limits.
• Net Operating Loss (NOL) Carrybacks – Tax reform eliminated NOL carrybacks and limited NOL carryforwards to 80%. The Act changes these rules to allow businesses with NOLs from 2018, 2019 and 2020 to carry losses back for a period of five years. This means any business that had a loss last year or in the prior year can apply the NOL against income, which may lead to immediate tax refunds. To take advantage of these changes will require amended returns and should be analyzed in coordination with excess losses, expansion of bonus depreciation,
• Business Interest Expense Limitation – Companies subject to this limitation can now offset 50% of income (increased from 30%) with interest expense from 2019 and 2020.
• Qualified Income Property (QIP) Correction – Tax reform intended to make qualified improvement property include qualified leasehold and qualified restaurant improvements eligible for bonus depreciation. However, this did not happen. The Act corrected this issue allowing these property types to qualify for bonus depreciation. The change is effective for property acquired and placed into service after September 17, 2017. This means certain taxpayers may be able to amend their returns for prior years.

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The tax changes outlined in the CARES Act are designed to provide immediate tax-saving opportunities for businesses. To determine how your business will be impacted it’s important to consult with your tax accountant immediately. There are several variables that need to be examined to determine the exact benefit amount. If you have questions about the information outlined above or need assistance with another tax issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us.