The CARES Act: 5 Tax Breaks for Businesses

Audit Disclosures
Introduction

The CARES Act, or the Coronavirus Aid, Relief, and Economic Support Act, is a historic piece of legislation meant to help businesses and individuals affected by the pandemic. Passed on March 27th, 2020, it provides a range of tax breaks and incentives for businesses of all sizes. Among its many provisions are five key tax breaks that will benefit businesses in a number of ways. This blog post will summarize those five tax breaks and explain how they can help your business.

The CARES Act and its five tax breaks for businesses.

There are a number of important business tax breaks in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that haven’t received a lot of attention. Most of the new tax breaks are only temporary, but they can still provide significant relief to businesses. Several of the tax breaks tweak or reverse changes made by the 2017 tax reform law.

The FIVE tax breaks are designed to help businesses and workers recover from the coronavirus as quickly as possible. Depending on the business, one or more of these tax breaks could improve the bottom line and help keep the business afloat.

Charitable Gift Deduction Expanded

Typically, a corporation can only deduct charitable contributions that amount to 10% or less of its taxable income for the year. Any amount above the 10% limit can be carried over and counted towards the next five years. However, under the CARES Act, the taxable income limit on 2020 charitable gifts of cash is raised to 25%.

The CARES Act also raises the deduction limit for 2020 contributions of food inventory from 15% to 25%.

Payroll Tax Payment Delayed

Employers can defer their 6.2% share of Social Security tax on wages paid from March 27 through December 31, 2020. Half of the deferred amount is due on December 31, 2021, and the other half on December 31, 2022. Self-employed people can defer 50% of the self-employment tax they owe.

This relief does not apply to businesses that receive a Small Business Administration (SBA) paycheck protection loan under the CARES Act and have that debt forgiven for retaining their employees.

Payroll Tax Credit

If your business has been affected by the coronavirus, you may be eligible for a payroll tax credit. This credit, which can be worth up to $5,000 per employee, offsets the employer’s share of Social Security taxes. To be eligible, your business must have been forced to close or reduce hours due to a government order, or your gross receipts must have declined by more than 50% in a quarter compared to the same quarter in 2019.

The credit only applies to qualified wages paid from March 13 through December 31, 2020. Qualified wages depend on the number of employees the business had in 2019. If the firm averaged more than 100 full-time employees, qualifying wages are wages paid when employee services are not provided. For smaller firms, all wages are eligible for the credit.

Employers with cash flow problems can get this credit quickly by reducing employment tax deposits otherwise owed to the IRS by the amount of the credit. If you are an employer and are thinking about claiming the payroll tax credit, there are a few things you should know. First, you can only claim the credit if you have already paid your payroll taxes. Second, you must file a new IRS Form 7200 to seek advance payment for credits that exceed your payroll tax deposits. And finally, employers who have received an SBA paycheck protection loan under the CARES Act are not eligible for the credit. So be sure to consult with your tax advisor to see if you are eligible and to avoid any penalties.

NOL Carrybacks Allowed

If a business’ deductions for the year are greater than its business income, it has a net operating loss (NOL). Prior to 2018, businesses could carry back NOLs to the previous two tax years and carry them forward for up to 20 years. However, the 2017 tax reform law eliminated the two-year carryback for NOLs arising in taxable years ending after 2017, and instead allowed such NOLs to be carried forward indefinitely. In addition, the reform law stipulated that NOL deductions can offset only up to 80% of taxable income for the year.

The CARES Act temporarily changes the way that net operating losses (NOLs) can be used. For losses incurred in 2018, 2019, and 2020, taxpayers can choose to carry them back up to five years. The 80% taxable income limit on using NOLs is also suspended for these years.

Interest Deduction Expanded: – The 2017 tax reform law limited the amount that large firms could deduct for interest on business debt to 30% of their adjusted taxable income (ATI). Any interest that was not allowed to be deducted could be carried forward. (This limit does not apply if a business’s average annual gross receipts are $25 million or less for the three prior tax years. Also, certain regulated utility companies and real estate companies are exempt.) The CARES Act increased the 30% ATI limit. Net interest write-offs are now capped at 50% of ATI for 2019 and 2020.

What are the benefits of the CARES Act for businesses?

The CARES Act includes $2 trillion in relief funding, with $375 billion earmarked for small businesses. This includes expanding or introducing two programs: the Paycheck Protection Program (PPP) and an expansion of the Economic Injury Disaster Loan program (EIDL). This funding provides greater opportunities for small business owners to receive emergency grants and forgivable loans.

If your company has 500 or fewer employees, you may be eligible for tax credits, counseling, and debt relief through these programs. These updates are designed to help small businesses keep their employees on the payroll and stay open during this time. We’ll explain each program in detail below.

How will the CARES Act help businesses grow?

The CARES Act is a stimulus package that was recently passed by Congress in response to the COVID-19 pandemic. The act provides $2 trillion in aid to businesses and individuals.

Businesses can use the funds from the CARES Act to:

  • -Rehire employees
  • -Keep employees on payroll
  • -Renew leases
  • -Purchase new equipment
  • -Expand their business
Conclusion

The CARES Act is a historic piece of legislation meant to help businesses and individuals affected by the pandemic. Passed on March 27th, 2020, it provides a range of tax breaks and incentives for businesses of all sizes. This blog post will summarize those five tax breaks and explain how they can help your business.