April 8, 2020
The CARES Act and Your Business
As the coronavirus (COVID-19) continues to affect local communities and global economies, we would like to address your concerns about your company’s financial well-being as well as the welfare of your employees. You may also be wondering about how recently passed legislation impacts you and your business.
Please review our high-level summary of some of the key provisions of the CARES Act and how it will impact businesses such as your own.
Income Tax Filing and Payment Deadlines
The IRS extended the April 15, 2020 filing and federal income tax payment deadline to July 15, 2020. At Realize, we are continuing to prepare and file returns as soon as possible so that our clients may obtain any outstanding refunds and plan regarding balances due.
First quarter estimated tax payments usually due April 15, 2020 are now due on July 15, 2020.
Modifications of Qualified Improvement Property
Depreciation modifications were made in connection with qualified improvement property to allow for a faster write-off of these assets. Under prior legislation, this type of property was required to be depreciated over 39 years. Under the latest changes to legislation, this depreciation period has been reduced to 15 years. Qualifying assets will now be eligible for bonus depreciation, which will allow for an immediate deduction of the entire cost of the property.
Modification of Business Interest Limitation
Interest expense deduction limitations are more favorable for taxpayers. Under prior legislation, net interest expense was limited to 30% of adjusted taxable income. This limitation has been increased to 50% for tax years 2019 and 2020.
NOL (Net Operating Loss) Modifications
The CARES Act removes the limitation that NOLs could be used to offset no more than 80% of taxable income for tax years 2018, 2019 and 2020. For losses reported in tax years 2018, 2019 and 2020, a five-year carryback is now allowed to help businesses recoup some of their prior taxes.
Modifications of Corporate AMT (Alternative Minimum Tax) Credits
The Act accelerates the ability for companies to recover AMT credits, permitting companies to claim full refunds starting in 2018 and /or 2019 in order to access additional cash flow.
Small Business Administration (SBA) loans
Small businesses are eligible to apply for an Economic Injury Disaster Loan. This loan grants an up-front payment of up to $10,000 to the borrower, which should be made available within three days of a successful application. The loan itself will need to be repaid, but the up-front grant of $10,000 will be forgiven.
Small businesses may also apply for a loan through the Paycheck Protection Program (PPP). This program is designed to provide capital to cover the cost of retaining employees. If certain criteria are met, the loan can be forgiven. Please note that an employer receiving a loan through this program is not eligible for the Employee Retention Tax Credit (further described below). For more information on this program, click HERE.
Other SBA programs are also available. For more guidance, see SBA’s Coronavirus Small Business Guidance and Loan Resources.
Employee Retention and Payroll Tax Credits
A refundable tax credit is now allowed to assist employers in retaining employees. The credit is computed at 50% of qualified wages paid by eligible employers for up to $10,000 paid per employee between March 13, 2020 and December 31, 2020, resulting in a maximum credit of $5,000 per employee. As noted above, an employer utilizing this tax credit is not eligible to receive a loan through the Paycheck Protection Program.
Please note that employers may be subject to limitations and exceptions. Employers of less than 500 employees are required to provide mandatory sick time and paid family leave but are eligible for payroll tax credits to offset the costs. Eligible self-employed individuals also qualify for the credits. Healthcare providers and emergency responders are excluded and employers with fewer than 50 employees can be exempted in certain circumstances.
Employers (including self-employed individuals) will be able to postpone the employer’s share of Social Security taxes through the end of this year. The delayed payments are due in two equal payments, one due on December 31, 2021 and the second due on December 31, 2022.
We Care About You
Please feel free to reach out to us if you have questions about the CARES Act and how it may affect you and your business. Realize is fully operational and all staff are available to speak with you about any of your tax concerns. We are here to support you with the best possible client service during these extraordinary times.
This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.