CARES Act Business Tax Moves to Make Before Year End
The financial challenges which Coronavirus brought forced companies to reimagine themselves and change how they do business to survive. Reducing your business income tax burdens has become more important than ever. Through the CARES Act, the government granted many forms of relief, so be sure that by December you are taking advantage of available tax changes that can provide liquidity.
- When the TCJA repealed the corporate AMT, it allowed corporations to claim all their unused AMT credits in the tax years beginning in 2018, 2019, 2020 and 2021. The CARES Act accelerates this timeline, allowing corporations to claim all remaining credits in either 2018 or 2019. The fastest method for many companies to get a quick refund will be filing a tentative refund claim on Form 1139, but you must file by December 31, 2020 to claim an AMT credit this way.
- The CARES Act also resurrected a provision allowing businesses to use current losses against past income for immediate refunds. Net operating losses (NOLs) arising in tax years beginning in 2018, 2019 and 2020 can be carried back five years for refunds against prior taxes. These losses can even offset income at the higher tax rates in place before 2018. Consider opportunities to accelerate deductions into a loss year to benefit, but remember any non-automatic changes you want to make effective for the 2020 calendar year must be made by the end of the year. The fastest way to obtain a refund is generally by filing a tentative refund claim, but these must be filed by December 31, 2020, for the 2019 calendar year. If your losses will be in 2020, start preparing to file early because you cannot claim an NOL carryback refund until you file your tax return for the year.
- The CARES Act fixed a technical problem with bonus depreciation, a generous provision that allows companies to immediately deduct the full cost of many types of business investments. The legislation expands bonus depreciation to apply to a generous category of qualified improvement property (QIP). QIP is commonly thought of as a retail and restaurant issue, but it is much broader and applies to almost any improvement to the interior of a building that is either owned or leased. The fix is retroactive, so you can fully deduct qualified improvements dating back to January 1, 2018, which may offer relatively quick refunds. Taxpayers who filed 2018 and 2019 returns before the law changed can amend both the 2018 and 2019 returns to apply bonus depreciation for QIP in each of those years.
- The CARES Act allows employers to defer paying their 6.2% share of Social Security taxes for the rest of 2020. Half of the deferred amount is due by December 31, 2021, with the other half due by December 31, 2022. This provides a great liquidity benefit, but taxpayers should consider the impact on deductions before the end of the year. Businesses generally cannot deduct their share of payroll taxes until paid.
- The Cares Act increases the ceiling for business interest deductions from 30% to 50% of adjusted taxable income for tax years 2019 and 2020. https://www.fuoco.com/component/content/article/596-cares-act-modifies-business-interest-deductions-
- Be sure you are fully taking advantage of Family Leave and Paid Sick Leave credits, as well as the Employee Retention Credit. If you need a credit “refresher” click the links below:
- https://www.fuoco.com/component/content/article/548-put-families-first-coronavirus-response-act-to-work-for-you (scroll to bottom of article for tax credit info)