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CARES Act Tax breaks?

There’s no denying how much the landscape has changed in the last three months. With the passing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, though, some really nice tax breaks have been created and very few of them have gotten much press.

I wanted to share some of those with you to make sure you and your business are able to make the most of them in this strange new world.

First, charitable gifts from corporations, which are usually limited to 10% and any amount over that must be carried forward. For 2020, that limit has been raised to 25% for cash gifts. The government has also raised the limit for foodstuffs from 15% to 25%.

A big break for many companies is also tucked away in the CARES Act – the allowance to defer payroll taxes incurred after March 27th and before January 1, 2021 for up to two years. Half of the total amount deferred will be due December 31st, 2021 and the rest due at the close of 2022. This might not seem like much – since the actual Payroll Tax is only 6.2%, but since it also applies to the self-employed, it’s good news. Personally, we’re still digging into this, because there are some strings attached to this benefit based on whether a business has received monies from an SBA PPP loan, but it’s definitely worth keeping in mind.

Closely tied to this is a Payroll Tax Credit for up to $5,000 per employee retained if a business stays open as well as for businesses that closed due to government order, lost up to 50% of its revenues, or several other variables that, again, we are all still trying to wrap our arms around.

One particular nice trait of the CARES Act is the well-timed reappearance of the Net Operating Loss carryback. This benefit was killed several years ago, but allowed companies with Net Operating Losses to carry those losses forward for up to 20 years.

In light of the present circumstances, this offers many companies, large and small, a chance to rebuild in the wake of the economic traumas they’ve suffered. We’re also seeing that CARES has reinstated the deduction for business losses on individual returns – another victim of the 2018 Tax Law.

The bottom line is this: there is a LOT of information and change in the CARES Act, and much of it can really help companies impacted by the Coronavirus. The sheer volume of the CARES Act – 800 pages – means that some things may still need to be defined and clarified, but as the recovery continues, I know many of our business and entrepreneurial clients will be able to use these breaks to help rebuild.