Everyone knows that small business loans, stimulus checks, and expandable unemployment advantages have gotten the lion’s share of media reporting. However, there are numerous significant business tax breaks in the CARES Act that have not gathered a lot of attention. Most of the latest tax breaks are only temporary, while some of the tax breaks tweak changes made by the 2017 tax reform law. All of the CARES Act business tax breaks are designed primarily to get companies affected by coronavirus and workers back on track as soon as possible. No matter what sector you are in, at least one of the following CARES Act tax breaks is likely to better your bottom line and keep you stay afloat. Before going further, let us find out more about the CARES Act.
What is The CARES Act?
In March 2020, the US lawmakers passed a $2 trillion stimulus bill that came to be known as Coronavirus Aid, Relief, and Economic Security (CARES) Act. It was primarily introduced to reduce the impact of the coronavirus pandemic. Moreover, the government aimed to support industries, families, gig workers, hospitals, independent contractors, small and large companies.
Major CARES Act Tax Breaks For Businesses
Let us find out about some major CARES Act tax breaks in detail.
Charitable Gift Deduction Expanded
Generally, a corporation can not dock charitable contributions that exceed 10% of its taxable income for the year. Any amount above the 10% limit can be carried over for five years. However, under the CARES Act, the taxable income limit on charitable rewards of cash increased to 25%. Moreover, it also increases the limitation on deductions for contributions of food inventory from 15% to 25%.
Payroll Tax Payment Delayed
Another CARES Act tax breaks for small business is that employers delayed payment of their 6.2% share of Social Security tax on wages paid from March 27 through December 31, 2020. Half of the delayed amount was due on December 31, 2021, while the other half on December 31, 2022. Moreover, self-employed individuals can defer 50% of the self-employment tax they owe.
One thing to remember is that this relief does not apply to companies that receive the Small Business Administration (SBA) paycheck protection loan under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Payroll Tax Credit
There is a new payroll tax credit for business owners affected by the coronavirus pandemic. However, the company must retain and continue to pay workers to claim this tax break. The credit of up to % 5,000 per paid employee offsets the employer’s 6.2% share of Social Security taxes, with the excess refundable.
Eligible business owners are those who have to close up their stores or reduce working hours due to governmental orders or whose gross receipts in a quarter have been reduced by more than half compared to the same quarter in 2019.
Furthermore, the credit only applies to qualified wages paid from March 13 through December 31, 2020, while the qualified wages depend on the company’s number of staff in 2019. If the company has more than 100 full-time employees, the qualifying wages are wages when staff services are not provided. When it comes to small firms, all wages are eligible for credit.
Employers having cash flow issues can get this credit quickly by reducing employment tax deposits otherwise owed to the IRS by the amount of the credit. Companies can also file a new IRS to seek advance payment for credits in excess of payroll tax deposits.
One must remember that there are numerous rules and complexities with the payroll tax credit. One major restriction is that business owners who get a Small Business Administration (SBA) paycheck protection loan under the CARES Act are not qualified for the credit. Thus, be sure to check with your tax advisor for help with this credit.
Net Operating Loss Carrybacks Allowed
A company has a net operating loss (NOL) if its deductions exceed the business income. Before 2018, companies could carry back NOLs to the previous two tax years and carry them forward for up to two decades. The 2017 tax reform law ended the two-year carryback for NOLs arising in taxable years ending after 2017. It allowed NOL deductions to be carried forward indefinitely and provided that NOL deductions can offset 80% of taxable income.
The CARES Act temporarily eases the tax reform law’s NOL provisions. Firstly, NOLs in 2018, 2019, and 2020 can now be carried back up to five years. Secondly, the 80% taxable income limit for utilizing NOLs was ceased for 2018 through 2020.
Business Loss Deduction Cap Suspended
One of the major CARES Act tax breaks for individuals is the cap on the deduction for business losses on individual returns is halted. Under the tax reform law of 2017, the amount of business or trade losses that exceeded a $500,000 threshold for couples and $250,000 for other filers were non-deductible. Moreover, the CARES Act suspended the loss limitation rule primarily for 2018 through 2020.
Retail Glitch Fixed
The best part about the CARES Act tax breaks is that a major technical glitch in the 2017 tax reform has been corrected. It generally involves depreciation for restaurants, retail, and leasehold remodeling, integrated under the grouping of qualified property (QIP). Moreover, the national legislative body of the United States intended to give QIP a 15-year depreciable life and make it eligible for 100% bonus depreciation. However, the statutory language didn’t show this intent, and the CARES Act fixed this blunder.
You would love to know that you can get to learn more about the CARES Act on the Business Tax Benefits website. Moreover, you can clear all your doubts regarding employee retention tax credit. Our experts strive to explain every bit regarding the CARES act and ERTC. Head over to us to know more about CARES Act tax breaks for wealthy.