Business Tax Changes for ‘Rona Relief
Businesses, too, are suffering (along with the people who own them and work for them), so the new laws also included business tax changes that provide relief to them.
The following is a high-level view of some of the more important business tax changes in response to ‘Rona.
Regular corporations (known as C corporations) can now deduct charitable donations up to 25% of their taxable income. Previously the limitation was 10%.
Also, contributions of food inventory are limited to 25% of taxable income, rather than the old 15% limit.
Both of these changes are for 2020 only.
Modification of Net Operating Loss Provisions
Historically, when a taxpayer incurred a business net operating loss (NOL) during a year, and if the taxpayer had income in recent years preceding the loss year, the loss was sometimes allowed to be carried back to the income years to recoup some of the tax previously paid. Any remaining unused loss could then be carried forward and deducted against future income.
However, a couple of years ago, in the 2017 year-end tax reform bill, the NOL carryback provision was eliminated, making the NOL only available to be carried forward.
To help businesses raise funds to survive the current crisis and add liquidity to the economy, the recent CARES Act changed the NOL law again so that now 2018, 2019, and 2020 NOLs can be carried back a full five tax years for possible refunds.
Thus, a loss incurred in 2018, for instance, can now be carried back all the way to 2013, if applicable, to claim a refund. The IRS has recently issued new procedures on how to do this, which can be found at IRS.gov.
That’s not the only change related to NOLs. Previously, NOLs could only offset up to 80% of the taxable income for the year to which they were carried. CARES changed that so that NOLs can now fully offset 100% taxable income. This change is also retroactive to 2018.
100% Bonus Depreciation Expansion
One change is actually a correction of a technical mistake made with 2017 tax reform. When tax reform was passed, Congress intended for certain remodeling improvements for retail, restaurant and leaseholders to be included under a classification of fixed assets that are eligible for 100% bonus depreciation.
Unfortunately, the language of the tax reform legislation wasn’t written properly and didn’t reflect that intent. Thus, the IRS has steadfastly disallowed 100% bonus depreciation treatment since.
Congress has now fixed the mistake retroactively to 2018. Eligible businesses can go back and file for related refunds.
Payroll Tax Credit for Employers Hurt by ‘Rona
One change designed to be an incentive for employers to retain employees is a new tax credit that directly reduces required payroll tax deposits.
The credit of up to $5,000 per paid employee is available to employers who retain and pay employees when they are required to close or reduce operating hours due to governmental mandate, or who have a large revenue decrease.
The credit is taken against the employer’s 6.2% share of Social Security taxes. If the credit exceeds that tax, the excess is refundable.
A word of caution; the rules here are numerous and complex, and you have to be aware of the interplay between this provision and other business relief provisions such as small business loans.
All of these changes are designed to help businesses survive the current crisis and stimulate the economy, hopefully, a win/win for owners, employees and consumers.
As I said last time, and it bears saying again, be safe out there, and let’s all do our part to support each other and get through this together!