Top 5 Tax Provisions of the CARES Act

Please note that this blog is based on laws effective on April 2, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.

With the ink barely dry on the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, there have already been several hot topics surrounding the benefits it provides. Below are the top 5 tax provisions that we believe will be most impactful to our clients. You are welcome to listen to these key points in podcast format and then scroll down to read more details for each topic.

#1 Stimulus Payments

What It Means:

Eligible taxpayers will receive a payment of up to $1,200 ($2,400 for married filing jointly) plus $500 for each “qualifying child” (under 17 years of age).

The payment is phased out at higher levels of adjusted gross income (AGI). The phaseout begins at AGI of $75,000 ($150,000 for married filing jointly). The rebate is fully phased out when AGI reaches $99,000 ($198,000 for married filing jointly).
AGI is determined based on either the 2018 or 2019 income tax return, whichever return has been filed most recently.
The payment is an advance of a 2020 tax credit. If, in preparing the 2020 return, a larger credit is determined, the larger credit will apply. If a smaller credit is determined, the payment will not need to be returned.

What We Advise:

If you have not yet filed your 2019 return, it may be wise to delay filing in order to maximize the advance payment if your 2018 income is less than 2019.

#2 Employee Retention Tax Credit / Deferral

What It Means:

A refundable payroll tax credit for 50% of wages paid between March 12 and December 31, 2020 for the first $10,000 in wages per employee. Eligible businesses will be required to have full or partial suspension and a significant (more than 50% decline) in gross receipts.

Also available is a deferral of the employer’s share of Social Security tax between now and December 31, 2020 until 2021 (50%) and 2022 (50%). Note: This cannot be claimed if you have a Payroll Protection Loan forgiven.

What We Advise:

DO THE MATH! In most cases, the benefits of the forgivable Payroll Protection Loan will outweigh both the employee retention tax credit and deferral.

#3 Net Operating Loss / Business Loss / Interest Expense Modifications

What It Means:

2018, 2019, and 2020 losses can now be carried back 5 years to fully offset income, as opposed to strictly carried forward. This will allow businesses to recoup previously paid taxes, including in higher tax years. After applying the carryback, certain net operating losses can be carried forward and offset 100% of taxable income, instead of only 80%.

Beginning in 2019, business losses were limited in that only $500,000 (if married filing jointly) could offset other taxable income. This resulted in some taxpayers paying tax even though their business losses exceeded other income. The limitation has been suspended for 2018 – 2020.
Beginning in 2018, certain business interest expense deductions were limited. The restrictions have been loosened for 2019 and 2020.

What We Advise:

The CARES Act provides opportunities to businesses to review prior loss/expense limitations and determine if returns should be amended to recoup prior year taxes. At CK, we are looking at all of our business clients’ results for this opportunity and amending returns where beneficial.

#4 Revised Definition of “Qualified Improvement Property”

What It Means:

“Qualified Improvement Property” (QIP) includes any improvement to an interior portion of a building that is nonresidential real property.

Beginning in 2018, the law only provided a 39-year depreciable life for QIP. This longer depreciation rate significantly affected restaurants, for example.
The CARES Act redefined QIP’s useful life to 15 years, thus making eligible QIP eligible for an immediate write off through bonus depreciation.

What We Advise:

If you have previously placed QIP in service in 2018 and 2019, review with your tax advisor whether it is beneficial to amend returns in order to claim this benefit. If so, utilize the new net operating loss provisions to recoup taxes paid in years prior to 2018.

#5 Required Minimum Distribution (RMD) Waiver

What It Means:

The required minimum distributions from certain retirement plans (for example 401(k)s and IRAs) are waived for calendar year 2020.

If you have been taking annual RMD’s, you are not required to take a 2020 RMD.
If you deferred your first RMD to 2020 (i.e. you turned 70 1/2 in 2019), you can also defer your 2020 RMD.
If you have already taken your 2020 RMD you can roll this back into your plan tax-free, assuming it’s done within 60 days of withdrawal.

What We Advise:

Tax planning with RMD’s will be critical in 2020. Just because you are not required to take an RMD, it doesn’t mean you shouldn’t. Work with your advisors to project your taxable income, especially in light of tax provisions that could significantly reduce your 2020 taxable income. 2020 might be a good time to withdraw from your plan if you are in a low tax bracket, although the RMD is not required.

In these rapidly changing times, know that CK has your back when it comes to supporting your tax and accounting needs. Please call us at 630-953-4900 if you’d like to discuss how any of these provisions affect you.

CK OFFICE OPERATIONS

These are certainly trying times and we want to reiterate that Cray Kaiser is here for you. As things continue to evolve in light of the COVID-19 pandemic, we at CK are taking additional precautions for the benefit of our team members and our clients.

Effective immediately:

No clients or guests will be allowed in our suite.
All in-person meetings are cancelled. Instead, we will be utilizing phone calls and/or email to communicate with our clients.
Our team members are being encouraged to work remotely. All staff are equipped with the appropriate technology and resources to continue to securely and confidentially serve you from home.
We will no longer have in-person drop offs of accounting/tax data. Instead, please drop off any packages outside the office door of our suite in the box provided.
All paper files, tax returns etc. will no longer be mailed by our office to you. We will be holding these items in our office to send to you at a later date.

CK PORTAL ACCESS

We want to remind our clients of our portal access and your ability to safely and securely share your information with our team. We ask that you email efile@craykaiser.com to request your portal access. This will eliminate the need for you to drop off your tax information at our office.

MOVING FORWARD

Thank you for your patience and understanding during this challenging time. We wish you, your family, and your business health and safety. We will continue to support you as best as we can while keeping each other’s health a priority. If any changes occur during the course of the next few days, we will update our website.