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).

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.

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%.

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. 

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.

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:

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.

Click here to read more COVID-19 resources.

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