|Individuals and business owners can plan to minimize their tax liability regardless of their income, the size or revenue of their business. Be ready to benefit from the tax provisions of the CARES Act!
Some new tax savings favorable provisions from the CARES Act to keep in mind as you plan your 2020 tax year:
A taxpayer could claim an above-the-line deduction (do not have to itemize) up to $300 of charitable contributions. Every taxpayer who files a tax return could claim this deduction without exception.
The Act suspends in 2020 the limitation on cash contributions for purposes of the charitable contribution tax deduction.
The employer payments of student loans made before January 1, 2021 are excluded from employee’s income.
Employers are allowed a payroll tax credit for 50% of the wages paid to employees, up to $10,000 per employee, during any period in which such employers were required to close due to COVID-19.
Employers are allowed to delay payment of payroll tax deposits until the end of 2020.
The rules related to net operating loss are modified to allow taxpayers to carry back net operating losses in 2018-2020 for up to five years, and to offset 100% of their income with losses in taxable years beginning before 2021.
The $250,000 limitation on the net business losses of individuals other than corporations is repealed in 2018 and 2019.
Qualified improvement property (certain improvements to the interior of nonresidential real property) could be depreciated as 15-year property.
Don’t mix accounts or expenses.
If you don’t have enough money in your business account, you are advised to take or borrow the money from your personal account and deposit it into your business account. You could even loan the money to your business and charge an interest rate that is reasonable.
A reasonable interest rate is an interest that is comparable to what you would pay if you were to borrow the money from a financial institution. The interest charged is a deductible business expense and an income to you as the owner, shareholder, or stockholder based on the type of your business entity.
Business owners are advised to document their business expenses as soon as possible but no later than within a week because after a week your recollection might not be accurate. If you received a considerable amount of PPP loan or other COVID-19 related loans, you might find it helpful to have a separate business account to facilitate your record-keeping and protect you when you will apply for forgiveness. Remember to spend the money for the purposes stated in your application. You should keep All receipts for as long as necessary in case of an audit.
H.R.748 – CARES Act.
Joint Committee on Taxation (JCT): Description of the Tax Provisions of Public law 116-136, The Coronavirus Aid, relief, and Economic Security (“Cares”) Act.