Highlights of Tax related topics
Tax Changes as part of the CARES Act for Individuals and Small businesses:
- Most Americans, with incomes below the thresholds will receive cash payments from the federal government in the amount of $1,200 per adult plus $500 for each child under the age of 17.
- Individuals with retirement accounts, can take early withdrawals of up to $100,000 from those accounts without having to pay the 10% early-withdrawal penalty.
- Individuals aged 70 1/2 or older do not have to worry about taking required minimum distributions from retirement plans in 2020, or to pay the taxes on those distributions.
- Individuals who make donations of up to $300 in charitable contributions in 2020 can deduct them whether they itemize or not.
- If your business has 100 or fewer employees, you can claim a refundable employee retention tax credit against payroll taxes.
- Employers and self-employed individuals can delay the payment of the employer-portion of the FICA (Social Security) payroll taxes one half is in 2021 and the other half in 2022.
- Businesses with losses can carry back net operating losses (NOLs) to prior taxable years and get refunds of earlier taxes paid.
- Eligible employers can receive a refundable tax credit against payroll taxes for 50% of wages paid to certain employees during the COVID-19 crisis. Wages subject to the credit for any employee cannot exceed $10,000, including health benefits.
Limitation on Paid Leave
- Amends the Family and Medical Leave Act (FMLA) expansion to ensure that no employer is required to pay more than $200 per day and $10,000 in the aggregate for each employee.
Unemployment benefits for Self-employed
- Self-employed individuals, independent contractors, and other individuals who are unable to work as a direct result of COVID-19 public health emergency, and would not qualify for regular unemployment benefits under state law may be eligible to receive "Pandemic Unemployment Assistance".
- This excludes individuals who have an ability to telework with pay or individuals who are receiving sick leave or other paid leave benefits.
- The unemployment assistance is available to individuals who are unemployed, partially unemployed, or unable to work for the weeks impacted as a result of COVID-19 between Jan. 27 - December 31, 2020.
Opportunities for Review your prior year taxes
- The Tax Cuts and Jobs Act of 2017 (TCJA) limited business losses available to offset other income. The CARES Act suspends this law for 2018, 2019 and 2020. To the extent that returns were filed for 2018 and 2019 which had limited losses, these returns can be amended to fully apply the losses against other income and potentially claim a refund.
- The TCJA eliminated net operating loss (NOLs) carry backs and limited the amount of income that carry forwards could offset in any given year to 80% of taxable income. The CARES Act allows 2018, 2019, and 2020 NOLs to be carried back up to 5 years. Alternatively, taxpayers may carry the NOLs forward to 2019 and 2020 without the 80% income limitation.
- If you have existing NOLs, or expect business losses this year, we can help you determine how best to apply these NOLs and, if warranted, amend your prior years’ returns.
- Corporate losses incurred in 2018, 2019 and 2020 can be carried back 5 years, thus, taking advantage of tax years with an effective corporate rate of 35% rather than the current 21%.
Qualified Improvement Property
The CARES Act makes a technical correction to TCJA with respect to qualified improvement property, making it 15-year property instead of 39-year property, which also makes it available for 100% bonus depreciation.
The CARES Act is the largest relief package in U.S. History, and we will be working closely with clients to determine how best to apply the aspects of the Bill to mitigate losses, manage issues, and uncover opportunities. For more information, visit our COVID-19 Resource Page, or contact us at (408) 495-5800 to schedule a phone/Skype/Zoom meeting to begin planning today.