There are many tax changes from the CARES act you should know about as a Phoenix business. COVID-19 has affected tax laws, deadlines, and more. In this post, you will find 10 of the tax changes and how they will affect you.
1. Federal tax returns and payments deferred to July 15, 2020.
The 2019 Federal tax returns and payments are deferred to July 15, 2020! This deferment comes without penalties or interest and is available for all taxpayers – no action is needed from you. You are still able to request an extension to file through your tax professional. Check out our tax services! The deadline for filing an extension is 10/15/2020.
2. 1st and 2nd quarter estimated tax payment deadlines are moved to July 15, 2020.
Along with tax return payments being postponed to July 15, so are 2020 quarterly estimated tax payments for the 1st and 2nd quarters. You will not accrue any penalties or interest during this time. 3rd quarter estimated tax payments are still scheduled for September 15th.
3. Postponed IRA and HSA 2019 contribution deadlines extended to July 15, 2020.
The deadline for making Individual Retirement Account (IRA) and Health Savings Account (HSA) contributions for the 2019 tax year has been extended to July 15, 2020, to match the tax filing deadline. This allows you more time to contribute to both accounts if you choose. The most you can contribute to an IRA for the 2019 tax year is $6,000. If you are 50 or older, that number is $7,000. For individual coverage, the most you can contribute to HSA is $3,500, or $7,000 for family coverage.
Confirm with your financial institution that your contribution is marked as a 2019 contribution, especially if it comes in after April 15.
4. Tax Changes from the CARES Act will allow you to take a deduction for up to $300 in charitable contributions without having to itemize deductions starting in 2020.
Starting on 2020 taxes, Phoenix businesses can now take a deduction of up to $300 ($600 filing jointly) in charitable contributions without having to itemize deductions. This will reduce your Adjusted Gross Income and reduce your taxable income.
Such donations must go to an organization that is qualified under section 170(c) of the Internal Revenue Code.
5. Charitable contributions are not limited by your AGI
Tax Changes from the CARES Act will also affect charitable contributions. In an effort to encourage charitable contributions, the CARES act has changed the 60% AGI charitable contribution limit to 100%. Now, you can get a charitable contribution deduction for the full amount of your Adjusted Gross Income if you claim the itemized deductions. As a corporation, you may now deduct up to 25% of taxable income.
This applies to cash contributions made to charitable organizations; it does not include private foundations or donor-advised funds.
6. Net operating losses (NOLS) from 2018-2020 can be carried back five years.
Net operating losses from 2018-2020 can be carried back five years. Net operating losses occur when a company’s deductions exceed its taxable income during a given tax period. This is meant to offset taxable income for five years after the loss was generated. You can still carryforwards NOLS indefinitely.
Unless you decide to forego the carryback, your net operating losses from 2018, 2019, and 2020 will have to be carried back to the earliest year within the carryback period where there was taxable income.
This can also apply to individuals, not just C-Corps. Additionally, real estate investment trusts (REITs) are not allowed this carryback.
7. The employer portion of payroll taxes between the dates 3/27/20 – 12/31/20 can be deferred over the next two years.
All employers are eligible to defer the employer portion of payroll taxes between 3/27/20 and 12/31/20. However, if you are an employer who received a Paycheck Protection loan, you are ineligible to continue deferring these tax payments after your loan has been forgiven.
8. Take 100% bonus depreciation for qualified improvement property put in place by 2018.
You can now take 100% bonus depreciation for qualified improvement property, as long as it was put in place by 2018. If you have already filed your 2019 tax return, you can file an amended return to apply this change.
9. Tax Changes from the CARES Act allow you to borrow up to $100k from your IRA if you repay the amount within three years.
You can now borrow up to $100,000 from your IRA, but you must repay the amount within three years to avoid tax consequences. This is a great way to take a loan out on yourself if you are having trouble paying the bills, want to make an investment, help your children, whatever the case. You are allowed to use the funds for whatever you find necessary, so long as it is paid back within three years.
10. Tax Changes from the CARES Act have also affected tax credits. Tax credits are available to small employers and self-employed individuals.
The employee retention credit is 50% of the eligible employee’s wages paid by the employer in the 2020 calendar quarter. This is capped at $10,000 per employee. There are also tax credits available for sick leave and family leave wages paid between 4/1/2020 and 12/31/2020.
If you have questions about how any of the Tax Changes from the CARES Act affect your Phoenix business, please contact us. We are happy to help in any way we can.
Thank you, Marissa and Larisa, for your contributions to this post.