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Important News About the CARES Act

Important News About the CARES Act

| April 02, 2020
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On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law, which is aimed at providing significant tax and non-tax stimulus to individuals and businesses. Created as a result of the COVID-19 pandemic, the $2.2 trillion package is the largest stimulus package Congress has passed in U.S. history.

Some of the CARE Act’s provisions provide opportunities for businesses and individuals to access much-needed cash now, while others may not result in a realized benefit until taxpayers begin filing their 2019 and 2020 tax returns (or amending in the case of 2019 returns filed before enactment of this law).

You may have already seen several emails or communications from other sources regarding the CARES Act. Our team at Liberty Wealth Advisors has spent much time pouring over the elements and details of the CARES Act so we could provide you with this summary of points we feel would be most relevant and potentially beneficial to you, your family, work or business.

CARES Act: Summary of Individual Provisions

Required minimum distribution (RMD) requirements waived for 2020

RMD requirements do not apply for calendar year 2020 for most retirement accounts. As of this writing, guidance is not fully available for RMD’s which may have been taken in 2020 prior to signing of the CARES Act. Once available, Liberty Wealth Advisors will provide additional information and stand ready to assist should you wish to reverse RMD funds received.

$300 charitable deduction

For tax years beginning in 2020, you can get a deduction for up to $300 in charitable contributions, even if you claim the standard deduction.

Individual rebate checks

The CARES act allows for individual rebate checks in the following amounts:

  • $1,200 for single filers / $2,400 for joint filers
  • Plus $500 for each qualifying child of the taxpayer

Phaseout of credit: The rebate check is reduced by 5% of the taxpayer’s adjusted gross income (AGI) in excess of:

  • $75,000 for single filers / $150,000 for joint filers
  • $112,500 for head of household filers

No 10% penalty tax for corona-related retirement distributions

The 10% additional penalty tax does not apply to any coronavirus-related retirement plan distributions, made between January 1, 2020 and December 31, 2020, up to $100,000 for qualified individuals.

A qualified individual is a person who is diagnosed with coronavirus or whose spouse or dependent has been diagnosed with coronavirus and who experiences adverse financial consequences of the coronavirus as a result of:

  • Being quarantined,
  • Being furloughed, laid off, or having working hours reduced
  • Being unable to work due to lack of childcare
  • Closing or reducing hours of a business owned or operated by the individual

Taxation of the distribution can be avoided if contributed back within three years. Instead of contributing the distribution back, the distribution can be included in taxable income over a three-year period.

CARES Act: Summary of Business Provisions

“Paycheck Protection Program” (PPP) SBA Loans

The following program has fast-approaching application deadlines, possibly commencing as soon as this Friday, April 3rd, with a limit on total funds available to the business public. Please contact us for additional information if you think you may be eligible to participate in the PPP.

In summary, businesses with 500 employees or less are eligible for cash-flow assistance through 100% percent federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans would be forgiven, which would help workers remain employed, as well as help affected small businesses and our economy snap-back quicker after the crisis. PPP has a host of attractive features, such as forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020. All existing Small Business Administration (SBA) certified lenders will be given delegated authority to process “Paycheck Protection Program” loans in a speedy manner. The SBA waives all SBA guaranty fees, including the upfront and annual servicing fees.

Employee retention credit

Refundable payroll tax credit equal to 50% of the first $10,000 in wages paid by the employer to an eligible employee during the COVID-19 crisis.

Delayed payment of employer payroll taxes

The CARES Act allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022.

Net Operating Losses (NOL)

The 80% income limitation for NOL deductions for the years beginning before 2021 is modified by the Act. For business losses arising in 2018, 2019 and 2020, a five-year carryback is allowed. Businesses will be able to amend or modify tax returns for tax years dating back to 2013 in order to take advantage of the carryback.

Loss limitations

The CARES Act suspends the loss limitation for owners of passthrough entities and self-employed individuals for business losses arising in 2018, 2019 and 2020 so they can take advantage of the net operating loss  

Corporate minimum tax credit

Accelerates the year for which a fully refundable credit can be claimed in 2019, and corporations can elect to claim the fully refundable minimum tax credits in 2018.

Deduction of interest expense

Limitations have been amended from 30% of adjusted taxable income based on earnings before income tax, depreciation and amortization (EBITDA) to 50% for 2019 and 2020 (2020 in the case of partnerships). Taxpayers may elect to use 2019 income in place of 2020 for the computation.

Bonus depreciation for qualified improvement property

Technical corrections to qualified improvement property allow for depreciation as a 15-year property and bonus depreciation for property acquired and placed in service after September 27, 2017, to align with the Tax Cuts and Jobs Act.

Charitable Contributions

Limitations for charitable contributions deduction for businesses have been increased from 10% to 25% of taxable income. This provision also increases the limitation on deductions for contributions of food inventory from 15% to 25% of taxable income.

We sincerely hope that you, your family and/or your business may be able to benefit from some of these provisions during the current crisis. Liberty Wealth Advisors stands ready to help you in any way we can. Our team has been contacting our clients directly and continuously in recent weeks to see how you are doing. If we have not yet connected, please don’t hesitate to reach out if we can be of assistance to you or someone you love in any way at any time. As always, thank you for being a client of Liberty Wealth Advisors.

 

Liberty Wealth Advisors does not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. All information presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service, nor should it be construed as tax or legal advice

Sources: U.S.Senate Committee on Small Business & Entrepreneurship, AICPA.  

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