Tax Provisions & Coronavirus Relief w/ the “CARES” Act
During these past few months, many individuals are understandably confused by some of the new regulations as well as the coronavirus relief programs available for COVID-19.
We’ve seen an ongoing discussion within the media and elsewhere about the Paycheck Protection Program (“PPP”), in addition to the Economic Injury Disaster Loan (“EIDL”) program for businesses, but there are several other changes that may impact tax laws in your area.
There are many new opportunities to get financial relief that have recently been made available to both individuals and businesses.
Coronavirus Relief for Businesses
Net Operating Losses (“Carry-back”)
This recent change to the tax code imposes new rules on how a business may take any Net Operating Loss (“NOL”) deductions. The Tax Cuts and Jobs Act (TCJA) of 2017, as one example, changed the limits relating to NOL carry-backs and carry-forwards. Under the CARES Act, three new updates were enacted to try to improve free cash flow for struggling businesses.
The CARES Act specifies that NOLs from 2018-2020 to be carried back up to five previous years. This will allow any business an additional avenue to raise more capital by amending their previously filed tax return.
The CARES Act also suspends the NOL limit of 80 percent of any taxable income. This will mean that a business can deduct their NOLs to eliminate all of their taxable income within a given year, versus having to carry forward any NOL beyond 80 percent of taxable income. If these changes are unclear, please contact our office for additional clarification of these updated rules and regulations.
The CARES Act also allows pass-through business owners to use NOLs to offset any non-business income which would put them beyond the previous limit of $250,000 (single) or $500,000 (married filing jointly) for 2018, 2019, and 2020.
Business owners should always speak directly with their tax and legal advisors about how this new law change will affect any business that qualifies for this tax relief.
Coronavirus Relief for Individuals
The CARES Act now removes the penalties associated with an early retirement distribution for 2020, but only if the distribution is required because of the coronavirus outbreak.
You can qualify for additional coronavirus relief in many forms if you or any member of your household has tested positive for the coronavirus or you have otherwise been negatively affected financially by consequences based on this global pandemic. Employers are also now able to allow an employee to self-certify that they qualify.
If you are now over the age of 70½ and will be subject to take an annual required minimum distribution (“RMDs”) from your retirement accounts, the CARES Act states that you will not be required to take that distribution in 2020. This can help you prevent a forced retirement or help you avoid large investment losses from the extreme volatility we’ve been seeing in the markets these past few months.
The CARES Act also allows for penalty free withdrawals from your retirement plan. If you do happen to be younger than 59½, the 10% early withdrawal penalty will be waived for the first $100,000 distributed in the year 2020.
Economic Impact Payments Will Be Helpful
The economic impact payments (“Stimulus Checks”) that are being distributed to Americans will essentially be based on your 2020 adjusted gross income. Although they have been called a stimulus payment, they are technically pre-paid credits.
Now because your 2020 adjusted gross income (AGI) is not yet knowable at the moment, the IRS is using the AGI from your 2018 or 2019 filed tax return instead. The payments phase out for single individuals with an adjusted gross income of $75,000 or more per year and then 150,000 for couples. Then you also have the added $500 payment for each dependent under age 17.
We bring up these points so that you can consider your own strategy for how you go about dealing with the financial challenges that COVID-19 comes with. With all of these opportunities to obtain coronavirus relief, we want our clients to be well informed on how to get assistance if you’re struggling.
If your own 2019 AGI may qualify you for the payment, however your 2018 return may not, you will want to file a 2019 return as soon as you possibly can. Also, if your 2018 and 2019 income were over the thresholds for this payment you can still receive them when filing your 2020 tax return if your income falls within the existing limits by that point.
If you did your 2018 or 2019 tax returns online, you likely selected the direct deposit option, and thus your payment should be credited directly into your bank account. If you didn’t have a refund directly deposited but wish to have the payment directly deposited now, you can visit IRS.gov website to enter your payment details and get your current information on file. Otherwise, you will receive a check in the mail by default.
We highly recommend you schedule an appointment with our experienced legal experts to discuss these issues and help you determine your next move for 2021 and beyond. Many law firms, like ours, are now adopting video conferencing technologies to enable folks to plan their estate and tax needs from the comfort of their own homes. Please don’t hesitate to get in touch or ask a specific question regarding your own situation, we’re here to help you during this difficult time.
Call 509-328-2150 at any time or send us a message.