CARES Act Tax Breaks for Businesses
While stimulus checks, small business loans and expanded unemployment benefits have gotten the lion’s share of media coverage, there are also a number of important business tax breaks in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that haven’t received a lot of attention. Most of the new tax breaks are only temporary.
Charitable Gift Deduction Expanded
Normally, a corporation can’t deduct charitable contributions that exceed 10% of its taxable income for the year. Any amount over the 10% limit can be carried over for up to five years. Under the CARES Act, the taxable income limit on 2020 charitable gifts of cash rises to 25%.The CARES Act also increases the limitation on deductions for 2020 contributions of food inventory from 15% to 25%.
Payroll Tax Payment Delayed
Employers can defer payment of their 6.2% share of Social Security tax on wages paid from March 27 through December 31, 2020. Half of the deferred amount is due on December 31, 2021, and the other half on December 31, 2022. Self-employed people can defer 50% of the self-employment tax they owe.
Payroll Tax Credit
There’s a new payroll tax credit for employers hurt by the coronavirus…but the business must retain and continue to pay workers to claim this tax break. The credit of up to $5,000 per paid employee offsets the employer’s 6.2% share of Social Security taxes, with the excess refundable. Eligible employers are those who have to close up shop or reduce hours because of a governmental order, or whose gross receipts in a quarter have declined by more than 50% compared to the same quarter in 2019.
Interest Deduction Expanded
The 2017 tax reform law limited the deduction that large firms can claim for interest on business debt to 30% of adjusted taxable income (ATI), with any disallowed interest carried forward. (The limit doesn’t apply if a business’s average annual gross receipts are $25 million or less for the three prior tax years. Also, certain regulated utility companies and real estate companies are exempt.) The CARES Act increases the 30% ATI limit. Net interest write-offs are now capped at 50% of ATI for 2019 and 2020. Firms can
Business Loss Deduction Cap Suspended
The cap on the deduction for business losses on individual returns is halted. Under the 2017 tax reform law, the amount of trade or business losses that exceeded a $500,000 threshold for couples and $250,000 for other filers was nondeductible, with any excess carried forward. The CARES Act suspends this loss limitation rule generally for 2018 through 2020.
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