A. In response to the pandemic, governments around the globe have taken action to provide both companies and individuals with tax relief designed to increase cashflow and help companies continue to employ their workers. In the United States, The Coronavirus Aid, Relief, and Economic Security (CARES) Act addresses the economic impacts of COVID-19 and includes a number of tax relief options.
The CARES Act includes payroll tax credits for employers that have been harmed by COVID-19 but have retained their employees, and permits employers to defer payment on the employer portion of Social Security tax that would otherwise be due at the end of this year.
Additionally, the CARES Act accelerates the refund schedule for corporate AMT credits. Now the credits are fully refundable for either the 2019 tax year or 2018 tax year.
The CARES Act provides for an elective five-year carryback of net operating losses (NOLs) generated in taxable years beginning after December 31, 2017, and before January 1, 2021. In addition, the 80% limitation on NOL deductions arising in taxable years beginning after December 31, 2017, has temporarily been pushed to taxable years beginning after December 31, 2020.
The CARES Act also contains a technical correction to a drafting error in the Tax Cuts and Jobs Act that required qualified improvement property (QIP) to be depreciated over 39 years, rendering such property ineligible for bonus depreciation. With the technical correction applying retroactively to 2018, QIP is now 15-year property and eligible for 100% bonus depreciation. This will provide immediate current cash flow benefits and relief to taxpayers.
While there are many tax savings opportunities included in the CARES Act, eligibility for some provisions is dependent on company size and other factors, and many benefits are mutually exclusive or have other tax implications. Given the level of complexity in applying these provisions, it is critical organizations consult with tax professionals in order to maximize their savings.
Outside of the existing stimulus measures, organizations should also consider tax relief measures that pre-dated the COVID-19 pandemic. If businesses are working to develop, improve and adapt products and processes, they may be eligible for Research & Development tax credits from federal and state taxing authorities.
Read more about IRS guidelines and COVID-19 postponement relief.