COVID-19 Tax Update #3 (Senate Bill)
In an effort to keep you informed, we will continue to update you with tax and relevant business stimulus bills.
There is currently a bill in the Senate under consideration that provides for emergency assistance in these uncertain times. This email will summarize and highlight what we think you should be aware of. Keep in mind, this is just a bill at this point but we expect this will move quickly and some version of it will likely be passed into law very soon. We’ll let you know when that happens.
Small Business Interruption Loans
Any business concern that was in operation on March 1, 2020 and had employees that were being paid will qualify for an SBA loan if that business was impacted by COVID-19. The amount of the loan is equal to the lesser of the average total monthly payment by the applicant for payroll, mortgage payments, rent payments, and payment on any other debt obligation incurred during the 1 year period before the date on which the loan is made (times 4) or $10,000,000. For example, if your average monthly payroll is $60,000 and your rent is $8,000, the loan amount you will qualify for is $272,000. The intention of the program is for you to use the proceeds of the loan for payroll support, rent, utilities and other debt obligations. These loans are eligible for tax free forgiveness to the extent they are used for payroll continuity through June 30, 2020. There are some limitations based on salary levels but the way this is written suggests that the loans will be forgiven if you keep paying your employees. Yes, the forgiveness is tax free.
Those of you in the cannabis industry are probably asking if this applies to you. That is unclear, but the language in the bill says “any business concern . . . shall be eligible to receive a loan made under section 7(a) of the Small Business Act . . . “ From a practical standpoint it make sense to apply. If you need help with this, please let us know.
Tax Provisions
Tax Credit. There is a proposed tax credit of $1,200 for individuals and $2,400 for married filing joint plus $500 per dependent child. There is a phaseout (of course) at a rate of 5% of adjusted gross income in excess of $75,000 for individuals and $150,000 for married filing joint. This credit will be reduced by any advance refund you may receive. Sounds like some checks are on the way.
Extended Filing Deadline. The new filing deadline will be July 15, 2020. This means that payments (no matter how large) won’t be due until July 15th as well. Any 2020 estimated payments that you may be required to make are now due on October 15th. This covers the first three estimates that would otherwise be due on the 15th of April, June and September. This applies to corporations and individuals. NOTE: Our tax preparation software hasn’t been updated for the new filing deadline so if the package says April 15th we mean July 15th.
Withdrawals from retirement accounts. There is a provision for penalty waiver from retirement accounts up to $100K if you are impacted by COVID-19 (very generous definition of impacted). You’ll be able to pay it back to the retirement account over 3 years if you choose to do so. If not you’ll be able to bring it in to income over three years instead of in the year you take the money out. The withdrawal is not subject to withholding for 2020. If you want to borrow from your 401K you’ll be able to borrow up to $100K instead of $50K. The payback period has been extended by one year (6 instead of 5).
Charitable contributions. A $300 cash charitable contribution will be allowed even if you don’t itemize deductions. The limit on charitable contributions has been increase to 100% of adjust gross income rather than 50%. There are some restrictions so if you intend on making a large donation let’s talk first.
Payroll tax deposits. You will be allowed to defer 50% of your payroll tax deposits until the end of the year. I really want to see how this gets finalized because being late on payroll deposits can create a real nightmare so stay tuned. This deferral will not apply to you if you get an SBA loan forgiven.
Net Operating Losses. The new law relaxes the limitation on businesses use of losses from prior years. The new law now allows losses from 2018, 2019 and 2020 to be carried back 5 years. Such loss carrybacks allow for tax refunds. Under the old law, a NOL deduction was limited to a percentage of taxable income. The new law removes all taxable income limitations, allowing a corporation to utilize 100% of losses. For pass-through businesses and sole proprietors, the new law would allow loss carrybacks.
That’s what we know for now. Once this bill (or some version of it) becomes law we will be sure to update you.
Have a great weekend and be safe!