Momentum - Business to Business Online Magazine MOMENTUM May 2020 | Page 32

T. MARK RUSH, CPA Partner Ham, Langston & Brezina, LLP [email protected] COVID-19: Important TAX BREAKS from the CARES ACT A Stimulus Check s you read this, the U.S. Treasury Department may be writing you a check, and it’s possible you may have that check in your hands. When you file your 2020 tax return you could receive more cash if the 2020 return shows a bigger credit than you receive this year. Technically, the cash you’re about to receive is an advance payment of a new refundable tax credit for your 2020 Form 1040 tax return. You’ll “true up” your advance tax credit on your 2020 Form 1040. • If the tax credit amount is less than the credit you qualify for based on 2020 AGI, then you’ll get the difference as a refundable tax credit in 2021 after you file your 2020 tax return. • If the cash amount you receive this year is greater than the credit you qualify for based on 2020 AGI, you have a windfall. You don’t have to pay the excess cash back to the IRS. Your current tax debts will not interfere with the cash amount you are about to receive. There are no offsets for outstanding tax debts. But there is an offset for past-due child support that is reported to the IRS by a state. In this case, the IRS will take the child support money from the advance tax credit before remitting any money to the taxpayer. Charitable Contributions For tax year 2020 only, the CARES Act increases the limits on charitable contributions as follows: • For individuals, there is no AGI limit for contributions normally subject to the 50 percent and 60 percent limitations. The 2020 no-limit rule does not apply to contributions to donor-advised funds. • For corporations, the 10 percent limitation goes up to 25 percent of taxable income. • The limitation on deductions for contributions of food inventory goes from 15 percent to 25 percent. 30 MOMENTUM If you are a non-itemizer, you may now deduct up to $300 of cash charitable contributions above the line. This above-the-line deduction is a permanent change starting with tax year 2020. Net Operating Losses The CARES Act temporarily suspends some of the Tax Cuts and Jobs Act (TCJA) limitations on net operating losses (NOLs): • For NOLs that arise in tax years 2018, 2019, and 2020, you can now carry them back five years to obtain refunds of taxes previously paid. • Under the TCJA, an NOL deduction in a tax year usually cannot exceed 80 percent of taxable income, but the CARES Act suspends that limitation and allows a 100 percent deduction for tax years 2018, 2019, and 2020. These new, temporary changes allow you to fully utilize your NOLs and potentially amend prior-year tax returns to get refunds. 461(l) Limitation The TCJA created a new loss limitation rule (a ceiling) that limited your ability to use business losses. The CARES Act retroactively eliminates the Section 461(l) limitation rule for tax years 2018, 2019, and 2020 and moves the start to tax year 2021. Once again, this change allows you to possibly amend prior-year tax returns to get refunds now. Qualified Improvement Property Qualified improvement property (QIP) is now 15-year property, and not 39-year property, for depreciation purposes. This means QIP is now eligible for bonus depreciation, where previously you could use only Section 179 expensing. This change is retroactive as if Congress originally included it in the TCJA, so you can amend prior year returns to fully expense the property and potentially secure refunds.