Navigating Covid-19 Related Changes in Tax Laws and Regulations
The COVID-19 has affected every aspect of our daily lives including taxes. To provide an economic relief to struggling taxpayers, a myriad of tax law changes some of which reversed the rules enacted under the recent 2017 Tax Cuts and Jobs Act (TCJA) had been passed.
Below is a brief overview of just a few important tax provisions recently enacted.
Filing deadlines The deadline for individual, corporate, partnership, and estate and trust income tax payments and return filings has been postponed until July 15, 2020. The period from April 1, 2020 to July 15, 2020 will be disregarded in the calculation of interest, penalty, or addition to tax for failure to file the returns or pay the taxes.
Quarterly estimated income tax payments for individuals and corporations due prior to July 15 have been postponed to July 15.
The above postponement also applies to IRC §965(h) installment payments normally due before July 15, 2020.
Should more time to file be required, an extension is to be filed by July 15, but the extension date may not go beyond the original statutory or regulatory extension date.
For the complete list of affected taxpayers and filings/payments, see IRS Notice 2020-23.
Business losses (NOLs) The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows for the carryback of losses arising in taxable years beginning after December 31, 2017 and before January 1, 2021 to each of the five taxable years preceding the taxable year of such loss (REITs are not permitted such carrybacks). One can still elect the indefinite carryforward of NOLs arising in those years bypassing the carryback.
However, if the carryback applies to the year with Sec 965(a) income inclusion, the NOLs cannot offset Sec 965(a) income. There is an election available to exclude the year to which Sec 965(a) inclusion applies from the carryback period.
The CARES Act also removes the limitation that NOLs could be used to offset no more than 80% of taxable income (disregarding the NOL deduction itself). The amendment applies to tax years beginning before January 1, 2021.
Government-Provided Relief Loans and Grants For Paycheck Protection Program (PPP) loans provided to businesses the CARES Act expressly provides that forgiveness or cancellation of all or part of such loans will not be treated as income for tax purposes. The exclusion from income creates a class of exempt income to the extent of the forgiven PPP loan. As a result, the forgiven PPP loan amounts are allocable to tax-exempt income, and deductions for the covered expenses that gave rise to the loan forgiveness are disallowed to prevent a double tax benefit.
Limitation on Business Losses The CARES Act removes the limitation on excess business losses for taxpayers other than corporations for tax years beginning after December 31, 2017, and before January 1, 2021.
Qualified Improvement Property The CARES Act retroactively classifies qualified improvement property (QIP) placed in service after 2017 as 15-year (vs 39-year property). Taxpayers may thus apply 100% bonus depreciation to eligible QIP. The CARES Act also clarifies that improvements must be made by the taxpayer (not the landlord) to be QIP.
High-Deductible Health Plans A high deductible health plan (HDHP) may, without affecting its status as a HDHP, provide health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP. Such benefits are disregarded for purposes of determining the plan’s status as a HDHP.
Charitable Contribution Deductions For tax years beginning in 2020, eligible taxpayers are entitled to an above-the-line deduction of up to $300 for qualified charitable contributions. An eligible taxpayer is an individual that used standard deduction. A qualified charitable contribution is a cash contribution to a qualified tax-exempt organization. This provision, in essence, increases the taxpayer’s standard deduction by the amount of the eligible charitable contribution (up to $300).
Due Dates for Contributions to Retirement Plans The deadline for making contributions to an IRA, or for an employer to make contributions to its workplace-based retirement plan on account of 2019, is extended to July 15, 2020.