Tax Implications of the CARES Act

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The CARES ActThis year, more than ever, you may need professional tax preparation to take advantage of the new tax ramafications of the CARES Act.  Our experienced business tax professionals stay on top of the changes in tax laws to maximize our clients’ deductions. So give us a call today. We offer tax preparation for business taxes Nashville companies can depend on. We also offer tax preparation for individuals.

Four benefits of the CARES Act that apply to companies:

  • PPP Forgivable Loans Are Tax-Free at the Federal Level. Although these loans are tax-free at federal level, typically, the state see a forgiven loan as taxable income. Keep in mind, the expenses that you paid with the PPP funds are not deductible.
  • Corporations Can Carry Back Losses for Five Years. You can carry back losses incurred during 2018-2020 for five years. Amended returns can reduce profits for pre-2018 years, when corporations paid a 14% higher income tax
  • Companies Can Donate More to Charity. The CARES Act raises the deduction for charitable deductions from 10% to 25% of taxable income.  If taxable income is zero in 2020, you can carry the deduction  forward for five years.
  • Companies Can Receive a Tax Deduction for Donating Food. Restaurants and companies that carry food as inventory can donate to organizations helping the needy, the ill and infants. The CARES Act caps the deduction at the lower of these two:
    • twice the cost of the food
    • cost plus 50% of the normal profit

Two benefits of the Act that apply to individuals:

  • The Act Suspends Business Loss Deduction Caps.  The CARES Act suspends the $250,000 cap on the deduction for business losses on individual returns and the $500,000 cap on returns for couples.
  • Early Distribution Penalties Are Waived for 2020. Individuals can withdraw up to $100,000 from their IRA, pension plan, or 401(k) plan, in 2020, without incurring the 10% early distribution penalty. But they must meet one of these conditions:
    • they or a spouse or dependent test positive for COVID-19
    • a quarantine, business closure, layoff, or reduced hours cause ecumenic harm