Reprinted with permission from Tanner Niehaus, Tax Consultant and TJ McGuire, Managing Shareholder with McGuire Sponsel
Under the CARES Act, Congress appropriated $349 billion in loans to small businesses under the Payment Protection Program (PPP). When this funding was quickly exhausted, an additional $320 billion in funds was appropriated; which, at the time of writing, appears will be allotted quickly as well. While a third round of funding may or may not become available, there are additional programs and tax provisions that companies should be aware of to use instead of or in conjunction with PPP loans.
Looking forward to the remainder of 2020, there are a number of programs and provisions the business leaders should consider to create tax savings or assist short term liquidity including:
Section 2301 Employee Retention Credit
If a business’ operations are partially or fully suspended due to a COVID-19 shut-down order or gross receipts decline by 50% or more compared to the same quarter last year, a refundable credit for 50% of qualified wages up to $10,000 may be claimed for wages paid from March 13, 2020 through December 31, 2020. This provision can both alleviate outward cash flow towards the payment of quarterly payroll taxes and potentially create positive cash flow via credit refunds. It is important to note that this credit is not available to taxpayers who participate in the Paycheck Protection Program.
Section 2302 Delay of Payment of Employer Payroll Taxes
This CARES Act provision allows employers and self-employed individuals to defer payment of the 6.2% employer share of the Social Security taxes. Half would be paid by December 31, 2021 and the other half due December 31, 2022.
Title IV Main Street Loan Program
The Main Street Loan Program was initially envisioned as an easy access, low rate loan program for mid-sized businesses. Newly released requirements reduce the minimum loan amount to 500k and loosened what size businesses are eligible. While additional clarification on the program is expected soon, this may be an option for small and mid-size firms that were in good financial standing (stable earnings, little to no debt) prior to pandemic.
Credits and Incentives for Growing Companies
States and local communities often have programs and tax incentives available for growing companies. While many companies may have experienced some decreases, planning for the future is critical to getting organizations back on their feet. Tax credits, exemptions, and grants are all tools that may be available for businesses looking to grow now or in the near future.
International Tax Implications
As global markets navigate the effects of the pandemic, multinational organizations must consider many tax implications. Topics such as currency fluctuations, repatriation of cash, inter-group transfer pricing, and regulatory compliance can be useful or necessary for operation. Adhering to tax and governance requirements in a proper and efficient manner allows companies to best allocate resources when needed the most.
Other tax provisions allow for companies to look retrospectively at actions already taken for current year tax savings or potentially to generate immediate cash in the form of refunds by amending prior year tax returns.
Section 2303 Net Operating Loss Modification
Under the CARES Act, Taxpayers can now utilize Net Operating Losses (NOLs) arising in tax years 2018, 2019, or 2020 to temporarily fully offset income over a five year carry back period. If a taxpayer paid tax in any of the prior years, this provision may generate a refund for short term cash flow.
Section 2307 Qualified Improvement Property Technical Amendment
The CARES Act also amended a previous error allowing businesses to immediately write off costs associated with improving facilities retroactive to January 1, 2018. For businesses that spent significant sums on building improvement following January 1, 2018, this correction accelerates depreciation and may possibly generate a refund on prior year returns.
Research and Development Tax Credits
Companies can utilize both federal and state research and development tax credits that reward companies based on investment in developing new products and processes. These tax credits can be utilized in the current year as well as on amended tax returns to generate refunds or credit carry forwards.
Cost Segregation Studies
When a company acquires, renovates, or builds real estate, it oftentimes overstates the amount of 39-year real property and therefore limiting depreciation deductions. By performing a cost segregation study, companies can maximize early year depreciation by reclassifying assets for treatment as 5-, 7-, or 15-year property.