Denver businesses have been hit hard by the forced closures resulting from COVID-19 containment efforts. The impact can be seen in the sharp increase in unemployment claims across the state. In fact, it was reported for the week ending March 19th there were in excess of 10,000 unemployment claims made on a single day. This figure demonstrates the intense financial pressure businesses are under as they adjust to the economic reality. The government initially responded to the crisis with the enactment of the Families First Coronavirus Relief Act, but much more was needed. An additional boost came when President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act, comprehensive relief which provides $2 trillion in tax relief, business loans, unemployment and more. To help clients, prospects and others, Hanson & Co has provided a summary of key opportunities below.
Key Tax Opportunities
Employee Retention Payroll Credit
This credit is available to eligible companies required to close due to the COVID-19 emergency. Eligible employers can receive a refundable tax credit for the employer’s portion of FICA, to be used against employment taxes for each quarter not to exceed 50% of qualifying wages (up to $10,000 per employee). The credit is only available for wages paid after March 12 and before the end of the year. Additional information includes:
- Eligible Companies – If a company’s operations were fully or partially suspended by a government agency because of COVID-19, or if gross receipts are less than 50% of gross receipts for the same quarter in the prior year.
- Qualifying Wages – If a company has 100 or fewer full-time employees, then all wages are considered to be qualifying wages. For those with more than 100 employees, qualified wages are defined as wages paid to an employee unable to work because of forced closure or decline in the company’s gross receipts.
Employer Payroll Tax Delay
There is now a delay in payment for the employer’s portion of social security taxes (and 50% of self-employment taxes). This applies from March 27, 2020, and terminates on January 1, 2021. 50% of the deferred amount is due no later than December 31, 2021, and the remaining 50% due no later than December 31, 2022.
Corporate AMT Credits
The corporate Alternative Minimum Tax (AMT) was repealed as part of the Tax Cuts and Jobs Act of 2017 (tax reform), but remaining credits are gradually refundable through 2021. The Act changed the rules so businesses with any remaining AMT credits are now permitted to file for an immediate refund.
Excess Business Loss
The Act has eliminated the loss limitations for pass-through entities (S-corporations, partnerships, etc.) which were implemented in 2017. The Act removed the limitations allowing taxpayers to amend 2018 and 2019 tax returns and claim any losses in excess of $250,000 for single taxpayers and $500,000 (adjusted for inflation) for joint filers in excess of prior limits.
Net Operating Loss (NOL) Carrybacks
Tax reform eliminated NOL carrybacks and limited NOL carryforwards to 80%. The Act changes these rules to allow businesses with NOLs from 2018, 2019 and 2020 to carry losses back for a period of five years. This means any business that had a loss last year or in the prior year can apply the NOL against past income, which may lead to immediate tax refunds.
Qualified Income Property (QIP) Correction
Tax reform intended to make qualified improvement property includes qualified leasehold and qualified restaurant improvements eligible for bonus depreciation. However, this did not happen. The Act corrected this issue allowing these property types to qualify for bonus depreciation. The change is effective for property acquired and placed into service after September 17, 2017. This means certain taxpayers may be able to amend their returns for prior years.
The Act expanded the amount corporations can deduct on charitable contributions to 25%. This represents a 15% increase over prior years. In addition, the deduction for contributions of food inventory also increased to 25% from 15% in prior years.
New Loan Programs
Payroll Protection Program (PPP)
The Act authorized the creation of the PPP which is a new 7 (a) loan program that offers the opportunity to receive a needed cash flow injection. The loans are 100% federally guaranteed and in certain conditions can be subject to forgiveness. Loans can be used to fund payroll costs, group health care, rent, utilities, mortgage interest and unpaid principal on some loans.
In order to be eligible for the loan, a business must have less than 500 employees and can include for-profit businesses, veteran organizations, independent contractors, sole proprietorships, certain self-employed individuals and tribal businesses and 501(c)(3) organizations. The maximum loan amount is determined as the lesser of average monthly payroll multiplied by 2.5 plus any Economic Injury Disaster Loans received after January 31, 2020, that are refinanced or $10M.
Loans are available for up to 10 years at 4% interest with six to twelve months of deferred payments. There are several important requirements waived which make the PPP more enticing for Denver businesses. This includes no required personal guarantees, no collateral requirements, no prepayment fees and no need to demonstrate the company cannot obtain funds elsewhere.
Mid-Size Business Loans
The Act also authorizes the additional support for federal reserve lending programs that offer mid-size businesses, 500 to 1,000 employees, with interest rates of 2% or less. To bolster short term cash flow for businesses, no interest or principal payments are due for the 6 months.
There are many opportunities to reduce taxes, receive tax refunds from prior years and even obtain low-cost loans. In order to assess the opportunities available, it’s important to thoroughly review your situation to determine how these changes can benefit you. If you have questions about the information outlined above or need assistance with a tax review or other issue, Hanson & Co can help. For additional information call us at 303-388-1010 or click here to contact us. We look forward to assisting you in this challenging time.