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How has the COVID-19 impacted federal tax regulations for small businesses?

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    This answer is edited.

    The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was enacted to aide impacted individual taxpayers and businesses. Since there is much information regarding the CARES Act and its impact to businesses and individual taxpayers alike, I highlighted some relevant points.

    • It increases government guaranteed loans made for the Payment Protection Program (PPP) under section 7(a) of the Small Business Act to 100% through December 31, 2020.
    • The emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Program.
    • Waives fees for borrower, lender, the elsewhere credit test for funds provided under the PPP.
    • Maximum interest rate of 4%
    • Borrowers are not charged any prepayment fees.
    • Loan payments can be deferred for at least 6 months but not more than a year.
    • Temporary relief from troubled debt restructuring (TDR) disclosures for loans
    • Loan forgiveness equal to the amount spent by borrower during an 8-week period after original date of the loan for payroll, payroll expenses, rental leases, and mortgages. This is proportional to the number of employees retained.
    • Self-employed, independent contractors and those with limited work history are eligible to receive Pandemic Unemployment Assistance. Section 2102 Pandemic Unemployment Assistance

    Subtitle C – Business Provisions

    • Section 2301 provides a refundable payroll tax credit for 50% of wages paid by employers to employees during the COVID-19 crisis. Employers with >100 full-time employees
      • 1) Employer operations were fully or partially suspended due to a COVID-19 related shut-down order
      • 2) gross receipts declined by more than 50% compared to the company’s same quarter prior year
      • Credit is for first $10,000 of compensation including health benefits paid to eligible employees
    • Section 2302 Delay of payment of employer payroll taxes
      • Allows employers and self-employed to defer employer share of Social Security taxes on employee wages paid to federal government.
    • Section 2303 Modifications of net operation losses (NOL)
      • Relaxation limitations on a company’s losses which are normally subject to taxable income limitation that cannot be carried back to reduce income to a prior tax year. For a temporary period, taxable income limitations are removed to allow an NOL to fully offset income allowing the utilization losses to amend prior year returns.
    • Section 2404 Modifications of limitations on losses for taxpayers other than corporations
      • Modifies loss limitation for pass-through businesses and sole proprietors for utilization of excess business losses for access to much needed cash flow to maintain operations and employee payroll.
    • Section 2405 Modification of credit for prior year minimum tax liability of corporations
      • Corporate Alternative Minimum Tax (AMT) was repealed however, AMT credits are allowed as refundable credits over several years ending in 2021. This to speed up the business’ capability to recover AMT credits and claim a refund immediately to obtain extra cash flow during the COVID-19 crisis.
    • Section 2306 Modification of limitation on business interest
      • Until changed, the provision increases the amount of interest expense businesses can deduct on their tax returns. The percent limitation was increased to 50% of taxable income with adjustments for 2019 and 2020. This allows businesses to increase cash flow with a reduced capital cost to maintain operations and employee payroll.
    • Section 2307 Technical amendment regarding qualified improvement property
      • Allows companies to write off immediate costs related to building improvements instead of depreciating the improvements over the 39-year life of building according to IRS MACRS fixed asset guidelines. This will increase the business’ cash flow access by granting permission for prior year return amendments while encouraging improvement investments.

    Full Cares Act text

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