Some tax deductions available to businesses for 2020 are the result of the 2017 Tax Cuts and Jobs Act (TCJA) and others were created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). In addition, although the chance of any further tax or COVID-19 legislation seems slim, further changes may come in the future.
In the meantime, consider the following five deductions
:
1. Accelerated Alternative Minimum Tax (AMT) Refunds. The TCJA repealed the corporate AMT. It also allowed corporations to claim any unused AMT credits in tax years 2018-2021. The CARES Act accelerated this timeline. Accordingly, companies that file by December 31, 2020, can claim all remaining tax credits for 2018 and 2019.
2. Disaster Losses. The entire country was declared a disaster area because of COVID-19. This makes businesses eligible to fast track a refund for certain COVID-19-related losses. The losses must have occurred in 2020. The claim for a refund may be available if the business files a 2019 amended return.
3. Payroll Tax Deduction. Companies that elected to defer paying their 6.2% share of payroll taxes for 2020 are allowed to defer repaying this amount according to the following schedule: Half of the deferred amount must be repaid by December 31, 2021, and the remaining half must be paid by December 31, 2022. This can help companies with their cash flow, however, the tax cannot be deducted if it is not paid. Consequently, with some exceptions, companies that defer paying payroll taxes in 2020 cannot take the deduction in that year.
4. Net Operating Loss (NOL) Carrybacks. The CARES Act allows businesses to use current losses against past income for immediate refunds. As a result, NOLs arising in tax years beginning in 2018, 2019 and 2020 can be carried back five years for refunds against prior taxes. These deductions come with some restrictions, however, including when 2020 taxes are filed.
5. Bonus Depreciation. The CARES Act expanded the bonus depreciation deduction to apply to improvements to qualified improvement property dating from January 1, 2018.
Companies must meet specific criteria for any of these strategies to apply. You should not automatically assume that you do, or do not, qualify for any of these provisions. Also, last-minute regulatory or legislative changes may add to or modify these provisions.
For additional help deciphering these regulations, contact one of our CPAs about your situation.