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Highlights of the Coronavirus Aid, Relief, and Economic Security (CARES) Act

Posted on July 1st, 2020

Some key points about various COVID-19 related legislation passed in the last couple of weeks, including the $2.2T CARES Act:

  1. Tax Day is now July 15, 2020 for vast majority of taxpayers ordinarily required to file on April 15. Any payments that would have been due on April 15 are deferred until July 15 as well for federal and California taxpayers.
  2. Use of retirement plan funds—10% early withdrawal penalty waived on up to $100,000 of qualified plan distributions that are considered Coronavirus-related. The withdrawals are still taxable but the tax can be spread over a three tax year period, or the taxpayer has three years to recontribute the funds into their retirement account. Proceed with caution here until the rules are fully fleshed out! Required minimum distributions are waived for tax year 2020.
  3. Lots of small business incentives/opportunities—these programs are primarily designed to help businesses maintain employees that otherwise may be furloughed, and include: Paycheck Protection Program (potentially forgivable loans), employee retention tax credits of up to $10,000 per employee, deferral of employer payroll tax payments to 2021 and 2022, enhanced ability to deduct business interest expense and overall losses limited under prior law, etc.
  4. Direct payment of stimulus checks to taxpayers—up to $1,200 per individual or $2,400 for joint filers, plus $500 per qualifying child will be sent directly to households as soon as possible. The details of the program are still being worked on (even today); there are income caps based on 2018 or 2019 (if filed) income tax returns. Basically, the amount received represents a 2020 tax credit that will be paid to persons/households in advance of filing a 2020 return. If you’ve moved since your last return filing, make sure the IRS has your correct address!
  5. Donating to charity is now easier–$300 of charitable contributions can now be deducted against gross income, even for those no longer itemizing deductions. Further, for the 2020 tax year individuals can claim an unlimited itemized deduction for a qualified charitable contribution (e.g. cash to a 501(c)(3) charity), and corporations can deduct a donation of up to 25% of their adjusted income.
  6. Qualified improvement property now eligible again for bonus depreciation—this is a technical correction to the Tax Cuts and Jobs Act of 2017 and is applied retroactively to September 27, 2017. This correction allows qualifying expenses incurred by owners to make improvements to the physical premises related to these businesses to accelerate deductions into the 2017 or 2018 tax year on an amended return, or the 2019 tax year on a return due July 15, 2020.

The “devil is in the details” on all of these programs, and we will learn more about the implementation nuts and bolts as the regulations supporting the programs and tax changes are rolled out.

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