It Was the Best of Times. It Was the Worst of Times.
Well, maybe not the “best of times.” But COVID-19 has created some tax benefits that we may not see again for a while. Typically, we do not consider current-year tax strategies during the month of June. But, what is typical these days?
Government legislation has created several opportunities for taxpayers to lessen the burden of their 2020 returns, including:
- The filing date has been extended to July 15, providing an extra 90 days to fund IRAs and SEP IRAs. This also provides extra time to contribute to retirement plans and health savings accounts.
- Under the CARES Act, Net Operating Losses can be carried forward from 2018, 2019, and 2020.
- The CARES Act revised language of the Tax Cuts and Jobs Act, which did not include qualified improvement property in the list of property with a 15-year life, thus, not eligible for bonus depreciation on property placed in service after January 1, 2018. Taxpayers can now take the bonus depreciation on qualified leasehold improvements and may be able to create a loss on the amended return.
- Corporations with a 21-percent tax rate can carry back a loss for five years and get the benefit of the loss at the past rate of 35 percent. This provides rate arbitrage, in addition to a quick refund. Also, be aware quick-refund applications have been extended by six months.
- The Employee Retention Credit also represents a significant benefit since it is equal to 50 percent of qualified wages paid to employees after March 12, 2020, and before January 1, 2021, with a maximum credit amount of $5,000 per employee.
- The Best/Worst analogy also pertains to taxpayers who have losses in a federally-declared disaster area. If that applies to you, remember you may elect to treat the loss as occurring in the immediately preceding taxable year. Thanks to COVID-19, the entire nation was declared a disaster zone on March 13, 2020, which could be an opportunity to reduce your taxes due for 2019.
As Dickens writes in A Tale of Two Cities, “…it was the season of Darkness, it was the spring of hope…”
It’s been a rough ride. My hopes are that we can continue moving ahead, make use of some of these tax benefits, and progress to some “normalcy” soon!
Call or email C&B Accounting with any questions. Remember, every situation is different. Please call upon an expert for personalized advice.