While the Paycheck Protection Program is getting much of the attention, the Coronavirus Aid, Relief and Economic Security Act outlined a number of tax breaks and credits that can free up cash flow for companies of all sizes.
Dixon Hughes Goodman’s Dallas office is fielding dozens of calls a day from clients looking to get help through tax credits outlined in the CARES Act.
“The tax provisions provide some certainty in very, very uncertain environment from a business perspective,” said Chris Grasher, the leader of the tax practice for Dixon Hughes Goodman in Dallas. “At least they get to wrap their head around ‘well at least we have this much cash coming back from these tax savings ideas,’ whereas in looking ahead down the road for their businesses it’s very difficult to project what’s going to happen in that aspect.”
The Dallas Business Journal spoke with Grasher and the company’s senior tax manager, Troy Taylor, who explained some of the major tax law changes in the CARES Act and how they can impact a company’s cash flow.
“With all of these credits, it's really important to look at all of the programs that you're participating in holistically,” Taylor said. “…There might be a fact pattern where you decide not to do (a certain program) specifically so that you can take advantage of a different program.”
Employee retention credit
What it is: An employer can receive a $5,000 tax credit per employee if their company has seen a 50 percent reduction in gross receipts in a quarter or has experienced at least a partial suspension of business due to a government order. This is fully refundable and is issued almost immediately.
Who is eligible: Any employer who did not receive a PPP loan and can tie their business suspension to a government order.
Timeframe: The credit runs through Dec. 31, 2020.
Advice: “Dig really deep into your employee base,” Taylor said. “Look beyond the obvious employees and look at employees who have downtime — employees that their job function has changed in the new environment, yet they're still being paid their full wage.”
Payroll tax deferral program
What it is: Employers can defer the 6.2 percent employer portion of social security through end of 2020, making it essentially an interest-free loan.
Who is eligible: Any company who has not received a forgiveness date for a PPP loan.
Timeframe: The social security payments can be deferred from March 27 through the end of 2020. Half of the payments deferred have to be paid back by the end of 2021 and the other half by the end of 2022.
Advice: “In essence, you can get an interest free loan from the IRS by deferring that piece of your payroll taxes,” Taylor said. “This is probably the easiest part of all of the cash tax planning ideas you can do.”
Net operating loss carryover provisions
What it is: When taxes were reformed in 2017, rules were changed so that net operating losses could not be carried back, only forward. Under the CARES Act, net operating losses can be carried back. Companies can apply them 100 percent to any income you have in previous years.
Timeframe: Net operating losses that are generated from 2018 through 2020 can be carried back up to five years.
Advice: “The really big key to this one is in 2017 the tax rate was significantly higher. It was 35 percent vs. the tax rate today, which is 21 percent. So, if you have an NOL that was generated in 2020 or 2019 or 2018, it's at a 21 percent tax rate. If you carry that back to 2017 or earlier tax year, you're getting a permanent benefit because the difference in tax rate is significant.”
Qualified Improvement Property depreciation
What it is: Qualified Improvement Properties have a depreciable recovery period of 15 years under the CARES Act and are eligible for bonus depreciation.
Who is eligible: Companies that have significant leasehold improvement properties that have done qualifying interior improvements to properties before a building was placed in service.
Timeframe: Qualified Improvement Properties placed in service after Dec. 31, 2017 are eligible.
Advice: “That provision relates predominantly to retail companies, but also hospitality, banking, and real estate companies, as well,” Grasher said.
For more resources for businesses during the coronavirus outbreak, the Dallas Business Journal has created this Small Business Resource Guide to map out local, state, and federal assistance programs.
More on WFAA:
- What is the Paycheck Protection Program loan forgiveness guidance?
- Texas is among top states in the country for most PPP loan approvals in second round, data shows
- Right on the Money: If you sent in a paper tax return, it might take longer to get a refund
- Dallas small business, rent and mortgage relief programs overwhelmed by initial applications; city website crashes
- Here's where the $350 billion meant for small businesses really went
