The CARES Act: Key Tax Deductions and Credits for Businesses

The CARES act is the largest stimulus plan in our nation’s history. The Act includes many tax changes which are favorable to businesses. One of the ways that the Act tries to assist small businesses is to provide additional tax deductions and increased credits to allow employers to stay in business. Some of the key changes include:

 A tax credit of up to $10,000 of compensation for wages or health benefits paid or incurred from March 13, 2020, to December 31, 2020, for employers with 100 or fewer employees (regardless of whether the employer was open or shut down). Employers with more than 100 employees can qualify in certain cases;
 Increasing the limit on deductions for contributions of food inventory from 15 percent to 25 percent;
 Increasing the limit on charitable deductions for corporations from 10 percent to 25 percent of taxable income;
 Ability to defer payment of the employer share of Social Security taxes otherwise required to be paid, with half due by the end of 2021 and the other half due by the end of 2022;
 Refundable payroll tax credit of up to 50 percent of wages paid by employers to employees during the COVID-19 crisis for those companies whose operations were fully or partially suspended or whose gross receipts declined by more than 50 percent when compared to the same quarter in a prior year;
 Changes on tax treatment for net operating losses, recovery of alternative minimum tax credits, and the ability to immediately write-off costs associated with improving facilities, whether or not they are related to treatment or prevention of the coronavirus.

Companies will have to carefully review their payroll costs, tax planning, and business expenditures in order to take maximum advantage of the changes provided by the CARES Act. These statutory provisions provide new opportunities for companies to sustain their business in the short-term and to hopefully prepare for longer-term challenges after the COVID-19 crisis ends and the economy starts to return to normal.

The information provided in this article is not a substitute for legal advice and does not create an attorney-client relationship.

The attorneys at Price, Meese, Shulman & D’Arminio, PC, and its covid-19 legal response team are here to assist. The author, Michael Orozco, is an attorney at Price Meese and can be reached at 201-391-3737 or via email morozco@pricemeese.com.