The Coronavirus Stimulus Package Segment II

Preface: “Wisdom knows the right path to take. Integrity is taking it.” M.H. McKee

The Coronavirus Stimulus Package Segment II

“Wisdom knows the right path to take. Integrity is taking it.” M.H. McKee. For entrepreneurs, whether newcomers or seasoned executives, the path forward for entrepreneurship has quickly reached perilous terrain more challenging than most could have envisioned a few months earlier. For some, it may seem like this month it is going where there is no path, and blazing the trail, e.g., entrepreneurial trailblazing.

The passage of the new CARES Act in late March brings with it revised tax laws that provide improved trailblazing tools to help navigate the uncharted terrain. In this Segment II, we’ll discuss some more specific individual and business tax features of the Coronavirus Stimulus Package.

CARES Act Provisions for Individual Taxpayer

Firstly, the CARES Act provides individual taxpayer a rebate check of $1,200 per taxpayer, or $2,400 for those married filing jointly, plus $500 for each child. The in-process rebate checks begin to be reduced above $75,000 for individual taxpayers and $150,000 for those married filing jointly benchmarked to 2018 or 2019 adjusted gross income. These rebate checks are from the US Treasury and require a social security number to be eligible for the taxpayer appropriations.

In addition to rebate checks, the CARES Act provides an exclusion from income payments of W-2 recipients for student loans. This legislation offers employees the opportunity to receive tax-free earnings and subsequent payments to be made directly on student loans for either a taxpayer or child up to $5,250.

The CARES Act waives the minimum distribution requirement. It also waives the 10% penalty on early withdraws up to $100,000 from qualified retirement plans for coronavirus reasons for the 2020 tax year.

Therefore, those with retirement savings who experience adverse financial conditions from layoffs, reduced hours, quarantine or employment shutdowns can finance the emergency costs from their retirement account. If these distributions result in taxable income to the account holder, they can recontribute the withdraw, or it is subject to tax over three years.

For those enjoy charitable contributions, the CARES Act provides an increased benefit with a $300 above the line deduction for contributions from individual taxpayers. Therefore, even for those who do not itemize, a $300 cap deduction is now permitted.

Also, enhanced Pandemic Employment Assistance Programs effective immediately will be available through December 31, 2020.

CARES Act Provisions for Businesses

A tax credit is now available for employers who retain their employees and pay them if operations are suspended due to business shutdowns, or from declines in sales revenues. This credit is equal to 50% of the qualified wages paid to employees, including health benefits, and is limited to $10,000 per employee for the quarters. This credit applies to wages paid from March 13th to December 31, 2020 for qualifying purposes.

Secondly, the CARES Act, legislates deferral of payroll taxes to improve employers’ liquidity and help retain employees during adverse conditions and business shutdowns. This feature permits 6.2% of payroll taxes to be deferred for employers and paid 50% on December 31, 2021, and 50% December 31, 2022. Note of caution, with the trust fund features of payroll taxes, employers who apply for this tax benefit, may add operating risks with future liquidity.

The CARES act increases the number of permissible deductions for business interest to 50% of the taxpayer’s adjusted taxable income for 2019 and 2020. The CARES Act also permits a five-year carryback of net operating losses for 2018, 2019, and 2020 tax years. This revises the current NOL carry-back for farmers only. With the revised NOL carryback, businesses will be able to amend back to 2013 to capitalize on the carryback benefits.

So as the entrepreneurial trailblazing begins anew this month, a song can be worth more than million words. We’ll conclude with an especially good word of wisdom in verse from William M. Golden penned in 1918.

“Each day I’ll do a golden deed

By Helping those who are in need

My life on earth is but a span

And so I’ll do the best the I can.”

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