Tax planning has become one of the most vital issues of 2020 due to the iCOVID-19 pandemic crisis. This year, 116th U.S. Congress has passed a bill and signed into law by President Donald Trump in March 2020. The bill is widely known as ‘CARES ACT,’ or The Coronavirus Aid, Relief, and Economic Security Act.
Basically, this bill is enforced in response to the economic fallout due to the COVID-19 pandemic in the state. It is a $2.2 trillion economic stimulus bill. If you are still unaware of it and worry about how to strategize it, take a look at these tips.
Tax Planning Tips to Tackle the CARES Act
What is the CARES Act?
Before you start with your tax planning strategies, you should clear your concept about the CARES Act. Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March of 2020. Furthermore, it provides rapid and direct economic help to American workers, small businesses, families, and reserves jobs for American Industries.
Besides, the expectations are there that this law will have a considerable impact on the U.S. economy and the effort to battle the coronavirus. The bill has assigned $150 billion to localities and states fighting with the pandemic crisis, and for the health care sector, the budget is $130 billion.
Furthermore, to support the small businesses to overhead expenses during the time of emergency, and to maintain their payroll, the law appropriates $349 billion. The motive is to keep the workers employed and paid as well, during the time of the pandemic.
Some legal alterations are also included in this law, designed to benefit specific commerce and industries. Here are some of them:
- National Endowment for the Arts will administer new grants of $75 million
- $677 million in diplomatic aid and fresh foreign
- For maintenance and operations at the Kennedy Center for the Performing Arts, the decided amount is $25 million
- $350 million for refugee aid and migration
- Comfortable regulatory approval rules for sunscreen ingredients
- For the Peace Corps decided amount is $88 million
- New tax advantage to allow employers to pay off $5,250 on every employee’s student loans
- Funding for calls for prison inmates and free video conferencing visits
Provisions Applicable To Individuals
Early withdrawals from retirement plans and participant loans
Some taxpayers directly impacted by pandemic have access to withdraw up to $100,000 from their qualified retirement plans. Furthermore, if the amount is returned within three years, these will not be considered income. In addition to these, some other rules are also there, allowing for loans from plans of up to $100,000. Moreover, the participants who previously have loans outstanding can submit their repayments for about one year.
Recovery Rebates
An essential provision of the CARES Act will send tax rebate payments to persons. Furthermore, an additional $500 rebate for each qualifying child is also there. For the married couples that file jointly, the rebates will be up to $2,400 and $1,200 per taxpayer.
Provisions Applicable To Businesses
Employee Retention Credit
For the business person, tax planning is a significant aspect, and here is one of the provisions for then CARED Act, which they must know. The tax-exempt organizations and qualified industries that do not avail themselves of the CARES SBA forgivable loans can claim a refundable payroll tax credit for up to 50% of adequate wages paid after March 12, 2020, and before January 1, 2021. Per employee, creditable payments are limited to $10,000, resulting in a maximum credit of $5,000. Furthermore, the wages include compensation paid to health care costs paid for these workers and employees.
Tax Planning Tips
Consider lumping charitable contributions if itemizing tax deductions
Instead of the established maximum of 60% of AGI, this Act will temporarily allow the taxpayers to deduct a maximum of 100% of Adjusted Gross Income or AGI. It is distinguished from a tax planning perspective as those who claim the standard deduction will learn that their early-itemized deduction is worthless, and provides no tax benefit.
Create a Distinct Account When Looking for A PPP Loan
The business owners who are looking for a Paycheck Protection Program (PPP) loan may require setting up a distinct account to hold the loan proceeds. Forgiveness is the key feature of these new loans. Certain qualified expenses, including utilities, payroll, and rent mortgage interest over the next eight weeks, can be forgiven.
Furthermore, while applying for forgiveness, the corporate owners will require furnishing documentation of the sum of the qualified expenses over the period, payroll, details on headcount, and verification that the loan was applied to qualified expenses. Establishing a distinct bank account to hold PPP loan funds will make it convenient to furnish a track record for the loan forgiveness procedure and it will prove as a pro tip for tax planning.
