The CARES Act and what it means for your taxes
The Coronavirus Aid, Relief and Economic Security Act is usually referred to as The CARES Act. It was signed into law by the President of the United States of America, Donald Trump, on the 27th of March, 2020 in order to provide the necessary relief from the economic damage caused by the coronavirus pandemic in the country.
The coronavirus pandemic led to a lockdown policy in the country. This included the lockdown of schools, public spaces, and commerce centers, among others. Many industries were forced to shut down in order to contain the spread of the virus and ensure the public health of the citizens, except health care facilities and essential industries like the banks and grocery stores.
However, as much as the lockdown helped to keep the people away from infection spread, it was detrimental to their finances, business, and the general health of the economy. Shutting down some businesses for months would lead to a loss on the part of most business owners, a loss that some businesses may not be able to bounce back from. Due to the financial strain that the period has had on businesses and industries, a lot of businesses will be left with no choice but to downsize and lay off staff, while others might have to close up totally due to losses that they will be unable to recover from.
H0w does the CARES Act work to help citizens during the Coronavirus pandemic?
Due to the predicted economic damage from the coronavirus pandemic lockdown period, the government came up with this CARES act to help provide a level of assistance and relief to workers and business owners. The bill is necessary to help the citizens of the nation and the economy recover faster from the economic damage caused by the coronavirus pandemic. If a sufficient number of businesses eventually are helped and if the said businesses are able to find a way to recover their loses and keep in business, it will limit the number of people that will be laid off work; therefore, the economy will be able to recover faster and the financial strength of the nation’s citizens will increase despite the pandemic.
Provisions of the CARES act for taxpayers and businesses
Below are a few provisions of the CARES Act for taxpayers as well as for business owners:
There will be loan provisions to support small businesses
A lot of small businesses will need these loans to stay afloat, recoup from losses incurred during the lockdown period, and make payroll in order to keep them from laying off the majority of their workforce. As a matter of importance, the best news as it regards the provision of these loans for small business owners is that there will be certain criteria given by the government that can lead to the forgiveness of these loans in a situation where the small business owner can not afford to pay the full amount back.
Provision of recovery rebates to every individual in the nation
This recovery rebate will be in the form of monetary relief in a total of $1,200 for adults and $500 for children provided by the government directly to individuals who meet the required criteria. These deposits will be made into the deposit accounts contained in the information of these individuals provided to government agencies.
Provision of expansions to funding for health care workers and also expansions to unemployment insurance
Provision of extra finances to businesses and workers through the policy deferring the payroll tax obligations for a period of time
Even though the taxes will be paid back to the IRS after the Coronavirus lockdown period (unless in cases where the debts will be forgiven), it is necessary to provide more funds to workers during this season for basic necessities and to help soften the blow of the financial crisis on individuals. Through this provision, the taxes usually deducted from wages of workers will not be deducted during this period but instead will be deflected until a more economically stable time where workers will be able to pay back the taxes. This is almost like a form of “no interest” loan given to taxpayers from the government.
Correction to the technical error for qualified improvement property (QIP) included in the 2017 bill of the Tax Cuts and Jobs Acts
The CARES Act now enables a taxpayer to be able to claim 100% bonus depreciation on eligible QIP for properties placed in service on or before January 2018. Due to this amendment, taxpayers can now claim the cumulative amount of the depreciation bonus entitled to them by this CARES act.
Adjustments and corrections to the Tax Cuts and Jobs Acts passed in 2017 that scrapped the NOL carrybacks usually available for businesses experiencing net operating loss and also stopped the ability to claim NOL carry forward of up to 80% of taxable income of future years after 2017
The TCJA bill passed in 2017 has been quite a disadvantage to businesses experiencing a Net operating loss within a tax year, however, the CARES act made some favorable amendments to the TCJA bill. The CARES act in response has provided tax relief for businesses that will experience a net operating loss in this period through new regulations for the NOL carryback which gives the privilege to carry back 100% of the losses incurred for to up to five years prior to the date they were incurred.
The amendment also allows NOL carryforwards of up to 100% of taxable income for future years until the loss is reduced to Zero. This will prevent companies from having to pay taxes in a business year without profits and can help them to claim refunds on tax returns of previous tax years.
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