Over the course of a few short months, the novel coronavirus (COVID-19) has rapidly spread around the world, infecting hundreds of thousands of people and wreaking havoc on the global economy. In an effort to remain solvent, businesses in nearly every industry are faced with devastating decisions, from laying off employees to halting operations—at least temporarily. In light of this unprecedented economic fallout, it is more crucial than ever for businesses to examine all possible opportunities to minimize their tax burdens and boost cash flow. In addition to tax incentives that can help businesses save substantial amounts of money, Congress is currently considering legislation that will offer financial relief.
The Coronavirus Aid, Relief and Economic Security (CARES) Act
In response to widespread fear of a serious recession, lawmakers have been scrambling to come up with a bipartisan solution to ease financial pressures on businesses and individuals alike. The most significant measure currently under consideration is the Coronavirus Aid, Relief and Economic Security (CARES) Act, a $2 trillion Senate bill that proposes various mechanisms for tax relief and stimulus spending. While the CARES Act remains subject to change, it contained the following provisions for businesses as of March 23, 2020:
- Businesses that have net operating losses (NOLs) from 2018, 2019, or 2020 may carry those losses back five years with no limitation.
- Businesses with tax credit carryforwards or prior alternative minimum tax (AMT) liabilities will be eligible for larger refundable tax credits.
- Employers may delay Social Security payroll tax payments, with 50 percent now being due on December 31, 2021 and the other 50 percent due on December 31, 2022.
- Qualified improvement property—which generally includes any improvements to a commercial building’s interior—will be eligible for 100 percent bonus depreciation, retroactive to September 28, 2017. Businesses may amend their tax returns to take advantage of this provision.
In addition to these provisions and several others, the CARES Act proposes approximately $500 billion in direct financial assistance for businesses, states, and cities across the U.S. As Congressional debate continues, businesses should begin working with their tax and financial advisors to determine how they may be able to take advantage of the Act’s provisions.
Financial Relief Through Tax Incentives
While the future of the CARES Act remains uncertain, the IRS and the Treasury Department have acted definitively to help ease the burden facing individual and business taxpayers by extending both the tax filing and payment deadlines from April 15 to July 15, 2020. Given three additional months to prepare their tax returns, businesses should seize the opportunity to reconsider tax incentives that they may have missed previously.
At Capital Review Group (CRG), we specialize in helping commercial building owners and businesses in various industries—as well as tax and financial advisors on behalf of their business clients—enhance profitability through tax savings. Here are a few commonly overlooked tax incentives that may help businesses unlock much-needed cash flow as they navigate the economic uncertainty caused by the coronavirus crisis:
- Research and Development (R&D) Tax Credit. Each year, large companies save millions of dollars through the federal R&D Credit, while smaller and mid-sized businesses often overlook this lucrative incentive due to the erroneous belief that they are not eligible. In reality, the R&D Credit is available to businesses of all sizes in a wide variety of industries, such as manufacturing, architecture, engineering, and construction. Businesses may qualify by demonstrating that they engaged in qualified research designed to create a new or improve an existing product, process, or software.
- Section 179D deduction. Created under the Energy Policy Act of 2005 (EPAct) with a goal of incentivizing commercial and public buildings to become more energy efficient, §179D of the tax code offers building owners a deduction of up to $1.80 per square foot for installing qualifying energy efficiency measures. Specifically, the deduction is worth up to $0.60 per square foot each for improvements to a building’s envelope, lighting, and HVAC systems. The tax-exempt local, state, or federal government entities that own public buildings may allocate their §179D deductions to their eligible primary designers, such as architects, engineers, or green building consultants. Considering that the §179D deduction was recently extended through December 31, 2020, now is the time for building owners and designers to review their project records and consult with a third-party certifier for §179D projects, such as Capital Review Group.
- Cost Segregation. An IRS-approved federal tax deferral strategy called Cost Segregation offers a powerful way for commercial building owners to capture more substantial and immediate depreciation deductions by simply reclassifying certain real property assets as tangible personal property. Since real property is typically depreciated over a period of 39 years, while personal property is depreciated over five, seven, or fifteen years, changing an asset’s classification results in a shorter depreciation life and, therefore, accelerated deductions for the building owner. To ensure maximum financial benefit, Cost Segregation studies should be performed by tax professionals who offer engineering expertise and knowledge of commercial buildings, such as the team at CRG.
As the coronavirus crisis continues to cause widespread financial loss, businesses must carefully consider all available opportunities to reduce their tax burdens and boost cash flow. Between existing business tax incentives and anticipated relief through legislation like the CARES Act, the federal tax code offers numerous ways for businesses to save money. For more information, contact CRG today!