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CARES Act Tax Programs

Dan Faye, accounting services manager, with AgChoice Farm Credit shares information about special tax programs to assist Americans and businesses during the pandemic. Listen to the full podcast episode with Dan here.

The big headline related to taxes was pushing back the federal and state tax deadlines from April 15 to July 15. What other information is important for farm businesses to know about these changes?

If you are expecting a tax refund result, don't wait. File your tax return. The government is continuing to pay those refunds according to their usual schedules.

When the government moved the tax deadline to July 15, it also affected a few other dates and information.

  • Your first quarter estimated tax payments. Typically due on April 15, the quarterly tax payment deadline was extended to July 15.
  • Another important deadline change relates to tax planning. You can contribute to your IRA and HSA until July 15 and still affect your last year's tax liability. If you haven't filed your 2019 tax return yet, your accountant may be able to use these strategies to change your tax situation.

The CARES Act also included several other tax related programs. Do these programs have a specific interest to Pennsylvania farms?

The Deferral of Employment Tax Deposits program provides immediate cash flow to small businesses. All employers qualify. It does have implications if you also received a PPP (Payroll Protection Program) loan. If an employer received a PPP loan and it's ultimately forgiven, on the day you receive a forgiven decision, you must stop deferring deposits. You can defer up to 100% of the employer portion of Social Security tax, which is 6.2%. A word of warning with this program: this is a deferral of deposits, not a forgiveness of deposits. Eventually, these payments need to be made by two dates. The first date is December 31, 2021. By that date, you need to pay 50% of what you deferred, and the remaining 50% needs to be paid in by the second date, December 31, 2022.
The next program is the Employee Retention Credit. There are more eligibility requirements compared to other CARES Act programs. Specifically,eligible businesses must experience either a full or partial shutdown because of government orders or a significant decline in gross receipts. Both of those circumstances are defined by the IRS. I would encourage you to visit the IRS FAQ website for complete definitions and information. If the employer received a PPP loan, than the employer is not eligible for this credit at all. We haven't seen a lot of movement on this credit yet because the first time we need to put pen to paper on this credit is second quarter payroll tax returns, which we'll file in July. That being said, there are some ways you can take advantage of this credit now. Talk to your payroll provider or accountant if you're interested in using this credit and figure out how you can use it now, rather than waiting until July.
NOL modification or Net Operating Losses. The CARES Act temporarily reset that the rules for net operating losses back to what they were before the tax law change in 2018. You can claim 100% of your operating loss in the years 2018, 2019 and 2020 and you can carry those losses back up to five years. It might be possible for some people to file an amended tax return for a year and harvest some losses that they weren't able to use originally and get a little bit of a refund. When we deal with NOL, there are a lot of intricacies we want to look at to make sure we're using it in the best way. In addition to carrying it back, there's times where you can carry it forward and offset income in next year or the year after that. If you have an operating loss and you think this might apply to you, talk to your tax preparer to make sure it is being used in the best way possible.
Finally, let's review the economic stimulus checks. Hitting bank accounts now, the stimulus amount is $1,200 per adult. A married couple filing a joint return will receive $2,400. There's an additional $500 for each dependent child. For a family of four, a husband and wife with two kids, and they file a married joint return, the check will be $3,400. This check is an advance on a future tax credit. On your 2020 tax return, there will be a tax credit that your accountant figures out to reconcile that you got the right dollar amount. It's very important that you remember the dollar amount that you received because your accountant will ask for it next year.
I've had a lot of people ask me how the exact amount is determined. What if a person had a child in 2019? Is the IRS going to catch that and give the extra $500? The IRS will first look at your 2019 tax return, if it was already filed. If it hasn't been filed yet, they will review your 2018 tax return. If the 2018 return isn't filed yet for whatever reason, they will look at Social Security records. As with every other credit, there are income limitations that apply to this program. If you're a high income taxpayer, the dollar amount you receive may be less than what I’ve shared.
If people are interested in the programs that you just highlighted, how do they get started using them?
I would encourage everyone to do their research. It's very important that you consult with your accountant and payroll provider to make sure you're getting all of the information that you possibly can about these programs.
We also want to make sure you're reading reliable information.There's a ton of information on the web or on the radio but make sure it's a reliable source. We have a landing page dedicated to reliable sources such as the IRS FAQ program pages. That's a good starting point.
You also want to work out a good, detailed plan with your accountant to make sure you're using the programs that are best for you and in a way that they can work together without disqualifying you for something else.
Are there any other final insights you'd like to share today?
These programs are meant to boost the economy by giving a little bit back to taxpayers and a little bit back to small businesses. But just like with any other tax laws and tax subjects, there are a lot of details and intricacies involved in all these programs.
I've said it a few times and I'll say it again: it's incredibly important to consult with your accountant, tax preparer, payroll provider or business consultant to make sure you have all the information that you need to you can make a well informed decision.

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