The COVID-19 pandemic has harmed the American economy. The Coronavirus Aid, Relief and Economic Security (CARES) Act provides various forms of tax relief to struggling businesses coping with this fallout – including accelerated depreciation for new assets brought into use by a continuous operation or construction process so that they may be sooner able achievers their full potential economic benefits as more quickly possible while still being compliant under current law).
The new tax law is finally providing some relief for businesses in the form of an increased allowance to deduct interest expenses. The retroactive changes will allow companies who previously paid too much or no taxes, depending on how they were structured with their loans and outstanding debts from 2018-2019 – now nothing is stopping them!
The TCJA will drastically limit how much you can deduct for interest payments. Starting in 2018, the annual deduction is limited to:
-30% of adjusted taxable income (ATI) if operating as a pass-through entity or partnership; and -20%, respectively 30 percent ATI when not utilizing either one but still trying to qualify under these rules. That means small business owners should expect bills higher than ever before!
You can carry forward any excess income to offset taxable in a future year, but there is only one annual limit on how much you may store up. Special rules apply for real estate and farm operations. The general rule here? If it’s too complicated, treat all your investments as cash!
Key point: The TCJA also included an exemption from these rules for “qualified small businesses,” which are subject to a limit on their interest deduction depending upon how much they make. The CARES Act raised this ceiling and provided more flexibility in exchange; it allows clients who benefit from last year’s legislation by amending returns or taking more significant deductions than would have been entitled had the original law remained intact – but only if you’re able!
As the new 50% rule extends partnership S corporation status to 2020, partners can deduct their disallowance from ATR unless they are affected by another unique wrinkle in Rules regarding passed-on limits. Although any suspended expenses incurred during 2019 won’t count against either a gross or net basis limitation (and thus may still potentially enable some deductions), one cannot use both years’ worth when computing your total limit–only whichever has been used more recently.
The complex taxation rules can be daunting, but they have one thing in common: the goal is to maximize your business client’s tax benefits. It may require some extra work on your end as well!
