It might only be January, but it’s never too early to prepare for tax season. While the deadline for filing 2020 returns isn’t until April 15, 2021, you should start gathering documents and other information now. Both individuals and businesses have the opportunity to take advantage of pandemic-related tax measures on their 2020 returns that can result in lower taxes or even refunds. Consider these five details as you organize your taxes.

CARES Act Tax Breaks for Individuals

The Coronavirus Aid, Relief and Economic Security (CARES) Act provided several tax benefits for individuals. Here are two CARES Act provisions you should make sure you take advantage of:

  • Take the above-the-line charitable deduction – the CARES Act provided a one-time, above-the-line deduction of up to $300 for cash contributions to qualifying charities. The contribution had to have been made by or on December 31, 2020. Contributions of securities, property or other items do not qualify for this particular deduction. If you made a qualifying charitable contribution and do not itemize, this deduction will lower your adjusted gross income.
  • Check to see if you qualify for a credit above the amount of your stimulus check – the CARES Act provided for $1,200 stimulus payments, as well as a $500 payment per qualified child dependent, for individuals earning $75,000 or less in 2019. For those earning more than $75,000, the stimulus check was reduced by $5 for every $100 of income. In actuality, these stimulus payments were advances on 2020 tax credits. This credit is called a Recovery Rebate Credit. If you earned too much in 2019 to get a stimulus check, but your 2020 income fell below the $75,000 threshold, then you can claim a $1,200 tax credit on your 2020 taxes. If you didn’t receive the full stimulus amount based on your 2019 income, you may be eligible to take a partial credit if your income fell in 2020. There is also a bit of a bonus for taxpayers who received stimulus checks but had 2020 earnings that would be too high to qualify for the benefit: the IRS is neither requiring them to pay back their stimulus funds nor taxing them on it.

Tax Benefits for Businesses

The government also created a number of coronavirus tax relief measures for businesses:

  • Match current losses with past income for a quick refund – the CARES Act also contains a provision allowing businesses to use net operating losses from recent years against past income to generate a quick refund. Net operating losses from 2018, 2019 and 2020 can be carried back five years for refunds against prior taxes. So, if a business had a net operating loss in 2018, under the CARES Act provision, it can carry this back against 2013 income. Businesses use Form 1139 to file for this type of refund. Certain deadlines apply depending on the year and other circumstances. Contact your CPA for more details.
  • Claim disaster losses related to the COVID-19 pandemic – when President Donald Trump declared COVID-19 a national emergency, he made all 50 states plus U.S. territories and the District of Columbia disaster areas. This opened up the opportunity for businesses to claim certain casualty losses attributable to the disease against the prior year’s income. The losses can be due to a business closure, spoiled inventory, abandoned business deals or transactions, or a variety of other instances. Businesses can file an amended 2019 return to get a quicker refund. 
  • Now deduct business expenses paid for with Paycheck Protection Program (PPP) funds – in the second stimulus package passed by Congress and signed by President Trump at the end of 2020, treatment for payroll and other business expenses paid for with PPP funds became deductible. This is a total about-face from the original treatment of these expenses. In the new stimulus bill, no deduction can be denied for any expenses covered by PPP loan proceeds.

Have Questions? Call the Experienced Tax Attorneys at Wiggam & Geer 

If you have questions about tax provisions in the CARES Act or need assistance adjusting a prior return for losses, we can help. As experienced attorneys, Wiggam & Geer works with a number of tax professionals and can represent you in any IRS claims or investigations related to any of these tax issues. Contact metro Atlanta’s top tax and bankruptcy attorneys by clicking here or giving us a call at (404) 609-1300.