While Congress appropriated a total of $669 billion in loans to small businesses under the Payment Protection Program (PPP) as part of the larger CARES Act, funding was reportedly exhausted by May 5th of this year.  However, there are a number of additional programs and tax provisions, discussed below, that business owners should be aware of to use in place of or jointly with PPP loans.

Section 2302 Delay of Payment of Employer Payroll Taxes

This provision, created under the CARES Act, permits employers and self-employed individuals to postpone payment of the 6.2% employer portion of the Social Security taxes. The first half would be due by December 31, 2021 and the second half would be due by December 31, 2022.

Credits and Incentives for Developing Businesses

States and local communities usually have programs and tax incentives accessible to growing companies. Small businesses, including construction firms, were hit hard during the Covid-19 pandemic, but preparing for the future is necessary as companies begin to recover. Look into possible tax credits, exemptions, and grants as methods that might assist in your business’s growth, either now or in the near future.

Section 2307 Bonus Depreciation of Qualified Improvement Property

Section 2307 of the CARES Act amended a technical error allowing businesses to directly write off costs correlated with improving facilities retroactive to January 1, 2018. The adjustment expands businesses’ access to cash, as it permits them to amend prior year returns to claim the 100% bonus depreciation for qualified improvement property. It also motivates businesses to invest in property improvements, thereby stimulating the economy.

Research and Development Tax Credits

Businesses can make use of both federal and state research and development tax credits that reward companies based on contribution to the development of new products and processes. These tax credits can be applied on both current and amended tax returns to produce refunds or credit carry forwards.

Cost Segregation Studies

Cost segregation is a vital tax planning tool that has the potential to shelter taxable income by depreciating various elements of a property at an accelerated rate. In real estate, commercial properties are depreciated over a period of 39 years. However, when a company obtains, renovates, restores, or builds real estate, it frequently overestimates the amount of 39-year real property and limits depreciation deductions. Under the Tax Cuts and Jobs Act (TCJA), business owners can take a bonus depreciation of 100% for qualified assets in the first year (as defined by a cost segregation study) instead of depreciating the assets over a longer period of time. This 100% bonus deduction is available until 2022 when it will slowly start to phase out until 2027.

 

Daniel Kittell, CPA - Accountant Indianapolis