Tax Implications of the CARES Act for Manufacturers
Published on by Lauren Huster, Rob Riesenbeck, in COVID-19, Manufacturing, Tax Services
Estimated at over $2.2 trillion, the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 is the single most expensive legislation in U.S. history. The CARES Act was implemented rather quickly when it was signed into law by President Trump in March of 2020. It was intended to provide much needed economic support to businesses and individuals negatively impacted by the coronavirus pandemic. Andy Bertke and Ellen Juram, both tax directors at Barnes Dennig, recently hosted a webinar in which they discussed some of the key impacts of the CARES Act for manufacturers to maximize the benefits and minimize their tax burden.
Watch the webinar on-demand, or download the slides.
Net Operating Losses
One of the most significant provisions from the CARES Act relates to net operating loss (NOL) rules. Due to the Tax Cut and Jobs Act of 2017 (TCJA), businesses could not carryback their losses. Under the CARES Act, c-corporations and flow-through entities can carryback their 2018, 2019, and 2020 NOLs for five years. For c-corporations, the refunds resulting from the carryback go directly to the company; however, for flow-through entities, the shareholders will need to file for the carryback and will receive the potential refunds. Numerous considerations need to be considered before carrying back NOLs such as:
- Will permanent deductions be lost?
- Does the company have international considerations?
- Will flow through owners have basis to take the loss?
Qualified Improvement Property
Qualified Improvement Property (QIP) is an improvement to an existing interior portion of a building and is considered nonresidential real property. The TCJA had a flaw in its legislation that disallowed bonus depreciation for QIP. The CARES Act corrected this error by allowing bonus deprecation for QIP. Should your company amend 2018 to take advantage of this correction or should a change in accounting method be filed? A Barnes Dennig expert can help you determine the best approach for your company.
163j Interest Expense Limitation
The CARES Act temporarily relaxes the interest expense limitation to 50% for corporations in 2019 and 2020 tax years and partnerships in 2020. On July 28, 2020, final regulations were announced regarding interest expense limitations. One major change was to allow COGS depreciation in the calculation of adjusted taxable income. 2021 is expected to be the first tax year for calendar taxpayers must implement these limitations, but does it make sense to early adopt?
Additional resources
Have a question about how your manufacturing organization is leveraging the CARES Act, maximizing PPP loan forgiveness, or ideas for minimizing your tax burden? Talk with a member of our COVID-19 Advisory Team or one of our manufacturing industry experts. If you’d like to see the webinar for yourself, you can access it here – you can also download the slides.
Have a PPP loan of $2 million or less, and targeting the 8-week period? Take our PPP Loan Forgiveness Quick Test, and we’ll contact you with recommended next steps.
With a client service team dedicated to the manufacturing industry, we help manufacturers maximize the resources they can control and prepare for the conditions they cannot. Learn more about our dedicated Manufacturing team here.
Our international tax team receives specialized training focused on international tax and accounting matters for businesses, and we participate in internationally minded organizations so that we can provide introductions and resources for our clients. Learn more about our International assurance and tax practices.
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