Several new laws have provided pandemic relief for businesses this year. While several sections of these laws receive the lion’s share of attention, such as the Paycheck Protection Program, you may not have heard about three other less-talked-about sections that are as equally valuable and that you can apply retroactively.
- Net Operating Losses. When your company’s tax deductions exceed taxable income, the result is a net operating loss (NOL). Such losses have become increasingly frequent this year because of the pandemic. Prior to 2020, businesses were not allowed to carry back NOLs to previous years to reduce their taxable income. Companies could only carry forward those losses to future taxable years. Rules now allow your company to carry back NOLs incurred from 2018 through 2020 for up to five years to offset income.
What you need to do. Consider amending prior years’ tax returns if you had taxable income during those years that can be offset by an NOL.
- Qualified Improvement Property. Certain business assets known as qualified improvement property (QIP) can now be immediately depreciated upon being placed in service. QIP is defined by the IRS as any improvement made to an interior portion of a building that is nonresidential real property. This tax benefit will last for at least three more years before being scheduled to phase out.
What you need to do. Look through your fixed asset detail and determine if you have any QIP that would qualify for 100% expensing. Then calculate whether you would benefit from filing an amended tax return to claim the 100% deduction in the year the asset was placed in service or if it would be more advantageous to depreciate QIP over the life of the asset.
- Excess business losses. The rule disallowing business losses exceeding $250,000 ($500,000 for married filing jointly couples) for business owners and partners on their individual tax returns is suspended for tax years 2018 through 2020.
What you need to do. If you incurred excess business losses in 2018 and/or 2019, consider amending your tax return for either or both of these years to remove the excess loss limitation.