A Summary of the CARES Act and How it Benefits Small Businesses and Taxpayers
September 25, 2020
The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27, 2020 to help businesses and individuals deal with the financial devastation caused by the COVID-19 pandemic. This article outlines how the CARES Act may benefit you and/or your business by creating potential cash flow opportunities.
Several components of the CARES Act are aimed at helping small businesses and are highlighted below.
Paycheck Protection Program (PPP)
The PPP proved to be popular because it promises full forgiveness of the loan for businesses that meet all criteria. Additionally, the PPP Flexibility Act of 2020 made some important changes to the terms of the loan for the benefit of businesses.
To qualify for full forgiveness, businesses must spend 60% of the loan on payroll costs and can use up to 40% of the loan on qualifying non-payroll costs, such as mortgage interest, rent and utility payments for electricity, gas, water, transportation, telephone or internet access. Workers must be rehired or salaries restored by 12/31/2020. Once the loan funds are received, businesses have 24 weeks to use the loan and up to 10 months after that to apply for loan forgiveness. If portions of the loan do not qualify for forgiveness, business have up to five years to repay that amount at an annual interest rate of 1%.
The deadline to apply for a PPP loan has been extended to 8/8/2020 (as of 7/27/2020).
Economic Injury Disaster Loan (EIDL)
The Small Business Administration is providing low-interest working capital loans of up to $2 million each to small businesses and nonprofits affected by the pandemic. While the terms of the loan are established on a case-by-case basis, they typically have a 30-year repayment term at a 3.75% annual interest rate. Repayment of loans will most likely only begin 12 months after receiving the first installment.
Tax Relief for Businesses
The CARES Act gives small businesses relief from taxation in several ways:
1. The adjusted taxable income (ATI) limit for 2019 and 2020 has been increased from 30% to 50%.
2. Taxpayers can use the 2019 ATI for 2020 limits.
Tax Relief for Individuals
Among the benefits:
As a result of the CARES Act, businesses have more opportunities for positive cashflow during this difficult period. Consulting a certified public accountant, especially one with expertise in your industry, may help you identify and benefit from these opportunities.
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