Four New Tax Breaks for Charitable Donors
CARES creates tax incentives in 2020
The new Coronavirus Aid, Relief and Economic Security (CARES) Act encourages taxpayers to contribute to worthy charitable causes during this unprecedented health crisis. Accordingly, here are four key tax breaks in the new law for individual and corporate donors in 2020.
1. Deduction for non-itemizers: Normally, you may write off contributions to charitable organizations, subject to certain limits, but only if you itemize deductions rather than claiming the standard deduction. Due to massive changes in the Tax Cuts and Jobs Act (TCJA) for 2018 through 2025, you may not be itemizing deductions this year. Thus, you will get zero tax benefit from your charitable contributions.
Fortunately, the CARES Act authorizes an above-the-line deduction of up to $300 for donations made to qualified charitable organizations in 2020. In other words, you can claim this deduction whether you itemize or not. Any excess is carried forward for up to five years. Caveat: The deduction is not available for contributions to private foundations or donor advised funds (DAFs).
2. Individual AGI limit: Previously, the tax law allowed an annual deduction for monetary donations—including those made by credit card online—of up to 50% of your adjusted gross income (AGI). But the TCJA raised this limit to 60% of AGI for 2018 through 2025. Now the CARES Act goes much further.
Under the new law, a donor can write off an amount equal to 100% of AGI. As with the new above-the-line deduction, you may carry over any excess for up to five years. However, this does not apply to contributions to private foundations or DAFs, either.
3. Corporate AGI limit: Similar to individuals, the tax law imposes limits on deductions for charitable donations made by corporations. Currently, the annual deduction for gifts by a corporation cannot exceed 10% of its taxable income. For example, a corporation with $5 million of taxable income is limited to a deduction of $500,000. Any excess is carried over for up to five years.
The CARES Act increases the annual deduction threshold for corporations to 25% of taxable income for 2020. Therefore, the corporation with taxable income of $5 million could write off $1.25 million. Any excess may still be carried over for up to five years.
4. Food inventory: Is your company looking to feed the hungry? Under prior law, a corporation could claim an enhanced deduction for donations of “apparently wholesome food” to a qualified charity for the care of the ill, needy or infants.
This deduction is equal to the lesser of—
· The cost of the donated food, plus half of the appreciation (i.e., the gain if the donated food were sold at fair market value); or
· Twice the cost of the donated food.
Normally, this deduction is limited to 15% of the corporation’s taxable income, but the CARES Act increases the threshold to 25% of taxable income for 2020.
Finally, note that the usual rules for substantiating charitable deductions still apply. For example, you must obtain from the appropriate charity a contemporaneous written acknowledgement for monetary gifts of $250 or more. Coordinate your charitable strategies based on the new law changes.
How to Be a Better Business Leader
Meeting the current challenges
Now, more than ever, your business needs you to exhibit strong leadership qualities. The challenges you are likely to face during the ongoing national heath crises are daunting, but not insurmountable. Consider these steps toward protecting your business and moving forward.
· Find the proper balance. Admittedly, running a business in the current environment is a tricky balancing act. While you must remain committed to the safety of those on the business premises and in the field, you also need to address the economic realities. Additional planning is required if your business has been forced to “pivot” into a different niche.
· Get organized. Disorganization often leads to chaos. If you are running around frantically in several different directions at the same time, the business will not be able to function smoothly. On the other hand, when you operate in a logical and organized fashion, you can expect to see more productivity from the staff.
· Lead by example. It may be what you do, rather than what you say, that really counts. For instance, if you require employees to follow certain safety procedures, it sends the wrong message if you do not adhere to the same protocols. Practice what you preach.
· Check in, but do not check out. If you have employees working remotely who previously were on site, as many businesses do, stay in regular contact. For instance, you might have daily virtual team calls to coordinate work plans. Also, allot some time for chitchat and catching up on personal events.
· Encourage passion. How can you expect employees to remain excited about their jobs if you are not? Inspire others to perform better through your own enthusiasm. That does not necessarily mean you always have to be a cheerleader, but you should demonstrate that you believe in the company's mission and objectives.
· Delegate. In these uncertain times, you probably will be even more inclined than usual to try to do everything all by yourself. Don’t. Concentrate on what is most important to the business at the highest level and assign other tasks and responsibilities to others. Let employees take ownership of certain projects they are suited for and let them run with them.
· Put instructions in writing. You cannot expect your staffers to remember all the directions you give during the course of the day. When the situation calls for it, provide written guidelines they can refer to easily. Develop a playbook for the new normal.
· Communicate with employees. Most business managers know the importance of communicating, but many merely pay it lip service. Remember that employees are not mind readers. Also, part of being a good communicator is being a good listener. A leader should not do all the talking. Keeping people motivated means listening to them, asking them questions and understanding the issues.
The attributes briefly discussed above are valuable in both good times and bad times. However, at this critical juncture in history, extraordinary effort is required. Be the leader your business needs you to be.
Key Tax Changes on Business Interest
CARES Act revises rules for deductions
The Coronavirus Aid, Relief and Economic Security (CARES) Act provides a boost to businesses by creating several tax breaks in addition to authorizing loans and other sources of financial support. One tax break that has not received much attention revises the rules for deducting business interest expenses.
These new rules relate to a provision included in the Tax Cuts and Jobs Act (TCJA). Icing on the cake: The latest changes are generally retroactive to 2019.
Background: Beginning in 2018, the TCJA limits the annual net interest deduction for a business to 30% of its adjusted taxable income (ATI). “Net interest” is defined as the amount of interest paid or accrued by the business during the year less the amount of interest income included in taxable income for the year.
Any excess may be carried over to the next year. Then it can be used to offset taxable income within the allowable limit.
Fortunately, this business interest deduction limit does not apply to a business with average gross receipts of $25 million or less for the three prior tax years. (This figure was indexed to $26 million for 2019.) This is significant for certain small businesses.
Tax update: The CARES Act raises the limit on business interest deductions from 30% of ATI to 50% for 2019 and 2020. Therefore, a business may amend its 2019 return. In addition, a business can elect to compute the 50% limit for 2020 based on its ATI in 2019. This may provide a bigger deduction for an operation that will have reduced taxable income in 2020 due to the COVID-19 pandemic.
Be aware that special rules apply to partnerships. Notably, the 50%-of-ATI limit applies to partnerships in 2020, but not 2019. In other words, a partnership is stuck with the 30% limit for its 2019 tax year. Any disallowed business interest expense is passed through to the partners on their returns and suspended at the partner level under the TCJA rules.
However, 50% of the suspended business interest is fully deductible at the partner level on a 2020 return. This tax treatment is automatic unless a partner elects to have it not apply. The remainder from 2019 is suspended until the partnership generates enough taxable income to absorb it or excess interest income is passed through to a partner. This can be beneficial if the partnership elects to use its 2019 ATI to compute its 2020 business interest limit.
Finally, businesses engaged in real estate activities may have elected to avoid the 30%-of-ATI limit by forgoing a favorable depreciation benefit on its 2018 return. Accordingly, real estate taxpayers that made the election for 2018 may continue to deduct 100% of their business interest expenses under the CARES Act changes. The IRS has prescribed new procedures relating to the timing of the election and a possible revocation.
Tax action: Depending on your circumstances, it may make sense to file an amended return for 2019 or address the changes now if the return has not yet been filed. This is a complex area of the tax law, so rely on your professional tax advisors.
Seven Ways to Safeguard Corporate Data
Practical ideas for avoiding a breach
At this point in time, a data breach could be especially devastating to your business. Not only is the loss or theft of private information expensive, it will likely harm business relationships and might result in legal complications. In the worst case scenario, the business could go under.
But virtually every company, regardless of its size, is exposed to the potential dangers.
Furthermore, hackers are searching for vulnerable companies during the COVID-19 pandemic.
Practical advice: Do not put your company in their crooss-hairs. Be proactive and implement procedures that protect your interests. Here are seven suggestions.
1. Take an inventory of the private information on file. Only retain what is necessary. As part of this process, shred old files, destroy old hard drives and wipe portable devices and remove memory cards before you discard them. Limit access to employee and client records to a “need-to-know basis.”
2. Protect the integrity of the system. Typically, this means installing and updating computer firewalls as well as anti-virus and anti-spyware programs. Even a basic software package can be helpful and encryption programs are generally affordable.
3. Run background checks on employees. In many cases, a significant number of employees will have access to restricted information, so be thorough. Do not allow exceptions for long-time employees who have been loyal to the company. This applies to everyone!
4. Review agreements with outside sources. For instance, if your company shares data with a third party, like a payroll processing firm or some other vendor or supplier, it should stipulate in its contracts that the third party is responsible for costs when information is breached when it is under their control.
5. Use professional security services. For even greater security, obtain outside assistance. A security consultant can help you decide what level of protection you need and will remain “on call” at all times.
6. Consider extra insurance. Because data is so critical to small businesses today, you might add data breach insurance to your basic property and casualty insurance coverage. The coverage pay for responders in addition to providing other services such as identity fraud case management for client. Contact your insurance carriers to start the ball rolling.
7. Stay calm if a breach occurs. Take a deep breath and then act swiftly and decisively. Analyze what level of information has been exposed, comply with state reporting laws and determine the best course of action for responding. Your business advisors may provide valuable guidance.
Do not think that your company is immune from the technological dangers. However, by planning ahead—and adopting some, if not all, of these seven basic security measures—
you should be able to reduce your risk and limit the potential for exorbitant losses. Coordinate these activities with experts in the field.
Keeping Up With Overtime Pay
During this ongoing health crisis, some of your workers may be putting in extra hours.
Do not forget that the federal overtime pay rules still apply. The controlling law is the Fair Labor Standards Act (FLSA). Generally, non-exempt employees (e.g., those paid at an hourly rate) must be paid time-and-a-half if they work more than 40 hours during the week.
Caveat: There are numerous ins and outs under the FLSA. Consult with a payroll expert for your situation.
Facts and Figures
Timely points of particular interest
Forgive and Forget--Generally, if a loan is forgiven or cancelled, the debtor must report this benefit as taxable income. This tax rule might cause some concern relating to the Small Business Administration (SBA) loans authorized under the Paycheck Protection Program (PPP). But you can rest easy: The IRS has already stated that that PPP loans will not trigger any tax liability if they are partially or fully forgiven.
Debit Cards—The IRS has announced that it sending out some stimulus payments on prepaid debit cards rather than paper checks. About 4 million cards are being mailed to taxpayers who have tax returns processed at IRS service centers in Andover, MA and Austin, TX. The cards can be used to make purchases, get cash from in-network ATMs or transfer funds to personal bank accounts without incurring any fees.