MANUFACTURING: Re-evaluate your tax planning under the CARES Act and more
As we continue to move through the ups and downs of the coronavirus pandemic, it’s hard to miss the extreme impact it’s had on the manufacturing industry. Read on for recent changes manufacturers should consider right now for their tax planning for 2020 and beyond, plus a number of CohnReznick resources to help you do so.
Re-evaluate losses under new relief rules
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, businesses that have incurred net operating losses (NOLs) in 2018, 2019, or 2020 can carry those losses back to five preceding years from each loss to generate cash refunds of previously paid taxes. This can create immediate cash flow, and potentially additional benefits when carrying losses back to years when the tax rate was higher. Also, NOLs generated in tax years beginning in 2018, 2019, and 2020 are no longer subject to an 80% limitation.
This relief does not only apply to C corporations. Individuals who have losses from pass-through manufacturing businesses (S corporations and partnerships) may also be able to carry back losses for refunds.
There are many considerations, and planning is key to maximizing the timing and amount of losses that can be carried back to generate the largest possible refund. Manufacturers will generally benefit from modeling different scenarios. Read more in our overview of CARES Act tax considerations for individuals and businesses.
Are you maximizing your PPP loan forgiveness?
While not directly a tax program, taxes do factor into various calculations of the CARES Act’s Paycheck Protection Program (PPP) forgiveness process, and receiving a PPP loan affects eligibility for other tax relief, so it’s worth mentioning here.
PPP loans have provided much-needed relief for many companies. Now, as loan recipients turn toward applying for forgiveness, there are various considerations and strategies that can be used to maximize the amount that is allowed to be forgiven.
Note that following the June passage of the Paycheck Protection Program (PPP) Flexibility Act, the Department of the Treasury and the Small Business Administration (SBA) released two new versions of their PPP loan forgiveness application: a fully revised version and a new “EZ” version. Both come with in-depth instructions on how to complete them.
Visit our Coronavirus Resource Center for PPP resources, including an article offering highlights of the guidance and requirements in the two applications – timing, types of forgivable costs, documentation, and more – and an on-demand webinar that provides more information on each of these points and walks through the loan forgiveness computations. Plus, check out CohnReznick’s PPP Loan Forgiveness Assistance services.
Didn’t take a PPP loan? You might be eligible for the CARES Act Employee Retention Credit.
The CARES Act provides for a refundable federal payroll tax credit (called the Employee Retention Credit, or ERC) of up to $5,000 per employee for “qualified wages” paid by an “eligible employer” during the period March 13 to Dec. 31, 2020. The credit is available for any calendar quarter that either (1) your business was fully or partially shut down by a government order related to COVID-19 or (ii) your gross receipts were less than 50% of what they were in the same quarter in 2019. There are several nuances and defined terms that you’ll need to evaluate. For more information, see our article on employment-related provisions of the CARES Act and our overview of important aspects of this credit.
Might you qualify for R&D tax credits?
Federal and state Research and Development (R&D) tax credits are more expansive than many companies realize. A broad range of improvements to products or processes can qualify manufacturers to take advantage of them. Credits can be determined by year and jurisdiction, giving you the greatest available advantage. It’s possible to go back and claim credits in prior years, and certain manufacturing businesses are even eligible to use them to offset payroll taxes. Learn about CohnReznick’s Tax Credits advisory services.
What are some other tax planning opportunities manufacturers should be thinking about?
- Are you aware that the limitation on the amount of interest you can deduct has been decreased?
- The cap on deducting business losses for pass-through entities has been suspended – how can you take advantage of this opportunity?
- Did you know that now, certain leasehold improvements (known as “qualified improvement property” or “QIP”) can be deducted immediately, including retroactive benefits back to 2019 and 2018?
- Are you eligible to accelerate corporate alternative minimum tax (AMT) credits to get refunds of AMT paid in the past?
- Thinking of investing in your business and buying new equipment? You could take advantage of and maximize depreciation deductions to lower your 2020 taxes. You could also increase a tax loss that can be carried back for a refund as 100% bonus depreciation is allowed for eligible property.
- Are you taking full advantage of benefits that apply to individuals and owners of pass-through businesses?
- Have you considered the tax benefits for exporting goods?
- Have you researched the benefits of operating in certain designated Empowerment Zones, Opportunity Zones, and Urban Enterprise Zones?
- This is an opportune time to efficiently transfer wealth and the value of your manufacturing business as the estate and gift tax exemption is at an all-time high, and its future is uncertain after the election.
Your business structure
Conventional thinking has changed concerning the form of your business structure – C corporation vs. S corporation vs. LLC/partnership. This is an opportune time to model how your choice of entity form can impact your taxes, and your bottom line.
For more information and guidance on these measures and more, contact your tax advisors or CohnReznick’s Manufacturing and Distribution team.
Coronavirus Resource Center