Guide: Major U.S. corporate tax changes for 2020
Most significant income tax law changes affecting US corporations
To quickly view these changes, refer to the summary table below.
- Net Operating Loss (NOLs) carryback available for NOLs sustained in tax years 2018 through 2020.
Due to changes under the 2017 Tax Cuts and Jobs Act (TCJA), NOLs incurred in tax years beginning after December 31, 2017 were no longer allowed to be carried back for 2 tax years and carried forward 20 years. Instead, those NOLs were subject to an 80% of taxable-income limitation and any remaining loss would be carried forward indefinitely. Under the CARES Act, NOLs incurred in tax years 2018, 2019 and 2020 have a 5-year carryback period, the NOL can be 100% deductible, and have an unlimited carryforward period. Businesses can elect out of the 5- year carryback for each tax year.
- Technical correction to the depreciable life of qualified improvement property from 39 years to 15 years.
The 2017 TCJA mistakenly changed the depreciable life for qualified improvement property from 15 years to 39 years, resulting in a lower depreciation expense and made the property ineligible for 100% bonus depreciation. This issue was addressed in the CARES Act which included a technical correction to the depreciable life of qualified improvement property to a 15-year life, making it eligible for 100% bonus depreciation. This technical correction is retroactive to the 2018 tax year. “Qualified improvement property” includes improvements done to the interior of existing buildings. Some exclusions apply.
- Increases to the charitable contribution deduction limitations for the 2020 and 2021 tax years.
Corporations can now deduct qualified cash charitable contribution made in 2020 and 2021 up to 25% of taxable income, up from a limitation of 10%. Contributions over the 25% limit can be carried forward up to 5 years. The deduction limit for contributions of food inventory from any trade or business increased from 15% to 25% of business taxable income for donations of food inventory made during 2020 and 2021.
- Increase to the business interest expense deduction limitation.
For those businesses subject to the interest expense limitation rules from the 2017 TCJA, the CARES Act raised the limitation on the deduction of business interest from 30% to 50% of adjusted taxable income (ATI) for the 2019 and 2020 tax years. A business can also elect to use their 2019 ATI for purposes of calculating the business interest expense limitation for the 2020 tax year.
- Temporary return to the business meal deduction.
In an effort to assist the restaurant industry during the pandemic, business will now be able to deduct the full amount of business-related meals, including beverages, provided by a restaurant. The full deduction is only allowed for the 2021 and 2022 tax years.
- Extension of business tax credits.
Many business tax credits set to expire at the end of 2020 were extended. This includes the New Markets Tax Credit (NMTC), the Work Opportunity Tax Credit (WOTC), the business energy tax credit, and the employer tax credit for Paid Family and Medical Leave (PFML) to name a few.
Summary of corporate taxes changes for 2020
To try to limit the impact of COVID-19 on the economy and help businesses weather the pandemic in 2020, the U.S. government passed several legislations that are changing business taxes this year. The below table summarizes the most significant corporate taxes changes for 2020.
Axelia Partners’ tax professionals are here to help
It is important to understand how the 2020 tax changes are affecting U.S. businesses as a result of the Federal legislation enacted during the Covid-19 pandemic. If you need help to navigate these corporate tax changes, contact Axelia Partners’ tax professionals.