2020’s Red Ink Into Cash With Coronavirus Tax Breaks

By Andrew Osterland

Businesses can convert 2020’s red ink into cash with coronavirus tax breaks

The coronavirus has pushed thousands of businesses to the edge, but there may be a ray of hope for cash-strapped firms.

Businesses laid low by the pandemic and community lockdowns need money now, and one of the best ways to get it is by taking advantage of very favorable rule changes on the treatment of net operating losses in the CARES Act.

A company incurs NOL when its tax deductions exceed its income in a given year. Generally, taxpayers can lower their taxes by using this loss to offset income in a future year.

The CARES Act takes this a step further, allowing battered businesses to turn this year’s red ink into a tax refund from prior years’ income.

A provision in the legislation allows companies to carry back losses incurred in 2018, 2019 and 2020 for five years.

“There are whole areas of U.S. business where companies are incurring significant losses and [the NOL rule changes] give them access to cash that can help them survive,” said Doug Bekker, CPA and a partner in the national tax office of BDO USA.

The CARES Act allows taxpayers to carry back losses incurred in 2018, 2019 and 2020 for up to five years.

Originally published on cnbc.com November 17, 2020