COVID-19 small business tax breaks you need to know

While you're probably aware of the small business loans and payroll tax credits that flooded the news cycle in the early days of the pandemic—they aren't the only financial relief available to small business owners.

Here are a few tax-saving issues you should explore.

New rules on net operating losses

The CARES Act modified the treatment of Net Operating Losses (NOLs) incurred in 2018, 2019, and 2020 to offset taxable income from the five previous years.

"Before the CARES Act, NOLs had to be carried forward, which meant businesses couldn't receive a tax benefit for the NOL until they filed future returns," says Tim Yoder, Tax and Accounting Analyst at FitSmallBusiness.

"In addition to that, those losses could only offset 80% of the taxable income in the year they were used. This limitation has now been removed," notes John Johansen, CPA at TaxFirst, Inc.

This means that if your business loses money this year due to COVID or any other reason, you should be able to receive money back sooner than you would have pre-pandemic.

Accelerated depreciation rules for qualified improvement property

The scope of federal deductions small businesses can make on depreciating assets has also been expanded. New, temporary accelerated depreciation rules allow bonus deductions for renovations of property and health and safety upgrades to encourage businesses to make those changes for their staff and the public's safety.

While the depreciation life used to be set at 39 years, it was decreased to 15 years to reduce the time it takes for a small business owner to recoup their investment.

Expanded interest deduction

The previous limit of 30% adjusted taxable income (ATI) has been increased significantly, to 50% for 2019 and 2020.

Jacob Dayan, CEO of Community Tax, notes that "Any business interest expense not able to be applied for this year can be carried into the next year. This increased limit will allow businesses a larger tax break this year and next."

Research & development credit

If your business invested in services to help pivot—say from brick and mortar to online services—the research and development credit could provide huge savings come tax time.

Other potential uses of the credit include hiring an outside contractor or paying an existing employee to research and develop a new business model to help counteract the effects of the closure.

Section 139 tax deduction

If you helped out your employees this year with any expenses related to the pandemic, you'll also receive tax relief thanks to the Section 139 tax deduction. This deduction allows the payments you made to be qualified as an expense, reducing your taxable income.

"Qualified relief payments could include assistance with hospitalization, home repairs, or just the cost of reasonable and necessary personal, family, living, or funeral expenses incurred because of COVID-19," says Octavia Conner, CEO of Say Yes To Profits.

Your employee will also benefits from this payment at tax time, as they do not have to include the money they received as income on their return.

While 2020 hasn't been easy on any small businesses, it is possible to make up some of the losses and benefit from many of the new tax deductions the CARES Act has made room for.