The Tax Cuts and Jobs Act (TCJA) limited the ability of noncorporate taxpayers — such as sole proprietors, partnerships and S corporations — to offset business losses against income from other sources. For 2018 through 2025, the TCJA limits deductions of "net business losses" to $250,000 for individuals ($500,000 for married filing joint), adjusted for inflation. Disallowed losses may be carried forward according to net operating loss (NOL) rules.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act suspended these limits for 2018 through 2020, making business losses fully deductible in the year incurred. If your losses were limited on your 2018 or 2019 tax returns, you may have an opportunity to amend those returns for the additional losses.

EXTRA TIME TO INVEST IN QUALIFIED OPPORTUNITY FUNDS

If you recognized capital gains in late 2019 or early 2020, it is not too late to reinvest those gains in a Qualified Opportunity Fund (QOF). QOFs are funds that invest in one of nearly 9,000 economically distressed Qualified Opportunity Zones designated by the Tax Cuts and Jobs Act. QOF investors enjoy a variety of benefits, including deferral of tax on reinvested gains and permanent reduction of gains on investments that meet certain holding period requirements.

Generally, to qualify for these benefits, you must invest gains in a QOF within 180 days after the sale or exchange of the capital assets. The IRS extends this deadline in Notice 2020-39. If you sold assets for a gain that is eligible for investment in a QOF, and the 180th day would have fallen on or after April 1, 2020 and before December 31, 2020, you now have until December 31, 2020 to invest that gain in a QOF.

RETIREMENT PLAN ELECTIONS MAY BE SIGNED REMOTELY

In response to the COVID-19 pandemic and social distancing policies, the IRS issued Notice 2020-42, providing temporary relief from the requirement that certain retirement plan elections, including spousal consents, be signed in the physical presence of a plan representative or notary public. Through the end of 2020, this requirement will be deemed satisfied for elections executed using live audio-video technology, subject to the following:

  • The signer must present a valid photo ID during the conference;
  • Live audio-video system used must allow interaction between signer and plan representative;
  • Singed copy transmitted, by fax or electronic means, directly to plan representative on the same date of signature; and
  • Upon receipt, the plan representative must acknowledge that the signature has been witnessed by the plan representative in accordance with the notice and transmit the signed document and acknowledgment back to the individual under a system that satisfies the applicable notice requirements.

The guidance is intended to facilitate coronavirus-related distributions and plan loans according to the CARES Act. The temporary relief applies to any election that requires a signature in the presence of a plan representative or notary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.