COVID-19 Tax Relief Measures Mean Adjusting Financial Statements

COVID-19 Tax Relief Measures Mean Adjusting Financial Statements


  • Find out how the CARES Act aims to improve operating cash flow for small businesses.
  • Learn how the new COVID-19 laws impact ATL and QIP and benefit business owners.
  • Discover how new tax laws may change your financial reporting.

The COVID-19 virus is affecting everyone’s daily life, and businesses are feeling the pinch. Congress has enacted several laws to support businesses during this time. The Coronavirus Aid, Relief, and Economic Security or CARES Act became law on March 27, 2020. The law contains several tax-related provisions for businesses hit by the COVID-19 crisis. But you should know that those provisions will also have an impact on financial reporting, and Fiducial has the scoop on how. Visit Fiducial’s Coronavirus Update Center for more information on SBA disaster loans and The Paycheck Protection Program (PPP) as well as emergency relief services.

Companies that issue financial statements under U.S. Generally Accepted Accounting Principles (GAAP) are required to follow Accounting Standards Codification (ASC) Topic 740, Income Taxes. Companies have to play by these rules to report the effects of new tax laws in the period they’re enacted. As a result, companies — especially those that issue quarterly financial statements or that have fiscal year ends in the coming months — are scrambling to interpret the business tax relief measures under the new COVID-19 law. And it’s no wonder. There’s a lot to get through; so don’t be afraid to ask for help. That’s what Fiducial is here for, and we’re on top of the changes that are happening so rapidly.

Overview of business tax law changes due to COVID-19 laws

The CARES Act suspends several revenue-generating provisions of the Tax Cuts and Jobs Act (TCJA). These new changes aim to help improve operating cash flow for businesses during the COVID-19 crisis. Specifically, the new law temporarily scales back TCJA deduction limitations on:

  • Net operating losses (NOL),
  • Business tax losses sustained by individuals,
  • Business interest expense, and
  • Charitable contributions for corporations.

The CARES Act also speeds the recovery of credits for prior-year corporate alternative minimum tax (AMT) liability. And it fixes a TCJA drafting error for real estate qualified improvement property (QIP). This fix retroactively allows a 15-year depreciation period for QIP. So, QIP will be eligible for first-year bonus depreciation in tax years after the TCJA took effect. The correction also allows businesses to choose between first-year bonus depreciation for QIP expenditures and 15-year depreciation. So, talk to your Fiducial rep about which option is best for you.

These changes are subject to many rules and restrictions. So, it’s not always clear whether a business will benefit from a particular change. In some cases, businesses may need to file amended federal income tax returns to take advantage of retroactive changes in the law. In addition, a company’s tax obligations may be impacted by COVID-19 relief measures provided in the states and countries where it operates. Need more info about the changes? Want to find out which changes apply to you? Your Fiducial representative can help.

Brainstorming over paper; COVID-19 laws and financial statements
Photographer: Helloquence | Source: Unsplash

Impact of COVID-19 laws on financial reporting

Under ASC 740, companies must adjust deferred tax assets and liabilities for the effect of a change in tax laws or tax rates. On the income statement side, the adjustment is included in income from continuing operations.

If your business follows U.S. GAAP, you’ll need to account for the effect of the CARES Act on deferred tax assets and liabilities for interim and annual reporting periods. These periods must include March 27, 2020 (the date the law was signed by President Trump). Also, certain provisions, such as the modified NOL and business interest deduction rules, may impact a company’s current taxes payable. Unfortunately, some companies may have trouble accurately forecasting income or loss in the current period due to the economic disruptions caused by COVID-19.

Stay tuned

It’s no secret that the COVID-19 crisis has hit businesses hard. Many of you are looking for support and advice in moving forward. In the coming months, the Financial Accounting Standards Board (FASB) plans to focus on supporting businesses as they navigate the impact of the COVID-19 crisis. They will also provide guidance to clarify financial reporting issues as they come up. We are on top of the latest developments and can help guide you through your tax and financial reporting challenges.

Need advice on how to navigate the CARES Act and its impact on your business? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations. For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!