In this episode of Coffee with Carl, attorney Carl Zoellner looks at Internal Revenue Code section 139 (IRC 139) to figure out whether disaster relief payments are taxable and how C corporations can take advantage of this unique opportunity to “double dip.”
Updated September 22, 2020
As we all struggle with these uncertain and trying times, there are some bright spots on the horizon, as well as some unique opportunities for tax planning for small business owners. Since the stimulus bill was passed, one question that has come up is: will my stimulus check be taxed?
Will I Owe Taxes on my Stimulus Check?
If you’re one of the people who qualify to receive the $1,200 payment, there’s a bit of good news. This payment, considered disaster relief, will not be included in your taxable gross income for 2020. This is laid out plainly in Internal Revenue Code section 139 (IRC 139), Disaster relief payments. IRC 139 states that, as a general rule, gross income shall not include any amount received by an individual as a qualified disaster relief payment.
Although we may be a week or more out from everyone receiving these individual payments, it’s worth noting this now because it has been a concern for some.
Opportunities for C-Corporations
There’s also a separate opportunity related to all this for folks with active businesses or business entities — specifically, C-corporations. This is because C-corporations have an opportunity to “double dip” in this regard.
According to IRC 139, qualified disaster relief payments can be used “to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster.” Thus, if I have a C-corporation with some cash in it, my C-corp can also reimburse me for the money I spend out of pocket. Not only is this reimbursement non-taxable to me, it’s also a deduction to my C-corporation. Even if my C-corp doesn’t have cash on-hand at the moment, I can still add that reimbursement onto the books for when the cash is available after this period of pandemic subsides.
Tax Planning Opportunities
This time of disaster is a strain on all of us. There’s no denying that. However, there are some incredible tax planning opportunities arising from the resulting legislation. This is especially true if you’re a small business owner or real estate investor. There are opportunities in the CARES Act loans for small businesses, and it’s possible that additional opportunities will arise in future phases of government reaction.
If you’re interested in learning more about how you can take advantage of these opportunities to shore up your financial health, schedule a no-cost consultation with a Senior Advisor today. With every zig, there’s a zag — this situation is no doubt difficult, but there will also be opportunities that emerge from it. Schedule your complimentary consultation today to get suggestions from experts on what you can do during this time to not miss out. You can schedule online or by calling 888.871.8535.
Watch as Carl explains the taxation of disaster relief payments received in response to the coronavirus pandemic.
Resources mentioned in this video
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