On March 13, 2020, the President declared the Coronavirus pandemic of sufficient severity and magnitude to warrant an emergency declaration for all states, tribes, territories, and the District of Columbia.  This declaration allows taxpayers to invoke Section 165(i) of the Tax Code turning 2020 losses into 2019 deductions.

Small business owners may elect to deduct 2020 expenses directly attributable to COVID-19 on their 2019 returns, or amend 2019 if already filed.  Qualifying losses must not be compensated by insurance or otherwise.  Examples include costs for:

  • additional office cleaning expenses
  • personal protection equipment (PPE)
  • costs to move employees to shelter at home
  • inventory scrapped due to spoilage
  • closure of facilities
  • abandonment of leasehold improvements
  • termination payments to cancel contracts
  • prepaid events (travel, conferences, etc.)

Decreases in revenue will not be counted for accelerated losses, only expenses.

Please note, there is significant additional compliance to accelerate 2020 COVID-19 losses into the 2019 tax year.  The reporting of casualty losses is cumbersome, and the burden of proof rests on the taxpayer.  Industries hardest hit, like restaurants, hospitality, and commercial real estate will likely benefit most.