TAX UPDATES

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Dear Clients –

As many of you are aware, the President signed the Consolidated Appropriations Act 2021 which includes COVID-related Tax Relief Act of 2020.  You can read the entire act here.  We are going to focus on the COVID-related portion.  We attended a webinar on the new Act and are using some of their presentation slides to provide information.  This is a summary list of the changes.  

PERSONAL

• Recovery Rebate:       There will be another $600 per person and $600 per qualifying dependent      (with SSN).  These payments have started.
• Earned Income Credit:  When preparing personal taxes, if your personal      income from 2020 is less than 2019, we will have to do a comparison to see      if you qualify to receive the same amount of Earned Income Credit that you      received in 2019*
• Educator Expenses:       Educators can include the cost of personal protective equipment,      disinfectant, and other supplies used for the prevention of the spread of COVID-19      are eligible expenses if paid or incurred after 3/12/2020
• AGI Limit for Charitable Deduction:  generally limited to 50% of AGI, cash      contributions paid in 2020 and 2021 are now subject to 100% of AGI      limit.  

BUSINESS – Highlights.  You can read a more detailed summary here

• PPP loan forgiveness:  
  • There will be new streamlined applications for forgiveness for PPP loans under $150000.  We will work on PPP loan forgiveness applications starting in February *
  • Expenses paid with PPP monies are now allowable deductions.   This will make any       estimated taxes decrease.*
  • The EIDL grant will NOT be excluded from forgiveness.  Previously if you had received the EIDL and the PPP,   then the forgiveness was reduced by the amount of the      grant.  *
  • For partnerships and SCorporations, the amount excluded will be treated as tax-exempt income and will increase the basis*
  • Unless forgiveness is needed to apply for second draw,  we will not be processing forgiveness applications until February*
  • The uses eligible for forgiveness have been expanded.  (guidelines attached) *
• Self Employed Tax Credits:  extends the mandate and refundable tax credit      period to 3/31/2021*
• Paid sick and family leave credits:  extends the mandate and refundable tax credit      period to 3/31/2021*
• Tuition and fees deduction is eliminated in 2021
• Lifetime learning credit phase out is increased
• Employee Retention Credit:  Previously this credit was not allowed if you received the PPP loan 
  • PPP loan recipients can use the credit for wages not       paid with the forgiven PPP loan proceeds.  For example – if you had       eligible wages in one period before or after using the PPP, those would       be eligible for the ERC.*
  • Group health plan expenses are considered qualified wages even if no other wages paid to employee*
  • Credit can be applied to 4th quarter 941 report*
  • The credit availability is extended to wages paid thru 6/30/21.  The following changes apply to quarters from 1/1/21 – 6/30/21:
    • Credit rate increases from 50% to 70%*
    • Maximum creditable wages increases to 10,000 per employee quarter*
    • Qualifying gross receipts decline from prior year quarter reduced to 20% instead 50%*
• Food and beverage expenses: starting in 2021 can be deducted 100%.  Same      rules apply for deduction.
• PPP new loans:       Eligible applicants that never obtained a PPP loan can apply.  Some      businesses that have already obtained a PPP loan can apply for a PPP second draw.*   We are waiting on final guidance on application details.