It’s our mission at Tom Dunn CPA to advise clients during tax time and year-round. For us, that includes meeting with clients as often as they need to and keeping them informed about any developments in Washington that may impact their taxes. This year has seen quite a lot of turmoil. The good news is that there are benefits on the horizon for 2021. Here’s what you should know about tax breaks for businesses as you collect information for your 2020 taxes and make plans for the year ahead.
Important Information to Know as you Prepare Your 2020 Taxes
The most recent COVID-19 relief bill was signed into law on December 27, 2020. It contains a number of tax breaks that may benefit your small business, including extensions to the CARES Act, additional funding for the Paycheck Protection Program (PPP), and new guidelines for deducting business meals.
1. COVID-19 Relief and the CARES Act
As we know all too well, the pandemic and its economic fallout have meant layoffs and furloughs for many of America’s workers. Thankfully, Congress has recognized that small business owners need help by putting in place tax breaks for businesses and individuals by passing a second COVID-19 relief bill.
According to recent changes, employers that keep workers on their payrolls are eligible for a refundable Employee Retention Tax Credit, which has been enhanced and extended. Previously, the credit only covered wages paid between March 13, 2020, and December 31, 2020. Now, the law has been extended to cover the first two calendar quarters of 2021.
In addition to this extension, the new law increases the overall covered wage ceiling to 70% of qualified wages paid during the applicable quarter. This is an improvement on the original 50%. The updated Employee Retention Tax Credit essentially increases the per-employee covered wage ceiling to $10,000 of qualified wages paid during the applicable quarter (versus a $10,000 annual ceiling under the original rules). Again, this applies for the first two quarters of 2021 ending on June 30.
Do these updates apply to you? We’re happy to take a look at your situation and give you the facts.
2. The Paycheck Protection Program (PPP)
The new law authorizes more money towards the Paycheck Protection Program (PPP), extending it to March 31, 2021. It also provides for the deductibility of PPP expenses paid with the loan proceeds. It’s important to understand the tax implications for employers that accepted a PPP loan:
- The law clarifies that the nontaxable treatment of PPP loan forgiveness that was provided by the 2020 CARES Act also applies to certain other forgiven obligations.
- Also, the law makes clear that taxpayers, whose PPP loans or other obligations are forgiven, are allowed deductions for otherwise deductible expenses paid with the proceeds.
- The tax basis and other attributes of the borrower’s assets won’t be reduced as a result of loan forgiveness.
- Under the new guidelines, the IRS is allowed to waive information reporting requirements for any amount excluded from income under the exclusion-from-income rule for forgiveness of PPP loans or other specified obligations.
We know that a lot of this information is difficult to digest. Give us a call if you have questions about how this information applies to you.
3. Deducting Business Meals
Here’s some good news that ought to benefit our local restaurants as well as other local business owners! The new law includes a provision that removes the 50% limit on deducting business meals at restaurants; these meals are now fully deductible.
Please note that the legislation doesn’t change other existing rules for business meal deductions. That means the same requirements apply, like these:
- The food and beverages can’t be overly extravagant for the circumstances.
- The business owner or an employee must be present when food and beverages are served.
- If food or beverages are provided at some kind of activity, like a ball game or concert, they must be purchased separately from the entertainment. The entertainment is nondeductible.
Contact Tom Dunn for More Information about 2021 Taxes
As you can see, there are several favorable tax breaks for businesses coming down the pike. If you have questions about your specific situation, call us as soon as you can. We’ll be happy to let you know if there are updated regulations that can benefit your team.
During tax season, time slots fill quickly. Be sure to contact us right away to get a meeting with an expert tax accountant. We’re here to help.