January 2021 Newsletter

January 2021

Tax News & Updates

In this issue:

Tax Corner: Key Tax Updates in CAA
1040 eFiling Alert
COVID Relief and Taxation
Tax Facts
Good Reads
Important Dates

Tax Season Already Heating Up

Happy New Year! 2021 is now well underway and tax season is already in full swing. You should have already received a link to your Tax Organizer, so please feel free to start updating your information and uploading your tax documents.

One interesting thing to note is that the eFiling system for 1040 returns isn’t opening until February 12! That is 3 weeks later than usual!

A number of new tax policy updates related to the Consolidated Appropriations Act, 2021 have kept us on our toes, and we wanted to make sure you were aware of the important changes that might impact you. Below, we’ve outlined some of the provisions of note, but this list is not exhaustive.

Our team is prepped and ready to assist you with all of your tax-related questions, so please don’t hesitate to reach out to us.

Susan Clarke & The CPA Team

Tax Corner:

Key Tax Policy Changes in the Consolidated Appropriations Act 2021 (CAA)

The Consolidated Appropriations Act, 2021 (CAA) was signed into law on December 27, 2020 and ushered in a number of important tax policy changes that will affect business and individual taxpayers. This is a large piece of legislation with many provisions meant to relieve the economic impact of the COVID-19 pandemic. We’ve outlined a few of the key changes below that might impact you:

Direct Payments

$600 payments will be issued to individuals with incomes up to $75,000. This payment will be phased out at a rate of $5 for every $100 in income above $75,000.

Business Meal Deduction

CAA temporarily increased the business meal deduction from 50% > 100% for 2021 and 2022. So feel free to support your local restaurants by eating out or ordering in for your business meals. Here’s a helpful chart for what is and isn’t deductible.

PPP Second Draw Loans

If you previously received a Paycheck Protection Program (PPP) Loan, you may be eligible to apply for a Second Draw PPP Loan with the same general loan terms.

Second Draw PPP Loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.

You may be eligible for a Second Draw PPP Loan if you:

Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
Current economic uncertainty makes this loan request necessary to support your ongoing operations
Have < 300 Employees
Can demonstrate a 25% or more decline in revenue in any 2020 calendar quarter compared with the same quarter in 2019. Please note: New businesses have special comparative periods. Additionally, loans < $150,000 do not require any documentation at time of loan application to substantiate the decline in revenue, although it will be required at time of forgiveness.

For most borrowers, the maximum loan amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2 million. Borrowers in the Hospitality Industries will use an increased multiplier of 3.5x.

Applications for Second Draw PPP Loans are due March 31, 2021.

Updates on PPP Loan Forgiveness and Deductions

Updated guidance was issued regarding PPP Loan forgiveness and the deductibility of PPP loan expenses. Here’s what you need to know:

The forgiveness amount will be considered “Tax Exempt Income.”
The expenses used to compute the forgiveness amount are deductible.
For loans < $150,000, a simpler 1-page forgiveness application with several borrower “certifications” can be used, see the newly released 3508S application here.

*Please keep in mind that State Taxation may vary.

Employee Retention Credits (ERCs)

The CAA extended the employee retention credits (ERCs) and made a number of modifications. We sent an email to all monthly businesses on 1/20/2021 and Susan did a webinar on 1/22/2021 which will be published soon. Here is what you need to know:

Highlights of the 2020 ERCs:

Who is Eligible?

A business which was fully or partially suspended during anytime in 2020 OR
A business that experienced a > 50% decline in Gross Receipts compared to the same calendar quarter in 2019

What are the covered dates?

March 12, 2020 thru December 31, 2020

How much is the Credit?

A maximum of up to $5,000 per employee who was paid “qualified wages”
Owner/Employees and their spouses and family wages are NOT qualified wages

Highlights of the 2021 ERCs:

Who is Eligible?

A business which was fully or partially suspended during anytime in 2021 OR
A business that experienced a > 20% decline in Gross Receipts compared to the same calendar quarter in 2019 OR by comparing the current prior calendar quarter to that same 2019 calendar quarter

What are the covered dates?

January 1, 2021 thru June 30, 2021

How much is the Credit?

A maximum of up to $7,000 per employee who was paid “qualified wages” per calendar quarter
Owner/Employee and their spouses and family wages are NOT qualified wages

EIDL Grants when < $10,000 was received

The CAA provides that gross income does not include amounts arising from the forgiveness of various other forms of federal financial support under the CARES Act, including Economic Injury Disaster Loans (EIDLs). But please keep in mind that State taxation might vary. Additionally:

Part of the CAA provides that SBA is to satisfy all Grants up to the $10,000 amount.
SBA is working on updating their systems and should contact the business owners where < $10,000 was received.

Paid Sick and Family Leave Credits (FFCRA)

The CAA extended the Families First Coronavirus Response Act (FFCRA) credits for paid sick and family leave through 3/31/2021.

Questions? Email Us

COVID-19 Grant & Loan Taxation

It can be hard to keep all of the COVID-19 relief grants and loans for small businesses straight. Especially when you’re trying to figure out how each is taxed. Here’s a simple chart that lists the available grants and loans and if they are taxable on a federal return. Please be aware that state taxation may vary.

Even Einstein Didn’t Understand Income Taxes

If you have trouble understanding income taxes, you’re in good company. Albert Einstein found them harder to figure out than theoretical physics! He once said, “The hardest thing in the world to understand is the income tax” (according Leo Mattersdorf, Einstein’s tax preparer). Source