Tax Season Update Jan. 25th, 2021

New Tax Breaks for Individuals

The PPP loans and stimulus checks have attracted most of the attention from the new 5,600+ page stimulus package. However, there were some small new or extended tax breaks for individuals.

  • Charitable Donations – Normally, you could only deduct charitable contributions on the federal tax return if you had itemized your deductions. Under the new act you can deduct $300 of contributions even if you take the standard deduction.  You can also deduct up to 100 percent of your adjusted gross income (AGI) as a charitable deduction as opposed to the 60% limitation that previously existed.
  • Lengthened Payroll Tax Deferral – If you decided to have your payroll taxes deferred by your employer, the time to repay that has been extended to one year.
  • Medical Expenses – The AGI floor for medical deductions decreased from 10% to 7.5% permanently.
  • Flexible Savings Accounts – You can now carry over unused flexible savings account (FSA) funds to next year.
  • Earned Income and Child Tax Credits – A new provision allows taxpayers to use your 2019 or 2020 income to qualify for the earned income tax credit and/or child tax credit if you are a lower-income taxpayer.
  • Expanded Lifetime Learning Credit – The bill let the tuition and fees deduction expire in 2020, but also raised the income limitation on the Lifetime Learning credit. The Lifetime Learning Credit is better than the tuition and fees deduction because it is a credit. A credit is a dollar-for-dollar savings whereas a deduction will just reduce your taxable income.
  • Educator Expenses – Educators can now deduct out-of-pocket expenses for personal protective equipment (PPE).

New Tax Breaks for Businesses

Here are some business tax breaks.

  • Business Meals – For 2021 and 2022 business meals are fully deductible. This is an increase from 50% in 2020.
  • EIDLE Grants – About $20 Billion of funding was allocated to new EIDLE grants. EIDLE grants were available for a brief time in late spring of last year. The EIDLE grants provide up to $1,000 per employee to employers. According to the SBA website these are not available yet. We will keep you posted when we know more.
  • Employee Benefits – Employers can include student loan repayments as a tax-free fringe benefit to their employees up to $5,250.
  • Employee Retention Credit – This credit has been extended to June 30, 2021 and applies to businesses that have a quarter over quarter revenue decline of 20% or more in 2021 (50% in 2020).
  • Emergency Sick and Family Leave Credits – These credits were extended through March 31, 2021.
  • Additional Provider Relief Funds – Another $3 billion in grants were approved. These grants provide assistance to doctors and medical service providers to cover additional staff and supply costs related to the coronavirus pandemic.
  • SBA Loan Payments – Extension of the period the SBA will cover certain loan payments on Qualifying SBA loans for three more months. The previous period was six months.

PPP Loan Forgiveness Update

The SBA put out some new guidance (SBA Procedural Notice) on PPP loans with excess loan amount errors. This guidance impacts loans that were originally calculated in error. If you received a greater amount than you were entitled to, that excess amount is not forgivable.  This applies to situations where a borrower or lender made an error in good faith. It does not include a knowing misstatement. Knowing misstatements may result in additional action, such as charges for fraud. The unforgiven amount will become a loan and can be paid back right away or in accordance with the original loan terms.

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