On Sunday, December 27, President Trump signed the Consolidated Appropriations Act, 2021 (CAA, 2021). The act contains numerous individual, business, payroll, disaster, and energy-related tax provisions, as well as tax extenders. Many of the provisions, including $600 stimulus payments, and an extension of payroll credits, relate to the COVID-19 pandemic.
The COVID-related Tax Relief Act of 2020 (COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), both part of the Consolidated Appropriations Act, 2021 (CAA, 2021), contains numerous provisions related to businesses. Below is a summary of some of the provisions.
Clarification of PPP Loan Tax Treatment
C&D recently sent mailers to clients explaining that the IRS had taken the position that expenses paid for using PPP loan funds would not be deductible on 2020 tax returns. COVIDTRA clarifies taxpayers whose PPP loans are forgiven are allowed deductions for otherwise deductible expenses paid with the proceeds of a PPP loan. For now, California has stated the PPP loan forgiveness will not considered income. However, the expenses attributable to the loan forgiveness will not be deductible.
Clarification of Other CARES Act Tax Treatment
COVIDTRA clarifies that gross income does not include forgiveness of EIDL loans, emergency EIDL grants, and certain loan repayment assistance. The provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the amounts not included in income, and that tax basis and other attributes will not be reduced as a result of those amounts being excluded from gross income.
50% Limit on Business Meals from Restaurants Suspended
Deductions for meals and entertainment are generally limited to 50% of the allowable amount. However, under the Act, the 50% limit won’t apply to expenses for food or beverages provided by a restaurant that are paid or incurred after Dec. 31, 2020, and before Jan. 1, 2023.
New Recovery Rebate
CAA, 2021 includes additional recovery rebates of $600 eligible family member. The credit phases out starting at $75,000 of modified adjusted gross income for single taxpayers and $150,000 for married couples. Payments are expected to begin in early January.
Charitable Deduction for Non-Itemizers
For 2020 and 2021, those that do not itemize deductions on their tax return may claim an above-the-line deduction of up to $300 or $600 for married couples for donations to qualifying qualified charitable organizations.
Modified Charitable Contribution Limit
Under the existing tax law, cash charitable contributions could be deducted up to 60% of a taxpayer’s adjusted gross income. The CAA, 2021 removes the percentage limitation for cash charitable contributions. Therefore, cash charitable contributions will be deductible up to 100% of adjusted gross income. However, this does not include contributions to a private foundation or donor advised fund.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR or the Act) also contains numerous tax extenders along with some excise tax provisions.
Solar energy credits have been as high as 30% and began phasing out in 2020. The Act now extends the 26% credit to the 2021 and 2022 tax years and reduces to 22% for 2023.
Reduction in Medical Expense Deduction Floor
The Act makes the 7.5% threshold permanent, applicable for tax years beginning after Dec. 31, 2020.
Excise Tax Credit Made Permanent for Wineries
The Act allows all wineries to continue to claim a credit of between $.535 and $1 per gallon on the first 750,000 gallons of production. For those wineries producing the maximum number of gallons this credit is valued at over $450,000.
The Consolidated Appropriations Act, 2021 is over 5,500 pages long and we have summarized the sections we felt were most relevant to our clients. If you have questions about a particular topic, please contact our office for further details. We will continue to provide updates as additional guidance on these topics is released.