Key Business Tax Provisions from Year-End Coronavirus Relief Act
Our January 20, 2021 blog posting shared some thoughts and comments on the Consolidated Appropriations Act of 2021 (“Act”) passed late December that impact individuals. For this blog posting, we will share a summary of key business tax provisions contained in the year-end coronavirus relief act
As the coronavirus (COVID-19) continues to affect local communities and global economies, Smoak, Davis & Nixon remains committed to helping our business clients with their tax, accounting, business advisory and related planning needs. As part of this commitment, we wanted to share some key tax provisions impacting businesses contained in the year-end coronavirus relief legislation Act that was signed into law on Dec. 27, 2020.
Please contact us to discuss how we can help based on your specific circumstances.
Here are some of the key provisions that impact businesses:
100% meals and entertainment deduction
The new tax law contains a tax-favorable change to the deduction for business meals. It temporarily allows a 100% business expense deduction for meals (rather than the prior 50%) if the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020 and expires at the end of 2022. Of course there must be a business reason for the meal and documentation should be retained to support an expense deduction claimed.
Deductibility of PPP-funded expenses
Many small businesses needed the support of the Small Business Administration’s Paycheck Protection Program (PPP). This program provided much-needed funds to help certain businesses, self-employed workers and certain nonprofit organizations continue paying their workers. However the IRS stated that expenses funded with a PPP loan would not be tax deductible, which appeared to be contrary to the intent of Congress.
The recent tax law clarifies that any amount received from a PPP loan that is forgiven is not considered income for tax purposes. The Act also reversed recent IRS guidance and deductions are now also allowed for otherwise deductible expenses paid with the proceeds of a forgiven PPP loan. The new law opens the program again and allows certain businesses to receive a second draw of funds.
The PPP forgiveness will be treated as tax-exempt income for the purposes of the shareholder/partner basis and at risk purposes. There could be timing issues that arise if the PPP loan is not forgiven or deemed forgiven in the same year as the expenses were incurred.
Payroll tax credits
The law extends the refundable payroll tax credits for paid sick and family leave, enacted in the prior tax legislation, through the end of March 2021. It also modifies the payroll tax credits so that they apply as if the corresponding employer mandates were extended through March 31, 2021. The new law also allows individuals to elect to use their average daily self-employment income from 2019 rather than 2020 to compute the credit.
Employee retention tax credit modifications
The new law extends the employee retention tax credit (ERTC) through June 30, 2021. It also expands the ERTC and contains technical corrections. A noteworthy modification provides that employers who receive PPP funds may still qualify for the ERTC with respect to wages that are not paid with forgiven PPP proceeds.
Deferral of employees’ portion of payroll tax
The legislation extends the repayment period through Dec. 31, 2021 on employees’ share of certain payroll taxes deferred from Sept. 1, 2020 through Dec. 31, 2020.
There are a number of other tax changes contained in the year-end legislation that could apply for 2020 and beyond. We wanted to provide insight on a few of the law changes impacting businesses.
Smoak, Davis & Nixon LLP is a full service CPA firm here in Jacksonville, Florida. We help our business clients with a wide range of services – tax preparation and planning, business advisory services, audits/reviews/compilations and QuickBooks accounting, consulting and training services. We also provide a range of computer and IT consulting services through our affiliate SDN Computer Consulting LLC. The firm is also a member of Allinial Global, an accounting firm association of legally independent accounting and consulting firms with offices in North America and throughout the world through international members and partnerships. The Allinial global network of CPA firms gives Smoak, Davis & Nixon broader access to professionals so that we can be more responsive, both locally in Jacksonville and globally. There aren’t many business challenges that can’t be resolved or questions that we can’t answer.