Year End Tax Reminders

Small Business PPP Funds Protected In Relief Package

President Donald Trump signed into law a major coronavirus stimulus package along with an annual budget measure, avoiding a government shutdown before a Monday night deadline

H.R.133  contains a second round of Covid help for small business that includes another round of Paycheck Protection Program (PPP) funding, an extension of unemployment benefits, $600 per person stimulus checks, and funding for things such as schools, coronavirus testing and vaccine distribution.

And, perhaps as important, Congress sends final clarification to the IRS that prevents any portion of PPP funds from creating adverse tax consequences.

Congress says yes to deducting business expenses funded with PPP monies: Shortly after the PPP program was launched the IRS issued a harsh ruling that indicated expenses paid with forgiven PPP funds could not be deducted. This ruling, in effect, created thousands of dollars of backdoor- tax on small businesses who relied on the PPP funds to pay employees, rent, and an assortment of other employee-related costs. In early December, the IRS reiterated this position.

Thankfully, Congress included a provision in the recent Coronavirus Relief package that clarified, once and for-all, that forgiven PPP loans will not create a tax issue, either when forgiven or in deducting the related expenses. This was the right move by Congress.

Full write-offs for business meals: The 50% limitation on deducting business meals has been in place so long that it’s hard to remember otherwise. In an attempt to jump-start the restaurant and food business, for the next two years business meals will be fully, 100%, deductible without limitation. What about entertainment? No change here, apparently. Entertainment still looks to be non-deductible.

Year End Tax Reminders

Despite all that has happened this year, it would be easy to forget the many tax breaks available to you as you finish 2020.

Is first-year 100% bonus depreciation still on? Yes. 2020 business equipment purchases still get 100% immediate tax write-off under the bonus depreciation rules. Machinery, equipment, computers, appliances and furniture are the main benefactor of this write-off, but business vehicles also can use some of its cost for bonus depreciation.

What about bonus depreciation on real property additions? Yes. Congress restored the immediate write-off for certain additions to pre-existing commercial property.

Is bonus depreciation set to expire? No. 100% bonus depreciation stays in effect through 2022, with the percent write-off phasing down incrementally after that.

What about the 20% small business deduction? Wildly popular, but a little complicated at times, this business write-off is still in play for pass-throughs such as LLC, partnerships, SCorps, and sole proprietors.

Is the individual SALT limit still in effect? Yes. This one has caused quite the fuss, especially in states with high tax rates. The state and local tax deduction is still $10,000 and can only be used if your total itemized deductions are higher than your standard deduction amount.

Note on tax planning: Historically, you would be encouraged to pre-pay anticipated state income tax amounts by year-end to increase your write-offs. Beware though, with the $10,000 limit on state and local tax, and higher standard deduction amounts, this might not benefit you anymore.