Well it’s like an early Christmas morning, racing down the stairs to see what tax relief presents Santa has left everyone. There are lots of gifts for everyone – businesses, individuals, charities and, especially for those who like their wine, spirits and beer (Santa is thoughtful).
A useful summary of all the tax provisions is is HERE
While there will be naturally a great deal of focus on PPP and deductibility (discussed below) and expansion – as well as the $600 per person check (phase out begins at $75k individual; $150k married filing jointly) — the big prize (or at least the overlooked prize) I would suggest is the expanded employment retention credit.
Employment Retention Credit
The employment retention credit was the forgotten child in the original CARES act – it is now back – and much bigger. Employers are absolutely going to want to take a hard look at this robust provision that will provide meaningful help to keeping employees on payroll.
The provision lasts for 6 months starting January 1, 2021—and increases the credit rate from 50 percent to 70 percent of qualified wages. Qualified wages are up to $10,000 per quarter (up from $10,000 per year). The new provision expands eligibility for businesses by reducing the required year-over-year gross receipts decline from 50 percent to 20 percent. The provision increases the maximum number of employees from 100 to 500. In addition, the provision has a host of bells and whistles that essentially make it easier to qualify and benefit from the new and improved employment retention credit. Business owners need to take a close look at whether they are eligible for it – and if they looked before when the CARES act was passed – they need to look again.
PPP Loan Forgiveness
Probably the greatest relief goes to business owners (and their accountants) with Congress clarifying that for those who business owners got their PPP loans forgiven – after (a surprising amount of) teeth gnashing Congress clarified that deductions are allowed for otherwise deductible expenses paid with forgiven PPP loans. Thanks to a huge number of elected officials (and particularly Senator Cornyn for holding strong on this. This has been equally important for accountants who have been on tenterhooks trying to figure out how to file on behalf of their clients. The effective date for this is from when the CARE Act was first passed.
The tax provisions include making permanent a number of tax extenders – including:
Section 179D – encouraging green, energy efficient design of public buildings — a huge plus for architects, engineers and contractors. Section 179D is made permanent and the benefit is expanded (coupled with a higher energy efficiency hurdle for designers to meet). This provision encourages designs that translate into enhanced energy efficiency and energy independent – all while reducing energy costs for government. A green win for taxpayers and designers. A significant number of other energy provisions were either extended or made permanent – a good day for wind and solar.
Wine, liquor, spirits, beer. A number of tax reductions in the alcohol industry that are temporary were made permanent. Cheers! But note: no tax breaks for smuggled or illegally produced alcohol (where is the love for bathtub gin and bootleggers?).
New Market Tax Credits – 5 year extension
WOTC – 5 year extension
Empowerment Zones – 5 year extension . . . and many more
Exclusion of employer repayment of student loans (up to $5,250) – tax-free – 5 years
NOTE: the five-year extension lines everything up with 2025 when a significant number of the tax provisions in the tax reform bill are also expiring. Setting up tax gotterdammerung.
A number of other items get a one year extension to 2021 – including: Indian Employment Credit; race horse depreciation; 2-wheeled plug in electric vehicles; etc.
The meal deduction, that has already gotten some attention – allows for a 100-percent deduction for business meal and beverage expenses – including carryout or delivery meals (door-dash must be on Santa’s very good list) – for meals paid in 2021 or 2022.
Charities (and more important – those in need who they serve) will see a modest benefit for non-itemizers being able to deduct contributions for 2021 ($300 single/$600 married) and also the expanded limits for AGI deduction continued into 2021. Now if we could just get Congress to end the warehousing of billions of dollars in charitable dollars . . . that would be really meaningful.
As a general point – getting all these tax extenders addressed is a benefit to the new administration. There is always an argument that a “better deal” can be had if you wait till the new administration comes in – but I can’t imagine that team Biden really wants to be dealing with all this tax grind when it first walks through the door. Good to have the decks cleared.
Santa – via the U.S. Congress – has provided much tax relief – with hardly any coal in any stocking.
About Dean Zerbe
Dean Zerbe is alliantgroup’s National Managing Director based in the firm’s Washington, D.C. office. Prior to joining alliantgroup, Zerbe was Senior Counsel and Tax Counsel to the U.S. Senate Committee on Finance. He worked closely with then-Chairman of the Finance Committee, Senator Charles Grassley, on tax legislation. During his tenure on the Finance Committee, Zerbe was intimately involved with nearly every major piece of tax legislation that was signed into law, including the 2001 and 2003 tax reconciliation bills, the JOBS bill in 2004 (corporate tax reform) and the Pension Protection Act. Zerbe is a frequent speaker and author on the outlook for short-term and long-term changes in tax policy, as well as ways accounting firms can help their clients lower their tax bill.