Happy Holidays and Happy New Year from all of us at McNurlin, Hitchcock & Associates!
It has been a busy month in our office. We have been reviewing proposed tax legislation which could come into play next year and, more recently, learning about the Consolidated Appropriations Act, 2021 which was signed into law on Sunday December 27, 2020.
It is hard to predict what, if anything, the new administration will take up in 2021. Many people believe taxes will go up to offset the economic effects of the pandemic, however, enacting additional tax legislation could take time. The proposals outlined by the new administration focus on raising tax rates for individuals with high income, however, we will watch this closely and let you know if there are updates as we move further into 2021.
The big news this week is the Appropriations Act which has an impact on almost every taxpayer, both individual and business. This legislation contains the second round of stimulus payments and expanded unemployment benefits. It also extends prior tax credits and expands payroll credits. It is extremely complicated so we will focus on a few of the more time sensitive items for now and save the rest for upcoming weeks.
PPP Loans (Round 1)
The Act clarifies that taxpayers can deduct expenses paid with forgiven PPP Loan funds if they are otherwise deductible expenses. This clarification should help eliminate the tax impact of the forgiven PPP Loans that many small business owners were facing.
The Act expanded the simplified forgiveness application process for loans up to $150,000 and it repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount. The new application should be available soon so please check in with your lender if you are on hold pending next steps in your forgiveness process.
PPP Loans (Round 2)
The Act provides for a second round of PPP Loans! These “round 2” loans or PPP2 Loans will be available to first-time qualified borrowers and to qualified businesses that previously received a PPP loan. Qualified businesses have 300 or fewer employees, have used or can show they plan to use the full amount of the first PPP loan, and can show a 25% decline in any 2020 quarter compared to the same quarter in 2019. These PPP2 loans are also available to §501(c)(6) business leagues who are not substantially involved in professional sports or lobbying activities. For the most part, these PPP2 loans will work the same as the first round, however, restaurants and hotels are eligible to apply for 3.5 times their average monthly payroll vs 2.5 times for other businesses. The SBA has 10 days to establish regulations on these PPP2 loans so we should hear more from lending institutions over the next few weeks.
For the next two years, starting January 2, 2021, the Act suspends the 50% limit on qualified business meals. This does not affect 2020, however, it does allow businesses to take a 100% deduction for qualified business meals over the next two years. Be sure you are properly tracking your spending to account for this new expanded deduction in the coming years.
Payroll Tax Credits
The Act extends and expands the payroll tax credits that were created in the Families First Act and in the Cares Act from earlier in 2020. Small business owners may now qualify for the employee retention credit, even if the business also received a forgiven PPP Loan, and that employee retention credit is expanded to allow a higher percentage of payroll to qualify. Qualifying small business with payroll may need to amend prior payroll forms for 2020 to allow for reporting of these credits or for reporting the increased credit. Covid sick pay will continue to be reimbursed through payroll credits, however the Federal mandate requiring the sick pay expires on December 31st. Colorado has a new mandate which starts on January 1, 2021 for some businesses. Reach out to your service provider as soon as possible to discuss how this law change will impact you and check our website at McNurlincpa.com for updated blog resources on this topic.
The Act provides for another round of stimulus payments which, we believe, will work the same as the last round and be treated as an advance on a 2020 tax credit. If you do not receive the payment directly but you qualify, you will receive credit when you file your 2020 tax return. More information will be provided by the US Treasury as they work to process these stimulus payments. Currently the irs.gov website addressing the Economic Impact Payments is offline as they work to update their systems, but we expect more information to be forthcoming over the next few weeks.
Watch your emails for information on tax organizers which will be available through Sharefile starting this week and be sure to call our front desk at 303-988-5648 if you prefer to have us print and mail your organizer to your house or if you have any updated contact information to share with us.
This year you can schedule your appointment online at Mcnurlincpa.com or call our front desk for an appointment. Reply to this email if you have any questions.
Thank you for reading to the end! We look forward to seeing many of you either live or through video in the next few months. Take care and Happy New Year!
The owner of McNurlin, Hitchcock & Associates, PC a certified public accounting firm located in Lakewood, Colorado. Kim specializes in all areas of accounting, tax strategy planning, business management, and financial statement reporting. Kim can be reached directly at firstname.lastname@example.org.