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New Covid-19 Tax Law...Discovering some Hidden Gems

01/14/2021 10:29 AM | Anonymous member (Administrator)

By Rick Meyer, CPA, MBA, MST

As we start the New Year, hopefully fresh from all the tax drama, we

can at least take a deep breath and rejoice about some Covid-19 tax relief. On

Sunday, December 27, 2020, the President signed into law, what is called, the

Consolidated Appropriations Act (CAA), a combination of Covid-19 relief

along with many other provisions amongst the 5,593 pages.

It seems that with all new tax law, it boils down to some basic chunks of

data:

1. The Headliner (we’ve all heard and read about) provisions,

2. The Extenders,

3. The Esoteric provisions, and

4. Everything Else

This last “everything else” category is where all the fun begins...the never

ending search to find those buried treasures in the new law. Let’s briefly

discuss the first three categories and then spend most of our time discovering

some of those “everything else” hidden gems!

The Headliner Provisions – The $600 payment per person, expansion of the

PPP loans, and unemployment benefits,

The Extender Provisions – 5 year extensions for the Work Opportunity, New

Markets and Empowerment Zone credits, and the exclusion of income for the

employee on up to $5,250 of student loans paid by the employer,

The Esoteric Provisions – Tax reductions for wine, liquor, spirits and beer,

and of course, we can’t forget about the three-year recovery period for race

horses.

The EVERYTHING ELSE Provisions:

Let’s jump into a few that I would consider to be gems, worthy of discovery:

Employee Retention Credit

This is huge! Previously in the original CARES ACT, the employee retention

credit was the lost sheep. With some new changes, employers could get a big

payroll tax credit for keeping their employees on the payroll!

This is now a 70% credit on up to $10,000 of qualified wages per employee,

PER QUARTER, for the first two quarters in 2021, through June 30, 2021.

Thus, if employers qualify, they can claim up to $14,000 credit per employee

in 2021.

Plus, this even works with employers with up to 500 employees! Note, that

this is a refundable payroll tax credit offsetting the employer’s portion of

payroll taxes. So, if these credits exceed payroll taxes, you could get a refund!

To qualify, the employer’s gross receipts for the first two 2021 calendar

quarters must be at least 20% less than the 2019 quarter. Alternatively,

employers can elect to use the prior quarter’s gross receipts to qualify.

There are various complexities and unanswered questions about how the

Employee Retention Credit will impact other wage based credits in the tax law

and how to best optimize utilization of all available credits. A detailed and

thorough analysis needs to be done with each taxpayer’s facts and

circumstances. Also, there will need to be further guidance from the IRS and

Treasury. We continue to be in discussions with current and former members

of Congress and high level IRS Officials to gain clarity, insight, and

Congressional intent on this very special and potentially valuable credit.

PPP (Payroll Protection Program) Loans and Expense Deduction

The new law clarifies that business expenses paid with forgiven PPP loans are

tax deductible.

Section 179D Made Permanent

If you are an architect, engineer, or contractor, or a CPA with any of these

clients, this is a huge opportunity for them to claim this, now permanent

deduction. This deduction applies if they are encouraging green, energy

efficient design of public buildings. This would include improvements to the

building envelope, lighting, heating, cooling, ventilation, and hot water

systems.

The deduction could be up to $1.80 per square foot. Although the architect,

engineer, or contractor doesn’t own the public building, they could be

allocated this deduction from the government entity. It’s like a free deduction!

Since it is calculated based on square footage, a large high school, elementary

school, or public library could yield a sizable deduction to the architect,

engineer or contractor. This concept also applies to owners of commercial

buildings.

Section 179D encourages energy efficient designs while reducing energy costs

for all. It’s a win-win for architects, engineers, contractors, the government,

taxpayers, and commercial building owners!

Meal Deduction

For 2021 and 2022, the 100% deduction for business meal food and beverage

is back! This includes carry-out and delivery meals.

Charitable Contributions

The non-itemizer, above-the-line deduction for cash charitable contributions

increases to $600 for married taxpayers filing jointly (non-married filers or

married filing separately are limited to $300).

Relief for FSA (Flexible Spending Account)

Remember the “use it or lose it” rule requiring employees to spend money in

their FSA account for health or dependent care by year end, or lose this

money? The old rules did allow a carryover of unused funds of $560 to 2021.

Well, my daughter has been frantically calling me since June of 2020. She had

over $2,000 contributed to her dependent care FSA. Then, her daycare center

closed in June, 2020 due to Covid. How could she get this money back? She

had no other daycare expenses since the family was volunteering to watch the

kids for free. Would she lose over $2,000 of her hard earned money?

Well, this little gem of a law eliminates the health and dependent care

carryover limit. Now, employees could carryover any unused amount from

either the 2020 or 2021 plan year to the next year.

What’s Next?

Buried within the 5,593 pages are many other provisions and hidden gems

that will need to be discovered, understood, and put to use. We teased you

here with just a few. Be prepared to read and find more buried treasures that

could help you or your clients. Whoever said that Congress is trying to simplify

the Tax Code? Hang in there, get your fingernails dirty and get digging!

Rick Meyer, CPA, MBA, MST is a long time member of the Illinois CPA Society and has served on various tax committees over the past 40+ years. He is a Director for alliant group, a national firm that works with businesses and their CPAs to identify powerful government sponsored tax credits and incentives. He could be contacted at rick.meyer@alliantgroup.com.

 



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