In November, I had the opportunity to be interviewed by Kelly Stroh with 425 Business Magazine. We discussed business taxes for 2020/2021. It’s completely representative of 2020 craziness that after the interview went to print we had so many changes in December.
Here’s the article which was published on January 6, 2021.
Let’s update of a few items based upon what happened at the end of 2020 with the Tax Certainty and Disaster Tax Relief Act of 2020.
PPP Loans - Yes! This program was a huge relief in 2020. However, on January 7, 2021 the IRS issued Rev Rul 2021-2 which took into account the changes and obsoleted some of the December guidance. Now, business expenses paid with amounts received from loans under the PPP are deductible as trade or business expense even if the PPP loan was or is expected to be forgiven. Also, the forgiveness doesn’t reduce any tax attributes or deny basis increase in assets. It applies to tax years ending after March 27, 2020. This is great news for Federal taxes! As a caution, not all states follow federal. Please check with your tax advisor and verify the state reporting requirements here.
Business Meals Deduction - This one definitely deserves a mention. The Tax Relief Act of 2020 allows for 100% deduction of food and beverage provided by a restaurant if paid or incurred in 2021 and 2022. Other rules, such as the nondeductible nature of entertainment expenses, remain unchanged. Its also assumed that food and beverage NOT provided by a restaurant will still be subject to the 50% disallowance.
Health and Dependent Care Flexible Spending Arrangements - When permitted by the plan there can be a few changes to unused carryovers. FSA may carryover unused 2020 benefits to 2021, and 2021 benefits to 2022. The grace period for a play year ending in 2020 or 2021 may be extended to 12 months after the plan year end. An employee can make changes in election amounts without a status change in 2021. Also, the maximum age of eligible dependents for dependent care may be increased from 12 to 13 for the 2021 year. You can even amend the plan retroactively if adopted by the last day of the first calendar year beginning after the end of the year in which it is effective. This again depends upon what is permitted by the plan. Make sure your communicate with the employees if your plan has been amended and how that amendment has changed their plan for 2020, 2021, and 2022.
Hope this update was helpful. Let me know if you have questions.
Happy 2021!