Tax provisions in new relief bill in Washington DC

As you all know, Congress has passed a giant spending bill, almost 5600 pages long.  The President has yet to sign it and is dissatisfied with at least one provision.  I’ll get out updated news once the bill is signed into law.  In the meantime, here are some tax-related provisions you may be interested in.  I’m pretty sure these will survive, but stay tuned. 

1. Expenses paid for with forgiven PPP loans are deductible. 
2. Expenses paid for with emergency EIDL grants & forgiven EIDL loans are deductible, and those forgiven loans and grants are not taxable, either. 
3. Meals deduction – allowed 100% for business/travel meals for amounts paid or incurred after 12/31/2020 and before 1/1/2023.  It might be helpful to create a separate general ledger account for the 100% deductible meals, especially if you are on a fiscal year and will have both kinds for your 2020-21 year. 
4. 30 year life for residential real estate – for tax years beginning after 12/31/17, residential real estate held by an electing real property trade or business has a 30-year life for the alternative depreciation system, even if acquired before 1/1/2018.  This brings this property in line with property acquired 1/1/2018 and later.  Important for taxpayers electing out of the business interest expense restrictions who were required to use the alternative depreciation system as the price for not being limited on interest expense.  As we prepare the tax returns, we’ll take a look at this & advise you if you should change your depreciation life. 
5. Child Tax Credit – to the extent the CTC exceeds your tax liability, you may be able to get a refund of part of the credit. The amount of your refund depends on your earned income, for example, wages.  For 2020, you may be able to base the refund on 2019 wages if your wages decreased in 2020.  If you are claiming a dependent for 2020, we will take a look at this & let you know if it makes a difference. 
6. Earned Income Tax Credit – similar provisions apply for the EITC.  We will check this if you are eligible for this credit. 
7. Deducting Charitable Donations without itemizing – For 2020 & 2021, you can deduct $300 ($600 for married taxpayers) of charitable contributions even if you don’t itemize.
8. Itemizers – for 2020 & 2021, if you itemize, your deduction limit on cash donations is 100% of your adjusted gross income. 
9. Disaster Areas – withdrawals from retirement plans: 10% penalty does not apply (limit $100,000), recontribution to plan allowed, & an increased limit on loans from the plan applies. 
10. Health & Dependent Care Flexible Spending Accounts – employers are now able to allow a longer grace period to use benefits, up to 12 months after the end of the plan year.  For plan years ending in 2020 and 2021. 
11. Work Opportunity Credit is extended through 2025. 
12. Exclusion from income for Cancellation of Debt Income on principal residence debt is extended through 12/31/2025. 
13. Write off of costs for qualified film, TV or theatrical production, up to $15 million for most areas is extended through 12/31/2025. 
14. Employer Credit for Paid Family & Medical Leave is extended through 2025. 
15. Employee Exclusion of Employer Payments on Student Loans is extended through 2025.  Employers can reimburse employees up to $5,250 per year tax-free to the employee and no payroll taxes for the employer. 
16. Mortgage insurance premium deduction is extended through 2021.
17. Health insurance premium tax credit is extended through 2022.
18. A small cash transfer of $600 per person will be made.  This is in dispute and  may be increased – stay tuned. 

In addition, reports are that California is looking at an entity-level tax on S corporations & partnerships to alleviate the burden of state income taxes on shareholders & partners who can’t deduct more than $10,000 of state & local taxes.  IRS has blessed this arrangement for other states, so there are at least 4 states looking at changing their rules.  Biden would like to repeal the SALT cap, but will need Congress to go along, and we won’t know until the Georgia runoffs on January 5 whether the Democrats will be able to move such legislation through.