A New Round of Stimulus Checks

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 which included measures for both COVID-19 relief and sweeping funding provisions for the government through September 2021. While there are many sections of this law to explore, this article will focus on the stimulus checks.

Qualifying individuals will receive these economic impact payments, and the Washington Post reports that more than 85 percent of US households will receive a check. To qualify:

For individuals making up to $75,000 per year, or if a couple, making up to $150,000 per year, the check will be $600.
For individuals making between $75,000 and $86,900 (couples: $150,000 to $173,900), the check will be between $595 and $5. In this phaseout, the amount of the check decreases by $5 for every $100 of income above $75,000/$150,000, phasing out completely at $87,000/$174,000.
The amount sent will be based on the amount you earned (adjusted gross income, to be exact) on your 2019 tax return.
Includes children. The definition for child will be the same as the one used to calculate the child tax credit.
Excludes dependent adults over 17 at the end of the tax year.
Excludes persons who died on or before January 1, 2020.
Includes individuals who file jointly with an ITIN, but excludes the person with the ITIN.
Includes 2019 non-filers who receive benefits from Social Security Administration, Railroad Retirement Board, and the Department of Veterans Affairs.

Here are some examples: A family of four – mom, dad, and two children under 17 – that earns a total of $100,000 per year will receive $2,400. A single man earning $80,000 per year that lives with his disabled father will get $350 (80,000 – 75,000 = 5,000 / 100 = 50 * $5 = $250. $600 – $250 = $350). A woman with 2 small children earning $87,000 will not get anything.

Taxpayers do not have to do anything to receive their stimulus checks. Many taxpayers will receive their stimulus checks via direct deposit, if that information was included on your 2019 return. If the IRS does not have your bank account information, you will likely get a check or a pre-paid debit card. If you’ve moved, you can update your address by completing an IRS change-of-address form (allow six weeks).

The checks are supposed to start hitting bank accounts early in January. You do not have to pay tax on this income.

If you never got the first stimulus check, you can claim it on your 2020 tax return. Details are here on the IRS site. https://www.irs.gov/newsroom/recovery-rebate-credit

December 30 2020

Deductibility of PPP-Related Expenses

Marti DenUyl Blog, Business Tips, Expense Reduction Tips

One of the biggest tax issues of 2020 has been clarified with the signing of the Consolidated Appropriations Act, 2021, (CAA 2021), and that was whether expenses that are normally deductible and that were paid with the proceeds of a Paycheck Protection Program (PPP) loan that is forgiven are truly deductible.

The CARES Act, which became law on March 27, 2020, was drafted so quickly that the question of deductibility was left out, but several members of Congress made it clear that deductibility was the intent all along. The IRS went the other way, publishing a notice (2020-32), a revenue ruling (2020-27), and a revenue procedure (2020-51), that took the opposite stance: PPP-related expenses that were forgiven were not deductible, therefore potentially causing business’s taxes to become much higher.

Congress has now reversed the IRS’s position with CAA 2021 in Section 276 (PPP) and 278 (EIDL). Gross income does not include forgiveness of PPP loans and emergency EIDL grants. Deductions are allowed for normally deductible expenses paid with PPP loan proceeds that were forgiven. It also provides deductibility for Second Draw PPP loans. This is all good news for taxpayers with PPP loans.

However, there could be timing issues that could reduce the deductibility of the full amount of the PPP expenses. There could also be amounts “at risk,” which is a tax term that limits your deductions in certain cases.

All of these issues need to be carefully considered on a case-by-case basis. Your tax professional is your best source to help you review all of these factors so that both your PPP loan forgiveness and allowable deductions are timed to reduce your tax bill.