Tags: Tax

Employers Should Prepare to Comply with Year-End Reporting Requirements for Qualified Sick and Family Leave Wages Paid in 2021

The IRS has issued guidance to employers on year-end reporting for sick and family leave wages that were paid in 2021 to eligible employees under recent federal legislation.

IRS Notice 2021-53, issued on September 7, 2021, provides that employers must report “qualified leave wages” either on a 2021 Form W-2 or on a separate statement, including:

  • Qualified leave wages paid from January 1, 2021 through March 31, 2021 (Q1) under the Families First Coronavirus Response Act (FFCRA), as amended by the Consolidated Appropriations Act, 2021 (CAA).
  • Qualified leave wages paid from April 1, 2021 through September 30, 2021 (Q2 and Q3) under the American Rescue Plan Act of 2021 (ARPA).

The notice also explains how employees who are also self-employed should report such paid leave.

This guidance builds on IRS Notice 2020-54, issued in July 2020, which explained the reporting requirements for 2020 qualified leave wages.

Insights

Employers should work with their IT department and/or payroll service provider as soon as possible to review the payroll system, earnings codes configuration and W-2 mapping to ensure that these paid leave wages are captured timely and accurately for year-end W-2 reporting.

Background

In March 2020, the FFCRA imposed a federal mandate requiring eligible employers to provide paid sick and family leave from April 1, 2020 to December 31, 2020, up to specified limits, to employees unable to work due to certain COVID-related circumstances. The FFCRA provided fully refundable tax credits to cover the cost of the mandatory leave.

In December 2020, the CAA extended the FFCRA tax credits through March 31, 2021, for paid leave that would have met the FFCRA requirements (except that the leave was optional, not mandatory). The ARPA further extended the credits for paid leave through September 30, 2021, if the leave would have met the FFCRA requirements.

In addition to employer tax credits, under the CAA, a self-employed individual may claim refundable qualified sick and family leave equivalent credits if the individual was unable to work during Q1 due to certain COVID-related circumstances. The ARPA extended the availability of the credits for self-employed individuals through September 30, 2021. However, an eligible self-employed individual may have to reduce the qualified leave equivalent credits by some (or all) of the qualified leave wages the individual received as an employee from an employer.

Reporting Requirements

Eligible employers who claim the refundable tax credits under the FFCRA or ARPA must separately report qualified sick and family leave wages to their employees. Employers who forgo claiming such credits are not subject to the reporting requirements.

Qualified leave wages paid in 2021 under the FFCRA and ARPA must be reported in Box 1 of the employee’s 2021 Form W-2. Qualified leave wages that are Social Security wages or Medicare wages must be included in boxes 3 and 5, respectively. To the extent the qualified leave wages are compensation subject to the Railroad Retirement Tax Act (RRTA), they must also be included in box 14 under the appropriate RRTA reporting labels.

In addition, employers must report to the employee the following types and amounts of wages that were paid, with each amount separately reported either in box 14 of the 2021 Form W-2 or on a separate statement:

  • The total amount of qualified sick leave wages paid for reasons described in paragraphs (1), (2) or (3) of Section 5102(a) of the Emergency Paid Sick Leave Act (EPSLA) with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31,2021. The following, or similar language, must be used to label this amount: “Sick leave wages subject to the $511 per day limit paid for leave taken after December 31, 2020, and before April 1, 2021.”
  • The total amount of qualified sick leave wages paid for reasons described in paragraphs (4), (5), or (6) of Section 5102(a) of the EPSLA with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021. The following, or similar language, must be used to label this amount: “Sick leave wages subject to the $200 per day limit paid for leave taken after December 31, 2020, and before April 1, 2021.”
  • The total amount of qualified family leave wages paid to the employee under the Emergency Family and Medical Leave Expansion Act (EFMLEA) with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021. The following, or similar language, must be used to label this amount: “Emergency family leave wages paid for leave taken after December 31, 2020, and before April 1, 2021.”
  • The total amount of qualified sick leave wages paid for reasons described in paragraphs (1), (2) or (3) of Section 5102(a) of the EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. The following, or similar language, must be used to label this amount: “Sick leave wages subject to the $511 per day limit paid for leave taken after March 31, 2021, and before October 1, 2021.”
  • The total amount of qualified sick leave wages paid for reasons described in paragraphs (4), (5), and (6) of Section 5102(a) of the EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. The following, or similar language, must be used to label this amount: “Sick leave wages subject to the $200 per day limit paid for leave taken after March 31, 2021, and before October 1, 2021.”
  • The total amount of qualified family leave wages paid to the employee under the EFMLEA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021. The following, or similar language, must be used to label this amount: “Emergency family leave wages paid for leave taken after March 31, 2021, and before October 1, 2021.”

If an employer chooses to provide a separate statement and the employee receives a paper 2021 Form W-2, then the statement must be included with the Form W-2 sent to the employee. If the employee receives an electronic 2021 Form W-2, then the statement must be provided in the same manner and at the same time as the Form W-2.

In addition to the above required information, the notice also suggests that employers provide additional information about qualified sick and family leave wages that explains that these wages may limit the amount of the qualified sick leave equivalent or qualified family leave equivalent credits to which the employee may be entitled with respect to any self-employment income.

If you have questions about complying with year-end reporting requirements or other tax questions, please contact the accounting professionals at BSB. We can help you plan for your unique situation to maximize your tax benefits while remaining compliant with current tax law.

Tags: Tax

Per-diem rates increase for business travel

If you travel for business, your per-diem rates are changing. The Internal Revenue Service (IRS) recently announced updated per-diem rates that will be used to substantiate ordinary and business expenses incurred during travel away from home. The new rates will be in effect from Oct. 1, 2021, to Sept. 30, 2022.

Employees who travel after Oct. 1 will be paid the adjusted per-diem rates, which specifically cover meals, lodging, and incidental expenses related to business travel.

The new per-diem rates represent a slight increase from last year at $202 for locations within the continental United States and $296 for high-cost locations.  High-cost locations, listed in the new IRS guidance, are areas with a federal per-diem rate of $249 or more (up from $245 last year). This rate includes payment for meals and incidentals.

Meal and incidental-only rates have also slightly increased to $64 for locations within the U.S. and $74 to high-cost locations. The per-diem for incidental expenses will not change and will remain at $5 per day regardless of travel location. Incidentals include tips and fees for baggage carriers and staff in hotels and on ships.

Special rates that apply to the transportation industry have also been raised by $3 from last year to $69 within the United States and $74 for travel outside of the country.

When calculating expenses, taxpayers can use per-diem rates or actual expenses. However, anyone planning to use actual allowable expenses must keep detailed records and documentation to provide evidence of expenses for tax purposes.

If you have questions about business travel rates, please contact the accounting professionals at BSB. We can help you plan for your unique situation to maximize your tax benefits while remaining compliant with current tax law.

Tags: Tax

Do You Need to Opt Out of Child Tax Credit Payments?

The first two Child Tax Credit (CTC) prepayments have been distributed to families across the country, including some who did not expect to receive them. The payments were enacted when the CTC was expanded through the American Rescue Plan of 2021 (ARPA).

Under ARPA, eligible taxpayers receive half of the annual CTC as monthly installments from July through December 2021 and the remaining half of the credit when filing 2021 taxes. The full credit is $3,600 per child under 6, $3,000 for children ages 6 to 17, and $500 for 18-year-old children or full-time students who are 19 to 24.

The remaining payments will be distributed on September 15, October 15, November 15, and December 15.

While some families need the extra cash, the prepayments may lead to significant impacts on tax liability when it’s time to file 2021 tax returns.  If you have been receiving the payments and are concerned about how they will affect your taxes, you may want to opt out now.

Here are a few things to consider:

  • To be eligible for the full credit, taxpayers must meet the annual income requirement of $75,000 or less if filing individually and $150,000 or less if married filing jointly. Eligible families will receive six payments of up to $300 per child under 6 and up to $250 per child 6 to 17.  
  • Because the tax payments are automatically sent by check or direct deposit based on recent tax return information, it’s possible that there will be some overpayments of the credit.
  • Taxpayers who have an increase in income and eligibility in 2021, usually receive a large refund, or typically break even may also end up owing the IRS in April.
  • Because of the potential impact on taxes, it may be wise to opt out of the advance payments or at least set some of the money aside.
  • If you choose to continue receiving prepayments, keep good records of the amount received.
  • You must manually opt out if you don’t wish to receive prepayments.

To unenroll from advance payments:

  • Visit the IRS Child Tax Credit Update Portal.
  • Use existing IRS username or ID.me or enroll for a new one with photo ID.
  • If you are married and filing jointly, you must unenroll both spouses.
  • Unenroll at least three days before the first Thursday of the next month.
    • August 30 for September payment
    • October 4 for October payment
    • November 1 for November payment
    • November 29 for December payment

If you have questions about the CTC payments or how they may impact your situation, please contact the tax professionals at BSB. We are here to help.

Tags: Tax

Still waiting for your federal tax refund? You’re not alone.

The IRS is still experiencing a significant backlog in unprocessed tax returns, as millions of taxpayers continue to wait for federal tax refunds.

As of July 2021, there were still 35 million returns yet to be processed. The 2020 shutdown, economic recovery payments, expanded tax credits, and the implementation of new tax laws have contributed to continued delays.

In addition to the delayed returns, the IRS is very shorthanded, which means they are unable to provide telephone assistance most of the time. The best way to reach the IRS by phone is to call 800-829-1040 at 7:00 a.m. as soon as the phone lines open.

You can also check the status of your refund using the IRS’s Where’s My Refund tool or mobile app, IRS2Go, and providing the following information:

  • Social Security number or Individual Taxpayer Identification Number
  • Filing status- single, married, or head of household
  • Refund amount

Paper returns are experiencing the longest processing delay, with some taxpayers waiting months after filing to receive a refund. Certain tax credits or issues needing extra review are also requiring additional IRS resources and contributing to the buildup.

While the waiting is frustrating, the best thing to do is to be patient as the IRS continues to work through the backlog.

Every situation is different and unique. If you have tax questions and would like to speak to an accounting professional, please contact BSB today. We will help you plan according to your specific circumstances.

Tags: Tax

Potential Benefits of Section 1202 Continue to Grow

Section 1202 of the Internal Revenue Code is growing in popularity among investors and may become even more valuable in 2022.

Section 1202 allows founders and investors of corporations to exclude up to 100% of their capital gains derived from the sale of qualified small business stock (QSBS) held for more than five years (subject to limitations). Because the gain exclusion percentage for a shareholder depends on the QSBS issuance date, as time goes on more investors are becoming eligible for the full, 100% exclusion—and thus its rise in popularity.

Further, the 2021 Green Book proposes far-reaching changes to the taxation of long-term capital gains, which are taxed at graduated rates under the individual income tax. Today, the highest rate is generally 20% (23.8% including the net investment income tax, if applicable, based on the taxpayer’s modified adjusted gross income (AGI)).

Under the Green Book proposal, long-term capital gains of taxpayers with AGI of more than $1 million would be taxed at ordinary income tax rates to the extent that the taxpayer’s income exceeds $1 million ($500,000 for married filing separately), indexed for inflation after 2022. Currently, the highest rate for individuals is 37% (40.8% including the net investment income tax), though the Green Book also includes a proposal to raise the individual rate to up to 39.6% (43.4% including the net investment income tax).

While reinvestments into Qualified Opportunity Zones, like-kind exchanges for real property (possibly limited going forward), and reinvestment of proceeds into qualified replacement property from sales of corporate stock to an Employee Stock Ownership Plan of 30% or more of the corporation’s outstanding stock provide some deferral opportunities, Section 1202 is the only provision that provides an exclusion opportunity for QSBS. The higher that the capital gains tax rate goes up, the greater the potential tax benefit of utilizing an available Section 1202 exclusion.

Every situation is different and unique. If you have questions about Section 1202 and would like to speak to a tax professional, please contact BSB today. We will help you plan according to your specific circumstances.

Tags: Tax

C Corporation, S Corporation or Partnership? Which Entity Makes the Most Sense for Your Business?

The choice of entity is among the most important decisions facing taxpayers when starting a business or investment activity. The choice of tax entity generally includes a C corporation, S corporation or partnership, each having its own advantages and disadvantages that must be evaluated in terms of how the entity’s tax and legal characteristics align with the goals of the business and its investors.

Existing businesses should also evaluate their choice of entity—especially now, in light of President Biden’s proposals to increase the tax burden on corporations and high-wealth individuals. Depending on the circumstances, it may make sense to consider converting an existing entity to a different type of tax entity or structure in order for businesses and their owners to better manage their overall tax obligations. An analysis should be performed to determine the amount of any immediate tax cost that would be incurred upon changing entity classification compared to the future tax benefits of conversion.

Choice of entity decisions need to take into account many tax and legal considerations based on the taxpayer’s specific facts and circumstances, as well as business and investment goals. Taxpayers should keep in mind that current tax proposals would raise tax rates and make other changes to the federal income tax system for corporations and high-wealth individuals. These proposals should be monitored, and their potential effects should be considered when evaluating the short and long-term benefits of a particular entity choice.

Tax considerations when choosing an entity

There any many tax considerations that play into the choice of entity decision, some of which are discussed below. All of the considerations should be analyzed together with other important factors, such as whether investors intend to distribute or reinvest available cash, income projections including whether the business anticipates upfront losses, the expected rate of return on investment, the time horizon for exit and available exit strategies.

Effective tax rate on earnings

The rate at which businesses pay tax on their earnings impacts after-tax cash flow and return on investment. Further, whether the business distributes or reinvests its available cash affects enterprise value.

C corporations pay tax on their earnings at the corporate level at a 21% rate, and earnings distributed as dividends are subject to tax again at the shareholder level. This double taxation amounts to an overall effective tax rate on distributed earnings of around 40%, as opposed to a single 21% rate on earnings that are reinvested in the business. President Biden’s tax proposals would increase the corporate tax rate to 28%, which would increase the overall rate on distributed earnings to 45%—or even higher for individuals that would, under his tax plan, be subject to ordinary income tax rates on dividends.

Passthrough entities (S corporations and partnerships), on the other hand, do not pay entity level tax. Instead, their earnings are reported by and taxed at the rates of their owners, regardless of whether the earnings are distributed. For individual owners, this means a top marginal tax rate of 37% on passthrough earnings, or 29.6% if the qualified business income deduction applies. President Biden’s plan would increase an individual owner’s top rate to 39.6% and phase out the qualified business income deduction at income levels exceeding $400,000.

Although, based on the difference in tax rates, C corporations that reinvest their earnings may be able to generate greater after-tax cash flow than a passthrough entity, the analysis should not end there. A C corporation shareholder may pay more tax upon disposing of its investment than a passthrough owner, especially in cases where no viable tax planning strategy exists (see “Exit Strategies,” below). In addition, C corporations that do not pay dividends may be subject to the accumulated earnings tax and the personal holding company tax.

Exit strategies

The amount of tax owed on exit plays a very important role in the choice of entity decision. Due to the difference in the build-up of tax basis in investments in C corporations versus investments in passthrough entities, C corporation shareholders will generally have a larger gain on the disposition of their investment than passthrough entity owners. The tax on disposition will depend on the owners’ tax rates and the amount of ordinary income recapture, among other factors.

There are certain exit strategies that may be used to defer the tax on gains from dispositions of investments. These strategies include:

  • Reinvesting the gains in qualified opportunity zones or qualified opportunity funds;
  • Selling the shares of a C corporation to an employee stock ownership plan; and
  • Transferring the investment through estate planning. Note that under President Biden’s tax proposals, the tax basis step-up of property at death would be limited.

In addition, non-corporate shareholders may be permitted to exclude part or all of the gain from the sale or exchange of “qualified small business stock” (QSBS) of C corporations that has been held for at least five years. The overall gain exclusion per issuer is limited to the greater of $10 million or 10 times the aggregate adjusted basis of the disposed shares. Each partner in a partnership and each shareholder in an S corporation is entitled to their own $10 million limitation on dispositions of QSBS by the partnership or the S corporation.

Changes to entity classification

Converting from one type of entity to another requires thoughtful consideration, analysis, and planning, and certain entity types may provide more flexibility than others for changing entity status. Converting to a different type of entity may trigger immediate tax consequences, which must be measured relative to any potential future tax benefits. Examples of possible tax consequences include taxable liquidations, tax on built-in gains, gain on liabilities in excess of tax basis, deferred revenue recognition, and changes in accounting methods.

Other tax considerations

The following are among the many other tax issues to consider when choosing an entity, the tax treatment for which can vary by entity type:

  • International tax rules, such as taxation of controlled foreign corporations, foreign tax credit limitations, and consequences of repatriation tax deferral;
  • Deductibility of upfront net operating losses;
  • Self-employment taxes (note that the social security base would increase under President Biden’s tax proposals);
  • State income taxes, which vary by state;
  • Estate and inheritance tax consequences for individual owners and their families; and
  • Tax reporting requirements, which in certain cases can be less onerous for C corporations as opposed to passthrough entities.
Non-tax considerations

While the choice of entity is often a tax driven decision, there are also many non-tax factors to consider, such as:

  • Liability protection for owners and management;
  • Flexibility for making day-to-day management decisions and for binding the organization;
  • Access to capital;
  • Transferability of ownership interests; and
  • Available exit strategies and succession planning.
How We Can Help

We can help you better understand the requirements and operational differences between C corporations, S corporations and partnerships, as well as model the immediate and long-term costs and benefits of converting, or not converting, from your current entity status or form.

Tags: Tax

5 Tax Accounting Method Changes That Can Generate Savings and Cash Flow

Cash flow preservation remains an important focus for many companies as the COVID-19 pandemic continues to create uncertainty for businesses. Accounting method changes provide a valuable opportunity for taxpayers to reduce their current tax expense and increase cash flow by accelerating deductions and/or deferring income. Changing to an optimal method of accounting often results in a taxpayer claiming a favorable “catch-up” adjustment on the federal tax return for the year of the change, which can significantly reduce taxable income or generate a net operating loss that can be carried back to higher tax rate years.

Whether it makes sense to change a method of accounting depends on the taxpayer’s tax posture, future company performance and goals. Taxpayers should keep in mind that current tax proposals would raise tax rates and make other changes to the federal income tax system for corporations and individuals. These proposals should be monitored and their potential effects considered when evaluating the short- and long-term benefits of a tax accounting method change.

The deadline for requesting certain “automatic” method changes is the date the taxpayer timely files its federal income tax return for the year of change. Thus, businesses should not only begin to review method changes that may make sense for 2021, they may still have time to make beneficial method changes for 2020. Five common beneficial method changes to consider for 2020 include the following:

1. Payroll taxes deferred by CARES Act

Taxpayers that deferred payments of the employer portion of 2020 social security taxes until 2021 and 2022 (as allowed by the CARES Act) may wish to consider adopting what’s known as the “recurring item exception” method of reporting payroll taxes.

Taxpayers generally will be allowed to deduct these payments in the year they are paid, i.e., in 2021 and 2022 when a business takes advantage of the maximum deferral period. However, a taxpayer that is willing to remit the taxes earlier may claim the deduction in 2020 if:

  • The taxes are paid by the earlier of (a) the date the taxpayer timely files its 2020 federal income tax return or (b) eight and a half months after the close of its 2020 tax year; and
  • The taxpayer uses the recurring item exception for deducting payroll taxes. Taxpayers that are not currently using the recurring item exception for payroll taxes can request the method change with the timely filed 2020 federal income tax return.
2. Advance payments

Accrual method businesses that currently recognize and pay tax on certain advance payments in the year of receipt may change their method to defer the recognition of a portion of the payment to the next tax year. To qualify for the one-year deferral, a portion of the advance payment must be recognized in a subsequent tax year for financial reporting purposes. Furthermore, businesses that are currently deferring advance payment recognition may engage in reverse planning to change the method to pick up the advance payment in the year of receipt.

3. Software development costs

For a limited time, taxpayers can accelerate deductions of qualifying software development costs incurred through 2021 to the year the costs are paid or incurred, rather than capitalize and amortize the costs over a period of years. This method change applies to the costs of developing software either for the taxpayer’s own use or to be held by the taxpayer for sale or lease to others. Note that the Tax Cuts and Jobs Act requires software development costs incurred after 2021 to be capitalized and amortized.

4. Qualified improvement property

Qualified improvement property (QIP) includes certain improvements made by a taxpayer to an interior portion of an existing nonresidential building. QIP placed in service after December 31, 2017 is depreciable over 15 years for tax purposes and qualifies for first year 100% bonus depreciation. Taxpayers that are depreciating QIP over 39 years can change to using the shorter 15-year recovery period and claim bonus depreciation by requesting an automatic method change.

5. Residential rental property

Taxpayers that have made a “real property trade or business election” and own residential rental property placed in service prior to 2018 may be entitled to request a method change to depreciate such property over 30 years instead of 40 years.

How We Can Help

We can help taxpayers of all industries and sizes proactively identify and assess tax method opportunities, determine the rules and deadlines for filing accounting method changes and liaise with the IRS as needed.

Tags: Tax

SALT Watch: 5 Issues to Consider in 2021

As state and local governments look for new ways to stimulate their economies, incentivize employment and keep businesses afloat, the pressure for states to generate additional tax revenue continues. In response to this pressure, states are revisiting taxpayers’ compliance with their “nexus” rules and other tax policies and considering new taxes on digital services. In addition, many state governments are reconsidering the extent to which they are willing to conform to federal tax rules and legislation.

Taxpayers need to be aware of the tax rules in the states in which they operate. Taxpayers that cross state borders—even virtually—should review state nexus and other policies to understand their compliance obligations, identify ways to minimize their state tax liabilities and eliminate any state tax exposure. The following are some of the state tax issues taxpayers should monitor and plan for in 2021:

1. Passthrough entity (PTE) income tax elections

It looks like the federal $10,000 “SALT cap” is sticking around, and more states are enacting a workaround in response. A growing number of states are allowing partnerships and S corporations to elect to be taxed at the entity level to help their resident owners get around the SALT cap. However, it is important that individuals understand the broad, long-term implications of the PTE tax election. Care needs to be exercised to avoid state tax traps, especially for nonresidents, that could exceed any federal tax savings.

2. Impacts of federal income tax changes

Federal tax legislation also has impact at the state level. While many states quickly settle on approaches to conform with or decouple from the federal legislation, other states have done nothing, leaving taxpayers to file state income tax returns with very little guidance on how or whether the federal changes apply.

Now that tax years impacted by the Tax Cuts and Jobs Act are well into their audit cycles, state taxpayers that unknowingly did not correctly take federal changes into account when calculating their state taxes may be confronted by not only audit exposure, but in some cases refund opportunities. Taxpayers should review their state tax returns to identify opportunities to minimize exposure and identify refunds well in advance of state tax audits.

3. Taxes on digital advertising services

Maryland was the first state to enact a digital advertising services tax. Large tech companies immediately sued the state, and in response the legislature passed a bill to delay the implementation of the controversial tax until 2022. To date, several other states have introduced similar digital advertising taxes, and some states are proposing to include these services in their sales tax base. States will be closely following the litigation in Maryland, as they consider their own legislation.

The definition of digital advertising services can potentially be very broad and fact specific. Taxpayers should understand the various state proposals and plan for their potential impact.

4. Sales and use tax nexus: Remote sellers and marketplaces

Florida and Kansas have finally joined the ranks of states with a bright-line economic nexus threshold for remote retailers and marketplace providers. At this point, the only state without a bright-line standard or marketplace rules is Missouri.

However, retailers should not forget about physical presence. Even though most states have implemented economic nexus rules since Wayfair, the traditional physical presence rules are still alive and well. States are continuing to assess retailers that, sometimes unknowingly, have some form of physical presence in the state.

E-retailers should be sure they are in compliance with state sales and use tax laws and marketplace facilitator rules and have considered all planning opportunities.

5. Property taxes

Assessed property tax values typically lag behind market values. If you think your property is being over-assessed compared to the fair market value of the property, then a consultation with a valuation expert can help to determine whether the property tax should be challenged.

How We Can Help

We are experienced in income, franchise, gross receipts, sales and use and property taxes, as well as unclaimed property and credits and incentives. We can help taxpayers monitor state tax laws and nexus requirements, understand where they have state obligations and how to minimize them, identify and implement planning opportunities, identify and quantify tax exposures, and assist with state tax audits.

Tags: Tax

Business meals are 100% deductible through 2022

If you are planning business meals in 2021 and 2022, keep detailed records of your expenses.

A temporary exception by the Treasury Department and Internal Revenue Service increased the usual 50% deduction to 100% for business meals purchased from restaurants January 1, 2021 through December 31, 2022.

The increase is intended to help the struggling restaurant industry, still reeling from the impacts of the pandemic. To claim the deduction, the business owner or an employee of the business must be present when the food or beverages are provided.

Deductible expenses include food or beverages purchased for immediate consumption either on or off site. This applies to business lunches, in-office meetings, holiday parties or picnics, team building events, and meal expenses during business travel, seminars, or conferences.

The deduction can not be applied to grocery stores and convenience stores that primarily sell pre-packaged goods. Sporting event tickets, transportation to and from restaurants, club memberships and expenses, and meals as part of entertainment that are not listed separately are also not included. Additionally, certain employer-operated eating facilities and restaurants are not deductible.

To maximize this deduction, keep records with separate categories for business meals, travel, employee social meals, and entertainment.

With constantly changing guidelines, you may want to seek the advice of a tax professional who can walk you through the steps needed to make the most of your unique tax situation. The tax team at BSB is well-versed in tax requirements and can help you maximize your tax benefits while remaining compliant with current law. Contact us today to speak with a tax advisor.

Tags: Tax

What You Need to Know about the American Rescue Plan

The unprecedented $1.9 trillion American Rescue Plan (ARP) was signed into law on March 11 to provide a new round of financial relief, money for vaccines and testing, benefits for states, and several additional projects. So, what does the massive spending bill mean for you?

Here’s what you need to know.

Unemployment benefits were expanded.

Under the ARP, the first $10,200 in unemployment benefits are now non-taxable for taxpayers who made less than $150,000 in 2020. If you qualify for the exclusion and have already filed your tax return reporting this as income, there is no need to amend. The IRS will automatically determine the correct taxable amount and any resulting overpayment will be automatically refunded or applied against any taxes owed. 

Unemployment benefits that were set to expire on March 14 are now extended through September 6, 2021. The additional $300 per week of unemployment assistance has also been extended.

Family and Sick Leave Credits were extended.

The FFCRA, the bill that provides tax credits to employers who pay employees affected by COVID-19, has been extended until September 30, 2021.

Employees who have already used the allowable 10 days of sick leave or 12 weeks of family leave will be able to start the count again on April 1, 2021. This means they will be able to claim sick leave credits as if they had taken 0 days.

If you are self-employed, you can take advantage of these credits. If you have been unable to work due to COVID-19 regulations, symptoms, quarantine, or caring for a child who is out of school/ daycare because of anything COVID-19 related, you are eligible to claim them.

The Employee Retention Credit was extended.

The Employee Retention Credit has been extended once again through December 31, 2021.

A third round of Economic Impact payments was approved.

A large facet of ARC is a third round of stimulus payments. This time, the checks will be based off $1,400 per taxpayer and dependent. There are some differences between these payments and the other two that we will learn as further guidance is released.

  1. All dependents are eligible for stimulus payments, including children over the age of 16 and adult dependents.
  2. The income phase out range is much shorter than before. Basically, anyone making $80,000 (single) or $160,000 (married) will be ineligible for any stimulus money in this round.

The third round of stimulus payments are expected to go out in two phases, and some have already been received. The first phase is based on the data the IRS already has so anyone who hasn’t filed a 2019 or 2020 tax return won’t receive a payment in the first phase. The second phase of payments will go out to taxpayers who should have received a larger stimulus based on 2020 filings. These payments will be going out either 90 days after the tax deadline OR September 1 (whichever is earlier).

The Child Tax Credit has changed.

Taxpayers with a child under 17 typically receive a $2,000 Child Tax Credit. The ARP extends the credit to $3,600 for each child under 6 years old and $3,000 for each child between 6-17 years old. Like the stimulus payments, this credit is only available to qualifying taxpayers who earn less than $75,000 (single) or $150,000 (married). This change will not be in effect for 2020 tax returns but will go into effect for the 2021 tax year only.

There will also be a monthly payment for half of the extended Child Tax Credit from July to December 2021. Qualifying taxpayers will receive $300 per month for each child under 6 years old or $250 per month for each child between the ages of 6-17.

It is worth noting that taxpayers who make too much money in 2021 to qualify will be required to repay the credit.

Additional funds were allocated to the Paycheck Protection Program.

More funds have been allocated for PPP loans, but there are not other significant changes. Funding has been extended to May 31, 2021. If you are planning to apply for another round of PPP, you need to act quickly.

The Restaurant Revitalization Fund was introduced.

The ARP also allocated new grants to help assist with huge revenue losses for the restaurant industry due to COVID-19. We are still awaiting guidance from the Small Business Association (SBA) and we will provide updates as soon as they become available.

With the constantly changing COVID legislation, there are many factors to consider. It is a good idea to seek the advice of a tax advisor who can help you plan for your unique circumstances. The team at BSB is monitoring the latest developments and guidance and will provide updates as they become available. If you have questions about the American Rescue Plan Act and how it may affect your situation, please contact your BSB advisor.