10 COVID-Related Tax Considerations
Are you preparing for your 2020 taxes? 2020 was challenging in so many ways and now it’s time to figure out how the different programs and laws will impact your taxes. We put together a quick list of COVID-related items for you to consider as you gather your tax information.
COVID-19 Tax Information
Did your entity receive Paycheck Protection Program (PPP) funds related to the COVID-19 pandemic? If yes, be sure to have details of the amount of funds received. If forgiven, the forgiveness will be treated as tax-exempt income.
- As part of the Consolidated Appropriations Act (“the Act”) signed December 27, 2020, deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven.
- Did your entity receive any other funds/loans/grants (local, state, federal or other) related to the COVID-19 pandemic and economic recovery, such as an Economic Injury Disaster Loan (EIDL)? If yes, be sure to check the details of each program to determine the corresponding tax effects.
- For tax year 2020, meals remain as only 50% deductible for tax, while entertainment is still not deductible. For expenses incurred in 2021 & 2022, meals are allowed a 100% tax deduction as part of the Act.
- The Act extends the refundable payroll tax credits for paid sick and family leave, enacted in the Families First Coronavirus Response Act through the end of March 2021. It also modifies the payroll tax credits so that they apply as if the corresponding employer mandates were extended through March 31, 2021. The Act also allows individuals to elect to use their average daily self-employment income from 2019 rather than 2020 to compute the credit.
- The Act extends the CARES Act employee retention tax credit (ERTC) through June 30, 2021. It also expands the ERTC and contains technical corrections. A noteworthy modification provides that employers who receive PPP funds may still qualify for the ERTC with respect to wages that are not paid with forgiven PPP proceeds.
- The Act extends the repayment period through Dec. 31, 2021, on employees’ share of certain payroll taxes deferred from Sept. 1, 2020 — Dec. 31, 2020 through Dec. 31, 2021.
- The Act allows a tax credit of 40% of wages (up to $6,000 per employee) to employers who conducted an active trade or business in a qualified disaster zone (as defined in the Act). The credit applies to wages paid without regard to whether the employee performed any services associated with those wages.
- The Act modifies the CARES Act’s modification of the charitable contribution limits for 2020 to allow corporations to make qualified disaster relief contributions of up to 100% of their taxable income.
- The Act permits individuals who have a net disaster loss (as modified by the Act) to increase their standard deduction amount by the amount of the net disaster loss.
If you have additional questions or would like to discuss your specific situation, please contact Kyle Woiwood.
The material and information contained here are for general informational purposes only. You should not rely upon the material as a basis for making any business, legal or other decisions. Please contact your advisor for detailed information.
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Kyle Woiwood, CPA, is director of tax services at LWBJ, specializing in tax compliance and consulting. He provides expertise in a variety of business structures, including startups and small businesses. He also provides expertise as part of LWBJ's Accounting & Advisory Services department, including outsourced CFO services, bookkeeping, payroll and various accounting-related functions.