Liquid lunches are back! Ohh… they never left? We digress. While that is certainly a significant element of the bill it may not be the headliner for everyone. But… if you can do your boozing and schmoozing (for business purposes obviously) at a restaurant in 2021 and 2022 it will be 100% deductible versus the standard (since 1986) 50% deduction we are used to.
Seriously, the restaurant industry has had a wicked tough time, so get out there… #supportyourlocal
Additional significant elements of this bad boy are:
- Direct payments to taxpayers ($600 per, plus dependents, for singles w/ income < $75k and marrieds < $150k… phased out at $100k and $200k, respectively). Did you see Trump’s tweet on this one last night?
- Extended unemployment subsidies (extra $300 per week through March 14, 2021, and provides for up to 50 weeks of support).
- Rental assistance.
- Cape Cod Bridges.
- FFCRA Credit provisions are extended from December 31, 2020, through March 31, 2021.
- Extension of the Employee Retention Tax Credit – was originally just for 2020, now extended until July 1, 2021, and now is not mutually exclusive with PPP (more to come on this one in a subsequent post)
- Changes to Charitable Contributions – above the line deductions didn’t exist before, now they are $300 in 2020, which expands to $600 in 2021 for MFJ. Further, the limitation to 60% of income is halted in 2020 and 2021 – so give it all away!
- Loan forgiveness issues and debt relief programs – keep reading… yes, all the way to the end.
- Can you believe that we made it this far without mentioning PPP…? Neither can we. And that’s a big one… along with the other loan packages and forgiveness aspects. So let’s dive in.
Drum Roll Please
It’s been like dealing with children these past 9 months:
Dad (history): “Loans that are forgiven are taxable.”
Kids (congress): “Uh, uh, Dad you’re so old, that’s not the way it works anymore, CARES Act says so – I saw it on the internet, must be true.”
Mom (treasury): “You’re both right – because of the CARES Act the loan forgiveness isn’t technically taxable but the expenses you pay with those funds aren’t tax deductible anymore, so Dad is kind of right too.”
Dad: “WTF – of course, I’m right, that’s just semantics.”
Kids: [pounds fist and throws temper-tantrum] “How dare you trick us Mom! Nobody likes Dad.”
Mom: [Doubles down] “Look I’m not playing, you can’t get something for free and expect not to pay for it.”
Dad: “I’m over it, it’s not worth the aggravation, 70% of something is better than 100% of nothing.”
Kids: “This is BS – we said it’s not taxable, because, well, just because it’s what we want. Haven’t you heard the expression – eat your cake and have it too – well that’s us, so there.” [sticks tongue out].
Kids win! As always. Punks and brats – the whole lot of them. But we will let them win, just this once, because it’s what we all wanted deep down anyway.
What does all that mean? Very good things for the small business community. It has indeed been a wild roller coaster ride following and keeping up with all this the last few months, but it was worth it. The support afforded by the CARES Act gave businesses and community’s confidence, kept people employed, maintained the employer and employee relationships, kept income flowing into households, and kept people in their homes. It was not perfect – but overall, very successful, very timely, and very impactful to the business community.
Ok, enough of the superfluous talk – what is in the bill about PPP – the star of the show?
- Deductibility of expenses is back on! This is a big deal – and frankly, I should have saved it for the end to get you guys and gals to read all the way through. As played out in our Tony Award-worthy script above, the tax implications of PPP forgiveness have had many ebbs and flows. Now, finally, we are back to the original intent which ultimately allows this funding and forgiveness to not be included in taxable income.
- The actual words: “no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.” Basically, this means that the PPP Loan, if used properly and forgiven, will not increase the company’s or your tax burden.
- Most people have probably stopped reading by now as that is all they cared about… but wait, there’s more – New expenses are eligible for use/ forgiveness – these have to fit into the 40% that isn’t payroll… payroll must still account for 60% of your usage of PPP funds.
- Covered operations expenditures – i.e., software, cloud computing, product, or service delivery, processing payments, tracking of payroll expenses, human resources, sales and billing functions, or accounting/ tracking of supplies, inventory, records and expenses.
- Covered property damage costs – costs related to property damage caused by the civil unrest that has occurred in 2020 (that is not covered by insurance).
- Covered Worker Protection – operating or capital (that is new) expenditures to facilitate or adapt to the impact of the pandemic. i.e. PPE, drive-through window, ventilation system, sanitation, safety requirements, etc…
- New Options for Covered Periods
- Borrowers now have the right to choose ANY covered period – simply, a borrower is no longer locked into an 8- or 24-week period; instead, they can choose ANY period lasting BETWEEN 8 and 24 weeks.
- Streamlined Forgiveness for Borrowers under $150,000 – finally, the long-rumored musings of bankers and accountants are coming to fruition. The bill calls for a one-pager, essentially an affidavit of appropriateness. Further, it appears that a small borrower will not be subjected to the required reductions in forgiveness amounts generally caused by slashing salaries or headcount. Smart money foretells that the banks are still going to want to see a ton of supportive paperwork and forms
You are not tired of PPP yet… good because neither is this bill! In walks the PPP’s long-lost brother, a Second Round of PPP Loans.
Essentially all original rules apply, unless updated above and below, but… this round has a few qualifiers that the original PPP funding did not.
- We drop from a 500-employee max down to 300.
- Businesses must establish that they have experienced a 25% drop in gross receipts during a quarter in 2020 relative to that quarter in 2019 (at this point guidance here is lacking – but the bill was kind enough to give the SBA 10 days!).
- Funding math is pretty much the same – 2.5x the average monthly payroll of 2019 (limited to $2 million). However, the hospitality industry gets some much-deserved attention here – they can apply for 3.5x the average monthly payroll, again, limited to $2 million.
Not an element in this bill that addresses PPP that should not make the entire small business community joyful – Enough about PPP.
Other Loan Forgiveness Issues
Receipt of an Economic Injury Disaster Loan advance will no longer be taxable, and any expenses paid with the advance will remain deductible.
The same holds true for borrowers of traditional Section 7 SBA loans who had six months of their principal and interest paid pursuant to the CARES Act.
Other Debt Relief Programs
The CARES Act authorized the SBA to pay six months’ worth of a borrower’s principal and interest on an existing Section 7 loan (not a PPP loan). The bill would compel the SBA to pay an additional three months of principal and interest beginning in February 2021.
Wishing you all a wonderful holiday season – I expect that each of you will be studying the bill over the break, as will we – so our office will be ready for all your questions (you’ll be asked to provide page number and section code – wink, wink) in the New Year.
Want to read more? Can’t get enough?
Here is the 29-page summary
And the 5593-page verbosity