Tax breaks for Individual filers and Coronavirus Government Grants

Dear Clients and Friends:

As we enter the second month of 2021 we hope you all are staying healthy and safe. This month we will look at some recent income tax changes and other developments that impact our financial lives.

Coronavirus Related Government Grants:

Billions of dollars are available to both individuals and businesses to help in dealing with the COVID-19 pandemic. The second stimulus bill passed in late December, 2020 increased the grants available, and included $25 billion in rental assistance for individuals, more dollars for Small Business Administration Economic Disaster Loan advances (EIDL), and new grants for certain entertainment venues such as movie theaters. Many of these grants do not need to be paid back.

However, these grants are typically taxable for both IRS and state tax purposes. Two exceptions to these general rules are the rental assistance grants and the EIDL loans are both tax-free.

Payroll Protection Plan (PPP) Loans:

The COVID-19 stimulus act set aside funds for both first time PPP loan applicants and qualified second time applicants.

Second-time applicants must meet the following requirements:

• Have 300 or fewer employees
• Show a 25 percent or more decline in revenue during at least one quarter in 2020 when compared with that same quarter in 2019
• Used your original PPP money or have a plan to use it soon

The deadline for applying for this round of PPP loans is March 31, 2021, and the money is available on a first-come-first serve basis. Generally, the maximum amount available is 2.5 times 2019 or 2020 annual payroll. Annual payroll costs

generally also include state and local taxes assessed on compensation and health insurance premiums paid. There are different rules for sole proprietors. The loan is forgivable if loan proceeds are spent on the following expenditures:

• Payroll
• Rent
• Interest on mortgage obligations
• Utilities
• Operational Expenditures
• Property damage
• Supplier Costs
• Worker Protection

At least 60 percent of the loan proceeds must be spent on payroll costs.

Tax Breaks for Individual Filers:

• Typically charitable contributions are tax deductible if taxpayers itemize their deductions. Under the CARES Act taxpayers that do not itemize deductions are allowed a $300 charitable contribution deduction. Taxpayers filing jointly that do not itemize can deduct up to $600 of charitable contributions. This above the line deduction was extended through 2021.
• The CARES Act increased the charitable contribution limit from 60 percent of Adjusted Gross Income (AGI) to 100 percent of AGI. This charitable deduction increase was extended through 2021.
• Medical expenses are deductible if the total medical expenses exceed a percentage of AGI. For 2021 and forward this percentage is set at 7.5 percent of AGI.
• Teachers of grades K through grade 12 are allowed a deduction for classroom supplies up to $250. The eligible expenses are expanded to include personal protective equipment, disinfectant and other supplies used to prevent the spread of the Coronavirus.
• The deduction for college tuition and other fees has been eliminated after 2020. In its place, the Lifetime Learning tax credit has been expanded beginning in 2021. The Lifetime Learning Credit phaseout range will be $80,000 to $90,000 for single filers and $160,000 to $180,000 for joint filers beginning in 2021.

The latest round of law changes impacts both businesses and individual income taxpayers. If you have any questions on how these law changes impact you, please contact any of our offices.