Month: January 2021

Tax

New Stimulus Law Grants Eight Tax Breaks for 1040 Filers

As you doubtlessly know, Congress recently passed a massive new stimulus bill that was enacted into law on December 27, 2020. Most of the public’s attention has been focused on the bill’s authorization of additional stimulus checks and new PPP loans and other aid targeted to struggling businesses.

But Form 1040 American taxpayers who are not in business are struggling as well. The stimulus bill contains a hodgepodge of eight new or extended tax breaks intended to help Form 1040 taxpayers.

None of these tax breaks are earthshaking by themselves, but together they add up to a nice tax present for COVID-19-weary Americans. 

Here are eight new tax breaks that can help you

  • deduct cash contributions to charity if you don’t itemize,
  • deduct up to 100 percent of your adjusted gross income (AGI) as a charitable deduction,
  • lengthen to one year the time you have to repay your 2020 employee Social Security taxes if you had them deferred by your employer,
  • deduct medical expenses in 2021 using the now-extended 7.5 percent of AGI floor for this deduction,
  • carry over unused flexible savings account (FSA) funds to next year,
  • use your 2019 income to qualify for the earned income tax credit and/or child tax credit if you’re a lower-income taxpayer,
  • deduct out-of-pocket expenses for personal protective equipment (PPE) if you’re a teacher, and
  • take advantage of the lifetime learning credit in 2021 if you’re a higher income taxpayer.

If you have any further questions or need my assistance, please call me on my direct line at 408.778.9651.

Tax

New Laws – COVID-19 Related Government Grants: Taxable or Not?

Billions of dollars in grants are being doled out to individuals and businesses in the wake of the COVID-19 pandemic. The recently enacted second stimulus bill has increased these grants, including $25 billion in rental assistance for individuals, a new round of Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL) advances, and new grants for shuttered entertainment venues such as movie theaters. 

The good news is that, unlike loans such as SBA EIDLs, these grants don’t have to be paid back. 

The bad news is that federal, state, and local grants may be taxable income to the grantee.

As a rule, government grants to help individuals after a disaster such as the COVID-19 pandemic are not taxable income under the general welfare exclusion. Thus, for example, pandemic rental assistance is not taxable income.

But grants to businesses do not come within the general welfare exclusion. Thus, they are taxable unless Congress specifically acts to exempt them.

Congress has acted with the second stimulus bill to make both EIDL loan advances and grants for shuttered entertainment venues tax-free. 

If you have any further questions or need my assistance, please call me on my direct line at 408.778.9651.

Tax

PPP Alert: New Shot for Your Tax-Free Cash

Did you miss out on the first two opportunities to receive your tax-free Paycheck Protection Program (PPP) cash?

Many did miss out. Why?

One reason: the word “loan.” 

Who wants a loan? No one. Well, almost no one.

But who wants a cash gift, tax-free? 

If you do, read on for the details. But first, you should know that the big picture works like this:

  1. You obtain your PPP tax-free monies from a lender (it’s called a “loan,” but watch that word disappear as you read this letter).
  2. You spend all the PPP money on yourself if you are self-employed or operate as a partnership; on payroll (including pay to you, if that applies); and on other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection.
  3. You apply for loan forgiveness and achieve 100 percent loan forgiveness, which is easy-peasy when you spend 60 percent or more of the money on payroll (and yourself if you are self-employed or a partner in a partnership).
  4. You deduct the expenses that you paid with the PPP loan monies that were forgiven.

New Money on the Table

The new COVID-19 stimulus act sets aside $35 billion for first-time PPP applicants, with $15 billion of that made in loans for first-time applicants with 10 employees or fewer or made in amounts less than $250,000 to businesses in low-income areas.

New Deadline

The new deadline of March 31, 2021, replaces the expired deadline of August 8, 2020.

The monies available in this new round of PPP funding are on a first-come, first-served basis. Don’t procrastinate. Get your application for your first-time PPP monies in place now.

If you would like to discuss the PPP, please call me on my direct line at 408.778.9651.

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