This has already been a complex year, and it’s only March. Here are some of the major changes.
For individuals and businesses in Texas, income tax returns which are normally due on March 15th and April 15th are automatically extended until June 15th this year as a result of the Presidentially-declared natural disaster (the freeze of February 2021). Please note: Automatic, and all of Texas. Groups are pushing Congress to extend the individual deadline to July 15th for all filers, but that has not yet passed.
Economic Impact Payment Number 3 is now authorized. As a reminder, EIP1 was the $1200/$2400 last summer (plus $500 per eligible child), EIP2 was the $600 per person in January/February 2021, and an additional $1400 per person will be issued “soon”. Note that payments were issued based on the best information the IRS had at the time -if you were married and had adjusted gross income over $150,000 in 2019, you probably did not get EIP1 even if your 2020 income dropped and you should have been eligible. If you got married/divorced or added or lost dependents in 2020, the IRS doesn’t know about it until a return is filed. The 2020 return (i.e. “this year’s” return, will adjust for EIP1 and EIP2 payments that you “should have received but didn’t” or “shouldn’t have received but did” so I will be asking you how much you actually received for PPP1 and PPP2. If the IRS thinks they sent you a debit card, but you didn’t receive it, there will be more complications.
PPP loans are not taxable proceeds, and the forgiveness of the loan is not taxable. Expenses paid with the proceeds remain deductible expenses. Loans are assumed to be forgiven as of December 31, 2020 even though you may not have applied for forgiveness yet. If you will not be applying for forgiveness, please advise your CPA.
PPP2 loans are available if you had at least one quarter in 2020 which showed a reduction in gross receipts of more than 25% compared to the same quarter of 2019.
If you are a self-employed person, and did not apply for PPP1, the SBA is allowing you to apply now for a PPP1 loan and is much more generous in the loan amount. If you had applied before, you were entitled to 2.5 times average monthly profits; if you did not apply then but do now, you are entitled to 2.5 times average monthly receipts. The SBA has acknowledged that life is not fair – if you got PPP1 with 2.5x net, you cannot apply for more money. If you snoozed then, this time you win.
EMPLOYEE RETENTION CREDIT FOR EMPLOYERS:
On the original CARES Act (one year ago), if you got a PPP loan then you were not eligible for ERC. In late December, Congress changed the law so that now you CAN do both- if you qualify for ERC, you can take the credit even if you received PPP funds. But- this is very important – you cannot use the same wages that you used for PPP forgiveness to calculate the ERC. It would be much better to use rent, utilities, etc. for up to 40% of the PPP forgiveness so you can use the remaining payroll for ERC. Again, consult your CPA before sending the forms to the bank.
ERC credits are obtained on the quarterly payroll tax returns (Form 941), so some of you will be amending payroll tax forms as well due to the retroactive rule change. My guess (and it is a guess, not a fact) is that Q1 2021 941s that are usually due by April 30 will be extended. We will see.
COMMERCIAL REAL ESTATE:
In the December 27th law, Congress pushed through a retroactive change to the depreciable life of non-residential real estate. Depreciation used to be over 39.5 years, the act changes it to 30 years for property placed into service in 2018 or afterwards.
MORE WILL FOLLOW:
There will be more legislation, rule changes, etc. this year. I’m not sure what will change yet, but I’m sure change will happen. Please follow the blog as it’s the most efficient way to get information out.