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Thankfully 2020 is almost history and the roaring 20s are about to start. We have decided to take a far more optimistic approach to 2021, in part because of the new tax law changes that Congress just passed a few days ago. The best comments from tax law experts that we have found/heard about the new CARES Act are as follows: “the new law is five thousand-plus pages and complicated,” so we are only presenting limited information about it, until we know more. We also caution our clients (and their neighbors/friends and “other sources of tax advice!”) that tax items that are or will be published in the media are often generic and not always widely applicable. We are monitoring the CARES Act updates closely and will update you as the rules are finalized by the IRS and SBA. This letter will highlight only three items, the 100% meals expense, the employee retention credit, and the next round of PPP funding.
Are meals deductible in 2021?
First, in an exclusive acknowledgement of the foodservice industry challenges in 2020, meals in 2021 and 2022 are once again 100% deductible! Whether that is a three-martini lunch, catered virtual meeting, or an “old-fashioned sit down with others” meal outside of your own kitchen, the expense will be fully realized for the next two years. The same restrictions apply for the business purpose of the meal, but celebrating the passing of 2020 is surely a business purpose. Some of our favorite 2021 tax deductions are found at Kikki Bistronome and Sushi 101, while we also love to grab and go from Local Loaf and Rhino Market & Deli. In the University area we love Ishi and in Ballantyne Thai First. If you find yourself in Rock Hill, then check out Fish Market Bar and Grill or the Farm Haus. You can also celebrate at Optimist Hall, where Spindle Bar and Billy Sunday will make that martini lunch a reality.
What are the changes to Employee Retention Credit (ERC) in 2021?
Next, there are changes to the Employee Retention Credit (ERC), which will likely make more businesses eligible in 2020 and 2021. The following is a BASIC summary of the ERC and there are some important nuances required for eligibility that are too complicated to post here. We will provide a follow up specifically about the ERC that addresses those issues.
ERC (Employee Retention Credit) – what is it all about?
The ERC is a payroll tax credit for qualified wages paid to employees. This reduces payroll taxes required to be PAID currently or provides a refund of taxes already paid.
- Can now be applied for retroactively by PPP recipients.
- Can be applied for going forward by PPP second bite recipients.
- Increased from up to 5K per employee to up to $7K per employee per quarter for wages paid from January 1, 2021 to June 30, 2021.
- Must be taken against wages paid WITHOUT the PPP funds.
- If a business has 5 eligible employees for the first six months of 2021, then they COULD be eligible for $70,000 in total credits (5 employees x $7K = $35K x 2 quarters).
- GP CPA will elaborate more on this in the near future.
PPP is back!
Lastly, the PPP is back. We know that this is as exciting for you as it is for us! New rules, same bullshit, but at least there are no issues of “deductibility” for the payroll/rent that went with the first round. Applications will be similar (we hope, we don’t yet know) to the original PPP ones and are due by March 31, 2021. The biggest change will be the necessity requirement, which is a bit of a new hurdle for most businesses and will require clarification from the SBA. We will also provide more details about this as we learn them.
In the meantime, let’s celebrate like 2020 has passed and be as optimistic as possible for 2021 and beyond.
The Employee Retention Credit (“ERC”) has had some upgrades and retrofits to some of the basic calculations with the most recent (12.27.20) CARES Act changes.
How to Persuade Clients to Change Banks. Listen to Justin Prusiensky’s Guest Appearance on the Relay Financial Webinar
Our expert accountant Justin Prusiensky was recently interviewed as a guest speaker by Relay Financial to discuss how to persuade clients to change banks.
Congress extended some of the tax breaks retroactively to January 1, 2018. They now expire on December 31, 2020. Learn more about tax breaks that have been extended.
GP CPA offers a wide range of business advisory services that are tailored to the needs of business owners. For those small businesses who need someone to keep the books, we can do that.
Take control back from the big box payroll companies and work with someone who can guide you to a better payroll process. GP CPA + GUSTO is the modern way payroll runs and the partnership that moves your business forward.
GP CPA has relied on cloud-based accounting technology for many years now and devotes a significant amount of time toward testing and learning the latest and greatest systems out there.