The 2021 Consolidated Appropriations Act: What does it mean for you?
January 6, 2021
With over 5,500 pages of the new Consolidated Appropriations Act (the CAA, or “the Act”) enacted on December 27, 2020, it is no wonder one might be confused about its contents. That’s why we at Geffen Mesher are here to walk you through what you need to know. So, sit back and relax as we weave our way through the tax maze so you can be prepared.
The most important part of the Act was the clarification that expenses paid with Paycheck Protection Program (PPP) loan funds would be deductible. This new guidance overturned IRS notices 2020-27 and 2020-32 that were published two months prior to the passing of the CAA. This comes as much-needed relief, as taxpayers and businesses have been eager for Congress to come through on its intent.
Speaking of PPP loans, there will be a second round of funding for companies still struggling. These loans are more focused on small businesses; applicants must have fewer than 300 employees and demonstrate a 25% drop in gross receipts from 2019 to 2020. Loan amounts will depend on the business’s monthly payroll costs as well as the type of business applying for the loan.
Several expiring tax credits were made permanent or extended under the Act, including the following:
- The Energy Efficient Commercial Building Deduction, also known as the 179D deduction
- The Look-Through Rule for related controlled foreign corporations
- The New Markets Tax Credit
- Work Opportunity Tax Credit
- Employer credit for paid family and medical leave
- Several extensions for fuel credits
- Several extensions related to energy efficient property and renewable resources
In an effort to help struggling businesses and restaurant establishments, there will be a temporary full deduction of business meals previously subject to the 50% deduction limitation. However, this temporary full deduction will only be for the 2021 and 2022 tax years. To qualify for the full deduction, the food must be specifically from a restaurant or food service establishment, so go support a local eatery! Unfortunately, necessary food and beverage expenses of operating your business are still only 50% deductible.
For those who have elected to depreciate property using the Alternative Depreciation System (ADS), or are required to for certain tax calculations, the Act amends the residential rental property depreciable life. For certain residential rental property placed in service prior to January 1, 2018, the ADS depreciation life is now 30 years instead of 40.
Now for the part we’ve all been waiting for. For those making less than $75,000 (or $112,500 if head of household), you should be getting a $600 economic impact stimulus check. Married tax filers making less than $150,000 should be getting a $1,200 payment. Taxpayers will also receive $600 for each dependent under the age of 17. Complete phase-out is $87,000 for individuals, $124,500 for heads of household, and $174,000 for married couples. What this means is that even if you receive the first stimulus check, you may not be receiving the second stimulus check. So, keep checking those bank accounts and the mail.
We at Geffen Mesher hope this helps you understand the tax impacts of the 2021 Consolidated Appropriations Act. While changes and the implications of such will continue to emerge, we are dedicated to helping keep our clients informed.