Tax News In A Nutshell - 12.21.20
What's Up In Washington, D.C.?
Congress Brings It Home for the Holidays
It’s said nothing makes a person more productive than the last minute, and Congress has indeed proven this theory as true. At the eleventh hour, and after two more short-term continuing resolutions to avert a government shutdown, Congress has completed a $2.3 trillion dollar spending deal that includes a full year of government funding and a very long-awaited $900B second stimulus package.
At the moment, we are still waiting for legislative text containing details but tax highlights are said to include:
Stimulus checks of up to $600 per adult and child
Extension and expansion of the PPP including:
A second round of loans for qualifying small businesses
Modifications to better serve nonprofits, restaurants, live venues, independent movie theaters, and cultural institutions
Forgiveness simplification for loans of $150,000 or less
Deductibility of expenses paid for with PPP funds is said to be included, but we need to wait for the official bill text to be certain
Enhanced unemployment benefits through March of 2021, with $300 per week additional UI
Strengthened Low Income Housing Tax Credit
Extended and improved Employee Retention Credit
Improved Earned Income Tax Credit & Child Tax Credit that allows a lookback to 2019 income
Tax credit to support employers offering paid sick leave
Extension of the New Markets Credit and Work Opportunity Tax Credit
Mortgage debt forgiveness exclusion from income extended five years
Sweeping clean energy reforms, R&D enhancements, efficiency incentives, and extended clean energy tax credits
100% deduction for business meal expenses for 2021 and 2022
Permanent lower excise tax rates for beer, wine, and spirits makers
Coronavirus-related liability protection for businesses and state and local funding are said to not be included in this bill. The two controversial provisions were separated out as well in a previous proposal to enable the passage of an additional round of stimulus legislation.
Both chambers are expected to vote on and pass the package today. It’s going to be big, literally and figuratively!
Penalty Relief Please
Most would agree 2020 has been abnormally intense on the tax front and few have been spared. The AICPA recently requested pandemic-related penalty relief through a streamlined reasonable cause penalty abatement process and this past week a bipartisan group of senators joined the effort. The lawmakers’ letter to Treasury Secretary Mnuchin and IRS Commissioner Rettig acknowledges the initial steps taken by the IRS to ease filing burdens and pause collections, but suggests more relief is needed.
The senators also urged the IRS to pause the issuance of incorrect notices being sent to taxpayers until the mail backlog of approximately three million pieces is resolved.
The IRS has extended the temporary allowance of digital signatures on certain documents from January 1, 2021 through June 30, 2021. Efile authorization Form 8879, Form 3115 for accounting method changes, estate and gift tax return filings, and several more can be e-signed to promote timely filing and minimize in-person contact.
Final rules were released regarding TCJA changes to the §162(m) disallowance of a deduction by publicly held corporations for compensation to covered employees that exceeds $1M. Proposed regulations were generally retained, with a notable change for additional limited transition relief for compensation paid by partnerships.
Notice 2020-88 announces the beginning of Round 3 of the §48A Phase III Qualifying Advanced Coal Project for the deployment of advanced coal-based generation technologies.
Low Applicable Federal Rates (AFR) continue for January 2021, as posted in Rev. Rul. 2021-1. These rates are used for various purposes, including computing §382 loss carryforward limitations, setting loan terms, and valuing annuities for estate planning.
Notice 2021-01 discusses that Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the Internal Revenue Code, which is primarily used by private foundations, is required to be electronically filed for taxable years beginning on or after July 2, 2019. Paper returns may be continued to be filed until e-filing is available in early 2021.
Feeling generous this holiday season? Don’t forget to substantiate your donations with proper documentation!
Donors must keep a bank record or a written communication from the donee containing the date, amount paid, and name of charity as proof of a contribution. A paystub or W-2 can substantiate a donation via payroll deduction if a pledge card or other similar document is kept.
Written substantiation requirements from the donee organization kick in once reaching $250 or more and an appraisal may be required for certain noncash contributions over $5,000.
Remember that donations to individuals generally is not tax deductible, but rather a gift. The annual gift tax exclusion for 2020 is $15,000.
Happy holidays to you and yours; let's make the best of it!
Information provided is for educational purposes and attempted humor, not to be construed as tax advice. Please consult your advisors to discuss impacts on your unique situation.