Consolidated Appropriations Act – Details of Lesser Known Tax Provisions
Published on by Barnes Dennig in COVID-19
The Consolidated Appropriations Act (CAA) signed into law this past December includes some key provisions that have generated a lot of attention and planning efforts such as around the PPP loans and Employee Retention Credit. However, there are a number of other smaller provisions that can have a significant impact on 2020 taxes as well as 2021 tax planning. Listed below are some of these key provisions to keep in mind over the coming months.
Business Meal Deduction
The CAA allows for a full deduction of business meals in tax years 2021 and 2022 as long as the expense is for food or beverages provided by a restaurant. Historically these kinds of expenses were limited to 50% deductibility for tax purposes. This provision is not only aimed at helping the hard-hit food service industry, but this can also provide significant tax savings for taxpayers who have historically had significant business meal expenses. Although this is not applicable until 2021, it is important for businesses to keep this in mind as they start their 2021 planning efforts.
Certain grants and subsidized loan payments
The CARES Act provided Economic Injury Disaster Loan grants (EIDL grants) as well as authorized subsidized loan payments for certain eligible entities. Additionally, the Economic Aid Act authorized grants to shuttered venue operations.
The CAA extended these subsidized loan payments as well as clarified that these benefits related to loan payments and grants noted above should not be included in taxable income. Those responsible for preparing tax returns should be certain to understand how these benefits were recorded on the financials so as to ensure that these benefits are not subject to tax.
Charitable deduction for non-itemizers
The CARES Act allows for a $300 charitable deduction for non-itemizers in tax year 2020. The recent act extends this provision to 2021 and also increases the maximum amount to $600 for married couples filing jointly for 2021 only.
Taxpayers who have historically taken the standard deduction should keep this in mind and ensure they obtain sufficient support for any contributions made to qualifying organizations in 2020 and 2021 so that they can receive this benefit.
Charitable deduction for itemizers
The CARES Act increased the limitation of cash charitable contributions made in 2020 from 60% of adjusted gross income to 100% of adjusted gross income. The recent legislation extended this benefit to the tax year 2021.
Flexible spending arrangements – The recent legislation allows for taxpayers to roll over unused amounts in their health and dependent care flexible spending arrangements. This rollover applies to amounts rolled from 2020 to 2021 and 2021 to 2022. Historically, individuals could only carryover up to $500 or had a grace period to spend the carried-over funds within two and a half months after the end of the year.
The past few months has introduced a lot of new tax legislation and with that a lot of planning opportunities. If you have questions or want to review what the new legislation may mean for you, contact us – we’re here to help.
Barnes Dennig COVID-19 Advisory Team
- Cheryl Ganim
- Andy Bertke
- Matt Rosen
- Ryan Lauer
- Nick Pennekamp