Weekly Tax Brief

Business meal deductions: The current rules amid proposed changes

Details: Published: 04 June 2020 04 June 2020

One tax break that President Trump has proposed to help restaurants and entertainment venues is an increase in business meal and entertainment deductions. We’ll let you know if a law passes that enhances deductions. In the meantime, let’s review the rules. Before the pandemic hit, many businesses spent money “wining and dining” customers, employees and others. Under current law, entertainment expe nses aren’t deductible. However, you can deduct 50% of the cost of business-related food and beverages, if you meet certain requirements. If you buy food and beverages at an entertainment event, you can deduct 50% of the cost, but only if business was conducted right before, during or afterwards.

Student loan interest: Can you deduct it on your tax return?

Details: Published: 02 June 2020 02 June 2020

Many taxpayers with student loans have been hard hit by the economic impact of COVID-19. The CARES Act contains some help. It allows borrowers with federal student loans to stop making monthly payments until Sept. 30, 2020. If you do make student loan payments, you may be able to deduct the interest on your tax return, depending on your income and subject to certain requirements. The maximum amount of student loan interest you can deduct each year is $2,500. For 2020, the deduction is phased out for married taxpayers filing jointly with adjusted gross income (AGI) between $140,000-$170,000 ($70,000-$85,000 for single filers). The deduction is unavailable for taxpayers with AGIs above that.

IRS releases 2021 amounts for Health Savings Accounts

Details: Published: 29 May 2020 29 May 2020

The IRS recently released the 2021 inflation-adjusted amounts for Health Savings Accounts (HSAs).

For calendar year 2021, the annual contribution limitation for an individual with self-only coverage under a HDHP is $3,600. For an individual with family coverage, the amount is $7,200. This is up from $3,550 and $7,100, respectively, for 2020. For calendar year 2021, an HDHP is a health plan with an annual deductible that isn’t less than $1,400 for self-only coverage or $2,800 for family coverage. In addition, annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) can’t exceed $7,000 for self-only coverage or $14,000 for family coverage.

Fortunate enough to get a PPP loan? Forgiven expenses aren’t deductible

Details: Published: 22 May 2020 22 May 2020

The IRS has issued guidance clarifying that certain deductions aren’t allowed if a business has received a Paycheck Protection Program (PPP) loan. Specifically, an expense isn’t deductible if both: 1) the payment of the expense results in forgiveness of a loan made under the PPP, and 2) the income associated with the forgiveness is excluded from gross income under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. IRS Notice 2020-32 states that “this treatment prevents a double tax benefit.” However, two members of Congress say they’re opposed to the IRS stand on this issue. They say they’ll seek legislation to make certain expenses deductible. Stay tuned.

Did you get an Economic Impact Payment that was less than you expected?

Details: Published: 18 May 2020 18 May 2020

Did you get an Economic Impact Payment (EIP) that was less than you expected? The federal government is sending EIPs to help mitigate the effects of COVID-19. If you’re under a certain adjusted gross income (AGI) threshold, you’re generally eligible for the full $1,200 ($2,400 if married filing jointly). And if you have a “qualifying child,” you’re eligible for an additional $500. Some people have received EIPs for less than they were expecting because they make too much money to receive the full EIP. Others may think their children are eligible for a payment and they aren’t. Still others may have debts, such as past-due child support or garnishments from creditors, that reduced their EIPs.

Do you have tax questions related to COVID-19? Here are some answers

Details: Published: 11 May 2020 11 May 2020

The coronavirus (COVID-19) pandemic has affected many Americans’ finances. You may have questions about the implications. For example, if your employer is requiring you to work from home, can you claim home office deductions on your tax return? Unfortunately, if you’re an EMPLOYEE who telecommutes, home office expenses aren’t deductible through 2025. What about unemployment compensation? Is it tax able for federal tax purposes? Yes. This includes state unemployment benefits plus the temporary $600 per week from the federal government. (Benefits may also be taxed for state tax purposes.) Contact us if you have questions or need more information about these or other COVID-19-related tax issues.

The CARES Act liberalizes net operating losses

Details: Published: 08 May 2020 08 May 2020

The CARES Act includes favorable changes to the rules for deducting net operating losses (NOLs) to provide businesses with relief from the novel coronavirus (COVID-19) crisis. It permanently eases the taxable income limitation on deductions. For tax years beginning before 2021, the CARES Act removes a taxable income limitation on deductions for prior-year NOLs carried over into those years. So NOL carryovers into tax years beginning before 2021 can be used to fully offset taxable income for those years. These changes may affect prior tax years for which you’ve already filed tax returns. To benefit from the changes, you may need to file an amended tax return. Contact us to learn more.

New COVID-19 law makes favorable changes to “qualified improvement property"

Details: Published: 04 May 2020 04 May 2020

A law providing relief due to the coronavirus (COVID-19) crisis contains a valuable change in the tax rules for improvements to interior parts of nonresidential buildings. You may recall that under the Tax Cuts and Jobs Act, any qualified improvement property (QIP) placed in service after Dec. 31, 2017 wasn’t eligible for 100% bonus depreciation. The cost had to be deducted over 39 years rather th an entirely in the year the QIP was placed in service. This was due to a drafting error by Congress. But the new CARES Act now allows most businesses to claim 100% bonus depreciation for QIP as long as requirements are met. The correction is retroactive to QIP placed in service after Dec. 31, 2017.

IRA account value down? It might be a good time for a Roth conversion

Details: Published: 28 April 2020 28 April 2020

The coronavirus (COVID-19) pandemic and the ensuing stock market downturn has caused the value of some retirement accounts to decrease. But if you have a traditional IRA, a downturn may provide a valuable opportunity: It may allow you to convert to a Roth IRA at a lower tax cost. Roth IRA qualified withdrawals are tax free and you don’t have to begin taking RMDs after you reach age 72. But if you convert to a Roth, you’ll owe income tax on the converted amount. If your traditional IRA has lost value due to a market downturn, converting to a Roth now will minimize the tax, and you’ll avoid tax on future appreciation. Interested? Contact us to see whether a conversion is right for you.

Answers to questions you may have about Economic Impact Payments

Details: Published: 21 April 2020 21 April 2020

Millions of eligible Americans have already received their Economic Impact Payments (EIPs) via direct deposit or paper checks, according to the IRS. Others are still waiting. The payments are part of the CARES Act. Is there a way to check on a payment status? A new IRS tool called “Get My Payment” shows taxpayers either their EIP amount and the scheduled delivery date, or that a payment hasn’t bee n scheduled. It also allows taxpayers who didn’t use direct deposit to provide bank account details. Some people are getting an error message (“payment status not available”). Hopefully, the IRS will have it running seamlessly soon. Access the tool here: https://bit.ly/2ykLSwa

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