IRS extends additional tax deadlines for individuals to May 17
With Tax Day officially moved to May 17, 2021, there were several associated deadlines that normally go hand in hand with the individual tax deadline but were not specially addressed.
On March 29 the IRS addressed the most pressing of these with Notice 2021-21, which specified that the following tax related deadlines were also moved to May 17, 2021, to correspond with the individual income tax deadline.
The most item not covered with Notice 2021-21 is First Quarter 2021 Estimated Tax Payments which are currently still due April 15. Were monitoring this situation and will provide and update should this date also change to May 17.*
For more information, a link to the IRS announcement is here [LINK] along with a downloadable copy of Notice 2021-21 below.
* correction from early posting which incorrectly listed stated Q1 2021 Estimated Tax Payments were due May 17.
The six-month free COBRA period is from April through September 2021
Forbearance and Eviction Moratoriums
According to December survey data collected by the Bureau of Labor Statistics,
Roughly 26.8 million Americans are either unemployed, experiencing reduced pay and work hours or have left the labor market entirely.
The mileage rate decreased 1.5 cents from 2020 for Business use mileage, and 1 cents for medical, or moving purposes for qualified active duty members.
December 22, 2020
WASHINGTON — The Internal Revenue Service today issued the 2021 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on January 1, 2021, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Moving Expenses for Members of the Armed Forces.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Taxpayers can use the standard mileage rate but must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.
contains the optional 2021 standard mileage rates, as well as the maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan. In addition, the notice provides the maximum fair market value of employer-provided automobiles first made available to employees for personal use in calendar year 2021 for which employers may use the fleet-average valuation rule in or the vehicle cents-per-mile valuation rule.
https://ramlcpa.link/3d56d | Journal of Accountancy
While not law just yet, it is expected to be signed by the president as soon as today.
While we know many key details, there are some key details we don't know, especially regarding the PPP Loan Program. The most pressing in my mind are bank participation and when applications will be accepted as some time will be needed to restart the program.
Additional details will be forthcoming and the below summary will probably be updated over the coming days for additional details and clarifications.
Below, I summarize the key provisions in the bill:
PPP Round 2 & EIDL
$325 billion in aid for small businesses struggling after nine months of pandemic-induced economic hardships.
$166 billion for economic impact payments of
$120 billion to provide workers receiving unemployment benefits a
$25 billion in emergency rental aid and an extension of the national eviction moratorium through Jan. 31, 2021.
$45 billion in transportation funding, including
$82 billion in funding for colleges and schools, including support for HVAC repair and replacement to mitigate virus transmission, and
$10 billion in child care assistance.
$22 billion for health-related expenses incurred by state, local, Tribal, and territorial governments.
$13 billion for emergency food assistance, including a 15% increase for six months in Supplemental Nutrition Assistance Program benefits.
$7 billion for broadband expansion.
The bill also extends the
and temporarily allows a
Business Meals 100% Deductible
PPP Round two (2) Who is eligible to apply
PPP Round one (1) recipients (PPP1) may apply for another loan of up to $2 million, provided they:
PPP loan terms
As with PPP Round 1 (PPP1), the costs eligible for loan forgiveness in PPP Round 2 (PPP2) include payroll, rent, covered mortgage interest, and utilities.
PPP2 also makes (adds) the following potentially forgivable:
To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight (8) or twenty-four (24) weeks — the same parameters PPP1 had when it stopped accepting applications in August.
PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum. PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.
Simplified application and other terms of note
The new COVID-19 relief bill also:
Tax deductibility for PPP expenses
The bill also specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes IRS guidance that such expenses could not be deducted and brings the policy in line with what the AICPA and hundreds of other business associations have argued was Congress’s intent when it created the original PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136 (see the Dec. 3 letter from the AICPA and state societies to congressional leaders).
The COVID-19 relief bill clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis e shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the CARES Act (which has been redesignated as Section 7A of the Small Business Act). This provision applies to loans under both the original PPP and subsequent PPP loans.
As many employers look to closeout and forget 2020, Maryland employers face yet another challenge as a sizeable hike in unemployment tax rates is coming in 2021.
It's important to note that Governor Hogan signed an executive order (copy below, FAQs) that excludes 2020 employer data from the formula used to determine the 2021 unemployment rate. If the Governor had not done this, all employers would have had an even higher tax rate for 2021.
For employers with zero claims over the prior three (3) years (the measurement period will remain 2017, 2018, and 2019, for 2021) the per annual amount due per employee will increase from $25.50 to $187 per employee for 2021, which is almost 7.5 times the 2020 experience rate.
While obviously not good news, at first glace it might not sound all that punitive at first glance. However, imagine you have 50 employees, all of which require an unemployment contribution. That comes out to an extra $8,075 that employers will have to pay in for 2021. In higher turnover businesses such as retail and hospitality, it's very possible to have on average 10 to 15 employees per year, but because of attrition this equals 50 or more total employees per year, all of which require their own unemployment contribution.
While unemployment rates will reduce over time as we saw a similar situation occur during and after the financial crisis (great recession). Unfortunately, in the short term, this is one more hit businesses are going to have to contend with.
Consider these tips to help offset these costs:
1) Have a plan for 2021, as no plan almost always means no success, and those who are successful are just incredibly lucky.
2) Investigate ways to streamline operations & improve efficiency in the short and medium term. No is not the time for long term decision making if possible, as there is still much uncertainty.
3) Review and make cash savings measures (both for the business, and personally), and do the easiest ones immediately. This doesn't mean slash essential services, but it means giving up the luxuries.
Contact us if you need help with these or similar small business savings strategies.
It's a fallacy to think that you achieve absolute security and complete peace of mind, especially with your finances. You can prepare and save huge sums of money only to find out it was enough to cover situation X, but situation Y, the one you hadn't considered, not even close. If the pandemic taught us anything, it's that no industry, business, or our economy is immune from significant disruption given the right circumstances.
That said, there are steps we can take to better address the inherent risk we face in and our lives and especially with our finances, The below list comes from an article by Michael Kay and while I've used these points when providing professional advice, the way they're stated here is unlike how they're normally presented by an accountant or financial planner. I especially appreciate items #2, #4.and #6 as they don't require a degree in accounting or finance to see their importance.
1) Make sure your mileage log is in order for the first 10 Months of 2020. Waiting is only going to give you more work to do later, plus it will give you a good idea of your total mileage expense for the year.
2) Get W-9's now from contractors you need to 1099 at year-end. Waiting until after year-end makes it much more likely that you'll never get them, especially if the contractor will not be working with you again.
3) Identify expenses to be paid by year-end to lower your taxes. This is a key tax planning step and one of the easiest to do, as paying expenses by year-end, vs. in January will give you a deduction in 2020.