American Rescue Plan Features Several Tax Benefits

American Rescue Plan Features Several Tax Benefits

Please note: The new American Rescue Plan Act signed by President Biden last week includes some items — including unemployment income and healthcare premium assistance — that affect 2020 tax returns.

We will hold all tax returns until more info is released. Depending on how quickly the IRS acts, we may have to file an extension. We will keep you updated!

T he American Rescue Plan Act signed by President Biden last week includes several financial changes and quite a few tax provisions. Here’s a brief look at some of the more important items. We’ll look at them more in-depth in the coming weeks.

Stimulus Checks

A 3rd round of Economic Impact Payments (EIP) worth up to $1,400 per individual and dependent have already started going out. The EIP will begin to phase out for single taxpayers with AGIs of $75,000 and joint filers with AGIs of $150,000.

Unemployment Benefits

A $300-per-week supplement to federal unemployment benefits has been extended through September 6, 2021. Also, the first $10,200 in unemployment benefits are tax-free in 2020 for taxpayers making less than $150,000 per year. (This provision affects your current 2020 tax return as noted above!)

Child Tax Credit

The Child Tax Credit is expanded to provide a credit in advance of filing a return — the IRS will estimate each taxpayer’s child tax credit amount and pay it out monthly in advance from July through December 2021. The credit is also increased to $3,000 per child ($3,600 for children under 6), though the increase phases out above certain incomes.

Earned Income Tax Credit

Special rules now apply for individuals with no children: For 2021, the applicable minimum age is decreased to 19, except for students (24) and qualified former foster youth or homeless youth (18), and the maximum age is eliminated. The credit’s phaseout percentage and amounts are also increased.

Child & Dependent Care Credit

For 2021 only, this credit will be refundable. The credit will be worth 50% of eligible expenses, up to a limit based on income. The exclusion for employer-provided dependent care assistance is increased to $10,500 for 2021.

Family & Sick Leave Credits

The credits for sick and family leave originally enacted by the Families First Coronavirus Response Act are extended to September 30, 2021. The limit on the credit for paid family leave is increased to $12,000.

Employee Retention Credit

Originally enacted in the CARES Act, this credit is extended through the end of 2021, and allows eligible employers to claim a credit for paying qualified wages to employees.

COBRA Continuation Coverage

Eligible individuals may receive premium assistance in the form of a refundable tax credit; this applies to premiums and wages paid after April 1, 2021, and through September 30, 2021.

Premium Tax Credit

This credit is expanded for 2021 and 2022 by changing the applicable percentage amounts.

PPP Loans

Eligible companies that receive a first- or second-draw Paycheck Protection Program (PPP) loan after December 27, 2020, can now also receive a Shuttered Venue Operators Grant (SVOG). The amount of the SVOG will be reduced by the amount of PPP funds approved.

EIDLs

Targeted Economic Injury Disaster Loan grants received from the SBA are not included in gross income, and this exclusion from gross income will not result in a denial of a deduction, reduction of tax attributes, or denial of basis increase. Similar treatment is afforded SBA restaurant revitalization grants.

More to Come

In addition to many tax benefits, the new law allocates $50 billion in funding to benefit small businesses through a variety of programs, including EIDL advance payments and additional PPP funds. There is also money for state and local governments, schools, healthcare entities, vaccine distribution and COVID-19 testing.

Obviously, there is much to digest in the new legislation. We’ll be following up in future newsletters with more details on how it may affect you. In the meantime, please contact us with any questions you may have.

March 26 Last Day to Drop Off Tax Returns!

We are working hard to get to everyone’s returns! With all the law changes for 2020 we want to make sure everyone gets their maximum benefit due.

The deadline for dropping off your tax info to us is March 26. If all your info is to us by that date, we will complete your return by April 15.

If we receive your paperwork AFTER March 26, we will file an extension for you.

Thanks everyone for your patience!

To help you prepare your files, please download a copy of our 2020 Personal Tax Preparation Checklist.

Tax Planning vs. Tax Prep — There Is a Difference

Tax Planning vs. Tax Prep — There Is a Difference

Tax planning is not the same as tax preparation. Tax preparation is the process of preparing and filing your tax return each year. Unless you file an extension, this is typically a once-a-year event that must be completed by April 15. For most people, tax prep involves a trip or two to our office: first to drop off any necessary financial documents and then a second time to review and sign your return.

Tax planning, on the other hand, is a year-round process designed to help you make smart, tax-advantaged decisions that impact your personal and business finances. Whether you’re an individual or a business owner (or both), you can take advantage of the tax planning services that we provide here at Premier CPA Services. With two full-time CPAs on staff, we are uniquely qualified to provide you with in-depth experience and knowledge of tax law.

For example, we can help you maximize deductions, offset investment gains, determine your maximum retirement plan contribution, and help you decide the best time to make capital expenditures. By spending just a small amount of time with your CPA, you can minimize your tax liability on next year’s return when tax preparation comes into play!

It all starts with a phone call to set up a year-end meeting. Just call us at 706-632-7850. But please do it soon — we have limited appointment times and they fill up fast!

Tax Law Changes Simplify Accounting for Small Businesses

Tax law changes that were part of the Tax Cuts and Jobs Act (TCJA) now allow more small businesses to use the cash accounting method, which is the simplest approach. The cash accounting method is a more immediate recognition of revenue and expenses, while the accrual method focuses on anticipated revenue and expenses.

Prior to the TCJA, a “C” corporation wasn’t eligible to use the cash method of accounting unless it had average annual gross receipts for the previous three years of no more than $5 million. Beginning in 2018, the TCJA increased this threshold — to $25 million for 2018 and $26 million for 2019 — with inflation indexing in future years.

Of course, a few special rules apply:

  • Gross receipts are aggregated for a single employer.
  • A corporation less than three years old uses the gross receipts test for the period in which it’s been in business.
  • Gross receipts for a tax year of less than 12 months must be annualized using a specific formula.

If a small business meets the new gross receipts test, they can also take advantage of these other simplifications:

– Exemption from requirements to account for inventories, capitalize certain costs and account for long-term contracts using the percentage-of-completion method.

– Exemption from the requirement to keep inventories by now requiring the accounting for inventory as non-incidental materials and supplies, or by using an accounting method conforming to its financial accounting statement.

– Exemption from Section 263A uniform capitalization (UNICAP) rules.

– Extension of exception for “small construction” contracts to use a completed-contract method, the exempt-contract percentage-of-completion method or any other permissible method.

If you think your business can take advantage of these new rules, contact us today and we can help you make the change go more smoothly.

The information provided here by Premier CPA Services PC is for general information only. It does not constitute legal, accounting, tax or other professional advice or services, and is presented without any representation or warranty as to the accuracy or completeness of the information. Please contact us for information as it relates to your circumstances.