New Year, New Outlook on Tax Matters

Looking to 2021, there will be many changes both in business and for us individually.  With the new stimulus bills comes new tax laws, new labor laws and many others.  We will stay informed need to get the very best from 2021.

In 2020, there were numerous stimulus bills that contained thousands of pages in new tax laws for both 2020 and 2021. I am sure the new Biden administration will add their own, as well.  I would just ask both the state and federal governments to understand and appreciate the challenges of us individuals and small businesses in order to adapt to all of these in such a short period of time.

The most recent stimulus bill signed last month made numerous changes:

1. The educator expense deduction can include the cost of Personal Protective Equipment teachers have had to purchase.
2. Farmers can elect to take a net operating loss back either two years or five.
3. There are refundable payroll tax credits for paid sick leave due to COVID-19 through the end of March 31, 2021. There are also payroll tax credits for the employee retention tax credit (ERTC), through June 30, 2021. They have increased the amount available and increased the credit rate.
4. Business meals may now be 100% deductible for 2021.
5. The charitable contribution deduction was increase to 100% of your income for individuals and 25% for corporations.
6. The number of retirement accounts has expanded to include Defined Benefit Plans that allow you to take a three-year loan. This gives you three years to either report the income or pay back the distribution.
7. One big change was in regards to the PPP loan program. This has helped many in small business and with the forgiveness factor and now the deductibility of those expenses paid with PPP funds. They really have been a lifesaver for so many. Unfortunately, the state of California has not followed this yet, so it is expected that you will be paying California income taxes on the forgiveness of the PPP loan.

Now we have the PPP2 rolling out and it looks great so far. The new PP2 will be for those businesses with less that 300 employees, versus the first program that was for those with less than 500 employees.  If your request is for less than $150,000, there is only a one-page form to file. You must show that your gross revenue for any one quarter has dropped at least 25% from the same quarter in the prior year.  You are eligible for 250% of your average monthly payroll. Those businesses in the restaurant and/or hospitality industries can apply for up to 350% of their average monthly payroll. Both the state and local governments have offered their own grant programs, as well, along with gracious loan programs. Both the banks and Small Business Administration have been overwhelmed, but are doing amazingly well.

For the federal income tax laws, 2020 may be the lowest tax rates we will see for quite a while. There will be numerous changes to 2021 – and these could include capital gains tax rates. The corporate tax rate of 20% will probably be changed to something closer to 28%. The deduction for the Qualified Business Income in a small business could be reduced, as well.  We are also looking at a smaller estate tax credit.

For the new labor laws, minimum wage goes up and so do the payroll taxes. In regard to the numerous changes that the COVID-related bills created, there are quite a few payroll tax credits and extended pay periods. There are new Family Leave periods depending on the size of your company, and if you are one of the many businesses who had an employee get COVID, please contact your payroll service on the numerous reporting requirements (and be sure to take advantage of the payroll tax credits, as well).

The biggest piece of advice I can give is to have great professionals to work with you. Obviously, I would recommend a great CPA (such as Osborne Rincon), but also strong advisors for legal, banking, insurance, payroll, human recourses and many others. Take time to talk with them and make sure they understand what you’re doing in order to maximize advantages available to you whenever possible. Let’s make sure you keep as much as you can of what you work so hard for in this new year.

Lee M. Osborne, CPA, CFE, is the President of Osborne Rincon CPAs. During his 30+ years in public accounting, Lee has done extensive work in many areas, including agriculture, retail sales, the service industry and manufacturing. Osborne Rincon is one of the oldest and most respected full-service accounting firms in the Coachella Valley. To learn more, call (760) 777-9805 or go to www.OsborneRincon.com.