Year-end is always a busy time, but the close of 2020 brings much more to think about and prepare for than any year in recent memory. Here are a few things that should be top of mind for you as we close out an historic year and prepare for one we all hope will be a bit more positive.
Paycheck Protection Program (PPP) Update
- IRS Notice 2020-32 and Rev Ruling 2020-27: Clarifies IRS position that expenses paid with PPP loan proceeds that the taxpayer reasonably expects to be forgiven are NOT deductible in the year the expenses are paid.
- For most taxpayers this means the expenses paid with PPP loan proceeds in 2020 will not be deductible on their 2020 tax return.
- In order for PPP funds to be tax exempt, Congress must change the law.
- The AICPA remains confident that legislation will be passed to allow for the expenses paid with forgiven PPP loan proceeds to be deductible as there is bi-partisan support. However, the AICPA doesn’t expect standalone legislation to provide tax relief, so the change will have to come as part of other legislation.
PPP 2
- AICPA expects there to be a new PPP program as part of a coming stimulus package focusing on businesses that have experienced significant business downturns (25%-35% loss in business).
- The Treasury and the SBA have already created forms and procedures which should be used if PPP 2 is passed and signed into law.
General Pandemic Relief Updates
- No general IRS penalty relief related to COVID (late payments, underpayments, late filing, etc.) Abatement will have to be requested on an individual basis.
- Due to an increasing number of states which allow cannabis sales (medical and/or recreational), the AICPA is looking for a federal solution in next several years (either piecemeal or overall) to decriminalize on a federal basis. This would or could affect taxation, banking and accounting for cannabis-related businesses.
- Extensions of 2020 tax return due dates, particularly March 15th and April 15th, has not been addressed.
- Stimulus payment
- The payments will be reconciled on the 2020 tax return filing, and anyone who did not receive a large enough payment or a payment they were entitled to will receive the benefit as a federal tax credit. There is no payback for someone who received too large of a payment.
Year-End Planning
- Charitable Giving
- Up to $300 charitable deduction for cash/check donations for eligible individuals who claim the standard deduction.
- The CARES Act allows for cash/check charitable donations directly to an organization to offset 100% of gross income for 2020 only.
- Consider utilizing a donor advised fund and contributing appreciated securities to the fund. The tax deduction can be claimed in 2020, and amounts can be paid out to charities over time.
- Consider opening a Solo 401k or SEP IRA if you will have self-employment income.
- Utilize 100% bonus depreciation on purchases of new fixed assets including heavy SUV’s or trucks with a GVWR over 6,000 pounds.
- Recognize long-term capital gains at a 0% federal tax rate if taxable income is below $40,001 for single or $80,001 if married filing jointly.
- Review estate planning in light of high lifetime exemptions and low interest rates.
We realize the economic upheaval brought by the COVID pandemic along with a constant torrent of economic relief programs and legislation has made 2020 and tax filing for this year extremely challenging. And with more relief and new legislation likely on the horizon, the situation is only going to become more complex. For help in dealing with this complex set of circumstances, or if you have any questions, please email or call your Lopata, Flegel & Company contact, or call the firm at 314-514-8881.
