Tax law changes all the time and, with the pandemic, it’s shifting more frequently than ever. Minor changes can add up to big savings (or big mistakes if you’re unaware of them). Here’s a roundup of the latest tax news that nonprofit accounting and finance professionals need to know. Our previous tax tips update may also be helpful.
Paycheck Protection Program Loan Forgiveness Is Deductible
Originally, the IRS ruled in Notice 2020-32 and Rev. Rul. 2020-27 that Paycheck Protection Program loan recipients could not deduct expenses that are normally deductible under the extent the payment of those expenses resulted in PPP loan forgiveness. However, that ruling became obsolete with Rev. Rul. 2021-2.
Congress clarified in the Consolidated Appropriations Act, 2021 (CAA), P.L. 116-260 that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven. The tax basis and other attributes of the borrower’s assets are not reduced as a result of the loan. This was clarified in December 2020. There is now a safe harbor provision for those who filed a tax year 2020 return on or before Dec. 27, 2020, to deduct those expenses on their 2021 tax return rather than file amended returns or administrative adjustment requests if they are a “covered taxpayer” (as defined in the revenue procedure) and they satisfy all of the requirements for the time and manner of making the election to apply the safe harbor.
Food and Beverage Deductions
50% or 100%? That’s what everyone wants to know.
Typically, food and beverage deductions are 50%. A restaurant meal for business purposes, for example, counts as a 50% deduction.
However, the IRS temporarily increased it to 100%. Under Sec. 274(n)(1), a deduction for any expense for food or beverages is generally limited to 50% of the amount that would otherwise be deductible. The Consolidated Appropriations Act, 2021, P.L. 116-260 removed that limitation for amounts paid or incurred after Dec. 31, 2020, and before Jan. 1, 2023, for food or beverages provided by a restaurant (Sec. 274(n)(2)(D)).
Now, of course, we need to define “restaurant.” According to the definition that applies here, it is any establishment that prepares and sells food or beverages for immediate consumption on or off-premises. A coffee shop that sells breakfast sandwiches and coffee drinks for consumption on-premises or take away would count for 100% deduction but a kiosk or vending machine selling the same products does not.
So, schedule those breakfast, lunch, and dinner meetings as long as it’s safe to do so in your area. Now is the time to patronize local establishments for business meetings (and save your receipts for your accountant).
American Rescue Plan Adds to Wages Qualifying for Sections 3131 and 3132 Credits
The American Rescue Plan is another economic relief package for American families adversely affected by the continuing health crisis. The IRS sent a reminder that under this plan, employers with 500 or fewer workers can take a credit equal to the wages paid to employees for a paid day off to be vaccinated.
IRS Extends E-Signature
The IRS has extended its provision to accept e-signatures on many forms until December 31, 2021. The ongoing pandemic has necessitated that not only will they extend the deadline, but they are also adding more forms. Many of these forms can now be signed remotely, then printed or scanned and sent to the IRS, making it easier to complete required paperwork during the pandemic.
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.