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ACCOUNTING
WHAT’S IN THE CONSOLIDATED APPROPRIATIONS ACT, 2021 (THE CAA, 2021) TAX RELIEF?
We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19. The Consolidated Appropriations Act, 2021 (the CAA, 2021), signed into law on Dec. 27, is a further legislative response to the coronavirus (COVID-19) pandemic. The CAA, 2021, contain numerous provision related to individual and business income tax.
PART A – TAX PROVISIONS BENEFITTING INDIVIDUALS
NEW RECOVERY REBATE/ECONOMIC IMPACT PAYMENT
The Act provides for a refundable recovery rebate credit for 2020 that will paid in advance to eligible individuals, often automatically, early in 2021.These payments are in addition to the direct payments/rebates provided for in earlier federal legislation, which were called Economic Impact Payments (EIP).
The amount of the rebate is $600 per eligible family member – $600 per taxpayer ($1,200 for married filing jointly), plus $600 per qualifying child. Thus, a married couple with two qualifying children will receive $2,400, unless a phase-out applies. The credit is phased out at a rate of $5 per $100 of additional income starting at $150,000 of modified adjusted gross income for marrieds filing jointly and surviving spouses, $112,500 for heads of household, and $75,000 for single taxpayers.
Treasury must make the advance payments based on the information on 2019 tax returns. Eligible taxpayers who claimed their EIPs by providing information through the non-filer portal on IRS's website will also receive these additional payments.
Nonresident aliens, persons who qualify as another person's dependent, and estates or trusts don't qualify for the rebate. Taxpayers without a Social Security number are likewise ineligible, but if only one spouse on a joint return has a Social Security number, that spouse is eligible for a $600 payment. Children must also have a Social Security number to qualify for the $600-per-child payments.
Taxpayers who receive an advance payment that exceeds the amount of their eligible credit (as later calculated on the 2020 return) will not have to repay any of the payment. If the amount of the credit determined on the taxpayer's 2020 return exceeds the amount of the advance payment, taxpayers receive the difference as a refundable tax credit.
DEDUCTIONS
The Act makes permanent the 7.5%-of-adjusted-gross-income threshold on medical expense deductions, which was to have increased to 10% of adjusted gross income after 2020.
Mortgage insurance premium deduction is extended by one year. The Act extends through 2021 the deduction for qualifying mortgage insurance premiums, which was due to expire at the end of 2020. The deduction is subject to a phase-out based on the taxpayer's adjusted gross income.
Above-the-line charitable contribution deduction is extended through 2021; increased penalty for abuse. For 2020, individuals who don't itemize deductions can take up to a $300 above-the-line deduction for cash contributions to "qualified charitable organizations." The Act extends this above-the-line deduction through 2021 and increases the deduction allowed on a joint return to $600 (it remains at $300 for other taxpayers).
Extension through 2021 of allowance of charitable contributions up to 100% of an individual's adjusted gross income. In response to the COVID pandemic, the limit on cash charitable contributions by an individual in 2020 was increased to 100% of the individual's adjusted gross income. (The usual limit is 60% of adjusted gross income.) The Act extends this rule through 2021.
EXCLUSIONS FROM INCOME
Exclusion for discharge of qualified mortgage debt is extended, but limits on amount of excludable discharge are lowered. Usually, if a lender cancels a debt, such as a mortgage, the borrower must include the discharged amount in gross income. But under an exclusion that was due to expire at the end of 2020, a taxpayer can exclude from gross income up to $2 million ($1 million for married individuals filing separately) of discharge-of-debt income if "qualified principal residence debt" is discharged. The Act extends this exclusion through the end of 2025, but lowers the amount of debt that can be discharged tax-free to $750,000 ($375,000 for married individuals filing separately).
PART B – TAX PROVISIONS BENEFITTING BUSINESS
PAYCHECK PROTECTION PROGRAM LOANS
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Businesses are now allowed to deduct expenses associated with their forgiven PPP loans.
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The new law provides $284.45 billion to reopen and strengthen PPP for first and second time borrowers and reauthorizes the program through March 31, 2021.
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Develops a process for a small business to receive a second PPP if the small business has less than 300 employees and can demonstrate a revenue reduction of 25 percent in any calendar 2020 quarter as compared to 2019 calendar quarter.
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Creates a simplified PPP loan forgiveness application for loans under $150,000 whereby the borrower signs and submits a one-page certification that requires the borrower to list the loan amount, the number of employees retained, and the estimated total amount of the loan spent on payroll costs.
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Expands the list of eligible expenses to include covered operations (software, cloud computing and other human resources and accounting needs), PPE, covered supplier costs and damage costs due to public disturbances.
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Repeals the CARES Act provision that requires borrowers to deduct their EIDL Advance from their PPP loan forgiveness amount.
EXTENSION OF THE EMPLOYEE RETENTION CREDIT
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Beginning on Jan. 1, 2021 and through June 30, 2021, the provision:
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Increases the payroll tax credit rate from 50 percent to 70 percent of qualified wages.
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Expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility.
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Increases the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter.
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Increases the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees.
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BUSNESS MEAL DEDUCTION
The Act provides that expenses for business-related food and beverages provided by a restaurant are 100% deductible if they are paid or incurred in calendar years 2021 or 2022, instead of being subject to the 50% limit that generally applies to business meals.
Sanjay Gupta, CPA, FCA, who has 33 years of experience in accounting and taxes is based in Plantation. He can be reached at [email protected] or visit www.sanjayguptacpa.com
NEW SHOW TO WATCH:
“The Family Man: Season 2” (Amazon Prime, releases Feb. 12)
The story of a seemingly simple middle-class man, Srikant Tiwari (Manoj Bajpayee), secretly working as an intelligence officer for the National Investigation Agency, was an instant hit with the streaming audiences. In the midst of balancing home life with a wife and two children, Srikant is investigating a possible terror attack termed as Mission Zulfiqar. At the end of season one, we saw that Mission Zulfiqar isn’t over yet. Moosa, played by Neeraj Madhav, is planning to release nerve gas canisters on everyone in Delhi within two hours through his chemical plant. The agents sent to stop it fail, and we see season 1 ending in a cliffhanger. According to the cast, the new season will begin right where the last episode left off. We may also find out that Karim, one of the suspects whom Srikant had killed, may have been innocent. And there is a new character played by the Telugu star Samantha Akkineni. Director Raj Nidimoru said, “When we spoke to her (Samantha) for the first time, we told her that it is not a glamorous role and it will have a lot of action sequences.” She didn’t hesitate to sign on. Directed and produced by Raj Nidimoru and Krishna D.K. The ensemble cast includes Priyamani Iyer, Sharib Hashmi, Kishore Kumar, Gul Panag, Ashmith Kunder and Mehak Thakur.
FAMILY MATTERS
How houses become homes
“I just need one more room.” It’s the wistful utterance of every homeowner I know. An outdoor kitchen, more closet space for Indian clothes, one more guest room to accommodate overlapping sets of parents—most of us have a wish list for the perfect home.
For many, the COVID-19 epidemic provided the perfect impetus to fulfil it. By June 2020, 80 percent of surveyed homeowners had recently started a DIY home project, according to the Joint Center for Housing Studies of Harvard University. Unable to travel or socialize, many who were fortunate to retain their homes and income repainted, renovated and landscaped, pouring time and money into houses they found themselves spending more time in than ever before.
Like much of the American experience, homeownership here offers the possibility of transformation and self-expression. However, for many south Asians, our house of origin is a both a fixed physical navel for this lifetime as well as an abstract concept of where and with whom we belong. “Where is your house?” is a question that also seeks an answer to who your parents and lineage are and what community you identify with—even who your family deity is. In my community, surnames weren’t traditionally as important as the initials in front of your first name that signified which kovilakam (a type of Kerala house) you are from.
Though my nuclear family moved often for my father’s work, my parents somehow transfused each house with the vibe of our ancestral homes. Those old houses we’d visit on holiday felt timeless, their names welded on the gates, their walls hung with photographs and portraits in exactly the same positions, unchanging even though we were a little different each time we visited.
Though I couldn’t quite aspire to recreate this aura, I did have an ideal in mind when we began house-hunting. But as we toted a toddler and preschooler from listing to listing, everything started to blend together and our list of must-haves dwindled. We finally settled on a one-story house within walking distance of the elementary school we wanted them to attend. It will do for now, we told ourselves. Like many young couples starting out, we figured we’d put down temporary roots somewhere while we searched for or built our perfect home.
But as John Lennon crooned, “Life is what happens to you while you’re busy making other plans.” Nearly 12 years have passed and through a paradoxical combination of inertia and busyness, we just didn’t move. Within our walls, metamorphoses occurred. Our babies shifted from our room to their room to separate rooms. The “toy room” that once looked like a Disney store exploded inside it is now a sedate home office. The swings and slides that stood in our backyard are gone, but the gardenia bushes I planted when we moved in now flower profusely, wafting their fragrance into my teenager’s bedroom.
Though I had a notion in my mind of an intentionally curated house my kids would remember as their family home, this one, it turns out, will be the repository of most of their childhood memories. There’s the oak tree we hung paper lanterns from for our younger one’s fourth Sophia the First birthday tea party; now we hang a hammock from it for her to lie in and read her dystopian novels. There’s the foyer archway I transformed with red brick paper into Station 9¾ when my older Pottermaniac turned 12 — the same archway I recently festooned in fairy lights and tulle for her Sweet Sixteen. Grandparents blew out birthday candles here; new cousins crawled and explored kitchen cabinets. Best friends who appeared for their first playdates in kindergarten can now drive themselves over.
Quarantine and e-learning meant logging more hours at home than ever, which brought with it a new appreciation for the basic gift of shelter and the generosity with which the house expanded to accommodate our needs. We noticed the shifting patterns of sunshine and how many birds and squirrels shared our backyard. We saw more neighbors — and their dogs! — than ever before.
Do I still yearn for that extra room? Of course. And I still subconsciously keep a traitorous eye out when driving around for the “perfect” house. But I understand why a home is such a well-loved thing in our culture that we often name it like a baby and move in under the auspices of religious ceremony. Within it, we are continually transformed. And like everything else — our families, our bodies and by extension, our lives — though we may always aspire to better, we will one day look back and realize the imperfect perfection of what we have now.
Anu Varma Panchal is a mother of two and owner of www.YourEditingSolutions.com
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