On January 1st we ushered in the New Year. At the end of last year, our government sent a last-minute gift to many Americans when on December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021, which includes specific changes to the Internal Revenue Code. We previously discussed the deductibility of expenses paid for with PPP loan proceeds and the second round of PPP loans. You can access that post here. In this post, we will discuss some of the other provisions of the law. The following is a consolidated list of some of those provisions:
- Charitable donation deduction: Continuing what the CARES Act started, for tax years beginning in 2021, if you do not itemize deductions you may claim a deduction of up to $300 of cash donations to qualified organizations. This deduction is in addition to the standard deduction.
- Medical expense deduction: The income threshold for unreimbursed medical expense deductions is permanently reduced from 10% to 7.5% so that more expenses may be deducted.
- Business meal deduction: During 2021 and 2022, businesses can now deduct 100% of their business-related restaurant meals. (The deduction was previously limited to 50% of those expenses.)
- Extenders: A five-year extension was granted for the following tax provisions that were scheduled to sunset on December 31, 2020:
- New Markets Tax Credit
- Work Opportunity Tax Credit
- Health Coverage Tax Credit
- Carbon Oxide Sequestration Credit
- Employer credit for paid family and medical leave
- Empowerment zone tax incentives
- Exclusion from gross income of discharge of qualified principal residence indebtedness
- The seven-year recovery period for motorsports entertainment complexes
- Expensing rules for certain productions
- Oil spill liability trust fund rate
- The look-through rule for certain payments from related controlled foreign corporations in IRC Section 954(c)(6), which was extended to apply to taxable years of foreign corporations beginning before January 1, 2026, and to taxable years of U.S. shareholders with or within which such taxable years of foreign corporations end
- Incentives for certain employer payments of student loans
The Consolidated Appropriations Act made several tax provisions permanent that were set to expire in the future. The following is a list of permanent changes:
- The deduction of the costs of energy-efficient commercial building property (now subject to inflation adjustments)
- The gross income deduction provided to volunteer firefighters and emergency medical responders for state and local tax benefits and certain qualified payments
- The transition from a deduction for qualified tuition and related expenses to an increased income limitation on the lifetime learning credit.
- The railroad track maintenance credit
- Certain provisions, refunds, and reduced rates related to beer, wine, and distilled spirits, as well as minimum processing requirements for certain craft beverages produced outside the U.S.
More legislation has been introduced to expand direct payments to individuals from $600 to $2,000. We will keep you informed of its progress and will provide additional information in a future post on this round of stimulus payments. Meanwhile, we wish you a happy and healthy new year.
If you have any questions regarding the tax provisions in the Consolidated Appropriations Act, please contact our team.