Pandemic Tax Law Changes You Need to be Aware of

Since March 2020, there have been several major tax law changes passed that may impact your 2020 tax return and other tax years depending on your tax situation. 

To provide relief to taxpayers for the COVID-19 pandemic, Congress passed the following: the Coronavirus Preparedness and Response Supplemental Appropriates Act, the Families First Coronavirus Response (FFCRA) Act, the Coronavirus Aid Relief and Economic Security (CARES) Act, the Payroll Protection Program and Health Care Enhancement Act, the Paycheck Protection Program Flexibility Act of 2020, the Consolidated Appropriations Act (CAA) of 2021, and American Rescue Plan Act (ARPA) of 2021. 

Individual, big and small business tax returns have all been impacted in one way or another from these tax law changes and stimulus due to the COVID-19 pandemic. Some of these changes may have been passed after the applicable tax returns have already been filed and may require an amended tax return. 

Ten Tax Law Changes Impacting You and Your Small Business

1. 1. Payroll Protection Program (PPP) loan forgiveness – After much debate concerning the treatment of PPP loan forgiveness and applicable expenses, the Consolidated Appropriations Act of 2021  declared that covered expenses paid with PPP funds are deductible, and forgiven PPP loans are non-taxable for federal income tax purposes. 
   2. Employee Retention Credit (ERC) – You may be eligible to claim the ERC even if you received a PPP loan. This was originally not the case when the PPP loans were first made available. Payroll tax returns may now be amended to take advantage of the ERC. 
   3. Net Operating Losses (NOLs) – For tax years before 2021, the 80% income limitation for NOLs was temporarily repealed. Now, 2018-2020 tax year NOLs have a five-year carryback unless an election to forgo the carryback is made. 
   4. Qualified Improvement Property (QIP) – A technical correction was made to QIP under Section 168 that fixed the retail glitch by changing the property to 15-year life. This makes QIP eligible for bonus depreciation. 
   5. Payroll Tax Credit for Required Paid Sick Leave – For required paid sick leave, employer payroll tax credits were available up to 100% of the qualified sick leave wages paid from April to December 2020. 
   6. Recovery Rebates (Economic Impact Payments) – There were several recovery rebates that were paid to individuals in 2020 and 2021. Individuals would qualify if adjusted gross income was below the applicable thresholds. 
   7. Unemployment Compensation Exclusion – Exclusion of up to $10,200 of unemployment compensation exclusion was available on the 2020 individual income tax return if taxpayer income was below the applicable adjusted gross income thresholds. 
   8. “30-year fix” for Residential Rental Real Estate Depreciation – For taxpayers that have made the Section 163(j) election, the “30-year fix” changed the depreciable life of residential rental real estate real property from 40-year ADS to 30-year ADS. 
   9. Child and Dependent Care Credit – Credits have been increased for 2021. The child tax credit may be received in advance during 2021 if you have not elected out. The tax credits will be calculated and trued up on the 2021 individual income tax return. 
   10. State Nonconformity – States have different levels of conformity with federal tax law. These are always changing and need to be continually monitored for changes. 

If you believe any of the above affected you, please reach out to Kyle Krenske at Mahoney CPAs and Advisors to review your prior years’ filed tax returns to look for tax-saving opportunities.