In late December of 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (the Act), which included the long-anticipated pandemic-related Tax Relief Act of 2020. It also included the Taxpayer Certainty and Disaster Relief Act of 2020, which extends or makes permanent numerous tax provisions, including tax breaks for individuals. The following is an overview of these key tax-related provisions for individuals.
Medical Expense Deduction
The Tax Cuts and Jobs Act (TCJA) set the threshold for itemized medical expense deductions at 7.5% of Adjusted Gross Income (AGI), but this threshold was scheduled to return to 10% of AGI as set in the Affordable Care Act. However, the expense deduction had been extended perpetually by Congress, allowing a taxpayer to continue to deduct their total qualified unreimbursed medical expenses that exceed only 7.5% of their AGI. The Taxpayer Certainty and Disaster Relief Act of 2020 made this threshold permanent.
Charitable Contribution Deduction
Generally, charitable donations are tax-deductible only if you itemize your taxes, but the Coronavirus Aid, Relief, and Economic Security (CARES) Act incorporated a provision that authorized individuals who don’t itemize to deduct up to $300 ($600 for married couples filing jointly) in cash donations in 2020. The Taxpayer Certainty and Disaster Relief Act of 2020 extended this provision into 2021 and makes it more valuable for married couples filing jointly.
Taxpayers who do itemize their deductions are typically limited to a 60% cap (i.e., the amount of charitable donations you could deduct generally could not exceed 60% of your AGI). As in 2020, that limit has been suspended in 2021.
Mortgage Insurance Premium Deduction
The Taxpayer Certainty and Disaster Relief Act of 2020 includes a one-year extension of the mortgage insurance premium deduction, so premiums paid or accrued through December 31, 2021 can be deducted on tax returns by those who itemized deductions and otherwise qualify for the mortgage insurance premium deduction.
Exclusion for Canceled Mortgage Debt
Cancelled or forgiven debt by a commercial lender can be counted as income for tax purposes. However, the Mortgage Forgiveness Debt Relief Act of 2007 generally allowed for taxpayers to exclude canceled mortgage debt from their taxable income, but only for a finite number of years. The Taxpayer Certainty and Disaster Relief Act of 2020 extended the Mortgage Forgiveness Debt Relief Act of 2007 through 2025.
Residential Energy-Efficient Property Credit
Individuals who have implemented certain energy-efficient upgrades to their homes (i.e., solar electricity, solar water heaters, geothermal heat pumps, and small wind turbines) are eligible for the residential energy-efficient property credit. The credit had been set to phase out after 2021, but the Taxpayer Certainty and Disaster Relief Act of 2020 extended it as follows:
- Continuing the rate applicable to 2020, eligible property that is put into service in 2022 will qualify for a credit worth up to 26% of the property cost
- Eligible property that is put into service in 2023 will qualify for a credit worth up to 22% of the property cost.
The Consolidated Appropriations Act, 2021 (the Act) signed into law by President Trump on Dec. 27, 2020 includes significant modifications to the Employee Retention Tax Credit (ERC) enacted under the CARES Act. The credit originally provided a 50% refundable tax credit for businesses that maintain employee payroll, even amidst temporary business closures due to government-mandated lockdowns, or considerable downturns in gross receipts due to loss of business. This article will highlight changes to the ERC for 2021.
Period of Credit Availability
The CARES Act originally provided credit for qualified wages paid after March 12, 2020 and before Jan. 1, 2021. The new law extends availability of the credit for qualified wages to the first two quarters of 2021 (before July 1, 2021).
Amount of Credit
Under the original law, the credit amount was set at 50% of the qualified wages paid to the employee, plus the cost to continue providing employee health benefits. The Act increases the credit amount to 70% of qualified wages, which is intended to include the cost of employee health benefits.
Maximum Credit Amount
The CARES Act capped the credit at $5,000 per employee for all qualified wages paid during 2020, but the Act increases the maximum credit to $7,000 per employee for each of the two quarters in 2021, so the maximum credit for 2021 will be $14,000.
Eligibility Requirements for the Credit
In order to qualify for the ERC under the original law, businesses must have been experiencing full or partial suspension of operations due to a Covid-19 lockdown order. They could also qualify if, for any quarter in 2020, gross receipts were less than 50% of gross receipts for the same quarter in 2019. With the passage of the Act, businesses whose operations are either fully or partially suspended by a government-mandated lockdown order due to Covid-19 or whose gross receipts are less than 80% of gross receipts for the same quarter in 2019 can qualify for the ERC.
Credit Eligibility Whether or Not Employees Are Working
For a company with more than 100 employees, the original law under the CARES Act did not provide credit for wages paid to employees who were performing services for the employer in some capacity. However, a company with 100 employees or less did qualify for the credit, even if the employee was working. The Act raises this threshold to 500 employees, so that for the first two quarters of 2021, a company with 500 or fewer will be eligible for the credit, even if employees are working.
PPP Loan Eligibility
A company that received a Paycheck Protection Program (PPP) loan was not eligible for the ERC under the original CARES Act. With the passage of the Act, companies that received a PPP loan in 2020 may also qualify for the ERC. To prevent double dipping, a credit may not be claimed for wages paid with the proceeds of a PPP loan that have been forgiven. However, amounts paid that were either not forgiven or are over and above the PPP loan amounts can be included for ERC purposes.
According to a recent study, smaller nonprofits are largely missing opportunities to share their message online. While budgeting is certainly an issue, the benefits of online marketing and an online presence for nonprofits can’t be overstated. Below is a quick guide to various means of digital marketing and why they’re vital for nonprofit organizations.
Email Marketing for Nonprofits
Looking to increase newsletter subscribers, launch a fundraising campaign, keep supporters and volunteers in the know, or share recent developments? Email is one of the most effective, direct, and inexpensive ways to accomplish all this and more. The key is to capture your reader with engaging content, both in words and images, and always end your emails with a call to action, inviting the reader to reach out to your organization. Consider someone on staff who has the writing chops to accomplish this task, or think about hiring a freelance writer. Aim for sending two-four emails a month.
In addition to having a website that is straightforward and easy to navigate, you want it to function as a tool that maximizes lead generation and gift revenue in ways that email can’t. For instance, adding pop-ups to your site can help gain newsletter subscriptions as well as collect contact information for potential donors.
Establishing a presence on social media and engaging with your audience on individual platforms are no-brainer ways to share your organization’s purpose, campaign materials, involvement in the community, etc. A social media manager on staff could prove to be invaluable. Be sure to add social sharing buttons to your website and emails in order to grow an organic following. Greater outreach equals donations.
The key with donation pages is simplicity, so cut the lengthy information and instructions. You want to encourage two main actions with your donation page:
- Give donors a clear path to give to your organization
- Make sharing the page with friends, family members, and social media networks easy
You will also want to include a recurring donation option for those who prefer to contribute smaller amounts on a monthly basis. This donation approach can be beneficial to both the donor and your organization because:
- Donors aren’t likely to notice or take issue with a recurring $5 or $10 out of their monthly budget for a cause they’re drawn to, but your organization will appreciate these monthly contributions as every dollar adds up.
- Recurring donations create long-term connections between supporters and your organization.
If your organization can establish a position of having a finger on the pulse of current news, knowledge, and facts surrounding its particular cause, donors who share an interest with your cause are going to want to support you, and feel confident doing so. In order to achieve this, you will want to create regular and quality content in the form of informative articles, fact sheets, and other applicable digital resources, all of which convey not just that your organization is a top source of information about your particular cause, but how it’s impacting and changing your community and even beyond.
Gratitude for Supporters
Organizations that recognize the patronage and loyalty of their supporters are more likely to receive follow-up donations and social media mentions than those that fail to acknowledge their supporters, or do so intermittently. This fix can be as simple as creating an automated but personal email response to each donor, professing thanks and gratitude on behalf of the organization.
Generating more organic traffic and engagement on your website and across social media platforms will set your organization on a path for long-term growth and success.
The beginning of a new year has long been associated with starting from a blank slate and setting new goals for the year ahead. While 2020 taught us that plans and goals can quickly veer off course through no fault of our own, maybe 2021 can teach us the value of planning anyway—even in the face of the unknown. The financial tasks set forth below will help you pay down debts, save money, and better prepare you for whatever 2021 has in store.
File Your Tax Return ASAP
Not only does filing early help stave off refund-hungry thieves, but, generally, the sooner you file the sooner you get your refund. If you’re planning on owing the IRS, it’s better to know early and make arrangements for payment.
Given the unemployment plunge of 2020, keep in mind that unemployment checks are typically taxable, so if you received extended jobless benefits, be prepared to face a potentially greater-than-expected tax bill.
Check Your Withholding
You can use an online income tax calculator to estimate how much you’ll owe in federal taxes. Use your prepared 2020 tax return and your first pay stub from 2021 to check that you’re on track with tax withholding. If not, the calculator can help work out adjustments to your paycheck, and you can contact your employer if you need to make changes.
If you’re a business owner, you may need to make estimated quarterly payments. Tax professionals can help you work out amounts and details.
There’s no time like the present to organize your financial life. All those paper receipts and statements scattered on desktops or tossed into random drawers? Corral them into labeled file folders, baskets, or envelopes. If you want to shed the paper clutter all together, go digital with an accounting software like QuickBooks. A digital snapshot of your finances will help you gain a better grasp for where you are financially before setting new goals.
Commit to Saving in a Realistic Way
Instead of just thinking about saving, commit to establishing a habit of saving by striving for a concrete goal. Set the amount and time frame for your goal, then come up with actionable steps on how you’re going to reach it. For instance, set up an automatic draft from checking into savings, take on a side hustle, and/or comb through your budget to see where extra funds could be found. In order to set yourself up for success from the get-go, be sure to be realistic. A goal of $100,000 in five years might be realistic for some people, while beginning with a goal to save $50 a month will be more on par for others.
Create a Budget
First, look back over bank and credit card statements from last year to help identify spending patterns and areas of improvement. Next, set a budget. Think of your budget as a roadmap of how you’ll save and spend your money, starting with essentials, such as mortgage, food, utilities, and healthcare; then move to recreation and savings. Keep in mind that your budget has movable parts, meaning life circumstances can change, even month to month.
Start an Emergency Fund
An emergency fund is exactly what it sounds like—funds set aside for an unexpected cost like car or home repairs. At the minimum you should aim for $1,000 to be put into an emergency fund, and try to work your way to saving three months’ worth of income.
Spend Your Medical FSA Early Rather than Later
If you have an employer-provided flexible spending account, spending it as early in the year has possible has a few advantages, including:
- Acquiring medical expenses early in the year can help you meet insurance deductibles, so the rest of your health care can cost less.
- If you leave your job at any point during the year, you can spend the full amount you had planned to contribute—up to $2,750—and aren’t required to finish making the full FSA contribution.
- You mitigate the risk of not using the full amount by the deadline and potentially losing money.
Consult a Financial Advisor
Contrary to popular belief, you don’t have to be a millionaire to seek professional guidance from a financial advisor. Whether you’re looking for a one-time consultation or on-going advice, someone in the know can help set you on the path for long-term planning.
Last year construction contractors saw projects suspended indefinitely (or scrapped altogether) and escalated competition in the bidding process, both of which effectively stifled profit margins. It’s safe to say that the construction industry was not spared the upheaval of 2020. After such a tumultuous year, tax planning for 2021 might seem like a daunting challenge, but it’s a critical step for construction contractors in preparation of the year ahead.
Essential Tax Provisions for 2021 Preparation
With the uncertainty of the Covid-19 pandemic and a transfer of administrations in the White House this year, new legislation affecting tax provisions is a possibility, but there are several provisions under the current tax law, including those put in place under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, that you want to be sure not to pass over.
Are you eligible to use the bonus depreciation this year? Changes have been made to qualifying property under both the Tax Cuts and Jobs Act (TCJA) and the CARES Act as follows:
- TCJA: expanded the bonus depreciation deduction to 100% for specified property obtained and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.
- CARES Act: authorized the qualified improvement property (QIP)—typically interior improvements to nonresidential property—to be depreciable over 15 years and eligible for 100% bonus depreciation.
Tax Credits and Deductions
These tax credits and deductions could aid in reducing tax liability for contractors:
- Research and development credits: contractors who test new techniques or processes on construction jobs could be eligible.
- Deduction for energy-efficient government buildings: contractors may be eligible for a deduction of up to $1.80 per square foot for building energy-efficient commercial buildings intended for federal, state or local governments.
- Credit for energy-efficient residential properties: Contractors can take advantage of tax credits for certain energy-efficient residential properties.
Note that the deduction and credit for energy-efficient buildings expire at the end of 2021.
Qualified Business Income Deduction
The TCJA replaced the 9% “domestic production activities deduction” under IRC Section 199 with a 20% Qualified Business Income deduction under IRC Section 199A. It also increased eligibility to encompass more businesses. Contractors might want to start the conversation with their tax advisor on how to maximize this deduction as well as receive guidance on how to maneuver through the calculation’s somewhat complicated rules and limits.
Flexibility with Accounting Methods
Smaller construction firms (meaning those with average gross receipts of less than $26 million from the prior three years) generally enjoy more flexibility with tax accounting methods. Such firms could be eligible to use cash, accrual, completed contract or “accrual less retainage” accounting methods, all of which usually aid in managing the timing of revenue recognition. This allows companies to stimulate revenue to counterbalance current losses and recognize revenue now in expectation of higher future tax rates.
Additional Tax Planning Considerations Amid the Pandemic
To help minimize the risks of ongoing economic uncertainty, contractors should consider keeping apprised of tax changes. Given the seemingly ever-changing legislation amid the pandemic, construction firms should keep in regular contact with their tax advisors in order to avoid any tax reform surprises. However, contractors should also aim to operate without presumption of further legislation. While the economic effects of the pandemic are ongoing, don’t assume further stimulus legislation like the Paycheck Protection Program will be passed by Congress.
In light of a turbulent 2020, the construction industry has experienced a return to the business practices that have proven successful in the past: more attention to jobsite monitoring, legal contracts, and insurance costs. Contractors can contact an MKR advisor to incorporate 2021 tax planning into this process.
President Trump recently signed a second stimulus package—called the Consolidated Appropriations Act, 2021 (Act)—into law. The legislation includes over $300 billion in aid for small businesses. Below is a breakdown of some of the business tax changes and extenders in the new COVID-19 relief bill.
Payroll Tax Credit for Paid Sick and Family Leave
The refundable payroll tax credit for paid and sick family leave, established in the Families First Coronavirus Response Act, is extended until March 31, 2021. The tax credits are modified so that they now apply to practically any payments made to workers for these purposes.
Payroll Tax Repayment
The time frame for employees to repay deferred employment taxes under the President’s executive order, which was issued in August 2020, has been extended from April 2021 to December 31, 2021.
Employee Retention Credit
The Employee Retention Credit (ERC) under the CARES Act has extended to July 1, 2021. Further, the refundable tax credit has increased from 50% to 70%, the per-employee wages limitation has increased from $10,000 per year to $10,000 per quarter, and the determination of a large employer for purposes of the ERC has increased from 100 to 500 employees.
30-Year Depreciation of Certain Residential Rental Property
The new law determines that the recovery period relevant to residential rental property placed in service before Jan. 1, 2018, and held by an electing real property trade or business, is 30 years.
Business Meal Deduction
Rather than the current 50% business expense deduction for meals, the bill temporarily allows a 100% expense deduction for meals provided by restaurants in 2021 and 2022.
Deduction for Energy Efficient Commercial Buildings
The deduction for energy-efficient improvements to commercial buildings, such as lighting, heating, cooling, ventilation, and hot water systems was made permanent. The amount will be inflation-adjusted after 2020.
Changes to the Work Opportunity Tax Credit
If employers hire workers who are members of one of more of ten targeted groups under the Work Opportunity Tax Credit (WOTC) program, they are permitted to use an elective general business tax credit. Previously applicable to hires before 1/1/2021, the TCDTR extends the credit through 2025.
Employer Payments of Student Loans
Section 127, which permits employers to provide certain educational assistance to employees on a tax-free basis, was modified under the CARES Act to authorize the payment by an employer of principal or interest on specific employee qualified education loans through December 31, 2020. The Consolidated Appropriations Act expands this through December 30, 2025. As the pandemic subsides, employers may want to consider this valuable tax-free benefit.
Health and Dependent Care Flexible Spending Arrangements
The bill allows taxpayers to roll over unused funds in their health and dependent care flexible spending accounts from 2020 to 2021 and from 2021 to 2022. This arrangement also permits employers to grant employees a 2021 midyear prospective adjustment in contribution amounts.