Benjamin Franklin said it best – “in this world, nothing is certain except death and taxes”. That rang true more in the last eighteen months than we ever anticipated, making for some rather challenging times. Here, we take a look back and discuss some of the latest pieces of COVID tax legislation impacting you.
At Culpepper CPA, we are fortunate to have a strong, dedicated team whose relationships extend outside office walls and hours. However, the tax changes definitely kept us busy! Professionally we adapted to better serve our clients as the law and their needs changed; personally we found creative ways to stay connected to our family, our friends, and our community.
As the economy started to open back up we looked for opportunities to support other local businesses. We ordered from local restaurants, shopped at local stores, donated school supplies to local schools, and volunteered our time. In July, we combined thousands of k-cups into one pound bags of coffee at Second Harvest Food Bank. The hair and beard nets clearly did not disappoint!
Ultimately, we are CPAs, inherently stereotyped as somewhat nerdy. So, we’d be remiss to not take this opportunity to connect the dots on how some of the COVID tax legislation changes are designed to benefit the economy and you, the taxpayer! Who knew that hair nets would be the item that connected these dots?
Highlighted tax changes designed to help targeted businesses
You have now seen the hair nets in action within a charitable organization! It’s no surprise that charities have suffered as a result of the economic fallout from COVID-19. Taxpayers who had never claimed unemployment found themselves without a job. Decreased income levels resulted in decreased ability to donate to organizations that rely on private donations to operate.
One of the initial pieces of COVID tax legislation (the CARES Act) allowed for a $300 “above-the-line” deduction per return for cash donations made to qualifying organizations. This was an effort to incentivize taxpayers to continue monetary donations to charitable organizations in 2020. This provided for a charitable contribution deduction for all taxpayers, a benefit normally limited to those who itemize their deductions. Additional COVID tax legislation extended and expanded this provision for 2021, allowing those claiming the standard deduction to deduct up to $300 per taxpayer for cash donations to qualifying charitable organizations.
Taxpayers who find themselves on the cusp of being able to itemize as a result of the increased standard deduction from the Tax Cuts and Jobs Act of 2018 could be missing out on tax benefits by not concentrating their charitable donations in one year and taking the standard deduction in alternating years. If you find yourself in this position, let’s discuss how we can take advantage of this provision on your next tax return.
Meals and Entertainment
Another industry severely impacted by COVID-19 (and a bit easier to identify with hair nets!) was the restaurant industry. As restaurants were forced to close or shift their focus to takeout orders, restaurant owners had tough decisions to make. Inventory spoiled, new orders were delayed, cash flow suffered, employees lost jobs, and owners lost restaurants. As the economy opened back up help was, and still is, hard to find – making it even harder to recover.
Congress enacted several pieces of COVID tax legislation to help the restaurant industry. One of those, the Consolidated Appropriations Act of 2021, increased the business meal deduction for the cost of food and beverages provided by a restaurant from 50% to 100% in 2021 and 2022. This provision aimed to help the restaurant industry recover while also benefiting taxpayers. However, it is important to understand the business meal deduction is only for food and beverages provided by a restaurant; it does not include businesses that primarily sell pre-packaged food or beverages (grocery stores, convenience stores, vending machines, etc.). It’s equally important to make sure your books clearly reflect business meals at a restaurant from other meals. Other meals are still subject to the 50% limitation on deductibility.
How Can We Help?
Several other industries and families suffered as a result of the pandemic. While it is important not to lose focus on the impact the pandemic had on our communities and families, it is equally important to understand how the myriad of enacted and proposed tax changes may affect you and/or your business. In addition to the various COVID Acts, the Biden-Harris tax proposals may have an impact on your business and/or personal income taxes for 2021 and tax strategy for the upcoming years.
At Culpepper CPA our team strives to understand each client’s individual situation and how they’ll be impacted by enacted and proposed legislative tax changes. If you have any questions on how any of these may affect you please feel free to contact us directly.