By Rolando Garcia, JD, CPA, Shareholder, Houston Tax Advisor

A new filing season is upon us, and with new tax laws and updated related guidance brought on by the pandemic, it is sure to be one to remember. Doeren Mayhew’s dedicated tax advisors highlight four tax-related issues taxpayers should be aware of in 2021:

1. Paycheck Protection Program (PPP) Loans. Recipients of PPP loans continue to try to navigate how to treat these funds from a tax and accounting perspective. The most recent stimulus bill cleared up some confusion by confirming that the loans were tax-free and expenses paid with PPP funds would be tax-deductible. Several questions remain about loan applications and forgiveness from tax advisors, and additional guidance is expected from the Small Business Administration (SBA) and Internal Revenue Service (IRS) in 2021.

2.Employee Retention Credit (ERC). This credit has been retroactively improved and extended by the Consolidated Appropriations Act, 2021. Employers can now take advantage of the SBA’s PPP and claim the ERC. This part of the new law is retroactive to March 2020, allowing SBA PPP recipients to retroactively claim ERC.

3. Charitable Giving. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included several temporary tax changes to help charities, including a special provision allowing taxpayers who made cash donations of up to $300 before Dec. 31, 2020, to take a special “above-the-line” deduction when filing their taxes in 2021. The deduction is limited to $300 per return (not per person) in 2020, but the recent stimulus bill expanded the deduction to $300 per person or $600 per married couple beginning in 2021.

The CARES Act also removed the 60% of adjusted gross income (AGI) limit on cash donations, meaning taxpayers who itemize their deductions may fully deduct cash donations of up to 100% of their AGI in 2020. Keep in mind, some donations such as donor-advisor funds and private, non-operating foundations, do not qualify.

4. Retirement Plans. Taxpayers were provided with several retirement-related options as part of the pandemic relief, including:

a. Removing the requirement to take money out from individual retirement accounts (IRAs) and retirements in 2020. Please note, this does include Roth IRAS, as they do not require regular withdrawals.
b. Allowing taxpayers who needed to take money out before retirement to withdraw up to $100,000 from eligible plans without being subject to the 10% additional tax on early distributions.

Although distributions remain subject to tax, they can be repaid over three years. Plan owners also have the option to recontribute or repay all of or part of the distributions within three years without any penalties. To help navigate this repayment process, the IRS will make Form 8915-E available to taxpayers to report repayments and determine the amount of any tax-favored distribution.

Doeren Mayhew’s dedicated Tax Group continues to navigate the changes to tax rules and incentives brought on by legislation introduced in 2020. To learn more about minimizing your tax liability or to obtain tax planning assistance, contact us today.