What’s in the Second Round of COVID-19 Relief for High-Net-Worth Business Owners? By Robert Mark Weiss, CFA

The Consolidated Appropriations Act of 2021, signed into law on Dec. 27, 2020, provides a second round of economic relief to individuals, businesses and nonprofits that continue to struggle in the wake of the COVID-19 pandemic. While the law was written to support those in the most dire circumstances, it provides several generous benefits to those taxpayers in the highest income brackets. Following is a brief overview of some of those provisions.

More PPP Loans

The stimulus package allocates $284 billion to a second round of forgivable Paycheck Protection Program (PPP) loans for eligible businesses, sole proprietors and independent contractors, including those that received loans in 2020 during the first round of funding.

Under the revived program, referred to as PPP2, borrowers may qualify for loan forgiveness when they use loan proceeds for payroll costs and an expanded list of operating expenses that now include costs for worker protections, such as PPE, sneeze guards and air filtration systems; covered property damages; and supplier costs, cloud computing services and similar software essential to business operations.

Yet, the most significant change in the new legislation is the opportunity it provides loan recipients to deduct from taxable income those qualifying expenses they paid for with forgiven and tax-free PPP1 and PPP2 loan proceeds. In other words, borrowers not only receive loan proceeds free of tax, but they also gain the ability to reduce their taxable income by claiming deductions for the proceeds they use to pay for qualifying loan expenses. This provides wealthy investors and business owners with an unprecedented tax advantage, since the IRS typically prohibits taxpayers from using tax-free government grants as deductions.

Tax Credits and Deductions for Businesses and Individuals

The new stimulus package extends, and, in some cases, increases valuable tax credits first introduced in 2020 for employers, including, but not limited to:

• An extension of the employee-retention tax credit (ERTC) through June 30, 2021, as well as an increase in the amount of the refundable credit employers may claim for wages paid to employees despite COVID-related business closures from 50 of up to $10,000 in qualified wages paid to employees for the year to 70 percent of qualified wages up to $10,000 paid to workers during each quarter;
• A three-month extension (through March 31, 2021) of the refundable tax credits introduced by the Families First Coronavirus Response Act (FFCRA) for businesses that pay qualified wages and health care expenses to employees entitled to paid sick leave or expanded family and medical leave due to COVID-19; and
• A five-year extension (through tax year 2025) of the tax credit for paid family and medical leave wages paid to qualifying employees; the New Markets Tax Credit; the Work Opportunity Tax Credit; and the look-through rules for foreign personal holding companies to exclude from U.S. corporate income tax dividends, interest, rent and royalties earned or paid out between two or more related controlled foreign corporations (CFCs).

The Act also repeals the charitable deduction limitations for cash donations corporations and itemizing taxpayers make to nonprofit organizations, allowing those taxpayers to fully deduct 100 percent of charitable donation in 2020 and 2021. For taxpayers that do not itemize their deductions, the new law allows a deduction of $300 (or $600 for married couples fling jointly) for charitable donations of cash made through 2021.

Finally, the law permanently reduces the income floor individuals must meet to deduct medical expenses. Beginning in tax year 2020, individuals with significant medical expenses may write off those costs that exceed 7.5 percent of adjusted gross income (AGI) (versus 10 percent under prior law).

About the Author: Robert Mark Weiss, CFA, is a regional director and financial planner with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (941) 308-1126 or email
info@provweath.com.

Provenance Wealth Advisors (PWA), 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

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