My New Year Eve celebration was spent studying tax laws. There were a LOT of last minute changes this year.
In today’s blog, I want to look at one big important part of tax law that isn’t getting as much coverage. If you want the latest on the PPP1, PPP2 and EIDL new opportunities, please go to my Facebook group, Diane Kennedy’s US Tax Group I do FREE Livestreams there Monday 9 am Pacific. If you can’t make the live coverage, the recordings will be available. Got a question? Ask it on the pinned post so I can make sure I see it.
Today, though, we’re going to talk about an important overlooked area of tax law. The so-called tax extenders. These are important parts of tax law that for whatever reason (usually budgetary) have not been made a part of the regular, permanent tax law. Instead the law last for a few years and then it reverts back to what it was before.
Every few years, we sweat out what’s going to happen to the tax extenders. This year, 2020, was no different. In the 11th hour, some tax extenders were extended. Some were made permanent. And some were allowed to expire.
Don’t assume that you know what’s deductible and what’s not. Don’t assume you know what gets a tax credit. This is the wild card that Congress throws at us every year. What makes it harder this year is that everyone is focused on the last minute econ stim payments, unemployment changes, PPP1, PPP2, EIDL and other pandemic-related changes.
No one is talking about this. Except us.
Following are tax extenders that got extended, made permanent and just plain ignored.
Got a question about how this will impact you? Make sure you join the next coaching session. On the 1st – 4th Wednesday at 5 pm Pacific we talk about real life strategies to increase your cash flow, wealth and dramatically reduce the amount of taxes you pay. Join Wednesday Coaching today!
The 3rd Wednesday is always a business topic. On January 20, 2021 (3rd Wed), we’re going to go through the hottest tax credit right now: Research & Development (R & D) Tax Credits. You’ll be shocked to see just HOW MUCH this can save you in taxes. More things than ever before will qualify. You don’t need to hire a firm and pay thousands of dollars to figure out how to calculate and file. You can get all the paperwork together yourself so your CPA can file for you.
AND even better news. The R & D Tax Credits didn’t expire.
These tax extender provisions were made permanent.
- Reduction in medical expense deduction floor to 7.5% of AGI
- Energy efficient commercial buildings deduction
- Tax-free benefits provided to volunteer firefighters and emergency medical responders
- Expansion of the lifetime learning credit
- Railroad track maintenance credit
- Reduction in certain excise taxes on beer, wine and distilled spirits (craft brewers)
- Beginning in 2023, refunds provided in lieu of reduced rates for certain imported craft beverages
- Clarify that reduced rates are not allowed for smuggled or illegally produced beer, wine, and spirits
- Modify the minimum processing requirements for reduced distilled spirits rates
- Modify single taxpayer rules regarding beer, wine and distilled spirits
Tax Extenders provisions were extended through 12/31/2025
- Look-thru rule for payments of dividends, interest, rents, and royalties between related controlled foreign corporations
- New markets tax credit (Pay attention to this one)
- Work opportunity tax credit (Pay attention to this one too)
- Exclusion from gross income of discharge of qualified principal residence indebtedness; maximum exclusion reduced from $2 million to $750,000. In other words, you don’t pay tax on COD debt, up to $750K of forgiven debt for your home.
- Seven-year recovery period for motorsports entertainment complexes
- Expensing rules for certain film, television, and theatrical productions
- Oil spill liability trust fund excise tax rate of $0.09 per barrel
- Empowerment zone tax incentives, with modifications to terminate deferral of certain capital gains taxes and increased expensing of certain types of equipment. Pay attention here. It’s still good, just not as good as it was.
- Employer credit for paid family and medical leave
- Exclusion for employer payments of student loans up to $5,250!!! Why aren’t more employers doing this? There are some rules, but follow them and the business gets a deduction and the employee gets their debt reduced.
- Extension of carbon oxide sequestration credit for facilities that begin construction by the end of 2025
Various Extension for Other Provisions
- Production Tax Credit (PTC) extended for renewable power facilities beginning construction by the end of 2021.
- Investment Tax Credit (ITC) extended at 26 percent for solar energy property, fiber-optic solar equipment, fuel cell property, and small wind energy property beginning construction by the end of 2022; 22 percent rate for property beginning construction by the end of 2023; 10 or zero percent thereafter. Ten percent investment credit for microturbine property, geothermal heat pumps, and combined heat and power property that begin construction through 2023.
- Mortgage insurance premiums treated as qualified residence interest extended through 2021
- Health coverage tax credit extended through 2021
- Indian employment credit extended through 2021
- Mine rescue team training credit extended through 2021
- Classification of certain race horses as three-year property extended through 2021
- Accelerated depreciation for business property on Indian reservations extended through 2021
- American Samoa economic development credit extended through 2021
- Second generation biofuel producer credit extended through 2021
- Nonbusiness energy property credit extended through 2021
- New qualified fuel cell motor vehicle credit extended through 2021
- Alternative fuel refueling property credit extended through 2021
- Two-wheeled plug-in electric vehicle credit extended through 2021
- Production credit for Indian coal facilities extended through 2021
- New energy efficient homes credit extended through 2021
- Excise tax for alternative fuels extended through 2021
- Residential energy efficient property credit extended through 2021; eligible property expanded to include qualified energy efficient biomass fuel property with a thermal efficiency rating of at least 75 percent beginning in 2021 (no longer eligible under IRC Section 25C)
- Black lung disability trust fund excise tax extended through 2021
Some popular items were not included in the Act and/or were allowed to expire.
- COVID-19 relief funding for state, local and tribal governments -nope.
- COVID-19 liability protection – nope.
- Mobile workforce clarifications for workers temporarily working in a tax jurisdiction other than their normal place of business – nope. This one is unfortunate because it would have helped clarify what happens with work-from-home workers who “work” in one state and live in another.
- Conservation easement legislation – nope. Hotly audited right now. The IRS sees gold here.
- Forgiveness of deferred employer payroll taxes pursuant to President Trump’s executive memorandum from August 8, 2020 (instead, repayment period extended to one year) – nope. Employers do have a longer period of time to pay the payroll taxes, though.
- Multiemployer pension plan relief – nope.
- A stand-alone credit for PPE expenditures – nope. This one surprised me.
We’ll talk about R & D Tax Credits on January 20th at 5 pm Pacific as part of the Wednesday Coaching series. There will also be a Home Study Course. We’ll have the course for sale shortly after the class for $99 – $199 (still looking at that). Or coaching will give you 3 month’s worth of home study courses and 4 coaching sessions for $99.