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New law doubles business meal deductions and makes favorable PPP loan changes

1/29/2021

With everything happening related to the coronavirus pandemic, Paycheck Protection Program (PPP), and Consolidated Appropriations Act of 2021, you need a trusted advisor on your side. 415 Group Senior Manager Holly Lieser, CPA, explains why this is so important with recent PPP loan changes.

After months of discussion, guidance has finally been issued allowing businesses to deduct expenses paid with PPP loans. This is a huge tax benefit for some companies.

Since the Paycheck Protection Program was introduced, we have been urging our clients to keep good records related to PPP loans. Thankfully, many of them have been doing so. Year-end planning was difficult since the Consolidated Appropriations Act of 2021 (CAA) hadn’t yet passed, making it a challenge to accurately project what some businesses would owe in taxes.

For example, a C-corporation that received a $200,000 loan through the Paycheck Protection Program would have planned to pay an additional $42,000 in taxes. However, thanks to the CAA, they won’t have to. Overall, the impact of this act has been incredibly positive for our clients.

The expansive Consolidated Appropriations Act contains many significant business-related provisions. This is why it’s so important to work with a trusted tax advisor who stays up to date on changes. They can help you sift through the changes and focus on what is important to your business.

The new law includes a change to business meal deductions. The previous deductible limit was 50%. For 2021 and 2022, meals that fit under the related guidelines are fully deductible. This helps businesses, while also bringing awareness to the struggling restaurant industry. The hope is that more businesses will take advantage of this change to help not only themselves but also their local restaurants.

If you want to take advantage of the 100% deductions for businesses meals, be sure to keep those records separate from entertainment costs. Entertainment is still not deductible. This will help you—and 415 Group—during tax season.

Has your business received a Paycheck Protection Program loan? Now is the time to apply for PPP forgiveness. Do not wait until the last minute. With a new round of funding starting, now is the time to consider if you are eligible for a second draw or apply for a first draw if you haven’t yet received one.

If you have questions about PPP loan forgiveness, the Consolidated Appropriations Act, the CARES Act, or other items related to pandemic relief, contact us today.

The COVID-19 relief bill, signed into law on December 27, 2020, provides a further response from the federal government to the pandemic. It also contains numerous tax breaks for businesses. Here are some highlights of the Consolidated Appropriations Act of 2021 (CAA), which also includes other laws within it.

Business meal deduction increased 

The new law includes a provision that removes the 50% limit on deducting business meals provided by restaurants and makes those meals fully deductible.

As background, ordinary and necessary food and beverage expenses that are incurred while operating your business are generally deductible. However, for 2020 and earlier years, the deduction is limited to 50% of the allowable expenses.

The new legislation adds an exception to the 50% limit for expenses of food or beverages provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022.

The use of the word “by” (rather than “in”) a restaurant clarifies that the new tax break isn’t limited to meals eaten on a restaurant’s premises. Takeout and delivery meals from a restaurant are also 100% deductible.

Note: Other than lifting the 50% limit for restaurant meals, the legislation doesn’t change the rules for business meal deductions. All the other existing requirements continue to apply when you dine with current or prospective customers, clients, suppliers, employees, partners and professional advisors with whom you deal with (or could engage with) in your business.

Therefore, to be deductible:

If food or beverages are provided at an entertainment activity (such as a sporting event or theater performance), either they must be purchased separately from the entertainment or their cost must be stated on a separate bill, invoice or receipt. This is required because the entertainment, unlike the food and beverages, is nondeductible.

PPP loans

The new law authorizes more money towards the Paycheck Protection Program (PPP) and extends it to March 31, 2021. There are a couple of tax implications for employers that received PPP loans:

  1. Clarifications of tax consequences of PPP loan forgiveness. The law clarifies that the non-taxable treatment of PPP loan forgiveness that was provided by the 2020 CARES Act also applies to certain other forgiven obligations. Also, the law makes clear that taxpayers, whose PPP loans or other obligations are forgiven, are allowed deductions for otherwise deductible expenses paid with the proceeds. In addition, the tax basis and other attributes of the borrower’s assets won’t be reduced as a result of the forgiveness.
  2. Waiver of information reporting for PPP loan forgiveness. Under the CAA, the IRS is allowed to waive information reporting requirements for any amount excluded from income under the exclusion-from-income rule for forgiveness of PPP loans or other specified obligations. (The IRS had already waived information returns and payee statements for loans that were guaranteed by the Small Business Administration).

Much more

These are just a couple of the provisions in the new law that are favorable to businesses. The CAA also provides extensions and modifications to earlier payroll tax relief, allows changes to employee benefit plans, includes disaster relief and much more. Contact us if you have questions about your situation.

Did your business receive a PPP loan? We can help you ensure that your loan forgiveness application is filed correctly and timely. Complete our five-question PPP forgiveness form, and we can provide a quote for your application by the next business day.

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Paycheck Protection Program Loan Forgiveness Applications

If your business received a PPP loan, you may be eligible to have that loan forgiven. Our team can help you ensure that your loan forgiveness application is filed correctly and timely. Complete our five-question form, and we can provide a quote for your application by the next business day.

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