Tax changes due to recent legislation such as the Tax Cuts and Jobs Act and the CARES Act affect both individual taxpayers and small businesses. In 2020, the IRS issued several guidance documents and final rules and regulations that clarified several tax provisions affecting businesses.
Here are five of them:
Deductions for the payments of eligible expenses are now allowed when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the Paycheck Protection Program (PPP). Previous IRS guidance disallowed deductions for the payment of eligible expenses when the payments resulted (or could be expected to result) in forgiveness of a covered loan.
The COVID-related Tax Relief Act of 2020 amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied and no tax attribute is reduced. Furthermore, no basis increase is denied because of the exclusion from gross income of the forgiveness of an eligible recipient's covered loan. This change applies to taxable years ending after March 27, 2020.
The Tax Cuts and Jobs Act (TCJA) eliminated the deduction for any expenses related to activities generally considered entertainment, amusement, or recreation for tax years after 2017. While taxpayers may still deduct business, expenses related to food and beverages as long as certain requirements are met, certain questions remained.
Recent IRS regulations provided clarification for several of these issues: disallowance of the deduction for expenditures related to entertainment, amusement, or recreation activities, and including the applicability of certain exceptions to this disallowance. The regulations also provide guidance to determine whether an activity is considered entertainment. The final regulations also address the limitation on the deduction of food and beverage expenses.
The 2017 Tax Cuts and Jobs Act (TCJA) limited like-kind exchange treatment to exchanges of real property. As such, effective January 1, 2018, exchanges of personal or intangible property such as vehicles, artwork, collectibles, patents, and other intellectual property generally do not qualify for nonrecognition of gain as like-kind exchanges.
Furthermore, like-kind exchange treatment applies only to exchanges of real property held for use in a trade or business or for investment. An exchange of real property held primarily for sale does not qualify as a like-kind exchange.
Under the IRS's final regulations, real property includes land and generally anything permanently built on or attached to land. In general, it also includes property that is characterized as real property under applicable State or local law. Certain intangible property, such as leaseholds or easements, also qualify as real property under section 1031.
Property not eligible for like-kind exchange treatment prior to the enactment of the TCJA remains ineligible. Neither the TCJA nor the final regulations change whether the properties exchanged are of like kind.
The 2017 TCJA generally disallows deductions for qualified transportation fringe (QTF) expenses and does not allow deductions for certain expenses of transportation and commuting between an employee's residence and place of employment.
Final regulations address the disallowance of the deduction for expenses related to QTFs provided to an employee of the taxpayer, including providing guidance and methodologies to determine the amount of QTF parking expenses that is nondeductible. The final regulations also address the disallowance of the deduction for expenses of transportation and commuting between an employee's residence and place of employment.
Renewable energy projects constructed offshore or on federal land are ordinarily subject to significant delays that can result in project completion times of up to twice as long as other renewable energy projects. These delays threaten taxpayers' ability to satisfy requirements to claim the production tax credit and the investment tax credit.
To address this hurdle, the Treasury Department and the IRS have determined that it is necessary to extend the safe harbor period to up to 10 calendar years after the year in which construction of the project began.
The extension of the safe harbor for these projects provides flexibility for taxpayers constructing renewable energy projects offshore or on federal land to satisfy the beginning of construction requirements despite ordinary course delays that threaten their ability to claim tax credits.
For more information about small business tax updates under tax reform, the CARES Act, or the COVID-related Tax Relief Act of 2020, please call.
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