The pandemic and the ensuing economic impact on individuals and small business owners have caused an unprecedented monetary and fiscal policy response from the federal government. On December 21, 2020, lawmakers passed a new Covid-19 stimulus package to help people through these difficult times.
In addition to items on the bill such as Stimulus Checks, Paycheck Protection Program part 2, and federal unemployment assistance, there are many lesser-known items that may benefit you.
Carry Over Relief for Flexible Spending Account Funds
Dependent Care Flex Spending Accounts and Health Flex Spending Accounts are valuable tax savings tools offered by many employers. Because of stay-at-home orders caused by the pandemic, many people could not use all the funds in their accounts. To avoid substantial employee forfeitures on these balances, Congress has permitted employers to let employees carry over unused 2020 balances to 2021 and remaining 2021 balances to 2022 to avoid losses.
Medical Expense Deductions
Before the new legislation, medical deductions called for a minimum hurdle rate of 10% of AGI before a deduction could be taken. Now the hurdle rate is down to 7.5% of AGI. People who have high deductibles could benefit from a reduced rate.
Qualified Disaster Distributions and Enhanced Plan Loans
This provision exempts disaster distributions from specific qualified plans from the 10% early distribution penalty, and the income from such distributions may be spread out over three years. The Enhanced Plan loan provision from the original CARES Act, which allows you to withdraw up to 100% of your vested balance up to a maximum of $100,000, is now available if you were impacted economically by a declared federal disaster at your principal place of residence. The distributions from an employer-sponsored plan are also not subject to mandatory withholdings by the employer and come with the ability to temporarily delay loan payments.
If you live in California, where we seem to have annual wildfires or another state that suffers from perennial natural disasters, the relief from this provision may be able to supplement any rainy day funds as a last resort.
100% Deduction for Certain Business Meal Expenses
During the pandemic, some restaurants were ordered to close and suffered substantial losses. To promote business spending at restaurants, the legislation allows for a 100% deduction for business meals in 2021 and 2022 for small business owners and sole proprietors. Notably, the 100% deduction is allowed only to the extent the expenses incurred are “for food or beverages provided by a restaurant.” Given the varied business models in the restaurant business, one should expect additional guidance from the IRS.
A Team-Based Approach
As the pandemic and resulting economic chaos descended upon us, small business owners and individuals were caught scrambling to find the resources and support to navigate financial challenges. Commercial bankers, accountants, and other professionals were in high demand with the number of people who were looking for help. Being proactive and surrounding yourself with a team of professionals to help you build a plan for the future can help insulate or minimize the impact of critical financial events. Concentrum Wealth Management can be your partner. https://www.concentrumwealth.com/
Ready to start planning for a brighter future? Call today at (408) 840-4030, or contact our team online.