The COVID-19 relief package that Congress agreed to last month provides many useful tax breaks, but accountants are also wondering about the applicability of some of the breaks, such as claiming restaurant meals as business deductions.
Evan Morgan, director of tax services at Top 100 Firm Kaufman Rossin, is advising his small-business clients to take advantage of various tax credits and extenders, including the Employee Retention Tax Credit, the Work Opportunity Tax Credit, the Health Coverage Tax Credit, and the five-year extension of the New Markets Tax Credit at $5 billion per year.
“A lot of things were extended,” he said. “This is a big package of extensions. Some items were extended for one year and some items were extended for five years.”
![Abdulmajeed[1].png](https://arizent.brightspotcdn.com/dims4/default/e55eb3f/2147483647/strip/true/crop/1498x1125+0+0/resize/1024x769!/format/webp/quality/90/?url=https%3A%2F%2Fsource-media-brightspot.s3.us-east-1.amazonaws.com%2F85%2F64%2F18743add40ce8057e1646f088ebd%2Fabdulmajeed-1.png)
Albalushi is a principal at the RBL Group, a consulting company specializing in strategic HR, talent management and organizational alignment. He has over a decade of GCC (Gulf Corporation Council) experience in organizational transformation, business management and business analysis. He has worked in many sectors and industries including civil service, infrastructure, information technology, oil and energy, maritime and shipping, mining and metal, investment and management consultancy. Albalushi has significant experience as an internal HR manager and is well versed in many facets of human resources. He has helped several organizations implement and roll out their HRMS systems.
Kristen Rampe, CPA, is the managing partner of Rosenberg Associates. She is a nationally known consultant to CPA firms and a frequent speaker at practice management conferences. She specializes in helping small to mid-sized firms with partner compensation, partner agreements, buyouts, strategic planning and retreats, firm governance, and leadership development. She has co-authored four books along with Marc Rosenberg, CPA, including CPA Firm Management & Governance, CPA Firm Partner Retirement/Buyout Plans, What Really Makes CPA Firms Profitable?, and The Role of the Managing Partner. She spent 10 years in public practice with Big Four powerhouse PwC and top 50 ranked Frank Rimerman in San Francisco before founding her consulting practice in 2011 and merging with Marc Rosenberg in 2022. She was named Woman to Watch by the California Society of CPAs in 2011, 40 Under 40 by CPA Practice Advisor in 2015, and Top 100 Most Influential People in Accounting by Accounting Today for several years. Kristen holds an active CPA license with the state of California. She has been featured by Fortune and Investor's Business Daily. Kristen is a graduate of Butler University.
Paige E. Pidano is a managing director and senior associate general counsel at The Clearing House Association.
The five-year extensions will help provide more certainty for tax planning with clients. “Our issue for the last several years is that Congress comes up with these last-minute tax plans, and it’s very difficult for clients that want to plan anything more than three to six months in advance,” said Morgan. “It’s very difficult to do appropriate tax planning, because we’re never sure what Congress is going to do. There’s a lot of uncertainty now about some of the proposals that President-elect Biden has discussed on the campaign trail and whether those are going to happen or not. We really don’t know.”
The package includes a short-term extension on sick leave and family leave, but not for long. “The employer credit for paid sick and family leave was set to expire in 2020, but it was extended to March 31, 2021, and then the Employee Retention Tax Credit, compensation paid to a covered employee, is through June 30, 2021,” said Morgan. “Those are part of the extensions.”
Biden was scheduled to unveil his economic plans Thursday, and chances are that pressing issues like getting the COVID-19 pandemic under control will take priority over tax reform.
“That’s what I’ve been counseling clients who are afraid of retroactive tax increases. If there’s any more tax legislation, it’s going to be the middle of the year, easily, and I think it’s highly unlikely that they will make anything retroactive to Jan. 1, 2021, at that point,” said Morgan. “More likely, if there is some change, it would take effect in 2022.”
One tax break he is encouraging clients to look at is the charitable deduction. “A big item that affects both individuals and businesses is that they extended the change for charitable contributions, so people who don’t itemize their deductions can still take a $300 above-the-line charitable contribution deduction in 2021,” said Morgan. “Also for 2021, the AGI limitation on people who do itemize rises to 100 percent. That’s a pretty big one that’s going to affect a lot of people. People that give to charity will be able to get at least some benefit from it.”
There’s also a break for people who have to dip into their retirement accounts to pay for their current needs. “There’s a change to the penalty tax when people have to take money out of their retirement plans to live off their savings,” said Morgan. “If they can show it’s a qualified coronavirus-related distribution, they’re waiving the 10 percent penalty tax. They have three years to repay. If you take money out of your plan, you can either pick it up in income over three years or you can pay it back to your plan without having to pay tax on it.”
A more controversial provision in the stimulus deal is allowing businesses to write off the costs of meals and entertainment, which President Trump pushed as a priority for helping the ailing restaurant industry.
“In 2021 and 2022 we’re going back to 100 percent allowance for deductions for business meals,” said Morgan. “But they have to be served at a restaurant. I’m not exactly sure what that means at this point. For example, when you’re taking a client to a baseball game, to events and things like that, is that considered a restaurant?”
Howard Wagner, a partner in the Washington National Tax Practice at Top 10 Firm Crowe, has also been scrutinizing the temporary allowance of the full business meal deduction. “That is only for meals provided by a restaurant, so the question is what is the definition of a restaurant,” he said. “If you think of going to a restaurant in a traditional setting, absolutely. If you rent a suite at a sporting event and you’re billed separately for the food, does the catering operation at the baseball game count as a restaurant, or is that not a restaurant for purposes of the full deduction?”
He hopes to see further guidance from the IRS on exactly what venues will be permitted. “The question is, if I go to a hotel for a business meeting and I pay for the meals from the catering operation of the hotel, is that a restaurant?” said Wagner. “You’ve still got the ‘not lavish or extravagant’ standard in the Section 274 rules. When you start talking about people abusing it, this is kind of nibbling around the edges.”
