Page 25 - Investment Advisor March 2021

request less than $150,000 in second- and health screening facilities. their “covered period,” which is the
draw proceeds don’t have to verify a PPP funds also can be forgiven if period over which at least 60% of loan
revenue reduction up front, but will be they’re used to repair damage caused by proceeds must be spent on qualifying
required to provide documentation if protests and other disturbances in 2020, expenses. That period begins on the
they apply for forgiveness. as long as the damage wasn’t covered by date proceeds are disbursed and ends at
The list of permitted uses has also insurance. Proceeds can now be used least eight weeks later, but no more than
been expanded under the new law. to cover supplier costs, which include 24 weeks later.
Proceeds can, of course, continue to be expenses related to contracts and other Some business owners may be eligible
used to cover payroll costs and operat- purchase orders for supplies that were for larger loans under the new rules.
ing expenses. They also can be used in effect before the business took out the The SBA will allow those businesses to
to pay for personal protective equip- second-draw loan. request an increase in their loans if eli-
ment and modifications to the business Payments for operations expenses gible, either by returning all or a portion
that are necessary to adapt the business like cloud computing services, busi- of the loan or requesting an increase if
to meet new health and safety stan- ness software, accounting or HR needs the business hasn’t yet accepted the loan
dards. These capital expenditures might also qualify. proceeds. Those requests must be made
include physical barriers, ventilation The new rules give business own- electronically to the SBA no later than
systems, expansion of outdoor spaces, ers flexibility to choose the length of March 31 under current rules.

Year-End Stimulus: What Changed DID THE 2021 CAA HELP

RETIREMENT PLANS?
for Retirement Plan Participants The CAA did permanently lower the
threshold for deducting medical expens-
he year-end COVID-19 stimulus bill COVID-19 disasters, such as wildfires es. Under prior law, medical expenses
Textended some of the relief created and hurricanes. Taxpayers impacted by could be deducted only if they exceeded
under the CARES Act earlier in 2020. any type of federally declared disas- 10% of adjusted gross income (AGI).
But much of the retirement relief relat- ter that is not related to COVID-19 are The CAA made a 7.5% limit permanent.
ed to COVID-19 was not carried over permitted to withdraw up to $100,000 This lowered threshold can help
into 2021. Rather, the law provided new from a qualified plan or IRA within 180 more retirement plan participants take
forms of relief for different situations — days of the CAA’s passage (i.e., by June penalty-free distributions from 401(k)
some of which are entirely unrelated to 25, 2021). s and IRAs. Usually, a 10% penalty
the pandemic. As usual, these disaster-related distri- applies for distributions if the account
It’s important to pay close attention butions are exempt from the 10% early owner has yet to reach age 59½. That
to the fine print to make sure clients withdrawal penalty that would typically penalty does not apply, however, to
understand what types of new penalty apply — but are subject to ordinary distributions taken for tax-deductible
relief might be available in 2021 — and income tax treatment. However, taxpay- medical expenses.
the details will be key to preventing ers who take qualified disaster distribu- In other words, if the client’s medi-
unpleasant tax surprises for clients in tions are also permitted to spread the cal expenses for the year exceed 7.5%
the future. tax liability over three years (and repay of AGI and are thus deductible as item-
the distribution over a three-year period ized deductions, the client could opt to
CAA RETIREMENT DISTRIBUTION without tax implications). take a penalty-free withdrawal to cover
RELIEF PROVISIONS are back on the table for 2021. In other those costs. However, the penalty-free
Also, required minimum distributions
withdrawal must be equal to or less than
Some key COVID-19 relief provisions
photo_gonzo/Shutterstock 2020, including the rules that allowed extend the RMD waiver into 2021. Plan incurred by the client. Clients should
words, the year-end stimulus bill did not
were allowed to expire at the end of
the actual amount of medical expenses
participants aren’t required to do any-
also be aware that they will be respon-
penalty-free coronavirus-related distri-
sible for ordinary income taxes on the
thing special if they skipped their 2020
butions from retirement plans.
withdrawal — and that the withdrawal
And the year-end Consolidated
RMD under the CARES Act rules. 2021
RMDs are calculated using the year-end
Appropriations Act of 2021 (CAA) pro-
could potentially push them into a high-
er income tax bracket.
account balance just like any other year.
vides the same type of tax relief for non-
MARCH 2021 INVESTMENT ADVISOR 23