Dec. 30, 2020
The stimulus bill that was just signed into law, the Consolidated Appropriations Act, 2021, will have an impact on both individuals and business owners. Here is how Adam Cmejla, CFP®, a frequent ROB contributor, described the impact on optometrists in a recent blog post on his website.
Like last the last time a COVID stimulus package was passed, “the question of whether or not someone will receive stimulus payments is going to be a solid ‘maybe.'” Cmejla writes.
The maximum stimulus per person is $600 (as opposed to the $1,200 for adults and $500 for children under the CARES Act).
This amount will be reduced once income exceeds the following thresholds:
Heads of Household: $112,500
The phaseout will be calculated by reducing the stimulus by $5 for every $100 a taxpayer is over their applicable threshold.
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For practice owners, Cmejla says the deductibility of expenses paid with Paycheck Protection Program (PPP) funds is arguably the biggest net positive change. “When Treasury came out (twice, via Rev Ruling 2020-27 and Notice 2020-32) reaffirming that deducting expenses paid with PPP funds was, essentially, getting a double tax benefit, Congress effectively said ‘Hold my beer, watch this’ and authored Section 276 of the Act (located on page 2,004),” he explains.
Prior to the Act, the net effect was that owners of practices would essentially be paying taxes on PPP funds at their personal income tax rate, since they were losing the deductibility of those PPP-paid expenses. For more details on pre-Act planning, check out this Review of Optometric Business article Cmejla wrote in November.
For many private practice owners, this essentially turned into tax-free funding to be used in their practice, of which the government also expanded the covered expenses under CARES through additional language in the Act.
Also tucked into the Act, Cmejla points out, is a significant expansion of what qualifies as “covered expenses” that can be paid with PPP funds, and thus, qualify for forgiveness. Taken directly from Section 304(b)(3):
“…payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.”
“As we can see,” Cmejla writes, “this language seems to suggest and encompasses almost any operational expenses that a practice incurs. From EHR to payroll…from point-of-sale systems to inventory management systems…practice management software systems like EDGEPro or RevolutionEHR (no endorsement; just examples).”
Additional expansion of covered expenses are outlines in subsequent sections of the Act, but here’s a small list Cmejla provides:
“Covered property damage” costs due to vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance
“Covered supplier costs” means expenses paid to a supplier of goods that are essential to the operations of the entity at the time which the expenditure is made (Cmejla advises: think COGS and other expenses related to patient care).
“Covered worker protection” expenditures include any modifications that needed to be made to your practice to protect and mitigate the spread of disease to your team and patients based on guidance issued by DHHS, CDC, OSHA, or equivalents (Cmejla advises: think PPE, plexiglass at your checkout, additional sanitation stations, etc.)
“Interestingly, I don’t anticipate this part of the Act will apply to a lot of practice owners as most of them have already spent their PPP funds, either literally or figuratively, as their 24-week covered period is close to being over or has already passed,” Cmejla writes.
One of three types of practice owners will greatly benefit from these changes: new practices that have just launched, recent acquisitions in which there is not a PPP loan outstanding on the books of the practice, or other practices that for some reason or another did not take out a PPP loan.
Cmejla’s planning tip: “If you find yourself in one of the camps listed above and have NOT taken out a PPP loan, the same advice still applies: MAX OUT THE LOAN! Take out as much as you qualify for at the time of application. Worst case scenario is that you have the option of paying it back on very favorable terms.”