Charitable Contributions Deduction Liberalized for 2021

As a means to stimulate charitable contributions during the COVID crisis, Congress made two notable changes for 2020—one allowing taxpayers that don’t itemize their deductions an above-the-line deduction for cash contributions of up to $300 and another for those itemizing their deductions to increase the maximum deduction for cash contributions to 100% of their adjusted gross income (AGI).

The recent COVID-related tax relief act, passed late in December, extends and enhances those liberalized charitable contribution deduction provisions. Here is a rundown on these charitable contribution tax benefits for 2021:

  • Charitable Contributions for Non-Itemizers – The Taxpayer Certainty and Disaster Tax Relief Act allows those who don’t itemize their deductions a deduction of up to $300 for cash contributions made during 2021. Married couples filing jointly are allowed a deduction of up to $600 for the cash contributions they make during 2021. This is an increase from 2020, when the contribution was limited to $300 regardless of filing status. However, contributions by non-itemizers to new or existing donor-advised funds or private foundations don’t qualify for either year.

    For 2021, the $300 or $600 amount is an add-on to a non-itemizer’s standard deduction. Claiming the deduction as part of the standard deduction for 2021 may not be quite as beneficial tax-wise for some taxpayers as was the deduction for 2020. This is because on 2020 returns the cash contributions, up to $300, are deducted in computing adjusted gross income, while on 2021 returns, the deduction will be taken after the AGI is figured. This distinction matters because many credits and other tax benefits are limited by the AGI amount.

    Apparently, Congress anticipates that non-itemizers will abuse this new deduction by taking the deduction without actually making a contribution. In a preemptive attempt to head off such behavior, Congress also increased the accuracy-related tax penalty from 20% to 50% on an underpayment of tax resulting when a non-itemizing taxpayer improperly claims the charitable contribution deduction. 

  • Cash Contributions for Itemizers – Under the CARES Act that was enacted in March 2020, the 60% deduction limit on cash contributions to most charities was suspended for 2020, thus allowing larger cash contributions during the COVID crisis—potentially up to 100% of the AGI. Under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, the suspension of the 60% limit has been extended to 2021.

Cash contributions include those paid by cash, check, electronic funds transfer or credit card. Taxpayers cannot deduct a cash contribution, regardless of the amount, unless they can document the contribution in one of the following ways:

  1. A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Bank records may include:
    a. A canceled check,
    b. A bank or credit union statement or
    c. A credit card statement. 
  2. A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization and the date and amount of the contribution. 
  3. Payroll deduction records that include a pay stub showing the contribution and a pledge card showing the name of the charitable organization. If the employer withheld $250 or more from a single paycheck, the pledge card or other document must state that the organization does not provide goods or services in return for any contribution made to it by payroll deduction.

To claim a deduction for a contribution of $250 or more, the taxpayer must have a written acknowledgment of the contribution from the qualified organization that includes the following details:

  • The amount of cash contributed; 
  • Whether the qualified organization gave the taxpayer goods or services (other than certain token items and membership benefits) as a result of the contribution and a description and good-faith estimate of the value of any goods or services that were provided (other than intangible religious benefits); and 
  • A statement that the only benefit received was an intangible religious benefit, if that was the case.

Thus, for example, money dropped in a Christmas Kettle or tacked onto your purchase at a retail store would not be deductible because there is no documentation that the contribution was made.

If you have questions related to how charitable contributions might affect your tax return or how to document charitable contributions of any type, please call our office.

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Seim Johnson Welcomes New Staff Accountant

Seim Johnson happily welcomes the addition of Trey Taubenheim to the firm as a tax associate.

“Welcoming a new accountant at the start of opportunity season is a great way to bring fresh energy to the team,” said Jerry O’Doherty, CPA, CGMA, managing partner of Seim Johnson. “I know that Trey will bring a great attitude throughout tax season, and I can’t wait to see how his career soars within the firm.”

Previously a tax and audit intern at Seim Johnson, Taubenheim will now work full-time in the tax department to prepare and reconcile individual, business, nonprofit, and limited liability company tax returns. A graduate of the University of Nebraska at Kearney, Taubenheim graduated in 2020 with a bachelor’s degree in business administration. He was the treasurer of Beta Alpha Psi, the honors accounting fraternity, while at university. Raised in Amherst, Nebraska, Taubenheim currently resides in Elkhorn.

Founded in 1975, Seim Johnson is one of the leading accounting and consulting firms in Nebraska. Based in Omaha, the firm’s team of nearly 90 professionals serves clients within the state, throughout the Midwest, and across the country. Seim Johnson’s dedicated professionals provide insightful, forward-looking solutions that truly benefit their clients. 

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Seim Johnson Announces Retirement

The Omaha accounting and consulting firm Seim Johnson is sad but proud to announce the retirement of long-time team member Brent Friehauf, CPA.

Friehauf joined Seim Johnson in 1994, devoting more than 27 years of his three decades in professional accounting to the firm. As a tax partner, he specialized in serving clients in the real estate, wholesale, manufacturing, agriculture, healthcare, and financial services sectors. Friehauf provided tax planning, tax consulting, tax compliance, and estate planning services to both individuals and businesses. Additionally, he served on the firm’s Executive Committee.

“It is with mixed emotions that I congratulate Brent on his retirement—I am happy for him but know that he will be sorely missed,” said Jerry O’Doherty, CPA, CGMA, managing partner of Seim Johnson. “I am very grateful to Brent for his many years of dedicated service, and I wish him the best as he enters this new stage of his life.”

A 1982 graduate of the University of Nebraska – Lincoln, Friehauf holds a Bachelor of Science in Business Administration in Accounting and Finance. Professionally, he is a member of the American Institute of Certified Public Accountants (AICPA), the Nebraska Society of Certified Public Accountants (NSCPA), the Great Plains Federal Tax Institute Board of Directors, and the Omaha Estate Planning Committee. Additionally, he is a member of Southwood Lutheran Church.

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New Paycheck Protection Program Guidance Released

On Wednesday, January 6, the U.S. Small Business Administration (SBA) and the Treasury issued joint guidance regarding the latest updates to the Paycheck Protection Program (PPP), as amended by the recent COVID-19 relief bill. A recent article from the Journal of Accountancy offers an overview of the guidance, which includes the following items:

  1. An interim final rule titled, “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended” – This document includes a consolidation of PPP rules for borrowers using the program for the first time. It also gives an explanation of program changes made by the recent COVID-19 relief legislation. Click here to read the document in full. 
  2. An interim final rule titled, “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans” – This document covers the various regulations for businesses that received PPP loans through the initial program and now want to pursue a second-draw loan. Click here to read the document in full. 
  3. Additional guidance titled, “Guidance on Accessing Capital for Minority, Underserved, Veteran and Women-Owned Business Concerns” – This document gives details on the SBA’s commitment to opening the second PPP application window exclusively to minority- and women-owned businesses for the first two days. Click here to read the document in full.

The article offers a helpful overview of a number of PPP details that have changed with this second round of loan funding, including the following:

  • Second-draw PPP loans of up to $2 million are available for eligible businesses that received first-round funding. Eligibility requirements include having 300 or fewer employees; having used the entirety of the first-round funding on eligible expenses prior to receiving second-draw funding; having experienced a reduction in revenue of 25% or more, comparing an eligible time period in 2020 with one in 2019. 
  • Businesses that did not receive PPP funding in the first round may be eligible for second-round PPP funding if they meet the following criteria: having 500 or fewer employees and being eligible for other SBA 7(1) loans; being a sole proprietor, independent contractor, or eligible self-employed individual; being a non-profit; being an operation in the accommodation and food services sector with fewer than 500 employees at a single physical location; being a Section 501(c)(6) business league with 300 or fewer employees; certain qualifying news organizations.
  • The maximum allowable amount for both first- and second-draw PPP loans is 2.5 times the organization’s average monthly payroll, though some eligible businesses can receive up to 3.5 times their average monthly payroll. For first-draw PPP loans, the maximum tops out at $10 million. 
  • In addition to the original definition of “eligible costs” for the purpose of PPP loan usage, PPP loans from the second round of funding can be used to cover PPE and facility modification, property damage related to public disturbances not covered by insurance, expenditures for purchases essential to current operations, and certain covered operating expenditures.
  • The latest COVID-19 relief bill included specific provisions for PPP applicants that are minority, underserved, veteran, and women-owned businesses. This includes certain amounts of PPP loans set aside for these groups and other commitments by the SBA to ensure that businesses in these categories are served through the PPP program. 

The timeline for the second PPP application window is as follows:

  • January 11, 2021 – Applications for first-draw PPP loans can be submitted by community financial institutions.
  • January 13, 2021 – Applications for second-draw PPP loans can be submitted by community financial institutions.
  • To be announced – Applications for first- and second-draw PPP loans can be submitted by all participating lenders.
  • March 31, 2021 – The second PPP application window closes. 

For more details on the second application window for PPP loans, check out this article from the Journal of Accountancy

To apply for PPP funds in this second round of funding, first-time borrowers should use Form 2483 – Paycheck Protection Program Borrower Application Form and borrower seeking second-draw loans should use Form 2483-SD – PPP Second Draw Borrower Application Form. For more details on these forms and the procedures that accompany them, click here for a helpful article from the Journal of Accountancy

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Seim Johnson Announces Four Promotions

Seim Johnson is pleased to announce the promotions of Joseph Wagman, JD, Vanesa Salcido, CPA, Mark Furasek,  and Taylor Gehring. 

A member of the firm since 2016, Wagman specializes in healthcare regulatory compliance, including Medicare and Medicaid enrollment and reimbursement. Previously a senior, he now takes on the responsibilities of a supervising senior. Salcido has been with Seim Johnson since 2018. With this promotion, she moves from the role of associate III auditor to senior auditor. A member of the firm since 2017, Furasek previously served as an associate III in the firm’s tax department. He now takes on the responsibilities of a senior accountant. Gehring joined Seim Johnson in 2019 and serves in the audit department. With this promotion, she steps from associate II to associate III. 

“These promotions make for a very exciting time at Seim Johnson,” said Jerry O’Doherty, CPA, CGMA, managing partner of Seim Johnson. “These professionals span across departments and job positions, but they have this in common: their hard work and dedication have proven that they are ready to take the next step in their careers.”

A graduate of Creighton University, Wagman earned a Bachelor of Science in Business Administration in 2012 and a Juris Doctorate in 2016. He remains involved with the school via the Creighton University Alumni Association. Wagman lives in Omaha, Nebraska. 

Salcido is a graduate of the University of Nebraska at Kearney. She currently resides in Amarillo, Texas with her husband, Lalo, and daughter, Salome. 

In 2008, Furasek earned a Bachelor of Science in Business Administration from Nebraska Wesleyan University. He later returned to his studies, graduating cum laude with a Bachelor of Art in Accounting from Doane University in 2016. He lives in Bennington, Nebraska with his wife, Jackie, and their daughter, Lennon. 

Gehring attended the University of Nebraska – Lincoln, earning a Bachelor of Business Administration in 2018 and a Master of Professional Accountancy in 2019. Currently in pursuit of her CPA license, Gehring has passed all four sections of the exam and is working towards completing her hours requirement. She currently resides in Omaha, Nebraska.

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