The following article looks specifically at some common tax credits, deductions and covered expenses for optometrists that are the result of the COVID-19 pandemic and The Coronavirus Aid, Relief, and Economic Security (CARES) Act and subsequent rulings. With the deadline of October 15 for companies that request an extension for income tax returns, many optometrists can still take advantage of the following best practices for 2020 returns. As these are high-level summaries, be sure to consult a tax professional for your specific cases. (A companion piece that covers more general deductions can be found in the May 2021 issue of Optometric Management.)

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A COMPANION PIECE TO THIS ARTICLE, covering items like education, professional service fees and rent, lease and utility expenses, can be found in the May issue of Optometric Management and online at bit.ly/2020TaxPart1 .

PAYCHECK PROTECTION UPDATES

Included in the COVID-19 Relief Package, signed into law on Dec. 27, were several provisions that provided eligible businesses additional opportunities to receive relief:

1. Forgiveness of existing First Draw PPP Loan. In order to make it easier for O.D.s to receive full forgiveness for their existing PPP loans, the new law provides PPP borrowers, who have not yet applied for forgiveness, the opportunity to spend the proceeds on four new categories of expenses. While spending in the following non-payroll categories cannot exceed 40% of the PPP loan proceeds, they provide borrowers the opportunity to maximize the potential for forgiveness:
   • Covered operations costs include payments for any software or cloud service that facilitates business operations, product or service delivery, processing, payment or tracking of payroll expenses, human resources, sales and billing functions or accounting and tracking of supplies, inventory, records and expenses.
   • Covered property damage costs include payments for costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation.
   • Covered supplier costs include payments made to a supplier for goods essential to the operation of the PPP borrower at the time during which the expenditure is made, or is made pursuant to a contract or purchase order, in effect any time before the applicable covered period or with respect to perishable goods, in effect before or at any time during the covered period.
   • Covered worker protection expenditures includes payments for operating or capital expenditure to facilitate the adaptation of business activities to comply with requirements established or guidance issued by the DHS, CDC, OSHA, or equivalent state or local guidance, such as personal protective equipment.
2. Second Draw PPP Loans. The new law also allows eligible borrowers who previously received a First Draw PPP loan to apply for a Second Draw PPP loan with the same general loan terms as their First Draw PPP loan. For most borrowers, the maximum amount of the Second Draw PPP loan is 2.5 times the average monthly 2019 or 2020 payroll costs up to a maximum of $2 million. Certain borrowers in the “Accommodation and Food Services” industries can receive the maximum amount of 3.5 times the average monthly 2019 or 2020 payroll costs up to a maximum of $2 million.
   A borrower is generally eligible for a Second Draw PPP loan if they meet the following conditions:
   • The borrower received a First Draw PPP loan and will, or will have used, the full amount of the loan proceeds for authorized uses prior to applying for the Second Draw PPP loan;
   • Has no more than 300 employees; and
   • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

Borrowers could originally apply for a Second Draw PPP loan until May 31, or until all remaining funds are exhausted, according to the U.S. Small Business Administration (see bit.ly/3fz9GhD ).

EMPLOYEE RETENTION TAX CREDIT (ERTC)

The ERTC was created as part of the CARES Act to help incentivize businesses to keep their employees on the payroll. A business is eligible for the ERTC if they still keep their employees employed despite a business closure or a decline in business receipts (see irs.gov/coronavirus/employee-retention-credit ). This credit is worth up to $5,000 for 2020 and $7,000 for 2021. To claim the new credit, eligible employers will report their total qualified wages and the related health insurance costs on their quarterly employment tax returns (Form 941, see irs.gov/pub/irs-pdf/f941.pdf ).

EMPLOYER-PROVIDED CHILD CARE TAX CREDIT

Practices that directly pay the childcare expenses for their employees or help employees secure childcare can receive a tax credit. The credit is 25% of the qualified childcare facility expenditures, plus 10% of the qualified childcare resource and referral expenditures paid or incurred during the tax year. This credit is limited to $150,000 per tax year. Claim this tax credit on Form 8882 (see irs.gov/forms-pubs/about-form-8882 ).

EXTENDED LEAVE PAY CREDIT

The first major act passed to help American workers and their families during the COVID-19 pandemic was the Families First Coronavirus Response Act (FFCRA), which provided expanded paid sick leave benefits for employees. An employee who is sick or quarantined due to COVID-19 will receive two weeks of paid leave benefits (up to 80 hours). The paid leave is up to $511 per day or $5,110 in aggregate. An employee who is caring for someone else who is quarantined or a child whose school or childcare is closed also is eligible. In this case, they can receive two-thirds of their pay, up to $200 per day for up to two weeks. O.D.s who pay these benefits are eligible to receive a fully refundable tax credit equal to the required sick leave benefit payments. At press time, these tax credits were available for paid leave benefits through March 31 (this may have been extended to May 31) and can be claimed on a business’ quarterly employment tax returns (Form 941).

CHARITABLE DEDUCTIONS

O.D.s who elect to take the standard deduction generally cannot claim a deduction for their charitable contributions. However, the CARES Act permits the taxpayers to claim a $300 deduction on their 2020 federal income tax returns for cash contributions made to certain qualifying charitable organizations and still claim the standard deduction. Taxpayers who itemize may claim, with certain limits, a deduction for charitable contributions they make to qualifying charitable organizations. These limits generally range from 20% to 100% of an individual’s adjusted gross income and vary by the type of contribution and type of charitable organization.

The CARES Act permits C Corporations to apply an increased limit of 25% of taxable income (Increased Corporate Limit) for charitable contributions of cash they made to eligible charities during the 2020 calendar year. The maximum allowable deduction is usually limited to 10% of a corporation’s taxable income. For more information, see Publication 526, Charitable Contributions (irs.gov/forms-pubs/about-publication-526 ).

PAYROLL TAX DEFERRAL

Employees payroll tax deferral. IRS Notice 2020-65 (see irs.gov/pub/irs-drop/n-20-65.pdf ) allowed O.D.s to defer withholding and payment of 6.2% of employee’s Social Security taxes on certain wages (employees with less than $4,000 in wages every two weeks, or an equivalent amount for other pay periods) paid in calendar year 2020. Employers must pay back these deferred taxes by their applicable dates. Repayment of the employee’s portion of the deferral started Jan. 1 and will continue through Dec. 31.

Employer’s payroll tax deferral. If the practice deferred its 6.2% share of the Social Security taxes from March 27 through Dec. 31, make sure that the trial balance includes the accumulated liability as of Dec. 31. That is 50% of this liability is due to the IRS on Dec. 31, 2021, and the remaining 50% is due Dec. 31, 2022. OM

MR. DERCO is a partner with Citrin Cooperman, a global tax and advisory firm. He is a trusted advisor who has made an impact on a diverse client base consisting of closely held companies and high net worth individuals. Mr. Decro specializes in strategic planning for companies and their stockholders, designed to minimize taxable income, reduce exposure to risk and maximize profitability and future growth.