Leyla Hanson, CPA Sunnyvale

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Is there any news about the AB 80 update?

The debate on deductibility of qualifying expenses paid with funds provided under the CARES Act or Consolidated Appropriations Act (CAA) has finally concluded for California businesses as Governor Newsom officially signed Assembly Bill No. 80 (AB 80) into law on April 29, 2021.

What does AB 80 mean for CA businesses?

While the bill has some conformity provisions, there are some key exceptions.

Partial conformity

California will allow deductions for amounts paid with forgiven PPP debt, and there is no longer a $150,000 limit on those deductions. However, to qualify to take the deductions, a business must demonstrate at least a 25% reduction in gross receipts in any 2020 calendar quarter compared to the comparable 2019 calendar quarter. If they were in business for all of 2019, they can also compare calendar year 2019 to calendar year 2020.

If the entity was not in business during all of 2019, then the business must show a 25% reduction in gross receipts during any quarter in 2020 from the 2019 calendar quarters it was in operation. This language piggybacks on the gross receipt reduction requirement for eligibility for second draw PPP loans. However, the bill does not include any of the other restrictions from that provision, such as an employee limit.

AB 80 also provides that EIDL advance and targeted grants are excluded from taxable income, and the expenses paid with those amounts are fully deductible. The 25% gross receipt reduction threshold does not apply to these grant recipients for purposes of the exclusion or allowing deductions.

The full text of the bill is available at http://bit.ly/AB-80-Bill-Text.

Income Taxes for Individuals, Start-ups & Small Businesses
leyla@leylahansoncpa.com  ::  408.732.9205
located in Sunnyvale, California

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