Tax implications of PPP loans
“If he’s forgiven, it won’t be taxable income. Period,” says Hall.
YOU CAN DEDUCT THE EXPENSES PAID WITH A PPP LOAN
This one has been more of a moving target. Initially, the IRS position was this: Expenses paid with PPP loan funds cannot be deducted if the loan has been or will be canceled.
However, that changed with the Coronavirus Relief Law enacted on December 27, 2020, which specifies that deductions should not be denied simply due to loan cancellation.
This means that the expenses paid with your P3 loan are deductible.
This result effectively creates two levels of tax benefits for recipients of PPP loans, says Roshani Pandey, financial advisor and founder of True Root Financial in San Francisco.
“The first benefit is to make the loan tax-free,” Pandey says. “The second allows businesses to claim deductions on expenses paid.”
CORPORATE TAXES ARE NOT AN AUTHORIZED USE OF PPP FUNDS
The latest round of coronavirus relief also gives business owners more flexibility in how they spend P3 funds. Newly covered costs include protective equipment, hardware damage, and business software.
Business taxes are not included in this extended list. So if you use your PPP loan to pay your business taxes, this amount will not be canceled.
YOU CAN ALWAYS APPLY FOR IMPT CREDIT FOR EMPLOYEE RETENTION
Businesses can now claim the Employee Retention Tax Credit if they meet the requirements. There is an important caveat: you cannot claim wages paid with a canceled P3 loan.
However, you can claim the credit on salaries paid in excess of the amount remitted.
To qualify for the tax credit, you must continue to pay employees despite a temporary shutdown due to COVID-19 restrictions or a 20% drop in gross revenue from the same quarter of the previous year.
These changes were introduced with the Coronavirus Relief Bill on December 27, 2020, but are retroactive to March 12, 2020. Credit is good on eligible wages paid until July 1, 2021.
RELATED LINKS:
Paycheque Protection 2.0 Program: How to Apply for a New P3 Loan http://bit.ly/…
SBA.gov: PPP loan waiver https://www.sba.gov/…