Last week the IRS released new guidance on the Paycheck Protection Program (PPP) loan. Turns out … if you received a PPP loan, the expenses you pay from the proceeds of this (forgivable) loan … are not deductible. That means, depending on your tax rate, the value of this “loan” is reduced.
There is good news though! CPA Associations are all up in arms against this new guidance and on Wednesday, a bipartisan group of senators introduced legislation to nullify the IRS’ guidance. Under the bill, small businesses could still deduct the expenses they have paid with a forgiven PPP loan from their taxes.
Lesson learned from all this: Congress can do whatever it likes. And it doesn’t need to tell you in a timely fashion. It can come in at the 11th hour and change everything.
Welcome to our world!
We are confident, however, that Congress will uphold the spirit of the PPP – to help small business recover from the pandemic – and nullify the IRS’ new guidance on expenses.
On another note … the IRS and the SBA have NOT released clear guidance about how to ensure that every part of this loan is forgivable.
Yes, we know the basics:
- Keep/restore at least 75% of pre-February 15, 2020 payroll by June 30, 2020.
- Use all the funds within 8 weeks of PPP disbursement.
- Submit the proper paperwork to your bank to that end.
Well, here’s the problem — EXACTLY what kind of proof will be required?
- What happens if an owner takes a bigger wage to reach that 75%?
- Will any of us have to PROVE that we were impacted by Covid-19?
- If so, HOW will we prove it to their satisfaction?
We don’t have good answers to these questions yet, at least from official channels. We will keep you posted.
As always, if you have any questions, we are here to help!
The Team at Legacy CPA
We are grateful for our chance to serve you and your business — and we are dedicated to its success, in every season.
Feel free to forward this article to a business associate or client you know who could benefit from our assistance. While these particular articles usually relate to business strategy, as you know, we specialize in tax preparation and planning for families and business owners.