The U.S. Treasury and the Internal Revenue Service (IRS) released guidance yesterday, November 18th clarifying the deductibility of expenses where a Paycheck Protection Program (PPP) loan has not been forgiven by the end of the year.
PPP loan forgiveness will not be considered taxable income, so any expenses paid with PPP loan funds will not be deductible. The result is neither a tax benefit nor tax harm because the taxpayer has not paid the expenses out of pocket.
If a business reasonably believes that a PPP loan will be forgiven (even if the forgiveness takes place in the next tax year and/or the business has not filed for loan forgiveness) the expenses related to the loan are not deductible.
If a loan is expected to be forgiven and is not, businesses will be able to deduct those expenses. If a tax return has already been filed, the return will need to be amended.
We believe legislation could still happen to allow the expenses but based on the recent clarification, we encourage businesses to file for forgiveness as soon as possible.
If you have question as it relates to the Paycheck Protection Program or other elements of the CARES act, contact our experts today. We’re here to help!