Small businesses that manage to get their Paycheck Protection Program loans forgiven may find themselves losing valuable tax breaks, according to new guidance from the Internal Revenue Service.
Companies that qualify for loan forgiveness under legislation Congress approved won’t be able to deduct the wages or other businesses expenses they paid for using the loan, according to an IRS notice published Thursday.
“This treatment prevents a double tax benefit,” the agency said in the notice. “This conclusion is consistent with prior guidance of the IRS.”
The guidance clarifies a point of confusion in the $670 billion small business loan program to help businesses struggling as the coronavirus has brought the economy to a standstill. The law states that the forgiven loan won’t be taxed, but didn’t specify whether companies could still write off the expenses they covered with that money.
Perry Green is chief financial officer and a senior wealth strategist at Waddell & Associates. He has worked extensively with owners of closely held businesses and executives of large corporations assisting with tax planning, transition planning and stock option planning as well as with gift, estate and retirement planning.
As the GM for Insurance, Elizabeth Del Ferro brings with her a consistent track record of guiding profitable business expansion within Property and Casualty Insurance software companies. She most recently served as the Vice President of Partner Go-to-Market for Duck Creek Technologies.
Rema Matevosyan is the CEO and co-founder of Near Space Labs, a cutting-edge, high-resolution Earth imagery company for which she was featured in Forbes 30 Under 30. Prior to Near Space Labs, Rema worked as a researcher in Systems Engineering for Complex Aerospace Systems, informing the decisions of the European Commission regarding the Copernicus satellite network. Rema is an Emerging Space Leader and recognized scholar by the International Astronautical Federation and a published researcher in top journals including the American Institute of Aeronautics & Astronautics and The Institute of Electrical & Electronics Engineers.
The tax code permits companies to write off businesses expenses, such as wages, rent and transportation expenses, but generally doesn’t allow write-offs for tax-exempt income.
The ruling adds to the list of stumbling blocks facing businesses as they try to qualify for the Paycheck Protection Program loans.
Small businesses have reported technical issues in trying to apply for the funds, which restarted Monday after the first round of funding ran out after just 13 days.
The program, run by the Small Business Administration, provides funds to cover eight weeks of payroll costs and the loans are forgiven if the employers keep workers on the job or quickly rehire laid-off workers.