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.
With the forgiveness process now open, accountants, tax professionals and auditors are working around the clock to submit forgiveness applications on behalf of their clients. There are several steps you can take to increase the likelihood of loan forgiveness.
When it comes to branch cleanliness and mask-wearing, the San Francisco bank is more diligent than its rivals in helping to reduce the spread of coronavirus, according to a new study.
C. Pierce Campbell is a shareholder and the CEO at Turner Padget. He advises new and established businesses on any kind of problem they may encounter and is skilled at keeping those issues from becoming bigger legal hurdles. He may be reached at (843) 656-4429 or pcampbell@turnerpadget.com.
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.