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.
Dasarte Yarnway is the head of community at Altruist.
Upon starting his independent advisor journey in 2015, he quickly learned that underrepresented clients and advisors alike were overlooked and underserved. Due to the grave statistics associated with this reality, he sought out to change the landscape of the financial services industry one client and one advisor at a time. Yarnway is a California native and resides in Sacramento with his wife and daughter.
Business owners are changing banks at three times normal levels, a trend researchers attribute to their difficulty in obtaining emergency loans. If the forgiveness stage of the Paycheck Protection Program proves arduous, that rate could climb much higher.
It’s a good time to be opportunistic about your firm’s future — and to poke these embers in a meaningful way.
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.