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.
Fed officials also talk about the muni liquidity facility and efforts to help the economy in the wake of the COVID-19 pandemic.
Robbie Randall is a member of the Intuit Accountants team. He has a great passion for helping small businesses thrive. Having owned a small business, he understands the heartaches, the triumphs, and the attention it takes to operate one. In his current role, he speaks with hundreds of entrepreneurs weekly and enjoys sharing insights that he’s collected from some of the most successful cloud-based firms. Connect with Robbie on Twitter or LinkedIn @smbizpro.
Andrew Hoag is CEO and founder of Teampay, a leading distributed spend management platform. He has founded four companies, including urbantag in 2011, which tackled the trillion-dollar online-to-offline commerce market and exited in October 2012. In addition to these entrepreneurial and leadership roles, he has served as an angel investor and advisor to many other companies, helping them to raise venture capital and design product strategy. Prior to that, he held management roles in customer engineering, product management, internationalization, business development and marketing at VeriSign, and, before that, he connected and built supercomputers for NASA.
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.