When the Paycheck Protection Program (PPP) was first announced as a form of mitigation for cash-strapped COVID-era businesses, advocates assumed that the initiative’s forgiven loan money would not be taxable. This provision made the program far more desirable to business owners who might otherwise have been skeptical.
Unfortunately, the very promise that encouraged entrepreneurs to get involved in the PPP is now being called into question. Why the confusion? What comes next? We answer these and other questions below:
Why Are Businesses Worried About PPP Loans and Taxes?
In May, IRS Notice 2020-32 revealed that expenses covered for the sake of forgiveness would not be deductible. This move essentially wiped out any tax benefits the program was intended to provide. What’s more, a later IRS ruling paved the way for those with loans not yet forgiven to still miss out on deductions.
According to the IRS, the reasoning for this decision is simple: if businesses deduct expenses covered by the government, they’ll receive a double benefit. While there may be some truth to this, the PPP has now caused other sources of business income to be more fully taxed.
Is There Any Hope for PPP Businesses?
Small business owners are understandably worried about the major tax bill they could face in 2021. They’re desperate for help, which, although not guaranteed, could be on the way. A major bipartisan stimulus proposal is currently in the works, with a basic outline revealing that deductibility concerns may be addressed.
Until then, strong tax representation is advised, as this situation is far too complex for small business owners to handle alone. Beyond the issue of PPP loans and deductions: the enormous amount of guidance the IRS has issued this year — and the inherent challenge of following it.
Whether you’re worried about deductions in light of PPP drama or are dealing with other tax concerns, you can count on the Highland Tax Group for patient guidance. Reach out today to get started.