IRS clarifies deductibility of PPP loan expenses


SBA-PPP

The Internal Revenue Service and the Treasury Department issued guidance to clarify treatment of expenses when a loan from the Small Business Administration’s Paycheck Protection Program that haven’t been forgiven by the end of the year.

According to the IRS and Treasury Department, since businesses aren’t taxed on the proceeds of a forgiven PPP loan, the expenses aren’t deductible. Makes sense, but what does it mean for your business?

It means that, should your business have received PPP loans, any expenses (payroll, utilities, rent) used by the PPP loan are not deductible on your 2020 taxes. This clarification came more than six months after many people applied, and received PPP loans.

“This results in neither a tax benefit nor tax harm since the taxpayer has not paid anything out of pocket,” said the Treasury in a news release. “If a business reasonably believes that a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not. Therefore, we encourage businesses to file for forgiveness as soon as possible.”

 

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