New Guidance on Deductibility of PPP Loans
On November 18, 2020, the U.S. Treasury Department and Internal Revenue Service (IRS) published new guidance regarding Paycheck Protection Program (PPP) loans that have not been forgiven by the end of the year the PPP loan was received.
The guidance states that if businesses are not taxed on the earnings of a forgiven PPP loan then expenses are not deductible. In short, this means that there may be neither a tax benefit nor tax harm since the taxpayer has not paid anything, per the U.S. Treasury Department.
If businesses have reason to believe that their PPP loan will be forgiven, expenses associated with the loan are not deductible even if forgiveness was filed for or not. In any event, we strongly recommend businesses to discuss with their advisors when they should file for forgiveness; Some businesses should file immediately and some business should wait for more guidance.
In the event that PPP loan forgiveness was likely, but ends up not being forgiven, businesses will be able to deduct those expenses.
Below is some documentation your business may find useful in this process:
For any assistance regarding PPP loans, please do not hesitate to get in contact with us. The sooner you act, the better.