TAX GUIDANCE FOR PPP BORROWERS

IRS STATES BUSINESS OWNERS CAN’T DEDUCT EXPENSES PAID WITH PPP LOAN

On November 18, 2020, the IRS provided a ruling on deductions regarding the Paycheck Protection Program (PPP) loan (Rev. Rul. 2020-27). Per the ruling, the IRS confirmed and clarified that taxpayers whose PPP loan status is forgiven, will have it forgiven, or ‘reasonably expect’ to have their loan forgiven, may not deduct expenses paid with those funds, even if forgiveness has not been granted by the end of the taxable year. Although forgiveness is tax-free, taxpayers can’t deduct expenses that were covered by the loan.

HAVE YET TO APPLY OR DENIED FORGIVENESS?

Accompanying the ruling was (Rev. Proc. 2020-51), which allows taxpayers who do not apply for or do not receive forgiveness, partial or all, the ability to take deductions for amounts paid using PPP loan proceeds, which were not forgiven.

UNDERSTANDING TIMELINES – WHEN TO MAKE TAX ADJUSTMENTS.

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