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The IRS has issued guidance clarifying that certain deductions aren\u2019t allowed if a business has received a Paycheck Protection Program (PPP) loan. Specifically, an expense isn\u2019t deductible if both:<\/p>\n
PPP basics<\/strong><\/p>\n The CARES Act allows a recipient of a PPP loan to use the proceeds to pay payroll costs, certain employee healthcare benefits, mortgage interest, rent, utilities and interest on other existing debt obligations.<\/p>\n A recipient of a covered loan can receive forgiveness of the loan in an amount equal to the sum of payments made for the following expenses during the 8-week \u201ccovered period\u201d beginning on the loan\u2019s origination date: 1) payroll costs, 2) interest on any covered mortgage obligation, 3) payment on any covered rent, and 4) covered utility payments.<\/p>\n The law provides that any forgiven loan amount \u201cshall be excluded from gross income.\u201d<\/p>\n Deductible expenses<\/strong><\/p>\n So the question arises: If you pay for the above expenses with PPP funds, can you then deduct the expenses on your tax return?<\/p>\n The tax code generally provides for a deduction for all ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Covered rent obligations, covered utility payments, and payroll costs consisting of wages and benefits paid to employees comprise typical trade or business expenses for which a deduction generally is appropriate. The tax code also provides a deduction for certain interest paid or accrued during the taxable year on indebtedness, including interest paid or incurred on a mortgage obligation of a trade or business.<\/p>\n No double tax benefit<\/strong><\/p>\n In IRS Notice 2020-32, the <\/strong>IRS clarifies that no deduction is allowed for an expense that is otherwise deductible if payment of the expense results in forgiveness of a covered loan pursuant to the CARES Act and the income associated with the forgiveness is excluded from gross income under the law. The Notice states that \u201cthis treatment prevents a double tax benefit.\u201d<\/p>\n More possibly to come <\/strong><\/p>\n Two members of Congress say they\u2019re opposed to the IRS stand on this issue. Senate Finance Committee Chair Chuck Grassley (R-IA) and his counterpart in the House, Ways and Means Committee Chair Richard E. Neal (D-MA), oppose the tax treatment. Neal said it doesn\u2019t follow congressional intent and that he\u2019ll seek legislation to make certain expenses deductible. Stay tuned.<\/p>\n \u00a9 2020<\/em><\/p>\n <\/body> The IRS has issued guidance clarifying that certain deductions aren\u2019t allowed if a business has received a Paycheck Protection Program (PPP) loan. Specifically, an expense isn\u2019t deductible if both: The payment of the expense results in forgiveness of a loan made under the PPP, and The income associated with the forgiveness is excluded from gross […]<\/p>\n","protected":false},"author":3,"featured_media":14780,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[26],"class_list":["post-14781","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-small-business"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/14781","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=14781"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/14781\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=14781"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=14781"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=14781"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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