The PPP loan forgiveness program continues to cause confusion for schedule C earners, partnerships, corporations, and thousands of accounting firms around the United States…So in this post we will organize the latest news around PPP forgiveness to make sure you have the right information.
In this post we’ll cover:
Schedule C PPP Forgiveness (and the simplified Form 3508S)
Why PPP Proceeds Are Still Not Deductible (But still free money)
PPP Forgiveness for Bigger Borrowers
PPP Year-End Tax Planning Strategies
PPP Summary
Now that we are coming up on the end of 2020 and since the PPP program is long closed to new applications, most business owners are focusing on getting their PPP loans forgiven and moving on with their lives into the New Year.
But unfortunately, there is still a bit of confusion around various PPP components that is causing business owners and their accountants a lot of stress.
Here are some highlights and articles from major publications and accounting organizations for your reading pleasure that will help you get clarity on the issues.
Schedule C PPP Forgiveness
For many Schedule-C professionals, your PPP loan forgiveness won’t be a very daunting task. In fact, the SBA made it SO simple for anyone who borrowed under $50,000 in PPP funds that they literally don’t even want to review any paperwork of yours in your application.
The Treasury Released the form 3508S, which is the shortest form of PPP loan forgiveness application, which basically has you state that you used the PPP proceeds correctly and that you did not abuse the system.
If you borrowed under $50,000 and especially if you had no employees, check out the form 3508S now.
If you need help filling our your PPP forms, book a call with me here:
This brings us to our next topic, are my PPP expenses tax deductible?
Why Your PPP Expenses are NOT Tax-Deductible
The IRS and the Treasury issued both a revenue ruling and a revenue procedure, essentially saying that since businesses aren’t taxed on the proceeds of a forgiven PPP loan, the expenses aren’t deductible. In this post by Accounting Today, they also point out, “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."
If this isn’t clear enough: You received FREE money from the government. You don’t owe it back. And while you aren’t going to be taxed on the amount of the loan per see, you will be taxed on the amount of the loan since the expenses that are forgiven (which in most cases will be 100% of the loan), are NOT deductible for taxes.
What Happens if My Loan Isn’t Forgiven?
If you for some reason were not able to be in compliance with the PPP forgiveness program and your loan will NOT be forgiven, then you will be able to deduct all of your expenses, since quite simply, you now have a normal loan that you must pay back.
PPP Forgiveness For Bigger Borrowers
If you borrowed more than $50,000 then your forgiveness process will be a bit more complicated than a simple schedule C PPP forgiveness application.
If you borrowed $100k, $300k, even $1 million, you will have to gather a number of documents that you must consolidate and submit to your lender for PPP consideration.
These documents include:
Payroll records for your covered period
Rent payment evidence
Utility bills
Benefits payment statements
Anything else your bank wants
Need help with your PPP forgiveness applications? We are processing 5+ apps per week, get a quote.
PPP Tax Planning Questions
The PPP forgiveness concept is creating challenges for taxpayers when it comes to tax planning.
With a number of high-dollar questions still lingering amongst our clients and millions of other businesses about PPP tax impacts, it is very difficult to understand how PPP forgiveness will impact our businesses come tax time.
Further, the guidance does not address other matters that could have significant tax implications including, but not limited to, the impact on the following:
Qualified business income deduction (Section 199A);
Research and development credits; and
Interest deduction limitation (Section 163(j)).
Get PPP Forgiveness Help
Do you need help with your PPP loan? Schedule C PPP Forgiveness? LLC or big dollar forgiveness? No worries! Book a free call with a CFO to discuss your PPP forgiveness options and how to save taxes in the process.
