Last year was monumental to say the least. Life as we once knew it has become a thing of the past for both individuals and businesses. While countless businesses have struggled to adjust to the unforeseen challenges presented by the pandemic, the Paycheque Protection Program (PPP), which is part of the CARES Act, has been a lifeline for many. .
The PPP loan program was intended to help small businesses, although many large businesses also benefited. According to the Small Business Administration, over five million PPP loans have been approved, the majority of which went to small businesses. Ninety-two percent of loans granted were for $ 250,000 or less and 87% were for less than $ 150,000. The average loan amount was $ 100,729.
Many businesses needed this money to keep their employees working and to pay for the daily expenses of keeping their business running. Business owners were told that the loan important site would also be “canceled” as long as the money was spent on payroll (60% requirement), mortgage interest, utilities, and rent during the eight-to-one period. 24 weeks following disbursement. While the rules for using PPP loan funds were fairly straightforward, the tax effects remained obscure. For months, the IRS took the position that expenses paid with PPP loans that were written off would not be deductible on the company’s tax return. Panting, the nation waited for help from Congress regarding COVID-19. Last minute relief was introduced, including a provision that expenses paid with PPP will be deductible. Congress also recalled that any canceled PPP loan will not be included in the company’s income.
Here are six things you need to know about P3 loans and your taxes:
You can deduct expenses paid with the loan proceeds Payroll, mortgage interest, rent, and utility charges are all forgivable uses of the loan, and Congress replaced IRS guidelines in Notice 2020-32 prohibiting such expenses. Not only are these expenses deductible, Congress has broadened the categories of expenses that can be paid with PPP funds to include: software, cloud services, accounting, human resources, civil unrest damage, equipment personal protection and supplier costs. ordered or contracted prior to loan approval.
You don’t have to include forgiven PPP funds in income While the loan proceeds returned by the lender are usually included in income, the cancellation of the PPP loan is an exception to the general rule. Businesses don’t have to include debt forgiveness in their income.
You can take advantage of the Families First Coronavirus Response Act (FFCRA) The FFCRA is requiring some employers to grant employees paid time off for COVID-19-related reasons. However, businesses can still take advantage of FFCRA tax credits in addition to using the PPP loan.
You can defer payroll taxes Under the CARES Act, employers can choose to defer payroll taxes from March 27 to December 31, 2020. Fifty percent of deferred taxes accrued in 2020 must be paid by December 31, 2021 and the remainder must be paid by December 31, 2020. December 2022.
You cannot use PPP money to pay business taxes As mentioned above, the PPP loan can only be used for certain identified expenditure categories. You cannot use the loan proceeds to pay for income, sales, or other tax obligations.
You can file an amended tax return If you have applied for the pardon but did not receive a decision from the IRS when filing the tax return and later learn that you will not receive a full or partial pardon, you can make the related adjustments by filing an amended return.
Taxes are daunting even without COVID-19 and PPP loans to fear. Add in conflicting advice from several government agencies and it’s understandable that a small business owner could feel overwhelmed. Fortunately, Congress passed favorable provisions for PPP funds and provided certainty for small businesses awaiting responses before the end of the year. If you need further advice, the tax attorneys at Cavanagh law firm are always available to answer all of your questions.
Giselle Alexander is a Chartered Arizona Tax Law Specialist, CPA and holds a Masters of Law in Taxation. Giselle represents clients in all states of the tax controversy process and is one of the few tax attorneys in the United States with experience adjudicating 831 (b) captive microinsurance cases in the United States Tax Court.