A forgiven PPP loan is tax-exempt, meaning it does not cause you to recognize a taxable gain or income. The IRS has clarified that expenses paid for using forgiven PPP loan proceeds are still deductible as well.
The program's purpose was to help businesses keep their workforce employed during the crisis. If taxpayers meet certain requirements, the loans are forgiven. Generally, forgiven loans are taxable as discharge of debt income. However, a taxpayer may exclude from income the cancelled amount of an eligible PPP loan.
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