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Somma44
New Member

I am doing a Corporate return ...how do I account for my PPP loan forgivenss?

How do I account for my PPP loan forgivenss

 

4 Replies
ColeenD3
Employee Tax Expert

I am doing a Corporate return ...how do I account for my PPP loan forgivenss?

 

The Paycheck Protection Program (PPP) is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which consisted of government-backed loans to help small businesses and other eligible applicants continue covering payroll costs and certain operating expenses during the coronavirus (COVID-19) pandemic. These loans were available to:

  • Small businesses with less than 500 employees
  • Sole proprietorships
  • Independent contractors
  • Eligible self-employed individuals

Under certain criteria, and if you use the funds as directed by the SBA, the loan may be completely or partially forgiven. Go here to learn about PPP loan forgiveness.

 

For small businesses

Any money you receive from the loan forgiveness is not part of your gross income and therefore isn’t taxable. However, the payroll and other expenses that PPP loan forgiveness covers are also not deductible, even though they usually would be. The IRS says this is “to prevent a double tax benefit”.

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beavic1958
Level 1

I am doing a Corporate return ...how do I account for my PPP loan forgivenss?

You might want to research the advice given I'm not sure it's correct. Here is what I have found from the US Chamber of Commerce.  After the passage of the CRRSAA into law in December 2020, Congress made clear that a forgiven PPP loan is completely tax-exempt and is not taxable income.

Can I write off payroll, rent and utilities as business expenses if I used a PPP loan to pay for them?

Yes. While the IRS and Treasury Department originally said otherwise, the CRRSAA in December 2020 changed these provisions so business expenses paid for with PPP funds can be written off like everyday business expenses. The decision was effectively reversed because some businesses may have had higher taxable revenue in 2020 due to not being able to write off as many expenses.

Somebunny
Returning Member

I am doing a Corporate return ...how do I account for my PPP loan forgivenss?

You might want to investigate further "Tax Treatment: The new law overturns the IRS ruling and provides that regular business expenses paid for with PPP loan proceeds shall be deductible for tax purposes (applies to past and future loans). " per https://www.uschamber.com/report/g[product key removed]ess-covid-19-emergency-loans

JamesG1
Expert Alumni

I am doing a Corporate return ...how do I account for my PPP loan forgivenss?

Under the CARES Act, businesses were not allowed to deduct expenses associated with their forgiven Payroll Protection Program (PPP) loans.

 

The COVID-19 Relief Package was signed very late in December of 2020.  Under the legislation, taxpayers whose PPP loans are forgiven are allowed deductions for otherwise deductible expenses paid with the proceeds of a PPP loan (tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness).  Legislation was made retroactive to the CARES Act.

 

This Small Business Administration website outlines the long history of the deductibility of expenses.  Ultimately, Congress stepped in and clearly stated that business expenses paid with forgiven PPP loans are deductible. Section 276 of the bill states:

  • For purposes of the Internal Revenue Code of 1986—
  • The deductibility of business expenses paid with forgiven PPP loans is effective for subsequent PPP loans, as well as for business expenses paid with emergency Economic Injury Disaster Loan (EIDL) grants and targeted EIDL advances.

Small Business Administration

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