PPP Loan and SBA EIDL and Economic Relief

[kosmoboy1965]

I received these kinds of loans.

1.  PPP (Payment Protection Plan) from my business financial institution.

2.  SBA EIDL (Economic Injury Disaster Loan).

3.  Economic Relief from the county in which my business is established.

My question is:  Do I need to include this type of income/revenue on my taxes?  One loan was completely forgiven this year (2021), and the other is slated for forgiveness.

[ThomasM125]

The fist one (PPP) is definitely not taxable even if forgiven, so you don't need to enter it on your tax return. The same probably goes for the second one (EIDL) but that is less clear. The EIDL loan is normally taxable if forgiven, but since it is associated with the PPP program this year, it is likely not taxable either, but I am anxious to see what others in the community think about it.

The county economic relief is taxable on your federal return as it is not directly associated with the federal PPP program.

[kosmoboy1965]

Thank you for your response.  So even if my PPP loan was funded/distributed by my bank, it is still a SBA loan?

And with the county loan, I should then receive a 1099 or something? 

[sjlocke]

From what I've seen, the EIDL -advance- is taxable income.  Currently, anyways - see below about the CARES act.

My question is, currently, the IRS says that while the PPP Loan (assuming forgiven) is not taxable, the expenses you use the loan to pay for are NOT deductible.  Assuming you got a loan for say $10K and used all of that to pay payroll, how do you remove that $10K from your deductible expenses in TT Business?  (I'm an LLC filing as an S-corp)   I know the current CARES act is trying to make those expenses deductible, but they aren't currently.

If it stand as is, I'd assume that you'd have to set aside the entire $10K from your deductible expenses.  I mean, unless you're going to claim it's still sitting in your account and you didn't use -that- money to pay payroll?  Which wouldn't work because part of forgiveness is saying you did use it.

[JamesG1]

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

[sjlocke]

Excellent!  I didn't mean the CARES act.  I got the names backwards, lol.  One of the articles I read said that they were trying to put that into the next bill - the big $1.9 trillion relief act.  After some more looking, I found this article, which says what you said.  https://advocacy.sba.gov/2020/12/28/yes-small-businesses-expenses-paid-with-forgiven-ppp-loans-are-d... Whew!  Makes it so much easier.  Thanks!

The EIDL is still taxable income itself, yes?  Or no?

[AmyC]

Yes, funds from the EIDL are reported as taxable business income on your tax return unless the IRS decides to make a general welfare exception. I have not seen that come through yet. I agree with Thomas that is seems likely. The IRS does not open until February 12 and has all season to decide if it wants to make an exception.

However, you can lower your tax liability by deducting any expenses covered by the use of these funds.

@sjlocke

[curt504]

I'm calling my $50k EIDL loan, a loan and I've started the SBA auto deduct monthly payments.  Just $224/mo P&I.  BUT pay.gov is down today, 3/6/22, no indication when it'll be back up so I can't log in to get my 2021 interest paid (business expense).  Haven't gotten a paper statement in a long time.

I guess I can punch up a loan calculator at 3.75% and 50k to approximate the interest paid in 2021..  I can't remember my first payment month.  LOL!

I presume for the PPP folks here, the same discussion is in play if you've started repayment and want to account for the business expense of the interest paid.

Good luck folks