Small businesses that manage to get their Paycheck Protection Program loans forgiven may find themselves losing valuable tax breaks, according to new guidance from the Internal Revenue Service.
Companies that qualify for loan forgiveness under legislation Congress approved won’t be able to deduct the wages or other businesses expenses they paid for using the loan, according to an IRS notice published Thursday.
“This treatment prevents a double tax benefit,” the agency said in the notice. “This conclusion is consistent with prior guidance of the IRS.”
The guidance clarifies a point of confusion in the $670 billion small business loan program to help businesses struggling as the coronavirus has brought the economy to a standstill. The law states that the forgiven loan won’t be taxed, but didn’t specify whether companies could still write off the expenses they covered with that money.
Kate Healy is managing director of Generation Next at TD Ameritrade Institutional, focused on advocacy for sustainability issues facing the RIA industry. Healy leads TD Ameritrade Institutional's NextGen and Women's Leadership Initiatives, which support the future of the profession through programs designed to raise visibility, provide support and resources to guide professional development of the next generation of advisors. Follow her on Twitter at @KateHealy_TDA.
Dheeraj Remella is the chief technologist at VoltDB responsible for technical OEM partnerships and enabling customers to take their next step in data driven decision making. He brings 22 years of experience in creating Enterprise solutions in a variety of industries. Dheeraj is a strong believer in cross pollination of ideas and innovation between industries and technologies. Dheeraj holds a bachelors degree in computer engineering from Madras University.
In his role as chief strategy officer, Chris Huff develops and drives the company’s strategic initiatives to become the premier provider of cognitive automation, ensuring better alignment and execution across all functional areas. A thought-leader and recognized expert in the field, Chris was most recently with Deloitte Consulting’s U.S. Public Sector Robotics and Cognitive Automation practice which he led during RPA’s emergence. He previously spent two decades in senior financial management roles at several federal government agencies. Chris earned a Bachelor of Science degree at Columbia College and holds a Master’s in business administration from Webster University.
The tax code permits companies to write off businesses expenses, such as wages, rent and transportation expenses, but generally doesn’t allow write-offs for tax-exempt income.
The ruling adds to the list of stumbling blocks facing businesses as they try to qualify for the Paycheck Protection Program loans.
Small businesses have reported technical issues in trying to apply for the funds, which restarted Monday after the first round of funding ran out after just 13 days.
The program, run by the Small Business Administration, provides funds to cover eight weeks of payroll costs and the loans are forgiven if the employers keep workers on the job or quickly rehire laid-off workers.