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.
David Bermingham is technical evangelist at SIOS Technology. He is recognized within the technology community as a high-availability expert and has been honored to be elected a Microsoft MVP for the past 8 years: 6 years as a Cluster MVP and 2 years as a Cloud and Datacenter Management MVP. David holds numerous technical certifications and has more than thirty years of IT experience, including in finance, healthcare and education.
Vijay Sundaram is chief strategy officer at Zoho where he is responsible for the partner and channel program. He is an entrepreneur and has founded companies that specialize in cloud supply chain software, mobile advertising technology and renewable energy. He has led products, sales, business development and finance teams within these organizations. Vijay has an undergraduate degree in engineering from IIT Madras, and graduate degrees in computer science and in business from NYU and the Wharton School of Business, respectively.
Nick Murphy is founder of The Job Lab Podcast and Mid-America Careers job platform.
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.