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.
Ken Hosac is the vice president, IoT strategy at Cradlepoint. Ken is responsible for driving strategic industry partnerships to accelerate the company’s market growth and leadership. As part of the leadership team since 2009, Ken has helped drive Cradlepoint’s growth and development through roles in strategic planning, product management, solution strategy and thought leadership. Ken frequently represents the company at industry conferences and events, and served on the original Advisory Board for the IoT/M2M Evolution Magazine. Ken has 25 years of experience in marketing, sales, R&D and manufacturing. Ken holds a B.S. degree in electrical engineering and an M.S. degree in manufacturing engineering, both from Stanford University.
Ben Taatjes is CEO and founder of Taatjes Financial Group, a member of the HD Vest Financial Services network.
Jim Wells spent over 30 years in the financial industry, in the U.S., U.K., Canada, Africa and the Middle East, most of it expanding access to financial services for consumers of modest means unserved, underserved or ill served by banks.
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.