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.
The findings reveal that, even for digital-first homebuyers (people who prefer using digital tools when shopping), it's critical for lenders to balance technology with the appropriate degree of personalization and human interaction.
Brad Saft is an award-winning entrepreneur, writer, investor and founder of DonorAdvisedFunds.com.
He has founded several companies including eSpired, an education technology company focused on at-home learning, where he serves as CEO. He is actively involved with a variety of nonprofits, serving on the board of Kids Need Our Love aimed at combating child abuse.
Jason Kaminsky is the CEO and co-founder of kWh Analytics. Just prior to joining kWh Analytics, Jason spent more than three years as a vice president of environmental finance at Wells Fargo Bank. As a senior member of the Wells Fargo deal team, Kaminsky originated, underwrote, and financed tax-equity investments during a time when the bank added nearly $1bn of solar assets. Prior to joining Wells Fargo in 2011, he worked at SPG Solar, where he supported the CEO on strategic corporate initiatives.
Kaminsky received both his B.S. in Mathematics and his B.S. in Atmospheric, Oceanic, and Environmental Sciences from UCLA. He holds an M.S. degree in Environment and Resources from Stanford University, and also completed his M.B.A. at the Stanford Graduate School of Business. He is from Thousand Oaks, California.
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.