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 currently leads Xero's US Enterprise Accounts team, where he and the team of innovators help to inspire the country's top 300 largest accounting firms along their journeys in modern cloud accounting, with a focus on consulting those firms on where they are today and how they achieve their cloud transformational journeys.
In the first eighteen years of his career, David Emmerman was a co-managing partner in the firm Emmerman, Boyle & Associates, LLC and there showcased his talent for working with small business clients and his team to develop a best in class accounting experience. His passion for technology and extensive involvement with cloud-based solutions led him to a role with Xero as a National Ambassador, where he spent his time leveraging his background to educate some of the largest accounting firms on practice management and cloud adoption topics.
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.