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.
Dan DeMichele is the vice president of product management for LastPass. Dan has more than 20 years of experience leading both development and product management software teams for small startups and large corporations, bringing disruptive technologies to market and achieving commercial success. Prior to joining LastPass, Dan led product management at IBM, building out all consumable data and analytics services for Watson Cloud. He also held previous product leadership roles at Cloudant, IBM (Coremetrics), Unica, BEA, and Plumtree Software.
Megan Murdock is a Director in CBIZ’s National Learning & Development Practice.
John Starling is the senior vice president of Northern Bank’s 1031 Exchange and helps people and business entities preserve profit and build wealth faster through tax-deferred exchange.
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.