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.
Charlie Sidoti, Executive Director, InnSure
Neela Hummel is co-CEO of Abacus Wealth Partners, an RIA that manages over $3 billion.
Starting as an unpaid intern in 2009, she helped grow a values-aligned firm that aims to democratize financial advice, empower consumers with financial education and help clients align their investments with their societal values. She is a CFP and is one of Investment News' "40 under 40," an industry speaker, author and co-host of the "If Money Were Easy" podcast."
Henry Yoshida is founder CEO and co-founder of Rocket Dollar.
He is a successful entrepreneur, CFP practitioner and licensed real estate agent. Previously he founded venture capital-backed robo advisor retirement plan platform Honest Dollar (acquired by Goldman Sachs); was the founder of MY Group (acquired by CAPTRUST), a $2.5 billion assets under management investment firm; and was a vice president at Merrill Lynch.
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.