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.
Mark Pinsky is president and founder of CDFI Friendly America. He previously served as president and CEO of the Opportunity Finance Network and Current.
Oswaldo Acosta is CEO of City First Enterprises, a Washington, D.C., community Development Financial Institution.
Mike joined Simply Business in April 2018 and is Vice President of Insurance Panel and Partnerships and a member of the US Executive Leadership Team. In his role, Mike is responsible for driving product growth with new and existing panel insurance carriers as well as expanding Simply Business's distribution reach through strategic partners. Collaborating with insurance carriers, Mike's team helps bring new insurance products to market that benefit business owners while meeting small business customers where they are via distribution partnerships.
Mike brings 20 years of commercial property and casualty experience to Simply Business, having had previous underwriting and distribution roles at Liberty Mutual Insurance. Mike earned his bachelor's degree in finance from Bentley University in 2003 and his CPCU designation in 2009. Mike resides in the Greater Boston area with his wife and two sons.
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.