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.
Martin Amend is a senior consultant at Capco.
Kate Ryder is the founder and CEO of Maven, a virtual clinic dedicated to women’s and family health. Named one of Fast Company’s “10 Most Innovative Healthcare Companies in 2018,” Maven’s family benefits platform aims to advance women in the workplace and make it easier for parents to start and grow a family during a critical time in their careers. Maven was founded in 2014, operates the largest proprietary women’s and family health telehealth network in the country, and has raised more than $40 million in capital from top investors including Sequoia and Oak HC/FT.
Ritesh Patil is the co-founder of Mobisoft Infotech, a company that helps startups and enterprises in mobile technology. He loves technology, especially mobile technology. He works in a leading mobile app development company with skilled Android and iOS app developers that have developed innovative mobile applications across various fields such as finance, insurance, healthcare, entertainment, productivity, social causes, education and many more. He has earned numerous awards for his work.
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.