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.
Graison Dangor is a former associate editor of Financial Planning.
Stacey Hanke is the founder and communication expert of Stacey Hanke, Inc. She is the author of Influence Redefined: Be the Leader You Were Meant to Be, Monday to Monday and Yes You Can! Everything You Need From A to Z to Influence Others to Take Action. Stacey and her team have held presentations and workshops for leaders of Fortune 500 companies including Coca-Cola, Nationwide, FedEx, Kohl’s and AbbVie. Connect with her on Twitter, @StaceyHankeInc.
Steve Templeton is the founder of Templeton & Company LLP and PracticePro 365. With over 30 years of industry experience, he has been named a “Power Leader” by the South Florida Business Journal for the past six years.
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.