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.
Brady Teague is a principal and co-founder of TalentBridge. He is a former Big Four firm CPA, but has spent the past 20 years in executive recruiting, specializing in accounting and finance. TalentBridge is based in Rochester, N.Y., with offices in Charlotte, N.C.; Des Moines, Iowa; Minneapolis, Minn.; and St. Louis, Mo. TalentBridge’s services include executive and professional search; professional and project staffing; temporary and contract staffing; human resource consulting; outplacement and career transition support.
Cathy Iconis is a CPA based in Atlanta, GA. She has had her own bookkeeping practice for almost 10 years and is also the founder of QBOchat, a resource, and community for QuickBooks Online users. She has been named a 40 Under 40 CPA Practice Advisor Honoree 8 times, is a member of Intuit’s Trainer-Writer Network, and was named one of Accounting Today’s Accountants to Watch. She has recently launched her own QuickBooks Online Training Master Courses as well as a free Facebook Group, Build Your Best QBO Practice.
Alex Nadal is assistant general counsel and human resources consultant at Engage PEO.
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.