What is a PPP Loan?
The Paycheck Protection Program (PPP) is a $669-billion business loan program that was developed by by the 2020 US Federal government Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to assist qualifying businesses, self-employed workers, sole proprietors, qualifying nonprofit organizations, and tribal businesses, so that they would be able to continue paying their employees.
The Paycheck Protection Program made it so that entities could apply for low-interest private loans to pay for their payroll and other outlined business costs. The amount of a PPP loan is approximately equal to 2.5 times the applicant’s average monthly payroll costs. The loan amount may be used to cover payroll costs, rent, interest, and utilities. The loan may be partially or fully forgiven if the business keeps its employee counts and employee wages stable. The program is implemented by the U.S. Small Business Administration.
Over 5 million small businesses were granted PPP loans, without many of them realizing the fine print that came with these loans. The main terms of the PPP loans have been widely discussed since Congress enacted the program as part of the CARES Act back in March of this year. Small businesses would be able to borrow money through the Small Business Administration, and the amounts they spent on payroll, mortgage interest, rent, and utilities—all or most of the loan, in many cases—would be forgiven.
In most circumstances, whenever a loan is forgiven, it will become what is known as taxable income to the IRS. What made so many small businesses reach and apply for a PPP Loan is that the CARES Acts specifically stated that this loan would not only be forgiven, it would not be transferred into taxable income for the business. This persuaded many businesses to take the PPP Loan, as they struggled to keep their doors open while the government shut them down.
Unfortunately, many business owners missed the fine print on PPP loans, which did not arrive until months later in May, on page six of IRS Notice 2020-32, that stated if PPP loan forgiveness is not taxable, then the costs that were covered by the loan including employee pay, rent, utilities, and more, would no longer be deductible for business owners come tax season. When boiled down, this basically eliminates the tax break that was offered, which led to so many business owners applying for the loan in the first place.
So, what if the loan isn’t forgiven? What if a business owner chooses to pay it back, then what? It would be natural to assume that means those expenses it was used to pay would become eligible for deductions again, however, that is not guaranteed. The IRS came to the conclusion in November that if a PPP borrower “reasonably expects to receive forgiveness,” then the borrower “may not deduct those expenses” in the year they were paid.
According to Fortune’s website:
None of this appears to be what Congress intended when it hurriedly passed the CARES Act. But without a fix, “millions of small businesses…will face a surprising, and, in many cases, insurmountable tax bill next year,” the trade associations say.
Help may be on the way in the $908 billion bipartisan stimulus proposal gaining traction in Washington, but it’s impossible to be sure. The negotiators have released only a vague outline of the proposal, mentioning “deductibility” in connection with PPP. In any case, it’s all subject to change in the inevitable horse-trading going on behind the scenes.
Beside the sledgehammer threat of the PPP tax issue, several other emergency programs for small businesses are scheduled to expire at year-end unless Congress extends them. For many small-business owners, it’s still uncertain just how bad 2020 will be.”
Federal Relief Aid in Fort Worth, TX
COVID-19 has led to the shutdown of many businesses, some on a temporary basis, and sadly others will never reopen due to the financial devastation this pandemic has caused them. Our dedicated financial team offers services to ensure business owners are utilizing every available resource to them during this difficult time. We will work with your business to find and apply for all financial assistance you may qualify for through the government as well as help you properly file taxes for 2020. Additionally, in cases such as the current PPP Loans revelation that is hitting many business owners, we will help you to understand and utilize this new information in order to make the best choices for your specific business.
This has been an extremely trying time for all of us and should not be made any worse by trying to navigate the complex financial climate on your own. From individual financial services to business tax filing assistance, our team is dedicated to helping you overcome your financial obstacles. We work to help you protect yourself and business, during all of the ups and downs that come with running a business. Contact King Financial Services today to learn more about how we can help your company apply for a federal disaster loan and how to ensure you are getting all the tax breaks you qualify for.
King Financial Services in Fort Worth
Don’t get lost in the paperwork that comes along with running a business, instead reach out to King Financial Services. Our team of financial professionals understands how overwhelming it can be to you and your staff to keep up with additional tasks and record keeping. This is why we help eliminate the workload that comes with bookkeeping in house by managing all of the additional responsibilities, such as payroll and bookkeeping. Contact us today to learn more about the tax and financial services we offer. Sandra King is an enrolled agent, empowered by The United States Treasury to prepare your personal or business tax filing. While her services are offered nationwide, Sandra King locally serves the greater Dallas-Fort Worth area, including but not limited to Arlington, Bedford, Colleyville, Euless, Fort Worth, Grand Prairie, Hurst, Mansfield, North Richland Hills, and Richland Hills.