Even if you do not own a business, you've likely heard of the loans “small” businesses have been receiving to help them survive this economic crisis. These loans are called Payroll Protection Loans (PPL) and are part of the Payroll Protection Program (PPP). PPP loans help owners pay their employees while closed due to government order or losing significant revenue due to the COVID pandemic.
PPL's function to funnel funds that would otherwise be paid by unemployment through current employers to keep unemployment from being (even more) overrun. [Side Note - if we want to know the TRUE unemployment rate, we need to add a large number of the jobs “saved” by PPL dollars].
A benefit to employers for the loan-hassle is the loans get forgiven when used primarily for payroll, meaning the business does not have to repay the money. Additionally, the forgiven loans do not get included as income on the owner's tax return. But, as you will see below, this does not mean the loans are not taxable.
An implied benefit was the continued deductibility of expenses the loans paid for. The ability to deduct these expenses creates a tax-savings bonus for taking the loan and paying employees - for helping the government out. Congress's intent seemed to be that the forgiven loan would be an exception to the “double-dip rule” that forbids deducting expenses paid for with tax-free grants. Why? Double-dipping saves businesses taxes and fuels the post-pandemic economic recovery.
Hopes Dashed: Yesterday, IRS Notice 2020-32 dashed these double-dip hopes and perceived congressional intent by stating that expenses purchased with forgiven PPL proceeds cannot get deducted.
Now, many owners are wondering if taking a PPL made good business sense. If they can't take a deduction for what the loan paid for, why did they take the money? They got a little help with rent & utilities, but they still have all of the administrative costs and headaches of payroll. Now, they must segregate and fish out loan-paid costs, Increase their accounting and tax-prep fees, mess up their books, and increase their audit risk.
Many owners would have passed on the money and laid their employees off. They would save the additional cost and hassle and more time to deal with more pressing issues the crisis has generated. Many employees would be better off financially collecting unemployment - collecting the $600/week federal unemployment bonus would result in more income than their jobs paid.
For businesses who would still take the loans, it would be a heck of a lot easier and the same tax-wise to simply count the loan as income and be done with it.
All courses and articles are for informational purposes only and do not constitute tax advice. Taxes are complicated - do not act on course information without consulting a professional. Always refer to treasury regulation before making any tax decision. Read the full disclaimer.
Great course!- Donna L, Phoenix, AZ, 1099-NEC & 1099-MISC Course (Training Edition) Course
This course package is thorough and will give you a solid handle on how to optimize your business expenses to minimize your taxes and keep appropriate records to handle any IRS challenges. Only want to dive into a particular topic? Jump to that video and scan forward to where your issue is addressed. Or watch the whole series to learn it all!- Josh, Charles Town, WV, Real Estate Agent Tax-Cut Library, Agent Edition Course
I found the course informative, and it met my needs. We have a fairly straightforward and non-complex HOA currently with few expenses and only assessments as revenue, so the course was extremely relevant, and I was able to ensure I was filling out the correct tax form and populating the appropriate fields. I have materials now that also explains why we are using the 1120H and the methodology behind it. So overall very pleased with your course materials! I would recommend it to anyone in a similar situation.- Chris L, Nashville, TN, 1120-H Basics Course
The course was excruciatingly detailed, which I appreciate. I definitely recommend this course to anyone who even thinks they may need it.- Greg, Brookfield, IL, 1099-MISC Basics (Training Edition) Course
The course was excruciatingly detailed, which I appreciate. I definitely recommend this course to anyone who even thinks they may need it.- Greg, Brookfield, IL, 1099-MISC Basics Course