As of today, congress has yet to present legislation to repair the glaring taxation burden that has arisen as a result of the Payroll Protection Program loan forgiveness.
The tax code states that expense paid for from funds for which the business owner has no basis (meaning you have no obligation to repay or report as income) are not tax deductible. What this means to PPP loan participants is that when your loan is forgiven, the expenses that you paid are no longer tax deductible. For many, this will present a substantive and unintended tax burden. Current guidance from the Internal Revenue Service will be that any expenses paid with PPP funds, forgiven or not yet forgiven (as most will not be by year end) will be considered non deductible absent the passage of new legislation. We are hoping that after the election and congress gets back to normal that this matter will be addressed.
As of now, you need to plan on paying a higher income tax burden than you would otherwise experience. It would be wise to consider your 2019 income tax top marginal bracket for federal and state income taxes, and multiply that by your loan amount. This would give you an approximation of the taxation cost that you could experience.
Guidance from the AICPA still suggests holding off on the submission of your PPP loan forgiveness application. They cite that since there are still so many items undecided it is best to wait until we have more clarity on the matter.
Last, it is still possible that congress along with the SBA offers blanket forgiveness in the near future. While the conversations have apparently stalled on this, we are also hoping that this matter gets addressed by congress after the election. The threshold discussed is all loans under $150,000.
For now, there is a simplified application with less information requested for those loans under $50,000 to utilize If your bank is accepting applications for forgiveness and you do not wish to wait. We however strongly recommend that if your loan is between $50,000 and $150,000 that you hold off a little longer to see what happens with the potential for a more streamlined process.
This article addresses this simplified application as well as some other guidance that may increase your loan forgiveness.
This article address the concerns you may have about applying as soon as possible for your loan forgiveness
We will continue to keep you updated as we have new information to share.