A few things to share with you all as it pertains to the current situation with the PPP Loan forgiveness and tax deductibility.
The Internal Revenue Service has issued Rev Ruling 2020-27 that plainly (well plainly in Internal Revenue Service language) states that the expense paid for with your PPP Loan that you reasonably anticipate being forgiven are to be excluded from your income tax return filing for 2020. We are not sure yet what forms or compliance will be necessary with this particular exclusion, however we anticipate a substantive disclosure at the least regarding what was paid with your PPP Loan proceeds.
Should you obtain forgiveness for an amount less than the total loan, you will most likely need to amend the 2020 tax return to recover that unforgiven amount as deductible.
As such, barring an act of congress to create an exception to the tax code (which is seemingly more unlikely the further this carries on) you will not get to take a deduction for the expenses paid with loan proceeds for which you expect the loan to be forgiven. We want you to be prepared for the worst case scenario so that there are not any surprises come tax time.
We are also waiting for any further development on the possibility blanket forgiveness for loans. The simplified loan forgiveness application for those under $50,000 is certainly a remarkable improvement, however blanket forgiveness would be a benefit to most of you if they stretched this to $150,000 loans and below as teased earlier this year.
With that, we are suggesting to hold out a little longer before completing and submitting your application for forgiveness (for those who’s banks are now accepting them) to see if it becomes a reality before doing all the work necessary to complete the application and provide the supporting information.
Last, one of our great clients shared this video below. It is from bank of America and features CPA’s from the Big 4 CPA Firm Ernst and Young. Its quite informative and helps go through the forgiveness process.
As always, please reach out if you have any further questions that we can assist you with.
Have a safe and wonderful Thanksgiving!