A battle seems to be brewing between Congress and the IRS on whether businesses can write off expenses paid with PPP funds that are forgiven. As a general rule, “forgiveness of debt” is taxable to businesses that are solvent. Even so, Congress and the IRS both agree that the amount of the PPP loans that are forgiven should NOT be considered taxable income to your practice. So that’s good news.
The discrepancy is whether the expenses paid with forgiven PPP funds will be tax deductible. The IRS issued guidance available at: https://www.irs.gov/pub/irs-drop/n-20-32.pdf that states those expenses are NOT deductible. The IRS feels that allowing businesses to exclude the PPP forgiveness as income and then allowing those businesses to write off the expenses paid with that loan amounts to double dipping.
Most tax professionals feel that Congress intended for those expenses to continue to be tax deductible to provide small businesses with one more tool to survive these challenging economic times, essentially welcoming the double dipping that the IRS currently plans to disallow.
To date neither the SBA nor Congress has provided specific guidance about the deductibility of those PPP funded payroll and facility expenses.
The impact of this issue on your taxes is huge. Practice owners who qualify for full PPP loan forgiveness and then write off the expenses funded with the PPP loan will obviously pay significantly less income taxes in 2020 than if those expenses aren’t allowed to be deducted.
This uncertainty over the deductibility of expenses paid from PPP funds makes figuring out what to pay for your Q1 and Q2 estimate taxes due 7/15/20 much more challenging. Hopefully guidance will be issued prior to 7/15, or maybe even sooner. Stay tuned…