VAAS Pro's Tax Approach to PPP Expenses
Anyone or Small Business utilizing the PPP Loan will need to track all the PPP funds you’ve used to ensure you are accounting for them appropriately as you preparer this upcoming tax season.
Fri Jan 22 2021 05:00:00 GMT+0000 (Coordinated Universal Time)
Here are a few points you should know about PPP loans and your taxes:
1. You can deduct expenses paid for payroll, mortgage interest, rent and utility expenses along with the new list approved in December 2020 that includes software, cloud services, accounting, human resources, property damage due to civil unrest, personal protective equipment, and supplier costs ordered or contracted prior to loan approval.
2. Businesses do not have to include the debt forgiveness in their income.
3. Employers may elect to defer payroll taxes under the CARES Act from March 27 through Dec. 31, 2020. Fifty percent of the deferred taxes accumulated in 2020 must be paid by December 31, 2021 and the remainder by December 31,2022.
4. Businesses can take advantage of the Families First Coronavirus Response Act, which requires some employers to provide employees with paid leave for reasons related to COVID-19. However, businesses can still take advantage of the FFCRA tax credits.
5. You cannot use PPP money to pay for business taxes as mentioned above, the PPP loan may only be used for certain identified categories of expenses. You cannot use PPP funds to pay income, sales, or other tax liabilities.
6. You can file an amended tax return if you applied for forgiveness but have not received a decision from the IRS at the time of tax return filing.
The PPP, initially created in March 2020 under the first round of federal coronavirus aid, granted small businesses loans to help cover certain cost, if a business was able to maintain staffing levels, the loans were forgivable.
We invite you to review our article covering the PPP Loan and the Cares Act for more background information.
To note, the CARES Act specifically excludes PPP Loan forgiveness from taxable income of the borrower. So, each borrower under the PPP program should carefully analyze its unique facts and circumstances in determining the appropriate accounting.