PPP Loan Forgiveness, " Deductible Expenses with PPP Loans & the 2nd Round of PPP Loans", article by Rolf Neuweiler, 1/5/2021, a2zCFO.com

Deductible Expenses with PPP Loans & the 2nd Round of PPP Loans

The US Congress rules that expenses covered by PPP loans are tax-deductible; second round of PPP loans have simplified application for loans under $150k.

Expenses With PPP Money Are Tax Deductible

Out of the window now: all IRS rules about not allowing deducting expenses with Paycheck Protection Program (PPP) loans on tax returns.  New rules from US Congress: expenses intended to be covered by PPP loans are all deductible as usual, whether the PPP loans are forgiven or not, or in the process of forgiveness, in 2020 or 2021.  

If a PPP loan is fully forgiven, it will not be counted as income and you don’t need to pay it back. 

All the arguments about doubling dipping federal tax benefits with deducting expenses covered by forgivable PPP loans are moot now after Congress reversed the IRS in the Small Business Expense Protection Act, S.3612 – 116th Congress (2019-2020).

New PPP Loans 

On December 27, 2020, the law authorizing a second round of PPP loans (“New PPP loans”)  for business owners impacted by COVID-19 came into effect.

“New PPP loans” are disbursed between December 28, 2020, and March 31, 2021. The covered period for all borrowers, including existing PPP loan borrowers, has been extended through March 31, 2021.

Eligibility 

For new PPP loans, an entity must:

  • Not be publicly traded
  • Not have been organized in the People Republic of China (PRC) or Hong Kong, or be at least 20% owned by an entity domiciled in, or have a member of its Board of Directors who is a resident of PRC or Hong Kong
  • Not have been primarily engaged in political or lobbying activities
  • Have 300 or fewer employees
  • Have experienced at least a 25% reduction in gross receipts (for nonprofits, but further guidance for other organizations is coming soon) in any 2020 quarter as compared to the same quarter in 2019 (subject to other considerations if the entity was not in business during some or all of 2019.)

Loan Amount

All new PPP loans are limited to a maximum amount of $2 million. The basis for calculating the PPP loan amount is 2.5 times the average monthly payroll costs incurred or paid during 2019 or the 12 months prior to the loan date. For the hospitality and food service industry, the multiple is 3.5 times.

Simplified Loan Application Process for Loans up to $150,000

A simple certification attesting to the revenue loss will suffice for loan application for under $150,000, without needing any documentation to support revenue losses.

Other new changes:

  • The Economic Injury Disaster Loans (EIDL) advance amount will no longer be deducted from PPP forgiven loan amounts.
  • PPP borrowers are now eligible for Employee Retention Credits, providing the same wages are not used to calculate both the credit and forgiven loan amounts.
  • Expansion of eligible nonprofits to include certain 501(c)(6) and destination marketing organizations.

A2ZCFO, both the Right and Left Arms for your organization

A2ZCFO takes pride in helping small business owners prepare for either storms or calm weather, and navigate safely through rough waters. As a consulting CFO, I help business owners and management to “keep your ship on course.”

We help with any aspect of financial management from A to Z. By providing trusted financial advice, I create financial and goal clarity, resulting in increases in cash, profitability and sales all the while preparing the business strategically for a successful exit when the time is right.

  • Works at client’s location and directly with client’s staff;
  • Affordable and flexibility in hours – 4 hours a month to short term full time assignment;  
  • Excels at messy and difficult clean up situations;
  • Meaningful financial reporting for management, bankers, and CPA’s.  Tax returns completed by due dates;
  • Cradle to grave services – from bootstrapped startups to exit transition service experience.

Please call me (925) 216-5058 or email:  rolf@a2zCFO.com

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A2Z CFO, we keep your ship on course.

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