The Paycheck Protection Program (PPP) is an eight week forgiven loan that provides a source of income for businesses that are in need due to COVID-19. Since it's a forgiven loan, you do not need to repay it. But, there's a catch - the majority of the loan has to be used for business expenses. And this, raises an important question - will you be taxed for your forgiven loan?
Thankfully, the CARES Act protects business owners from having the forgiven loan amount in your taxable income. That means, you do not have to pay taxes on any of the money you receive.
So what will this look like on your tax return?
Traditionally, things like business payroll, rent, and utility expenses would be deductible on your taxes, making your taxable income lower. And without that deduction, you would owe the government more in taxes. Meaning, you would have to pay more.
That’s still going to happen in this situation. You will lose out on some tax deductions with the addition of the PPP loan on your taxes, so you may have to pay more when it comes time to file your taxes.
Frustrating, we know.
But, this may not be the final decision. Rules are still being written by the IRS daily.
All in all, if you plan to hold out on filing the PPP loan on your 2020 taxes, you can wait. You don’t have to apply for forgiveness until your loan maturity date (2 or 5 years after receiving the funds). This means you can wait until 2021 or later to apply for forgiveness on your PPP loan.
Let's discuss.
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