PPP Funds Updates: Tax Deductions & Loan Forgiveness

This update is for those of you who received the Paycheck Protection loan.

Originally, we were told that the PPP loan would likely be forgivable, but expenses paid by the loan would not be deductible. Even after immense pressure from the accounting community to change this position, the IRS didn’t budge.

However, several things have changed with the latest passing of the new stimulus bill.

Expenses paid by PPP funds are tax deductible.

This is great news for small businesses who utilized PPP loans in 2020. Congress have made it clear that qualified expenses paid by the PPP loan are now tax deductible.

Loan Forgiveness is Simplified for Loans Under $150,000.

We learned last week with the passing of the new stimulus bill that the SBA is creating a simplified version of the Loan Forgiveness Application.

This is also great news for small business owners. If you borrowed less than $150,000 through PPP, we urge you to hold off submitting your loan forgiveness application.

Loan forgiveness applications are not due until 10 months after your 24 weeks ends, which puts most small business deadlines around July or August of this year. There is no rush to complete this application and we encourage you to wait for the simplified, one-page application.

EIDL Grants Do Not Lower the Forgivable Loan

The new stimulus bill provided clarity around the EIDL grant advance and its effect on loan forgiveness in combination with PPP.

Prior law stated that any EIDL Advance received would reduce PPP Loan Forgiveness.

The new Act reveals this provision, meaning the EIDL advance will have zero impact on PPP loan forgiveness.

New Round of PPP is on the Horizon

Finally, the news many small business owners have been waiting for. The new stimulus bill confirmed that more PPP funds are on the way. We expect additional funding for those businesses that did not receive PPP money in the first round, especially minority- and women-owned businesses.

Additionally, businesses who can show losses of 25% or more in 2020 compared to 2019 will qualify for a second round of PPP funds.

Employee Retention Credit Enhanced (ERC):

The new Act added enhancements to the original Employee Retention Credit that came about as part of the 2020 CARES Act.

The newly passed bill increased the credit cap to $7K per employee for the 1st and 2nd QTR of 2020 – from $5k criteria previously.

Additionally, the ERC is now available for companies with less than 500 employees. (The original credit was only available to businesses with less than 100 employees.)

Another piece of great news is that small business owners can apply for the ERC even if they applied and received PPP, with the only caveat being that the credit may not be claimed for wages paid by PPP. 

Here is what we recommend:

Use the ERC against wages, and the PPP funds against rent, utilities, or other qualified expenses to maximize your benefits. This will help you optimize your savings across PPP and the ERC.

Last but not least, and perhaps the best part, you can monetize the credit before qualified wages are paid. No, really! You can request advance payment of the credit based on 70% of the average quarterly payroll.

Of course, any excess will need to be paid back if the actual credit is determined to be less than the advance.