The Paycheck protection Program (PPP) was Put in place under the CARES act allowing small businesses to keep their workers employed during the economic downturn. The PPP was introduced to employers with 500 or less employees. While many businesses have already put in and or have been approved for this relief it has left many unanswered questions about what happens when tax time rolls around. Well let me try and shine some light on this.
The PPP loan Can be forgiven if at least 70% has been spent on employee payroll costs. The other 40% of funds can be used for mortgage interest, rent and utility payments. the forgiveness is based on employers continuing to pay employees at normal levels during a 24-week period following the origination of the loan. A form provided by the Treasury Department must be filled out by businesses seeking forgiveness and then submitted to the private lender they obtained the loan from. The PPP loan can only be used for specific expenses such as payroll, rent and utilities.
A forgiven PPP loan is Tax -exempt, however using the loan can also reduce how much you can write off on your business taxes Usually, expenses like payroll, rent and utilities are deductible from your normal taxable income, and it means you owe less tax at the end of the year. But due to the fine print in the PPP loan forgiveness agreement this will not be the case and could cause you to owe more on your taxes next year.
Here at Ellis and Ellis we have become remarkably familiar with the ins and outs of the PPP loan. We can answer any questions you may have about what this might do to your upcoming taxes along with helping you to avoid what they call “double dipping” when it comes to next years write offs.