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The expenses related to PPP forgiveness will not be deductible.
Hey all,

We cautioned many of you that there will continue to be wrinkles in the Payroll Protection Program as it continues to unfold.  This is a great example.  The IRS has released clarification that while the forgiveness of any debt related to PPP loans is not income, the expenses related to forgiveness will not be deductible.  Costs for payroll, rent, mortgage interest, utilities, and interest on other debt obligations that are forgiven CANNOT be deducted on your tax return like you would otherwise.

Example – You receive $100,000 in a PPP loan.  You spend the entire amount of money on payroll and get 100% forgiven (very rare).

  $500,000 Sales
- $300,000 Total Expenses (includes forgiven expenses)
+ $100,000 Forgiven Expenses (non-deductible)
= $300,000 Taxable Income

This effectively makes your forgiven loan indirectly taxable.  There is plenty of time for this to change but as many of you know I would much rather plan for the worst and hope for the best so you won’t end up in a cash shortfall later.

To be forgiven, the PPP loan must be used during the 8-week period to cover payroll, rent, mortgage interest, utilities, and interest on other debt obligations.  Up to 25% may be for non-payroll costs, leaving at least 75% dedicated to payroll.  You will not include the loan forgiveness portion as income and therefore you will not be taxed on it either.

We hope to get more clarification on our questions and will continue to monitor updates as they become available.

Thanks again,

Tim
 
 
 

Tim Petrey, CPA, CGMA
Managing Partner
HD Davis CPAs,LLC
330.759.8522 ext. 103









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