The approaching tax season is raising fresh questions for business owners who received a loan through the Paycheck Protection Program.
Can you deduct expenses paid with your loan funds? Do you need to do anything differently this year? And if your loan is forgiven, is it considered taxable income?
Answers to these questions have been hard to nail down, in part due to shifting guidance from the IRS. But new rules spelled out in the latest round of coronavirus relief help put an end to the confusion.
Doing your taxes wasnt easy before COVID, says Keith Hall, president and CEO of the National Association for the Self-Employed. The good news is this year isnt going to be any harder than tax returns youve had in the past.
FORGIVEN PPP LOANS ARE NOT TAXABLE
Historically and forever, if you have a business loan and it is forgiven, that automatically is taxable income. Its been in the internal revenue code forever, Hall says.
Paycheck Protection Program loans break from that code. Congress specified, and the IRS clarified, that forgiven PPP loans will not count as income. This applies whether your entire loan is forgiven or just a portion.
If it is forgiven, it will not be taxable income. Period, Hall says.
YOU CAN DEDUCT EXPENSES PAID WITH A PPP LOAN
This one has been more of a moving target. Initially, the IRS position was this: Expenses paid with PPP loan funds cant be deducted if the loan was or will be forgiven.