We hope you’re doing well heading into the holiday season, and send you all the positive vibes we can call up for you!
There’s a big question getting tossed about out there, and we wanted to give you our take on the situation. The question is:
Are the loan proceeds that are being forgiven on the PPP loan taxable?
This wasn’t the initial intent of the program, but the IRS has issued some guidance that would seem to indicate a negative effect on your tax return. Currently, this is where things stand:
Congress and the IRS are in a battle over this as we speak. It’s not so much that the loan forgiveness is taxable. But the IRS is saying that the expenses paid for with loan proceeds won’t be tax-deductible which–in effect–makes the loan taxable. And then this is what happened:
Congress: “We didn’t mean for this effect–the deductions have to count. Having the loan forgiveness in effect taxable is the opposite of what we wanted.”
IRS issues guidance: “No, this is correct. The deductions can’t be included on a tax return.”
Sens Wyden and Grassley write a letter to IRS: “You have definitely misunderstood our intent. You’ve got to correct this for all the small business owners out there.”
IRS (temporary ultimate boss Steve Menuchen): “Nope, we’re pretty sure we got this one right.”
Congress: 🤦🏼♂️ “OK, now I guess we have to write another bill with clarifying language and try to pass it before the year is over so people don’t overpay on their tax returns.”
It’s our position that it’s not a matter of IF this gets clarified, but WHEN. But that said, it is still in active debate and the current guidance does state that the deductions won’t count. We’re hopeful for the sake of all small businesses out there, and especially each of you, that this gets resolved before year-end in a favorable way. (And technically it could get resolved any time up to March 15th and they could make the correction take effect retroactively, so there’s a lot of time.)
If you have questions about this or any other matters relating to wrapping up the year, just let us know!