2020 Year End Tax Planning – Taxability of the PPP Loan

Many of you have had conversation or Zoom meetings with us, or we may be scheduled to discuss your situation before the end of the year. Earlier this week, the IRS updated its position of the “Taxability” of the PPP Loans by insisting the applicable covered expenses are nondeductible. The IRS has confirmed their position, the PPP Loan will be taxable for 2020, despite when you file for PPP Loan Forgiveness. Here are a couple of references on this point.

A taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the CARES Act may not deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.

https://www.irs.gov/pub/irs-drop/rr-20-27.pdf

Please keep in mind, there is a pending tax bill, which once voted on, Congress could change the IRS position on the taxability of such loans. We remain hopeful this will happen to benefit all our clients.

So, what should you do at this time (Mid-November 2020)? Please be prepared to include in your 4th Quarter 2020 Tax Voucher, due January 15, 2020, the tax effect of the taxability of your PPP Loan.

If BWTP is preparing a projection of your 2020 taxes, we will discuss this situation with you when we discuss your projected liability. If you have any questions about your 2020 tax liability or estimated payments for 2020, please contact us.

2020 Unemployment Benefits

As a reminder, these benefits you received during 2020 are taxable. Please be sure to give this information to BWTP prior to your scheduled 2020 year-end meeting or discussion about your 2020 taxes.

Robert (Bob) Schmidt, CPA

Principal at BWTP, P.C. Read Bob’s bio here.

Leave a Reply

*