6.5 Million U.S. small business owners are faced with financial challenges due to the corona virus. How will you as a small business owner survive this crisis?

Many applied for (PPP), Payroll Protection Program, loans from the SBA. The average size loan of the first round issued on April 16, was $206,000.  During the second round beginning on April 27, the average size loan is $76,000. 

The loan was designed to provide small business owners, those with less than 500 employees, a life life to cover payroll and basic business expenses for eight weeks. Owners are to contact their PPP lender and apply for loan forgiveness. However, if this money is forgiven, how will it be financially accounted for if the loan is forgiven?     

Most forgiven loans must be accounted for as ordinary income in a business. However Congress added to the Cares act, that these forgiven loans will not be accounted for as income.    

But now there’s a catch. The IRS issued its own statement clarifying how this money and applied expenses will be accounted for in 2020 small business income tax returns. They state, no expenses associated with this loan cannot be deducted on the return.  

Basically, if the money is not accounted for as income, the expenses paid from this money cannot be used as a business tax deduction. Some business owners will lose these tax breaks and depending on the overall performance of their company’s finances, they may pay more taxes. 

As the corona virus continues, small business owners are still struggling financially. Employees are afraid to return to work and CDC guidelines for reopening, may be cost prohibitive for the small business. 

Things are changing rapidly in Washington DC and the IRS is being challenged by several professional organizations to revise their statement of not accepting tax deductions for expenses paid from PPP loans.  

If you accepted a PPP loan, please check with your accountant for the latest tax rulings before you’re caught short when it comes to filing tax returns for 2020. 

 

Darlene Ziebell

Darlene Ziebell brings over 40 years of experience in business consulting and entrepreneurship. Her methods are based on a unique blend of large enterprise strategies and the battle scars she acquired in four businesses including startups, mergers, ESOP, acquisitions and partnerships.  One of her many endeavors was a business management consulting firm with a client base representing 20% of the Fortune 1000. She is an advisor to business owners training them on successful growth strategies through her Avalanche Basecamp Business workshops. She continues to search for more answers to provide small business owners with solid advice geared toward business sustainability.