Paycheck Protection Program Tax Update: Which PPP loan expenses are tax deductible?

By Salene Mazur Kraemer, Esq.

On Thursday, April 30, 2020, the IRS released Notice 2020-32 [referencing Internal Revenue Code section 265(a)(1)] establishing whether expenses are tax-deductible if paid with proceeds from the Paycheck Protection Program. This is an important IRS Notice that impacts a company’s taxable net income.  

If a business has paid qualifying forgivable expenses with the proceeds of a Paycheck Protection Program loan, those expenses are not tax deductible. However, if a business must repay any portion of the PPP loan back because those expenses did not qualify, those non-forgivable expenses are tax deductible. This prevents a double tax benefit from taking place.

Businesses across the country have applied for Paycheck Protection Program loans, and one of the hallmarks of the program is loan forgiveness. The business must meet forgiveness guidelines, like using the PPP loan to pay specific qualifying forgivable expenses including payroll costs, rent, utilities, and mortgage interest, etc., during an 8-week period, starting from when the loans are received. Not more than 25% of the forgiven amount may be used for non-payroll costs. A business will also owe money if it does not maintain its staff headcount and payroll.

Read the full Notice here

Written by Bernstein- Burkley, P.C. on May 1, 2020

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