Business Expenses and PPP Loan Forgiveness Guidelines

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For updated information please see our “New PPP Laws & ‘Second Draw’ PPP Loans” Blog posted on January 12, 2021

Are PPP loan forgiveness expenses deductible?

On November 18, 2020, the IRS re-affirmed its position that taxpayers cannot claim a deduction for a business expense (that would normally be deductible) if the expense was paid with Paycheck Protection Program (PPP) funds and the business intends to seek PPP loan forgiveness. This update confirms that expenses that would otherwise be deductible business expenses are not deductible if the business owner received a PPP loan that is forgiven.

This guidance was issued in a revenue ruling (Rev. Rul. 2020-27), which addresses the issue of businesses who pay expenses in 2020 but whose PPP loan is not forgiven until 2021, and a revenue procedure (Rev. Proc. 2020-51) which outlines a safe harbor for businesses whose PPP loan forgiveness is denied or businesses that choose not to seek loan forgiveness.  Click here for an excellent article by Journal of Accountancy, summarizing the guidance.  HLG recommends you consult your tax advisor or accountant for advice specific to your business.

Additional PPP loan questions?

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