Not sure if you will lose tax deductions for a canceled PPP loan? Wait until 2021 to ask for forgiveness | PilieroMazza SARL

As Congress deciphers the details of the next COVID-19 relief plan, Congress faces pressure business groups to enable businesses to write off expenses covered by canceled Paycheck Protection Program (P3) loans. The groups explain that, without depreciation, “millions of small businesses. . . will face a surprising and, in many cases, insurmountable tax bill next year. We have received questions about the quagmire of regulations covering the tax treatment of businesses when PPP loan balances are written off. Our advice? If you haven’t filed for a pardon, consider waiting until next year.

Tax debate

The PPP created by the Coronavirus Aid, Relief, and Economic Security Act (CARES) provided essential financial assistance to businesses directly affected by the COVID-19 pandemic. Through the program, eligible businesses could obtain a loan designed to keep employees on the company’s payroll, even when company income was affected by home support and social distancing orders. In many cases, PPP loans qualify for full forgiveness, saving businesses the added financial burden of repaying an often large loan. The Internal Revenue Service (IRS) normally considers it taxable income when a loan is canceled, but the CARES Act specifies that in the case of a PPP loan, this is not the case.

While the remission is tax free, the IRS said borrowers cannot deduct expenses covered by the loan. Because these expenses include things like salary and rent for employees, many small businesses don’t get large deductions in a normal year. The IRS even has noted that if a PPP borrower “reasonably expects to receive a rebate,” then the borrower cannot deduct these expenses in the year they were paid. Companies unable to deduct expenses covered by their PPP loan could face much higher taxes than expected, so they are pushing back.

When is the request for forgiveness due?

If you haven’t asked for forgiveness, it might be worth the wait. You can submit a loan forgiveness request any time before the loan maturity date, which is two or five years from the loan inception date. If you do not apply for a loan forgiveness within ten months of the last day of the loan forgiveness period, loan payments are no longer deferred and you must start making payments on the loan. For example, if your covered period ends on October 30, 2020, you have until August 30, 2021 to request a discount before the loan repayment begins.

If you do not want to start making payments, you must request a forgiveness within ten months of the last day of your loan forgiveness period. Many borrowers have until 2021 before they need to start making payments, so it’s probably worth the wait and see if Congress resolves the tax debate or legislates other measures that would impact the cancellation of payments. PPP loans.