In time for taxpayersâ€™ 4th quarter estimates and year-end planning, the U.S. Treasury Department and Internal Revenue Service (IRS) have released new guidance to clear up the tax treatment of expenses with Paycheck Protection Program (PPP) loans. Specifically, in situations where a PPP loan is not forgiven by the end of the year in which the loan was received.
According to the new guidance, if a business expects its loan will be forgiven, the expenses related to the loan are not deductibleâ€”no matter whether the business has filed for forgiveness. Since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible. This results in neither a tax benefit nor tax harm, since the taxpayer has not paid anything out of pocket.
In instances where a PPP loan was expected to be forgiven, but it is not, businesses will be able to deduct those expenses.
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