When Congress passed the PPP and helped support over five million small businesses across the country, it seemed like a huge life preserver had been thrown.
One of the conditions from the beginning was that the funding received is not considered taxable income. That sounded like great news, BUT...
The expenses paid for by the PPP funding are also not deductible if the loan is forgiven.
That means that those expenses cannot be used to offset your income in the year the loan is forgiven. Yes, that essentially means the funding is taxable, as it increases your taxable income despite the fact that all the money probably came and went. You still have to pay taxes on it.
(AS OF NOW)
Be on the lookout for future legislation clarifying this. This is made us accountants’ heads spin and we have been fighting for this to change.
So what should you do?
If you have not met with your accountant to plan around this, do so ASAP.