PPP Update
The IRS recently issued a new ruling which has some bad news on the deductibility of expenses paid for with PPP loan proceeds. The detail ruling is attached but in a nutshell it says that any expenses paid for with PPP loan
funds that the taxpayer has a reasonable expectation to be forgiven (even if forgiveness will not be received until 2021/2022 or even if forgiveness is not applied for yet) will NOT be allowed as deductible business expenses on the 2020 tax return. We expect this topic to be debated more and hopefully overturned, but for now, this is the latest guidance we have.
We still feel it is a sound financial move to apply for forgiveness but at this time you will lose the tax benefit of those expenses forgiven. To determine this impact, multiply your marginal tax rate times the loan amount forgiven (i.e., a taxpayer with a $100,000 PPP loan expecting full forgiveness and a 22% marginal tax rate will pay $22,000 higher in taxes, all other things being equal, as a result of this change)