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September 1st, 2020 | by NEWCABusinesses that received Paycheck Protection Program loans may be blindsided by an IRS ruling that eliminates tax deductions for wages and rent paid with forgivable PPP loans.
Some elected leaders are pushing back on the IRS ruling, which restricts contractors from writing off these types of expenses if they were paid for with PPP loan funds, leaving many wondering whether it will cost more in taxes than to pay the loan back.
In May, the Senate introduced The Small Business Expense Protection Act, which would reverse the IRS decision and make the expenses deductible--although some warn that there has been opposition to the legislation.
If the ruling is not reversed, a business may owe more taxes than it normally pays. Usually, expenses like payroll, rent and utilities are deductible from normal taxable income. According to Joseph Natarelli, leader of the national Construction Industry Practice group at accounting firm Marcum LLP, some contractors are unaware of the tax implications of PPP forgiveness on their businesses.
“Using simple numbers, the contractor who decided to borrow $9 million to keep their people employed is now going to owe,” Natarelli said. “If you're in a 50% tax bracket, that’s $4.5 million dollars, so where are you going to get that money from?”
Natarelli encouraged contractors to check with their accountants about tax implications before applying for loan forgiveness.
You can read more about these developments in an article here from our friends at ConstructionDive.