Will Your Business PPP Loan Be Tax Deductible?

Amherst, NH Business Owner Has Concerns

Businesses who took advantage of the Payroll Protection Program (PPP) can breathe a sigh of relief.  Legislators have decided money from the PPP will allow for the deduction of expenses.  This means that businesses will not lose any tax deductions that were expected because money was paid using the PPP loans.  This is big news for businesses and a huge relief of a potentially hefty tax burden.

A business owner in Amherst had received money through the Payroll Protection Program last spring.  Following the news, he was concerned that expenses paid with the loan would not be tax-deductible.  He contacted Merrimack Tax Associates for guidance.

Expenses Paid with PPP Loans will Be Deductible

Most PPP loan recipients used the money to pay for expenses such as payroll, utilities, rent and more.  For the past several months legislators have been in discussions with the IRS to determine once and for all whether this money could be used towards expenses that would then be considered tax-deductible. 

Keep in mind that in order for the loan to be forgiven, at least 60% of the money must be spent on employee payroll costs.  The remaining 40% could have been put towards mortgage interest, rent, utilities and other business operation costs.

The original CARES Act (Coronavirus, Aid, Relief and Economic Security) was clear that money from the PPP loan would not be included in income.  The verbiage for this new legislation clarifies that expenses paid with the PPP loan will be deductible as normal. 

This is good news, and a tremendous relief, for business owners that received a PPP loan.  The Amherst business owner can now rest easy knowing that there will not be a surprise tax bill when he goes to file his 2020 business return simply because he was able to take advantage of the PPP loan.