PPP loans were authorized to cover certain business expenses (i.e. payroll, mortgage interest, rent, utilities) that were paid or incurred from February 15, 2020 through December 31, 2020. And, as most of you know, there is a loan forgiveness component to these PPP loans. The IRS published Revenue Ruling Rule 2020-27 and Revenue Procedure 2020-51 on November 18, 2020, both concerning the handling of tax deductions related to the expenses that were covered by the Paycheck Protection Program (PPP).
The IRS has provided that the amount of the forgiveness is excluded from your gross income. If you have applied for forgiveness and there is a reasonable expectation that it will be granted, you cannot deduct those expenses for this tax year. If you have not applied for forgiveness but expect to apply for it in 2021 and have a reasonable expectation of receiving it, you likewise cannot deduct the covered expenses. If your loan is not forgiven, the IRS has provided a safe harbor to allow you to make those deductions in the future.
During these complicated times, talking to your tax professional is crucial. Loper Law LLC regularly advises its clients on all aspects of their business and has relationships with accountants and CPAs for you accounting needs. Tom continues to specialize in this area of the law and is on track to complete his Master in Tax Law degree (LLM) in 2021 to compliment his Master of Business Administration (MBA). Loper Law LLC is constantly working to stay on top of the latest changes in the laws affecting you and your business.
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