What Small Businesses Need to Know About Tax Deductions and the Paycheck Protection Program

Small businesses that have received loans through the Paycheck Protection Program should be aware of certain tax deductions rules. The IRS released guidance to clarify whether taxpayers receiving the loans may deduct otherwise deductible expenses.

personal guarantee business loansBusinesses can’t deduct the wages or other business expenses they paid for using the loan. The IRS has clarified that no deduction is allowed for an expense that is otherwise deductible if both:

  • The payment of the expense results in forgiveness of a loan made under the Paycheck Protection Program and
  • The income associated with the forgiveness is excluded from gross income pursuant to Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The Paycheck Protection Program provides small businesses with loans to help pay payroll costs, mortgages, rent, and utilities. The loans are forgiven for payments of payroll costs, any payment of interest on any covered mortgage obligation, any payment on any covered rent obligation, and any covered utility payment.

Read the IRS Notice here.

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