Posted on 02/10/2021 4:40:15 PM PST by CheshireTheCat
The biggest gap in understanding how business truly works exists between two distinct groups of people: Those who have made a payroll and those who haven’t.
Anyone who has run a business – small or large – would only be glad to tell you that it is equal parts fulfilling and terrifying.
Why? Private business owners are innovating, creating value and creating an opportunity for themselves and their employees to thrive and live a great life.
But the business owner also has to walk a tightrope upon which they balance their own financial security and the solvency of those who are on their team – people who walk that rope behind them – while the realities of competing against all manner of factors that conspire to try to knock the lot of them off of that wire. Daily.
So when we elect people to positions of responsibility in government, the No. 1 fundamental question that you may want to begin to ask is this: Do you understand the difference between cutting a paycheck and receiving one?
Now, as we grind our way through what we all pray are the final throes of COVID-19, governors from a handful of questionably managed states are trying to figure out how they can claw back and make the payrolls that their taxpayers fund. It’s a very different ballgame than running a private business, played by a very different set of rules that can be changed seemingly whenever government chooses to call for a do-over.
The latest tax target – in particular for governors who didn’t reduce the cost of government while it shut down the private sector during COVID-19 – is the Payroll Protection Program. Specifically, there is a movement afoot in some states to tax the business owners who tapped the PPP....
(Excerpt) Read more at theohiostar.com ...
Well, if the loans are forgiven, they are a type of income.
You shut us down then tax us? What wonderful business environment.
Non-taxable income
No, it’s a grant because it was a “taking” by the government that shut us down or restricted business activity.
We need to start up a Solyndra solar scam company and go bankrupt and still collect millions in credits and bailouts and pay nothing. Only if you’re a big Democrat donor, of course.
I’m just shaking my head.
Forgiven PPP loans are not taxable
“Historically and forever, if you have a business loan and it is forgiven, that automatically is taxable income. It’s been in the internal revenue code forever,” Hall says.
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SMALL BUSINESS
Breaking Down the Tax Implications of PPP Loans
CONTRIBUTOR
Kelsey Sheehy NerdWallet
PUBLISHED
FEB 5, 2021 11:18AM EST
The approaching tax season is raising fresh questions for business owners who received a loan through the Paycheck Protection Program.
Can you deduct expenses paid with your loan funds? Do you need to do anything differently this year? And if your loan is forgiven, is it considered taxable income?
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Answers to these questions have been hard to nail down, in part due to shifting guidance from the IRS. But new rules spelled out in the latest round of coronavirus relief help put an end to the confusion.
“Doing your taxes wasn’t easy before COVID,” says Keith Hall, president and CEO of the National Association for the Self-Employed. “The good news is this year isn’t going to be any harder than tax returns you’ve had in the past.”
Forgiven PPP loans are not taxable
“Historically and forever, if you have a business loan and it is forgiven, that automatically is taxable income. It’s been in the internal revenue code forever,” Hall says.
Paycheck Protection Program loans break from that code. Congress specified, and the IRS clarified, that forgiven PPP loans will not count as income. This applies whether your entire loan is forgiven or just a portion.
“If it is forgiven, it will not be taxable income. Period,” Hall says.
You can deduct expenses paid with a PPP loan
This one has been more of a moving target. Initially, the IRS’ position was this: Expenses paid with PPP loan funds can’t be deducted if the loan was or will be forgiven.
However, that changed with the coronavirus relief act signed into law on Dec. 27, 2020, which specifies that deductions shouldn’t be denied simply due to the loan being forgiven.
That means expenses paid with your PPP loan are deductible.
This outcome effectively creates two layers of tax benefits for PPP loan recipients, says Roshani Pandey, financial advisor and founder of True Root Financial in San Francisco.
“The first benefit is making the loan income-tax-free,” Pandey says. “The second is allowing businesses to claim income deductions on expenses paid.”
https://www.nerdwallet.com/article/small-business/ppp-loan-tax-implications
...This just covers federal taxes, not State.
Sorry I didn’t preview before posting.
Hell, Davidson County (Nashville) permanently raised property taxes by 34% to cover for the “shortfall”
Yes, that is generally the case, and was the case on a federal level until they changed the law. The states need to follow suit and not tax the loans forgiven.
Democrats believe all money rightfully belongs to government.
Thanks for the info... I wasn’t aware of the details of the December legislation. I am really glad to hear that when it comes to businesses actually hurt by the Covid shutdowns (e.g., restaurants, hair salons, barbers). I really hate it when it comes to other “entities” not really hurt but still receiving windfalls adding up to many, many billions of free dollars (e.g., lobbyist, “non-profits” such as ACLU)
👍
There is a remaining federal tax issue related to PPP loans not forgiven as of 12/31/20. CPAs, the AICPA, and tax preparers everywhere are awaiting further guidance from the IRS....tick-tock, tick-tock, tick-tock.
As it currently stands, assuming the PPP loan was not forgiven in 2020. If forgiven in 2021, it will give rise to non-taxable income in 2021. There is a mis-match in tax years as to when the expenses are deducted and the income recognized, potentially causing basis issues.
Many S Corporations and Partnerships will not be able to deduct the 2020 losses dues to lack of basis, thus leaving basis loss carryforwards to 2021. Also, 2020 loan repayments to shareholders, for which the shareholder doesn’t have full basis in the shareholder loan, gives rise to Capital Gains in 2020 on all or a portion of the loan repayments.
Supposedly, and I’m not holding my breath, the IRS is going to give guidance. I’m currently sitting on a dozen or so tax returns until this is resolved, or not resolved.
As also stated, there are state tax treatments to consider. There is quite a bit of proposed State legislation, some conforming to the Fed treatment and some trying to (unpopularly) break away from conformity to the Fed treatment.
True, but in order to qualify to be forgiven, weren’t businesses required to spend at least 75 or 80% of the PPP loan or payroll or rent, both of which are business deductions anyway?
MASSIVE DOUBLE CROSS against business.
Payroll was the biggest reason for PPP.
Payroll & accompanying payroll taxes are Always deductible expenses.
Many businesses also paid their rent. That is also deductible.
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