The Internal Revenue Service and the Treasury Department have issued guidance to clear up the tax treatment of expenses when a loan from the Small Business Administration’s Paycheck Protection Program hasn’t been forgiven by the end of the year.
The IRS and the Treasury issued both a revenue ruling and a revenue procedure, essentially saying that since businesses aren’t taxed on the proceeds of a forgiven PPP loan, the expenses aren’t deductible. Revenue Ruling 2020-27 addressed the timing issue. Here two different sets of facts and circumstances that are mentioned in the ruling. First is if an entity received a loan in 2020, put in for forgiveness in 2020, has reasonable expectation of receiving forgiveness, but does not receive forgiveness until 2021. The second is if an entity received a PPP Loan, has a reasonable expectation for forgiveness, but did not apply for forgiveness in 2020. In both circumstances the entity knows the amount it expects to be forgiven. The IRS has ruled that in both instances, the entity cannot deduct the expenses involved in forgiveness in 2020. The entity must pay the increased income tax in 2020 rather than in the following year. We highly encourage you to schedule a meeting with us to go over your 2020 tax liability to avoid surprises. "Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs. We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com. Monarch Accounting Group, Inc 145 Tower Drive, Suite 4 Burr Ridge, IL 60527 Phone (630) 320-3720
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September 2023
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