Yesterday, the U.S. Treasury Department and Internal Revenue Service released guidance about how taxes should be treated where a PPP loan was issued but not forgiven by year-end. These rulings help understand what happens if you got a PPP in 2020 but don’t have clarity on your forgiveness by year-end.
Since the proceeds of a forgiven PPP loan are not taxable, you cannot deduct the expenses you paid from the loan proceeds.
If you reasonably believe that a PPP loan will be forgiven in the future, you should not deduct the expenses related to the loan, whether or not you have filed for forgiveness. To avoid any doubt, it is smart to submit your forgiveness application as quickly as possible. In the case where a PPP was expected to be forgiven and is not, you will be able to adjust your tax filings retroactively.
Here is the bottom line: get your PPP forgiveness application is as soon as your bank opens up, and speak with your CPA to understand if you will have any unexpected tax surprises.