Good news: the new Paycheck Protection Program (PPP) forgiveness law enacted with the stimulus package adds dollars to your pocket if you have or had PPP money.

Note that the Paycheck Protection Program money comes to you in what appears to be a loan. We say “appears” because you typically pay back a loan.

Done right, however, the PPP loan is 100 percent forgiven. The word “loan” makes some businesses leery of this arrangement. Don’t be. The PPP monetary arrangement is a true “have your cake and eat it too” deal.

And this remarkable deal applies to your past PPP loan, the PPP loan you have outstanding, and the PPP loan you are about to get if you have not had one before. Here are the details:

Paycheck Protection Program Loan Proceeds Are Not Taxable

The COVID-related Tax Relief Act of 2020 reiterates that your forgiven PPP loan amount is not taxable income to you.

Expenses Paid with Forgiven Loan Money Are Tax-Deductible

Maybe you remember from Paycheck Protection Program Tax Deductions Denied by IRS, the Paycheck Protection Program forgiveness cash wasn’t tax deductible.

Lawmakers disagreed but were unable to get the IRS to change its position. The IRS essentially told lawmakers, “If you want the expenses paid with a PPP loan to be deductible, change the law.”

And that’s precisely what lawmakers did. The COVID-19-related Tax Relief Act of 2020 states that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.”

In plain English, the expenses paid with cash from a forgiven PPP loan are now tax deductible, and this change goes back to March 27, 2020, the date the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted.

More Free Resources

Did you know you can qualify for both the PPP Loan and the Employee Retention Tax Credit? Please visit New COVID-19 Self-Employment & Payroll Tax Credits for more information.

For a brief background on the original PPP loans, please visit COVID-19 SBA Loans: EIDL & The Paycheck Protection Program.

If you want help maximizing your forgiveness and tax credit amounts with tax planning strategies, and if you’re wondering about how this will affect your financial reports, please visit My Contact Page for assistance.

If you need help claiming the tax deductions and credits by preparing your tax returns, please visit my other business, Arizona Foothills Tax Accounting, for assistance.

Page Last Updated: 02/17/2021

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