So you took out a Paycheck Protection Program loan under the government’s COVID stimulus fund. Well, It’s time to get your house in order for tax season and prepare to encounter these situations.
PPP will make a significant impact on your 2020 business tax returns because those liable for leniency will be allowed to deduct the expenses permitted by the program’s rules.
According to Michael Ceschini of New York’s Ceschini CPAs Tax & Advisory, this means a sigh of relief for borrowers. Any recipient who spent 60 percent or more of the lump sum on payroll and the remaining 40 percent on rent, utilities, and other accepted items.
Compliance to payroll expense needs is particularly important in ensuring forgiveness because failure to do so invites a larger risk of steeper-than-anticipated tax payments.
As for the entire loan, borrowers will pay in two major ways;
- If you’re confident about forgiveness, it’s okay to include it as income because it will make your papers look better. This will appear on your tax return as a reconciling item pushing down your financial statements’ income to a lesser taxable digit.
- A different and more cautious approach is to handle PPP loans like they were any other funding product — at least until you enjoy an official leniency note from the SBA (the program’s supervisor).
Both strategies are acceptable. But only go with the first option if you’re confident you followed all PPP requirements and know forgiveness is given.
Other things to note
Also to be considered as liability are deferred FICA payments, your brand’s disbursal to each workers’ Social Security account.
The CARES Act allows employers to defer these payments due anywhere from March 27, 2020, to Dec. 31, 2020. Business owners must sort half (50 percent) of all deferred FICA disbursals by Dec. 31, 2021, and the rest by Dec. 31, 2022.
PPP borrowers should also ensure they maxed on the employee retention credit, which permitted employers to deduct to the tune of $10,000 per worker on their payroll tax returns for wages paid from March 20, 2020, to December 31, 2020.
If you took out a PPP loan, it’s essential to learn all the facts before filing tax returns. Research more about Paycheck Protection Program loans and what they mean to your commercial taxes this year.
Michael Hollis is a Detroit native who has helped hundreds of business owners with their bad credit loan solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.