Business Deductions and PPP Loans
Tax deductions are subtracted from your adjusted gross income which results in paying a lower amount in taxes. Businesses can take advantage of many deductions to reduce their tax bill. Some common deductions for businesses are utility expenses, rent, office expenses, repairs, etc.
Many small businesses have applied and/or received a loan via the Payroll Protection Program (PPP). The program incentivizes small businesses to keep employees by allowing loans of up to $10 million dollars. The loan can be forgiven if it is used for two things. The majority (75%) of the loan should be used for payroll. The lesser (25%) can be used for business expenses. If the majority of the loan is not used for payroll purposes then the loan will not be fully forgiven. The loan can be partially forgiven though. Specifics on how much the loan can be forgiven have not been thoroughly detailed yet.
One issue with PPP loans is that if a loan is forgiven, small business owners would not be allowed to deduct expenses that were paid for by the loan. Luckily, a bill is in transit that will allow businesses to deduct these expenses even if they were forgiven by the PPP loan.
Key Details About PPP Loans
If you have a PPP loan:
- It must be spent within 8 weeks of receiving it, to be fully forgiven
- Up to 25% of the loan can be spent on business expenses
- At least 75% of the loan must be spent on payroll, to be forgiven
- If the loan is not spent in these proportions, some of the loan may still be forgiven (there is not a lot of information about this yet just yet)
- If the loan (or part of the loan) is not forgiven, it becomes a loan with an interest rate of 1% to be paid back within 2 years
- Currently, business expenses paid for by a PPP loan cannot be used as deductions in future taxes (a new bill is being proposed to allow business expenses paid for with a PPP loan to count towards deductions)
If you have yet to get a PPP loan:
- Most PPP loans have come from small banks
- Some statistics have shown that about 50% of PPP loans have been accepted
- With the new rollout of funding, there is still hope for those who have not been granted a PPP loan
Learn more about the bill from Michael Cohn.
Additionally, find out more about PPP loans from the SBA.
Lastly, you can learn more about our services here!