The Skimpy Business Administration opened the forgiveness portal for its Paycheck Protection Program loans this week, but companies may paucity to think twice before rushing in.
The CARES Act made these PPP loans available to cash-strapped small businesses starting on April 3. Since then, more than 5 million lends have been approved, accounting for $525 billion, according to SBA data as of Aug. 8 – the last day firms could allot for a loan.
The program attracted a bevy of applicants, since the loans are forgivable if borrowers devote at least 60% of the proceeds to payroll fetches. Even if a business fell short of the threshold, partial forgiveness may be an option.
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Repayment terms are also attractive: Firms pay an interest sort of 1% and have a six-month grace period before making repayments.
Loans issued before June 5 obligated to be repaid in two years, while those issued after that date mature in five years.
Even supposing the forgiveness window is open, small businesses are sitting on the sidelines, accountants said. That’s because the SBA continues to big problem guidance in the form of frequently asked questions.
For instance, on Aug. 11, the agency clarified that employers’ payments toward envisioning and dental benefits are considered “group health-care benefits” and are deemed payroll costs eligible for forgiveness.
Professionals are also inert waiting for Congress to address a burning issue on the mind of many PPP applicants: Will expenses covered by these forgivable advances be deductible on tax returns?
“My advice on all of these clients is that you don’t want to be the first to rush into the forgiveness process,” said Ann Kummer, CPA and mate at Kirshon & Co. in Poughkeepsie, New York.
“Things will probably continue to change,” she said. “Do you really want to be the guinea pig?”
Uncertainty in Washington
Billet Speaker Nancy Pelosi, D-CA, (R) speaks to the media, flanked by US Senate Minority Leader Chuck Schumer, D-NY, after conclave with the White House Chief of Staff and the US Treasury Secretary on coronavirus relief at the US Capitol in Washington, DC on August 7, 2020.
Mandel Ngan | AFP | Getty Copies
Lawmakers continue to spar over the next Covid-19 relief bill, and tax professionals are wondering whether the legislation leave cover the issue of deductibility.
Forgiveness of the loan will be deemed tax-free. However, business owners who take the accommodation won’t be able to write off expenses that would otherwise be deductible if they use those PPP funds to cover the cost and then purchase forgiveness, the IRS said.
Members of Congress disagreed with this. Sens. Chuck Grassley, R-Iowa, and Ron Wyden, D-Ore., tendered a bill that would permit small businesses to deduct those covered costs.
Sens. Marco Rubio, R-Fla.; Tom Carper, D-Del.; and John Cornyn, R-Texas, co-sponsored the legislation.
The withdrawal of the debt isn’t taxable income, but if you can’t deduct wages or rent, that’s a whole other big wrinkle.
Glen Birnbaum
CPA at Heinold Banwart
The deductibility occurrences because a business owner’s taxable income might seem higher on paper if he or she is unable to deduct the costs swaddled by the loan.
Since the matter is up in the air, applying for forgiveness now might be iffy.
“The cancellation of the debt isn’t taxable income, but if you can’t deduct wages or split, that’s a whole other big wrinkle,” said Glen Birnbaum, CPA at Heinold Banwart in East Peoria, Illinois. “What if you appertain for forgiveness and the loan is forgiven, what’s the rule at the time?”
An agonizing wait
halbergman
As difficult as it may be to wait, the safest motivate for now might be to see how lawmakers proceed before taking a chance on applying for the forgiveness – particularly if you need certainty on deductibility.
In the meantime, shore up your paperwork so that you’re likely to apply.
Borrowers should maintain a separate business account for their loan proceeds, accountants said.
They should also plead for documents that show how the funding is spent and keep formal books and records.
The uncertainty makes for shaky tax planning for the put of the year, but at least you’ll have your documents ready to go.
“You might not know your profit until you know whether the IRS intent allow us to deduct it,” said Kummer. “The current guidance says no, but that could change, too.”