Is the Paycheck Protection programme (PPP) loan an income taxable or not anymore!! – Lee Chandler

World eyes are on any new update regarding PPP loans, that’s normal because
there are a lot of grey areas that need to be covered!
And we all thought that any new updates will be dedicated to drawing new rules
about the lenders terms or the mechanism of receiving the payments, not about
mending the same rule.
Let me clarify in more details, the US government came up with an EIDL to help the
business to survive due to COVID-19.
Later on we have a Paycheck Protection program (PPP) that was created under the
CARES Act to help stimulate the economy, small businesses, and even small-time
independent contractors.
KIndly check out our webinar for more insight about the paycheck protection
programme guidelines.
We knew from the CARES act that the forgivable payment is non-taxable payment,
but you need to spend not less than 75% of it for qualified payroll expenses such as
(Payments of interest on loan obligations – Utility payments).
Otherwise you will have to pay back the difference at an interest rate of 1%.
However recently Internal Revenue Service (IRS) came out with a statement that it
said that this amount isn’t tax free. And it might pay for taxes.
And trust me when I say that this NEW UPDATE is truly foggy not to mention that the
ideas in the statement itself took too long and re-read it to truly comprehend the
meaning. Furthermore, IRS didn’t mention any guidelines after this statement:
So I am going to point out all the ideas and you can find out all the sources that I
have used down below.
Scenario #01:
Based on what’s mentioned that the amount is used to ask for the loan in the first
place. It will be taxable, and some of the experts mention that the expenses of
around 8 weeks will be taxable.
They got this meaning from the first half of the paragraph in page one of the IRS
statement.
Scenario #02:
As per the CARES Act decision that the 75% of the payment is forgiven as long as
you use it for qualified payroll expenses such as (Payments of interest on loan
obligations – Utility payments).
Otherwise you will have to pay back the difference at an interest rate of 1%.
So this opinion refers to the other percentage which is 25% is the taxable one.
And they stopped at this point, like what’s the percentage, etc.
No clue!
Scenario #03:
They broke through the IRS statement in more details as a start:
This statement is directed to small businesses.
Here’s their example:
Consider a corporate loan recipient that will pay $1 million in employee payroll costs
regardless of whether it receives a PPP loan. The recipient obtains a $1 million PPP
loan, and uses the loan to pay $1 million in payroll costs that qualify as Covered
Expenses. The loan is fully forgiven. Before the Notice, the recipient does not have
any additional taxable income from the loan proceeds and has a net benefit of $1
million. After the Notice, the recipient has in effect an additional $1 million in taxable
income, producing a federal tax bill of $210,000. For this employer, the PPP loan still
produces a net benefit after the Notice in the amount of $790,000.
As a conclusion..
There are a lot of question marks here, and the biggest one which scenario of those
mentioned is the correct one?
How will these expenses be calculated in the next tax season?
Could you differentiate your expenses after selecting a certain period?
Could the congress override this decision and allow it to be taxable income?
Nobody knows for sure, but the point here is to acknowledge this update. For me, I
highly recommend having a really good accountant/bookkeeper as he will be your
free ticket in the near future.
My source is (https://www.irs.gov/pub/irs-drop/n-20-32.pdf)
(https://www.youtube.com/watch?v=GtNCURLkFQs&t=253s)
(https://www.jdsupra.com/legalnews/tax-effects-of-ppp-loan-forgiveness-irs-72682/)
(https://www.ksmcpa.com/blog/on-demand-webinar-ppp-loan-forgiveness-update)
(https://youtu.be/IdfRaltMEj8)

 

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