[ad_1]
Our mission to improve business is fueled by readers like you. To enjoy unlimited access to our journalism, .
A time bomb spins in the Paycheque Protection Program Loans that allowed millions of small businesses to operate during the pandemic. It is expected to begin early next year unless Congress defuses it soon.
More than 500 national, regional and national professional associations recently signed a letter imploring the leaders of Congress to act. They called on House Speaker Nancy Pelosi, Senate Majority Leader Mitch McConnell, and others to show “a spirit of urgency and cooperation before the end of this session to avoid a preventable disaster for millions of small businesses ”.
Here’s the problem: Over 5 million small businesses have received P3 loans, and many of their owners may not be aware of the nasty surprise that could await them when they do their 2020 taxes.
The main terms of PPP loans have been widely known since Congress enacted the program under the CARES Act in March. Small businesses could borrow money through the Small Business Administration, and the amounts they spent on payroll, mortgage interest, rent, and utilities – all or most of the loan , in many cases – would be canceled.
Normally, when a loan is canceled, it becomes taxable income in the eyes of the IRS. But in this case, the CARES law specifies that this is not the case. Small businesses that used the money as it was supposed to be used got a tax-free lifeline – a crucial provision that dramatically improved the attractiveness of loans.
You can’t blame most business owners for missing out on the nasty surprise when it arrived later in May on page six of IRS Notice 2020-32. It states that if the PPP loan cancellation is not taxable, then the employee pays, rent, etc., which small businesses have paid to have the loans canceled – expenses that would constitute significant tax deductions in one. normal year – would not be deductible. The IRS effectively canceled the tax break that made P3 loans so valuable to small businesses.
But wait, it’s getting worse. What if a business loan hasn’t been canceled? So these expenses are surely deductible as usual, right? Well, not necessarily. Theirs ruled in November that if a PPP borrower “reasonably expects to receive a rebate,” the borrower “cannot deduct these expenses” in the year they were paid.
None of this seems to be the intention of Congress when it rushed through the CARES Act. But without a solution, “millions of small businesses… will face a surprising and, in many cases, insurmountable tax bill next year,” say business associations.
Aid may be on its way in the $ 908 billion mark bipartite stimulus proposal gain ground in Washington, but it is impossible to be sure. Negotiators only released a vague outline of the proposal, mentioning “deductibility” under the PPP. Either way, everything is subject to change in the inevitable horse dealer that takes place behind the scenes.
Besides the mass threat of the PPP tax issue, several other emergency programs for small businesses are underway. expected expiration at the end of the year unless Congress extends them. For many small business owners, it’s still unclear how bad 2020 will be.
More to read absolutely financial cover of Fortune:
- Why the power to change the founder’s double standard based on VC
- Wall Street Culture Shock: When Coinbase first met Cantor Fitzgerald
- How does the Slack / Salesforce deal compares to other Big Tech acquisitions in history
- Robinhood’s Next Adventure: Stealing market share from the rich
- Refuse unemployment benefits? Here are your options
[ad_2]
