It’s that dreaded time of year known as Tax Time, and if you are one of the millions of business owners who received financial assistance from the Federal Paycheck Protection Program, you might be saying, “What do I do now?”
Launched nearly a year ago, the Federal Paycheck Protection Program (PPP) provides much-needed assistance to businesses crippled by the Coronavirus pandemic. While the PPP has had its problems, including a slow rollout, confusing requirements, and significant fraud, the program has provided over 7 million loans totaling more than $660 billion in assistance.
From the outset, if the business owner used at least 60% of the funds on payroll costs, the loan would be forgiven. Forgiven PPP loans are not subject to federal income tax, and small business owners can also deduct business expenses paid for with their PPP money.
Some of those approved expenses include payroll costs, including employee compensation and health insurance, business rent, business utility payments, business software or cloud computing services used for accounting, human resources, and payroll processing, goods, and supplies essential to business operations and worker protection costs including personal protective equipment.
While federal guidelines are straightforward, the main issue for businesses will be their tax liability on the state level. Many state legislatures have not yet decided whether to adopt the federal guidelines for PPP forgiveness. For example, Alabama and South Carolina have indicated they will provide the same tax benefits regarding PPP loans as the IRS. But North Carolina and California will only adopt one of them — treating the forgiven loan as tax-free. Whether a small business can take advantage of either of the PPP-related tax breaks in Massachusetts and Pennsylvania will depend on whether its state taxes are filed under the corporate tax code or the individual tax code.
Experts say it could take state legislatures months to finalize rules for handling PPP forgiveness and related expenses. They have several suggestions for business owners - talk with a tax expert familiar with your state’s tax laws, delay filing until just before April 15, or perhaps the best bet would be to file for an extension on your state taxes. In the coming months, it should be clear how your state will handle PPP loans and related business expenses. That will be helpful not only for 2020 but 2021 as well since more PPP funding will be dispersed this year.
For the past fifteen years, Quikstone Capital Solutions has helped thousands of merchants with easy, fast and flexible funding for their business needs. If you would like to purchase equipment, advertise, or create outside seating on a new deck or patio, contact us today. Our business is helping your business grow!
