Small Business PPP Loans And Tax Prep 2021

Posted by Karen Erdelac on Mar 15, 2021

Small Business PPP Loans And Tax Prep 2021There are sure to be a lot of moving parts with small business tax preparations this year, and it is likely a good idea to hire on an expert to ensure everything is filed properly. That being said, there are some important notes to consider prior to filing.

The CARES Act spells out that the forgiven loan amount won’t be included in taxable income. That means you don’t pay taxes on the money that you receive. Previously, anything you spent your PPP loan on was not going to be tax deductible, much to the frustration of CPA’s everywhere. Now, these expenses are tax deductible come tax season. Simply put, your PPP loan will not affect your tax filing process.”

A PPP loan can be forgiven as long as at least 60% has been spent on employee payroll costs. The other 40% of funds are allowed to be used for expenses, including mortgage interest or rent obligations; utility costs; operations costs such as business and accounting software; uninsured property damage from civil unrest; supplier costs on essential goods; and worker protection expenditures such as personal protective equipment (PPE).”

The latest COVID relief law states that “no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by [the loan forgiveness provision that says forgiven PPP loans will not count as income].””

Businesses can now claim the Employee Retention Tax Credit if they meet the requirements. There’s one important caveat: You can’t claim wages paid with a forgiven PPP loan. You can, however, claim the credit on wages paid above and beyond the amount forgiven. To qualify for the tax credit, you must continue to pay employees despite being temporarily shut down because of COVID-19 restrictions or suffering a 20% drop in gross receipts compared with the same quarter in the prior year.”

The links below will provide more in-depth instructions in regards to tax filing with PPP loans:

Information Reporting Requirements for Paycheck Protection Program Loans Forgiven

under the CARES Act

Eligible Paycheck Protection Program expenses now deductible

Didn’t Get Requested PPP Loan Forgiveness? You Can Claim the Employee Retention Credit for 2020 on the 4th Quarter Form 941

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Topics: Small Business