2020 has been a crazy year for taxes.  The 2019 filing deadline was pushed back from 4/15/20 to 7/15/20.  Q1 and Q2 estimates normally due 4/15/20 and 6/15/20 were also pushed back to 7/15/20.  For some practice owners, July 15th was a very expensive day for taxes.

Now, just two months after all those taxes were due, the 9/15 deadline for Q3 estimates is quickly approaching. To quote the younger text savvy generation, “Yikes!”

To further complicate 2020 taxes for practice owners, there continues to be uncertainty as to how expenses funded with your PPP loan will be treated for tax purposes. Neither Congress nor the IRS has provided any further clarification on this disagreement that we wrote about a few months ago at:

https://www.schwartzaccountants.com/2020/06/congress-and-irs-disagree-on-deductibility-of-expenses-paid-using-ppp-loan-funds/.

A battle seems to be brewing between Congress and the IRS on whether businesses can write off expenses paid with PPP funds that are forgiven. As a general rule, “forgiveness of debt” is taxable to businesses that are solvent. Even so, Congress and the IRS both agree that the amount of the PPP loans that are forgiven should NOT be considered taxable income to your practice. So that’s good news. 

The discrepancy is whether the expenses paid with forgiven PPP funds will be tax deductible. The IRS issued guidance available at: https://www.irs.gov/pub/irs-drop/n-20-32.pdf that states those expenses are NOT deductible.  The IRS feels that allowing businesses to exclude the PPP forgiveness as income and then allowing those businesses to write off the expenses paid with that loan amounts to double dipping. 

Many tax professionals feel that Congress intended for those expenses to continue to be tax deductible to provide small businesses with one more tool to survive these challenging economic times, essentially welcoming the double dipping that the IRS currently plans to disallow. 

To date neither the SBA nor Congress has provided specific guidance about the deductibility of those PPP funded payroll and facility expenses. 

The impact of this issue on your taxes is huge.  Practice owners who qualify for full PPP loan forgiveness and then write off the expenses funded with the PPP loan will obviously pay significantly less income taxes in 2020 than if those expenses aren’t allowed to be deducted.

Due to the current uncertainty as to whether practice owners can deduct expenses paid with the PPP loan that will be forgiven, calculating Q3 estimated taxes will be more challenging than ever before.  Hopefully Congress will provide guidance to small business owners of their intentions soon.