According to current IRS regulation… any part of the PPP Loan that is forgiven will be taxable as income and cannot be offset by the incurred expenses. Unless Congress changes the rules the PPP loan has become much less attractive and is it even worth trying to get it forgiven-convert it to a 1% loan.
That’s not true. Forgiveness of the loan does not constitute taxable federal income.
What is known is that the expenses that are paid for by the PPP are not tax deductible expenses.
Wanda gets a PPP loan for $350,000. She spends it all on approved expenses. Wanda’s entire loan is forgiven. Wanda has no taxable income from this loan, but she also not tax-deductible expenses. Her income is zero, her expenses or zero. On a net income of zero, she owes no tax. Wanda’s practice’s tax burden for the year would only be affected by non-PPP income and expenses.
This is not new guidance. The IRS has always said (IRC Section 265) you can’t take a deduction for expenses attributable to tax-exempt income.
Now, it WOULD be awesome if the IRS changed its rules to permit this, which would mean:
*Wanda gets a PPP loan for $350,000. She spends it all on approved expenses. Wanda’s entire loan is forgiven. Wanda has no taxable income from this loan, AND she can declare $350,000 of PPP-funded expenses as taxable expenses. Her net income is now -$350,000 for the year, which she can apply to neutralize net income from her other 2020 pre- and post- COVID revenues."
But this is quite a different animal.
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Looks like now it may be taxable?