On December 27, 2020, the President signed the highly anticipated COVID-19 relief bill. Along with a $600 stimulus check for taxpayers and sweeping changes of the first stimulus bill, the new package also included a second wave of funding for Paycheck Protection Program loans (PPP2) and new tax guidance to help businesses keep their doors open.
Most notably, all PPP funded expenses are now tax-deductible. Previously, the IRS released Revenue Ruling 2020-27 stating that PPP expenses were not deductible on borrowers’ 2020 tax returns because PPP loans are, in spirit, reimbursement of costs and meant to be completely forgiven. Based on the wording in the new bill, the IRS has now issued Revenue Ruling 2021-02 which makes the original ruling moot.
As the shutdowns across the country continue to affect commercial activity, this new bill is a welcome relief to at-risk businesses.
Some states, such as California, have previously determined that such deductions would remain non-deductible at the state level, regardless of any guidance coming from Congress that we now have. Other states may follow suit.
Tax Implications for Borrowers
While many borrowers are and business advisors are celebrating, questions still remain. If the PPP loan is not forgiven in the same year that the expenses deducted, any losses generated could be suspended for pass-through taxpayers if they don’t have sufficient basis to claim the loss.
Understanding the PPP with Aldrich
The entire Aldrich team is monitoring the PPP updates closely. We’ll be updating our PPP Resource Center diligently to keep you apprised of new requirements and guidance as they are released. If you have any questions about loan forgiveness for your business, reach out to your Aldrich Advisor.
This article was written with the most current information as of January 12, 2021. Please check back for future updates.
Meet the Authors
Director of Tax
Sara Northcutt, CPA
Aldrich CPAs + Advisors LLP
Sara Northcutt joined the firm in 2005 and has more than a decade of experience working on a wide range of clients, including financial lending, private equity, real estate, and other closely held businesses. Sara specializes in multi-state tax compliance. Sara received her Bachelor of Arts degree from Vanguard University of Southern California and did her…
- Closely-held businesses
- Certified Public Accountant
- Strategic tax planning and compliance
Director, Architecture and Engineering Services
Diana Strassmaier, CPA, CCIFP®
Aldrich CPAs + Advisors LLP
Diana joined the firm in 2018 with almost two decades of experience serving members of various industries including construction, engineering and architecture, manufacturing and distribution, and government contracting. An expert on conducting overhead audits, Diana works closely with government contracting industry clients to offer clarity on how overhead rates work and help them maximize compensation.…
- Indirect cost rate (overhead) audits and consulting
- Financial audits, reviews and compilations
- Business and personal tax planning and preparation
- Certified QuickBooks ProAdvisor
- Management consulting
- Compensation analysis
- Sage Fixed Assets Certified Consultant