PPP Expenses are Officially Tax-Deductible

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.

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.

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.