SBA PPP Loans and Tax Deductible Business Expenses

A number of stations have finally received their PPP financing.  This is a tremendous benefit for local stations.  The PPP loan program is designed to cover expenses, mostly relate to payroll, through June 30th.   It is clear that loans forgiven through the PPP program will not be considered as income to the business.  Nonetheless, this could impact your business deductions.  

The IRS has now stated that expenses related to the portion of a PPP loan that is forgiven, will not be deductible as a business expense.   This follows the basic rule that expenses related to tax exempt income are generally not deductible. In effect the IRS is considering the forgiven PPP loan as tax exempt income. This makes the expenses paid related to the forgiven portion of the PPP loan as non-deductible.

Thus, looking at the PPP program and the IRS code:

  • The forgiven portion of the PPP loan will not be included in taxable income
  • Expenses related to the portion of the PPP loan forgiven are non-deductible
  • A business that receives a PPP loan is not eligible for the Retention Credit on the wages paid, and
  • A business that has any portion of a PPP loan forgiven cannot defer the payment of payroll taxes (the Social Security matching portion) after receiving the notice of the loan forgiveness

For a full explanation from the CPA firm of UHY LLP  click HERE.  

We urge you to consult your own tax advisor.

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