The Paycheck Protection Program (PPP) portion of the Coronavirus Aid, Relief, and Economic Security Act (CARES) was hailed as a revolutionary life line to small businesses that had to shutter their doors against the plague.
Basically, the Feds said: Keep your expenses up, pay your staff so they don’t have to go on assistance, and not only will we loan you the cash to do so, so long as you can prove it was spent stimulating your business, we’ll not only forgive the loan, it won’t be taxed as income.
Right said, Fed. But some sharp-eyed readers of the letter of the law say they’re too savvy for these loans, and here’s why.
It was announced on April 30th that anything paid with PPP payments won’t be tax deductible.
Specifically, the IRS says, expenses that qualify a business owner loan forgiveness cannot be deducted from 2020’s tax filings, in order to keep people from getting “double tax benefit[s].” You can read up on the tax code citations and legal precedents right here, straight from the tax horse’s mouth.
So what’s happening here is you can “enjoy” free money from the government, but if you were counting on it being non-taxable income, then you’d best count again.
I may be a simple country (adjacent) April, but is the purpose of handing out money somehow… NOT to put business owners AHEAD?
This move strikes me as a ship throwing someone in the water a life-vest… then sailing off without reeling them in.
‘Well you don’t want people to double-dip,’ is a rebuttal I’d expect. Or ‘that’s how the CARES Act was written,’ but right now we’re dealing with people and their businesses needing EXTRA. Not ‘a bit,’ not ‘enough,’ but quantifiably EXTRA help in order to do better than just tread water. We NEED that extra dip… and individual bowls for everyone while we’re at it.
“No half measures,” as a wise, narcissistic fictional criminal once said. Brian Cranston won an Emmy for delivering that line, so I figure it’s stand-by-able.
As of right now, there’s not much that can be done except for business owners to gather and lobby their representatives en masse to alter the language of the CARES Act, or add an amendment to it that allows the IRS to let the deductions business owners need to slide.
As is, strict interpretation of the law doesn’t give our beloved agents enough wiggle room to LET this money be deducted. And I’m guessing that the IRS isn’t really the type of agency to DO interpretative judgements as a matter of course so… the ball is in Congress’ court on this one.
Fortunately, it seems like they’re taking it and running with it!
On May 12, a bill aptly named the HEROES Act was proposed in the house, and it clarifies: “For purposes of the Internal Revenue Code of 1986 and notwithstanding any other provision of law, any deduction and the basis of any property shall be determined without regard to whether any amount is excluded from gross income under section 20233 of this Act or section 1106(i) of the CARES Act.”
They’re reaching past the last stimulus bundle (that I haven’t received my share of yet by the way, cough cough) with a total of three trillion as a distribution goal. That’s a three followed by twelve zeroes, sweeties. And this is all cold, hard, tax free, DEDUCTIBLE cash.
My advice here? Get your letter-writing hands ready, business owners! It’s not a law YET, so keep pushing your politicians as best you can, and telling your friends, (and sharing our articles) And best of luck.
Sidenote from the Editor: Research for this story includes insights from Caleb Ellinger at Ellinger Services (CPA wizard (our word, not his) in Austin who is very well known as serving startup and freelance communities).
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