The relief similarly states that such business expenses as rent and utilities that were paid for using PPP loan money will be deductible if the loan is forgiven. “Definitely a Christmas present for borrowers,” said Steven R. Rossman, a CPA and shareholder at Drucker & Scaccetti in Philadelphia. “Businesses can now deduct the expenses paid by with PPP funds and lower their 2020 taxable income."
The new stimulus also clarifies that these expenses are deductible in the year incurred and that the provision is essentially retroactive to the effective date of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, added Bill Smith, Bethesda, Md.-based managing director for CBIZ MHM’s national tax office.
Economic Injury Disaster Loans (EIDL) to small businesses under CARES will be similarly excluded from income. “Businesses should start gathering information, based on the last application, that may be needed to apply for the next round of PPP funding,” Caruso added. Advisors should also see if clients want a revenue comparison to check on their eligibility for the second round of loans.
Relief is not a done deal for all clients’ businesses. States may not necessarily follow federal guidelines regarding deductibility, for instance. “New York decoupled from the CARES Act, so when the forgiveness occurs, the expenses will be non-deductible for state purposes,” Rosen said.
“The biggest misconception is that all of the ambiguities have been addressed,” Caruso said. “The guidance has been fluid from the start and notices releases as recent as this November are being changed with the passing of this new bill. The only constant is change.”