Welcome to 2022 tax season! As the vast majority of businesses, small and large, were affected by the COVID-19 pandemic, many companies received support through the Paycheck Protection Program. However, there were many question marks with the Paycheck Protection Program, such as the timing of forgiveness and if eligible expenses are deductible for federal income tax purposes.
Timing of PPP loan forgiveness
As we all know, the Paycheck Protection Program (“PPP”) was created to assist businesses in paying their employees’ paychecks. If the funds received from PPP were used for qualified expenses, the amount of the loan was forgiven. Recently, the IRS released guidance on the timing of PPP Loan forgiveness. With some business owners not receiving their forgiveness letter in 2021, the question arose when the PPP loan will be forgiven for tax-exempt income purposes.
The IRS stated that taxpayers may treat such income as received or accrued when either:
- expenses eligible for forgiveness are paid or incurred;
- an application for PPP loan forgiveness is filed; or
- PPP loan forgiveness is granted.
Thus, a taxpayer who submitted their application for forgiveness in 2021, but has not been granted forgiveness in the 2021 tax year, may choose the date of the forgiveness application, the date the forgiveness is granted, or the when eligible expenses are paid or incurred.
Expenses paid with 2020 PPP loans
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