Free not always good?

[ILLMAS]

Just a random thought, but what happens to the profit for the months PPP covered the whole payroll and will not have to be repaid back?  Let’s say a business had zero interruptions from the pandemic and chugged along as before and used up the PPP loan appropriately and the profit per month is as follows:

Average sales $100,000, payroll cost $50,000, operating expenses $25,000 (per month)

Jan $25,00

Feb $25,000

Mar $25,000 + $50,000 (PPP loan forgiven)

Apr same as March 

May same as March

The rest of the months, the profit is $25,000, so if the PPP loan is not forgiven it would be a liability, but how are business going to account for the freebie?  Are business not subject to income tax if the PPP covered 100% of the payroll cost?  This is a topic I have heard no one discussed and just want to see it’s really beneficial to a business.  

[Lion EA]

Unless Congress acts, the PPP expenses are not deductible. Profit is larger. Taxes are higher. 

[Lee B]

Another headscratcher will be timing differences. If payroll expenses are paid in 2020 and your loan is forgiven in 2021, how do you handle the situation.

I predict a lot of business returns being put on extension to avoid amending the 2020 tax return.

[BulldogTom]

There is a move in the Senate to make the expenses paid by the PPP loans deductible.   

Apparently, the senators did not know the tax rules they passed and when Treasury issued guidance based on the tax rules as written and applying the rules that have been in effect since the tax law was born, these senators were shocked that Treasury did not know that the law they just passed should be interpreted the way they intended it and not the way they wrote it. (much sarcasm intended).

I think the only way to do it is to make it a credit for 2020, like they did with the EIP they gave to the individuals.   But they may be able to write something else to get them there.

Tom
Modesto, CA

[Lee B]

3 hours ago, BulldogTom said:

There is a move in the Senate to make the expenses paid by the PPP loans deductible.   

Tom
Modesto, CA

The House passed a bill in the middle of May which made these expenses deductible.

The Senate Banking Cmte introduced a bill to make these expenses deductible two months ago, but it has never been brought up for the full Senate to vote on it.

[Abby Normal]

Cash > Deductions