The IRS has provided guidance on the deductibility of certain expenses incurred in a trade or business and paid for with funds from a loan under the Paycheck Protection Program (PPP). In general, a deduction is allowed for all ordinary and necessary expenses paid or incurred in a trade or business during the taxable year. The IRS clarifies that no deduction is allowed if the payment of eligible expenses results in forgiveness of a covered loan.
Under the CARES Act, a recipient of a covered loan can receive forgiveness of indebtedness on the loan in an amount equal to the sum of payments made for the following expenses during the 8-week period beginning on the covered loan’s origination date.
The recipient of the covered loan can use the proceeds to cover the following eligible expenses:
- payroll costs,
- certain healthcare benefits,
- interest on mortgage obligations,
- utilities, and
- interest on any other debt obligations.
Please call the Crosslin tax team at 615-320-5500 if you have any questions on covered loans and relief provided by the CARES Act. We can help you determine the amount of nondeductible expenses because of a covered loan received under the Payroll Protection Program.