Long-term care operators who received a forgivable loan under the Paycheck Protection Program this year will not be allowed to write off certain expenses such as rent and payroll if they expect to that the debt be canceled. This is according to new guidelines issued by the US Treasury Department and the Internal Revenue Service. Such deductions are common when these expenses are paid with the income from operating a business.
The agencies said that because businesses are not taxed on the proceeds of a canceled PPP loan, the expenses are not deductible.
“This results in neither tax benefit nor tax loss since the taxpayer has paid nothing out of his pocket,” the Treasury said in a statement.
However, many tax practitioners are concerned that borrowers’ incomes appear higher on paper if they cannot deduct their expenses. In turn, business taxes in 2020 will also be higher at a time when cash is tight, according to Adam Markowitz, registered agent and vice president of Howard L Markowitz PA CPA in Leesburg, Florida.
“These companies got their PPP loan, spent the money and have nothing left, and they are effectively either bankrupt or running a lot less business than they were nine months ago,” Markowitz told CNBC. “Now they get a tax bill as if they were making money from the start. “