Reminder from the IRS: Expenses Paid with 2020 PPP Loans Can Be Deducted on 2021 Tax Returns
May 2021 Article by:
Michael S. Hampleman & Roman A. Basi
Basi, Basi & Associates at The Center for Financial, Legal & Tax Planning, Inc.
If you are a business owner that received PPP funds but did not utilize them on your tax return, pay close attention to the substance of this publication. The IRS has publicized a safe harbor for certain companies that received first-draw Paycheck Protection Program (PPP) loans but did not deduct any of the original qualified expenses because they relied on direction issued before the execution of the Consolidated Appropriations Act, 2021 (CAA), in December 2020.
In Notice 2020-32 and Rev. Rul. 2020-27 (which were made obsolete by Rev. Rul. 2021-2) the IRS stated that a taxpayer who received a loan through the PPP was not permitted to deduct expenses that are normally deductible under the Code to the extent the payment of those expenses resulted in PPP loan forgiveness. Essentially, if you paid for usually deductible expenses using PPP loans, you could not claim a deduction on your tax return.
