Covid Reduction Invoice provides PPP tax aid that Treasury has spoken out towards

House Speaker Nancy Pelosi, D-Calif., Leaves a meeting on Capitol Hill on December 18, 2020.

Saul Loeb | AFP | Getty Images

Legislators have given small businesses an extra lifeline in the next round of Covid incentives: more forgivable loans and the ability to take a tax write-off on covered expenses.

Members of Congress reached an agreement on Sunday on a $ 900 billion rescue package.

The measure includes $ 600 stimulus testing for most adults and every child, plus a $ 300 weekly unemployment rate.

More from Advisor Insight:
Don’t buy into the recent IPO hype, experts say
Avoid these mistakes when splitting assets in a divorce
Almost half of the workers do not know how much income tax they are paying

There are also a number of regulations targeting sick small businesses.

According to a joint statement by Nancy Pelosi, speaker of the House of Representatives, and Chuck Schumer, chairman of the Senate minority, the Democrats would provide $ 284 billion in forgeable loans under the paycheck protection program.

Lawmakers also said it would extend PPP eligibility to nonprofits and local newspapers, television and radio stations.

The PPP was originally introduced in the spring in the CARES Act. In total, approximately 5 million companies received approximately $ 525 billion in loans under the program.

In general, borrowers are eligible for PPP lending if they use at least 60% of the proceeds on payroll. Partial lending may be available to those who don’t reach this threshold.

Any amounts not wiped off must be repaid and are subject to an interest rate of 1%.

A second tie from PPP

A New York waiter sets a table in a plastic bubble outside the Olympic Flame Diner in Manhattan on December 15, 2020.

Carlo Allegri | Reuters

Small businesses may get a second PPP loan if they have fewer than 300 employees and can show their earnings have decreased by 25%, according to a summary by the House Small Business Committee.

The maximum amount for a second drawing is $ 2 million.

Listed companies will be banned from participating, according to Republicans on the House Small Business Committee.

There’s no denying that small businesses are in dire need of cash to keep their doors open.

Whether these business owners have an appetite to borrow more money is a different story, said certified financial planner Dan Herron, CPA and director of Elemental Wealth Advisors in San Luis Obispo, California.

“I don’t think customers will want to do it again,” he said. “The constantly moving goal posts, the lack of consistency in forgiveness applications – it’s a pain.”

Forgiveness, Deductibility, and Tax Complexity

The legislation also creates a simplified application for forgiveness for companies that have taken out PPP loans under $ 150,000.

Companies that have received an advance payment through the Economic Injury Disaster Loan Program also no longer need to deduct the advance payment from their PPP loan amount.

Finally, the aid package answers a burning question on the minds of borrowers: Yes, entrepreneurs can request deductions for expenses that are covered by PPP loan proceeds

Treasury Secretary Steven Mnuchin, who appeared on CNBC’s “Squawk on the Street” Monday morning, confirmed that Congress had agreed to allow tax deductibility for these expenses.

The subject was controversial. The PPP loan is tax-free, but the Treasury Department and IRS have stated that expenses that are covered are not deductible.

I don’t think customers will want to do it again. The constantly moving goal posts, the lack of uniformity in forgiveness applications – it’s a pain.

Dan Herron, CPA

Director of Elemental Wealth Advisors

Allowing the deduction would create a double tax break, the agencies previously said. The Treasury and IRS said last month that business owners who “reasonably believe” that their PPP loans will be issued cannot deduct the cost.

In the meantime, tax experts have said the deductibility lock could saddle owners with higher taxes.

While the ability to write off the expense would be welcome news for small businesses, tax professionals are aware of any restrictions – or guard rails – that Congress may impose on companies wishing to deduct the expense.

For small businesses that made estimated payments as early as the fourth quarter, relief may be too late.

“For some borrowers who have already deposited, it will be too late like they won’t receive any deductions,” said Tony Nitti, partner with RubinBrown Tax Services Group.

“You will still be grateful to be deductible, but there are some difficult planning issues as we get into the last few days of the year,” he said.