Last night, December 21, 2020, the House and Senate passed the Consolidated Appropriations Bill of 2021, a mammoth 5593-page law. The legislation includes several tax measures, including a Coronavirus relief bill titled the “COVID-related Tax Relief Act of 2020.” This act includes a much-watched PPP provision. It also includes other tax acts, including the “Taxpayer Certainty and Disaster Tax Relief Act of 2020”. A detailed study of the tax provisions in this Consolidated Bill will be released in the coming days. The President is expected to sign it today, December 22, 2020.
A pressing year-end issue for many of our business clients is the fate of PPP expenses. The PPP, Paycheck Protection Program loans, was passed by the CARES Act in March 2020 to help businesses maintain payrolls during the virus. The CARES Act stipulated that the loans were forgivable, and if forgiven, it did not represent taxable income. But the CARES Act did not tell us if the salary and other expenses paid with PPP loans are deductible.
Later this summer, the IRS announced, based on legal precedent, that expenses paid with tax-free funds are not deductible. Congressional leadership spoke out, saying that this was not their intent on the passage of CARES.
The resulting dilemma for our clients was this – which taxable income scenario do I plan on for 2020? Generally, we planned for both possible results – The PPP expenses being deductible or not.
Resolution – Good news! The COVID-related Tax Relief Act of 2020, as part of the Consolidated Appropriations Bill of 2021, stipulates that expenses paid with PPP funds are fully deductible. This makes planning for 2020 taxable income much easier for our business clients.
