Recent legislation related to the Small Business Expense Protection Act allows small businesses to deduct some expenses paid with the Paycheck Protection Program (PPP) loan. The Senate unanimously approved H.R. 7010, the Paycheck Protection Flexibility Act, on June 3, 2020. It reverses the IRS notice that allows no deduction for expenses that would be deductible if the payment would result in forgiveness of a covered loan of the CARES Act.
On March 27, President Trump signed The CARES Act which created the PPP, allotting $600 billion to small businesses to offset the economic difficulties facing employers. The funds were to be used to pay employee wages and other operating expenses.
The new legislation allows three times the original time allotted for small businesses to spend funds acquired from PPP and qualify for forgiveness of those loans. The bill also reduces the required amount of funds to be spent on paying employee payroll costs to 60% of the amount borrowed.
Here are a few other important points covered by the Small Business Expense Protection Act to consider:
- The original eight-week period can be extended up to 24 weeks, not to be extended past Dec. 31, 2020.
- The 24-week period can be used by employers to restore their workforces to pre-pandemic levels, allowing these businesses to qualify for full loan forgiveness. These changes must be completed by December 31.
- For new PPP borrowers, five years are now allowed to repay the loan instead of the prior two years allowed.
- Businesses who are unable to find qualified employees or who are unable to restore workforce levels to Feb. 15th levels can use these exceptions in addition to the prior exception allowed for employees who turn down offers of rehiring to help qualify for full loan forgiveness.
- PPP borrowers are now allowed to delay payment of payroll taxes.
Businesses can contact their CPAs to find out how these recent tax law changes affect them. The IRS has extended the tax filing deadline for 2019 taxes to July 15, 2019. For business owners who feel they need additional time, they can file an extension using IRS Form 7004.