PPP Loan Expenses: No Double Dipping

Many business owners have now successfully obtained a PPP Loan under the CARES Act. Recently, the IRS has issued a statement regarding the expenses associated with the PPP Loans. Business owners who have obtained the loan can use the funds for employee salaries, employee benefits, rent, and utilities. The loan itself will not be included in business revenue for the year should the amount be forgiven. In the same sense, the salary, benefits, rent, and utilities paid for by the funds from the PPP Loan can not be deducted as an expense for the business.

For example, if a business obtained a $100,000 PPP Loan and over the next 8 weeks complied with the rules under the loan, a maximum of $75,000 went to salaries/benefits and $25,000 went to rent/utilities, then the full amount will be forgiven. At the end of the year when preparing the business tax return, the $75,000 used for salaries/benefits nor the $25,000 used for rent/utilities can be used as a business expense. Since the loan initially is not included in the business revenue, the expenses can not be included as a deduction. 

We have suggested to our clients to create new and separate line items in the financial statements for the PPP revenue and PPP expenses.  This will help clearly show the source and use of funds when obtaining forgiveness of the loan. 

We hope everyone is staying healthy and safe during this unprecedented time.

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