An online search many businesses are conducting this week regards the looming cloud of loan forgiveness. Banks are now opening up their Paycheck Protection Program (PPP) forgiveness process for customers, sending out instructions for the application. The fine print has many individuals scratching their heads. You are reaching the end of the 24 week period to spend the PPP funds and are understandably anxious as to the next steps. We want to keep you in the know and update you on a couple of strategies surrounding the forgiveness process for the PPP.

1.  Spend All the Money

Within the 24 weeks, be sure to spend all the money on forgivable payroll. The loans were distributed based upon salaries and wages during a base period. Be sure to spend the money according to the salaries in your application. Recently, a client disclosed that he stopped payroll to himself because he was preserving cash. But, that is a mistake. Not spending the money would require that he pay back part or possibly all of the PPP loan. We have 24 weeks from the date of your loan to spend the money specifically on payroll.

2.  Pending Bills in Congress

There are PPP pending bills within both the House of Representatives and the Senate. We do not want to apply for forgiveness until we know the status of these bills. Once a decision is made it is our intention to begin the process of filing applications.

3.  Paycheck Protection Program Loan May Create Taxable Income

Many of you are aware that the PPP legislation specifically stated that the forgivable portion of the loan should not be treated as taxable income. Yet, the IRS has ruled that if the income is not taxable, expenses like payroll that give rise to forgiveness should not be allowed as a deduction on your tax return. This is not good news, and many in Washington disagree with this position.  We are hoping for a change.

4.  Loan Forgiveness Application Timing

While the IRS has ruled that the expenses that give rise to forgiveness are not deductible, when does this happen? In the year that forgiveness is approved?  If we apply for forgiveness in 2021, is it 2021?  Will new legislation allow forgiveness? These are the questions we all are asking and are fighting to find the answers.

5.  Check the Box Forgiveness

We are hopeful that the Small Business Administration (SBA) or Congress will adopt rules for a very simplified forgiveness process. This ideal process would cost small businesses less in compliance. Could they adopt a simple check the box form for small loans? We hope so.

6.  Small Business Administration Guidance

There remain several issues that the SBA needs to act upon for more complicated situations. We are still waiting. As soon as we know more, we will make it a top priority to educate our clients.

7.  You May Not Qualify for Loan Forgiveness

Please be aware if you have eliminated positions or reduced anyone's compensation by more than 25%, part of your loan may not qualify for forgiveness. This would be the case even if you have spent all of the funds. If you find yourself in this situation please let us know.

At the End of the Day

Holden Moss CPAs are closely monitoring the status of the Paycheck Protection Program (PPP) forgiveness process and will keep you posted with the latest information.

We are targeting late October or November to begin completing the forgiveness applications. Afterward, we will decide upon timing for submission to the bank.  The application is due within 10 months following the end of the 24 week period or, optionally, the original 8 week period.

Holden Moss CPAs are dedicated to aiding businesses in this difficult time. We will provide you with all the tools and information necessary to succeed. If you have any questions, please give us a call: (252) 432-7181