If your business received a PPP loan for $50,000 or less, the Small Business Administration has some good news for you. On October 7th, the SBA released an Interim Final Rule that creates a simplified PPP loan forgiveness application for loans below $50,000. Importantly, Rule changed the following:
- Your loan forgiveness will NOT be reduced due to any reductions in Full Time Equivalent (FTE) employees.
- Your loan forgiveness will NOT be reduced due to any salary or wage reductions.
The bottom line here is that as long as you spent all of the money on qualified expenses (such as payroll costs, health insurance, rent, utilities or mortgage interest), you will get your entire loan forgiven. Self-employed individuals will get automatic forgiveness regardless of profitability or payroll. Even better, the loan forgiveness application is greatly simplified, allowing for quick administration and approval, which can be very valuable if you are undergoing any ownership changes, as detailed in our previous blog post. The new loan forgiveness application can be accessed here.
One notable caveat to the above is for those businesses who received Emergency Injury Disaster Loan (EIDL) Emergency Grants. EIDL Grants will be subtracted from the loan forgiveness amount to determine the amount of the PPP loan that will remain outstanding.
Also, as a reminder, the simplified PPP loan forgiveness will not result in taxable income to the business. Currently, the IRS holds the position that because the debt forgiveness is not taxable, the corresponding expenditures (payroll, rent, etc.) paid for by these funds are not deductible. There is an ongoing push to get the IRS to change its position, which we will be keeping an eye on. Additionally, how exactly a shareholder’s basis in the stock of their company will be affected by the deductibility of these expenses (and any remaining PPP loan amounts) remains foggy to say the least.
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