Brian: There are many questions about PPP loans and tax deductions. What do business owners need to know this year?
Karen (answer update post-webcast): At the end of 2020, Congress passed legislation which provides that expenses that are typically tax deductible but which were considered forgivable under PPP guidelines are also now allowed to be tax deductible. This means that eligible expenses covered under the PPP loan program (e.g., employee salaries, mortgages, utilities, PPE and cloud-based services) are tax deductible as well, providing an additional benefit to companies that took PPP loans. This could have a big effect on taxes paid by small business owners in 2021.
Brian: Let’s talk about the temporary rules on crowdfunding. What’s happening there?
Karen: The Securities and Exchange Commission looked at what they could do to make it easier for small businesses to do a crowdfunding raise. There are compliance requirements (filing forms with the SEC) and other rules that made it a little harder for small businesses to use crowdfunding as an option. Additionally, once a business raises the money, there is more paperwork. The SEC streamlined some of the rules and paperwork to make it easier and faster for small businesses to raise money. In addition, small businesses can now raise more money (up to $5 million) and “test the waters” before raising funds.
Brian: What about the Employee Retention Tax Credit program?
Karen: We have important content that discusses the employee retention tax credit on our website (www.SBEcouncil.org). The program is an incentive for employers to keep employees on payroll. They can get a 50% tax credit of qualified wages up to a certain amount. However, if a small business received a PPP loan as well, then the employee wages were covered during that time and the tax credit cannot be claimed. It’s an excellent program for business owners that didn’t receive a PPP loan. In the year-end spending and stimulus package passed by Congress, the tax credit was also extended and expanded. It’s important to understand your eligibility for this credit whether you took out a PPP loan or not, as wages not forgiven under PPP are eligible for the credit.
Brian: As always, thank you Karen for being a champion and advocate for small business owners all over the country. We appreciate your leadership and support!
For additional information about what was in the year-end stimulus and spending package that can benefit your small business in 2021, including PPP/EIDL/SBA loan program changes and tax-related measures, please click here.