Listen to the entire podcast with Barbara Weltman and find out more about the resources we discussed.
On a recent episode of the Small Business Edge podcast, I spoke with tax expert Barbara Weltman about the state of small business taxes and what business owners can expect as we come to the end of a turbulent year. Here are excerpts from our conversation.
Brian Moran: The PPP federal loan program had a significant impact on small businesses surviving the pandemic. What are the latest tax implications for PPP loan forgiveness?
Barbara Weltman: The good news is typically when you have loan forgiveness, it's taxable income, but specifically in the law, the loan forgiveness of the PPP loan is not taxable. When small businesses received their PPP loans, they paid taxes on the loan proceeds; any part of the loan that is forgiven is tax free. However, the IRS ruled that businesses cannot deduct expenses covered by the loan forgiveness, including payroll, rent, and utilities.
Today, there is a measure making its way through Congress to negate the ruling and allow businesses to claim deductions as well as loan forgiveness. It is something that any business that received a PPP Loan should monitor going forward.
Brian: What tax refund opportunities are there in 2020 for business owners to get cash back (e.g. carrybacks, amended returns)?
Barbara: What you're talking about is a way for businesses to recoup taxes that they paid in prior years and get an immediate cash refund. The way it normally works is by filing amended returns, but there are refund opportunities that have been created by the CARES Act to specifically help businesses. One example is net operating loss. If a business had a loss in 2018, 2019, or 2020, they could carry back that loss for five years, offset taxable income in those years, and get a refund of taxes paid. If the business doesn’t use the entire loss, they can carry it forward to next year’s returns.
Another rule change example is qualified improvement property. If a business makes improvements to their commercial facilities, instead of having to depreciate the improvements over 39 years, they can get an immediate tax break as it now qualifies for bonus depreciation. 100% of the cost can be written off in the year that they paid for it.
Brian: Are there advantages to buying equipment in 2020 vs. deferring it to 2021?
Barbara: I would look at equipment purchases primarily as a business decision. If a piece of equipment is needed to make a business more productive or efficient now, then it makes sense to purchase the equipment now. Productivity should take a priority over tax results. However, as I mentioned earlier, the business doesn’t have to take all the tax breaks upfront. There are ways to write off the equipment that was purchased.
Listen to the entire podcast with Barbara Weltman and find out more about the resources we discussed, via the Podcast player at the top of the page.