There is an income tax with your PPP loan.
As of today, any expenditures made with PPP funding is not tax deductible. To give you a quick example of the potential impact let us examine a $250,000 PPP loan. Assuming you followed the rules and properly documented your loan you should have complete forgiveness. So, the value of the loan will be at the full value of $250,000.
Currently, the IRS deems the expenditures made using the $250,000 as non-deductible. If the business had $2M in revenue and $2M in expenses in a normal year there would be no tax liability. However, the $250,000 in PPP money received would not be allowed as an expense so the business will be taxed on a profit of $250,000. For this example, assume a 25% tax rate resulting in $62,500 tax
The PPP funding was extremely helpful to businesses. However, there is a conflict with the funding program. Staying with the $250,000 example, to receive full relief a business needed to spend the $250,000 according to the guidelines which was on payroll and certain expenses. The $62,500 in tax liability from the example is still a sum the business will need to pay.
If you have not considered the tax impact on your PPP funding, please call us.