Many enterprises in 2020 were saved by the CARES Act’s programs for coronavirus aid, relief, and economic security. It’s tax season, so business owners who benefited from CARES Act relief will be wondering how it will influence their returns. However, it might be difficult to assess these monetary effects. Find out how to navigate the 2022 tax law changes with the help of a certified business valuation consultant.
In order to better understand how the CARES Act’s four business relief programs may affect your company, we’ve detailed some key tax concerns for each below.
- Funding Security for Paychecks
- Subsidies for Natural Catastrophe-Related Economic Damage
- Bonus for Keeping Good Employees
- Delay of Wage Taxes
We recognize the difficulty of this material and acknowledge that particulars will vary by enterprise and circumstance. Our small business tax experts are here to answer any questions you may have about the CARES Act.
Is participation in CARES Act programs taxable?
Over the past few months, we’ve received a number of inquiries asking various iterations of “Is CARES Act aid taxable?” It is up to the individual program to determine what is taxable and what additional tax implications there may be.
In this section, we will go over some of the results. Keep in mind, though, that many of the problems raised by these initiatives have yet to be resolved. Please consult your tax expert and come back here for updates as we receive further clarification from the IRS.
Is PPP (Paycheck Protection Plan) taxable?
Hundreds of thousands of business owners in the spring of 2020 were able to borrow up to 2.5 times their average monthly wage, up to $10 million, thanks to the Paycheck Protection Program.
To some extent, a PPP loan might be treated more like a gift because, if you comply with the terms, the loan will be written off. Even while that’s great, some people are wondering if the PPP is taxable.
A PPP debt forgiveness is not considered income for federal tax reasons. Debt cancellation, such as a forgiven loan, is typically treated as taxable income. That, however, will not be the case with discharged PPP loans under the terms of the CARES Act.
The question of deductions arises. You may have heard that any costs covered by a PPP loan cannot be deducted. With the prior IRS regulations, it was indeed the case.
However, the Covid-related Tax Relief Act of 2020 (COVIDTRA) amends the law so that you can deduct certain expenses paid with the money you received from having your PPP debt forgiven.