Small businesses that took PPP face huge, unexpected tax hits

[Yo_Mama_Been_Loggin]

Baltimore video- and media-production agency Storyfarm did everything it was supposed to with its Paycheck Protection Program loan.

The company took the $232,000 it received in early April and spent the entire amount on payroll, keeping its 14 full-time employees as the company shifted from in-person and live-video shoots to more animation projects, said CEO John Sherman. The firm made that shift as live events and gatherings were shut down for months and local governments enacted social distancing measures.

But Sherman is now worried about having to pay taxes on payroll expenses he normally deducts, given that the PPP loans are subject to taxes. That, he said, could work out to a $75,000 tax bill in April 2021 just as he hopes his industry emerges from the grips of Covid-19. And now, he and other small businesses are hoping that Congress will step in and fix that predicament.

“I think we were ideally suited for this [PPP] program. But if we have to pay a 30% to 40% hit on our taxes back at the end of the year — nobody planned for that,” Sherman said. As for members of Congress, “I assume they are going to have to fix it. There is no way that the businesses that survive Covid are going to crushed with this tax bill in April 2021.

https://www.bizjournals.com/seattle/news/2020/08/17/ppp-small-business-face-irs-taxes-congress-help.html

[FoxNewsSucks]

1. I thought it was pretty clear up front,

if conditions are met, the loan will be forgiven. Forgiven debt is considered taxable income. Nobody said it would be a tax-free grant.

[HotTeaBag]

2. And the money was used to keep businesses afloat so they could make money (at least StoryFarm).

Seem reasonable that they'd have to pay taxes on it.

Those of us who took the expanded UI have to pay taxes on that - not sure there's much difference.

[customerserviceguy]

3. I haven't done taxes in years

but wouldn't the wages, rents, etc. that a business owner spent it on be considered fully deductible against that income? I couldn't imagine anyone spending that money on things that would be depreciated over a long period of time.

[Hoyt]

4. Here are the rules.

https://www.uschamber.com/co/run/finance/tax-implications-of-paycheck-protection-loans#:~:text=Does%20a%20forgiven%20PPP%20loan,when%20applying%20for%20the%20loan.