Now that most businesses have spent the Paycheck Protection Program (PPP) loan funds, it is time to apply for forgiveness.
Preparing the forgiveness application is far more complicated than preparing the application for receiving the PPP loan. The forgiveness formula requires multiple calculations and substantial payroll data. In addition, integrating the Economic Injury Disaster Loans (EIDL) advance must be part of the PPP Forgiveness application.
Begin by learning what your bank requires from your business. Many banks have set different protocols for the forgiveness application process. For example, some banks have automated the forgiveness application and others are accepting completed SBA forms. Some banks will accept the payroll service reports and others will not.
Obtain payroll reports if needed. A major component to the forgiveness application is a summary of payroll information. Many spreadsheets have been developed to put the payroll data into the proper format needed for the application process. Certain payroll services, such as ADP and QuickBooks have created reports that are extremely helpful.
Allot the time needed to prepare the forgiveness application; it is time consuming. The greater the number of employees (higher PPP loan amounts) the longer the process will take. We estimate 20 to 40 hours or more is needed to prepare the forgiveness application for companies with 20 to 50 employees.
Tax matters to consider
IRS issued guidance indicating the expenses paid with the PPP loan are nondeductible. This position is inconsistent with Congress’s intent regarding the expenses, which was to allow the expenses to be deductible and the PPP loan forgiveness to be excluded from income. There are federal legislative proposals to allow the expenses to be deductible. Many believe this provision could be in the next COVID legislation passed by Congress.
If the provision is not included, it remains unsettled, as of this posting, which year the payroll and business expenses will be non-deductible. Some businesses may decide to extend their business tax return if this topic is not resolved when their business tax return is due to be filed.
Start pulling together the information needed to file the PPP loan forgiveness application. However, do not file the application with the bank until either 1) additional guidance is received regarding the period in which the expenses paid through the PPP loan are disallowed or 2) legislation is passed, reversing the non-deductibility of expenses.
Also be sure that any data used to support your PPP Loan application be retained, as the government may audit the application (once submitted) for up to 6 years.
For more information, please contact us at 401-831-0200.