December 21, 2020 How the latest Stimulus Bill will impact your startup
Last night, Congress came to an agreement on the latest Stimulus Bill (finally). In it are a couple key provisions that could impact startups.
1. Additional funding for the Paycheck Protection Program (PPP)
The program hasn’t taken any new applications since August. If you haven’t taken advantage of this program, check out our article reflecting on the first week after it was enacted.
2. Clarity on whether PPP loan expenses are deductible, even if the loan is forgiven.
The CARES Act clearly stated that forgiven PPP loans would not be included as income. However, it was previously unclear whether the expenses covered by the PPP loan would be deductible on the recipient’s tax return. This new legislation clears up that confusion and indicates that expenses paid with a forgiven PPP loan will still be deductible.
For example: If you previously received a $100,000 PPP loan and spent it all on payroll, and then the loan was later forgiven, you would not be able to deduct that $100,000 of payroll expense on your tax return. This treatment could leave you with a surprise tax bill of $21,000 (assuming a 21% corporate tax rate). The new stimulus bill eliminates this scenario by allowing you to deduct the full $100,000 in payroll expense.
Side Note: If you have not already applied for PPP forgiveness, wait until this new legislation is signed into law. There is no guarantee that this new bill will apply retroactively.
A note from our founder, Joe Faris:
3. Two-year tax break for business meals.
Typically, businesses are only allowed to deduct 50% of meals. The added proposal would allow businesses to deduct 100% of meals for 2021 and 2022.
Stay tuned, as this is unlikely to be the last Stimulus Bill we see come out of Washington in the coming months.