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More Thoughts on PPP Forgiveness

Aug 26th 2020
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In last month’s post, I discussed how we are all waiting for more potential actions or instructions from the IRS, the SBA or Congress on PPP forgiveness. Little has changed since last month. However, I realized something I would like to share and if any readers have different or better information, I invite you to join the conversation.  

This is what I realized: Sole Proprietors with no payroll who received PPP have an advantage over businesses that have payroll. Here’s how I came to this conclusion. Based on the information we currently have:

1. PPP funds received are not counted as taxable income on the tax return. It is non-taxable Income.

2. PPP expenses paid by PPP funds cannot be deducted on the tax return. Bookkeepers and accountants will need to segregate expenses paid by PPP funds into a new account on the Chart of Accounts, something we may call “Non-deductible PPP Expenses.”

3. Gross Wages paid with PPP funds will become some of those non-deductible expenses. Sole Proprietors with no payroll can spend some or all of their PPP funds to compensate themselves and will not have an account called “Non-deductible PPP Expenses.” They can post the use of their PPP funds to an “Owner’s Draw” account, which is a Balance Sheet event, not a P&L event. Therefore, Sole Proprietors with no payroll have a significant advantage over other small businesses with payroll when it comes not only to PPP forgiveness, but also when it comes to expenses on their 2020 tax return.


This conclusion may be false, or even temporary if the IRS, SBA and/or Congress make additional changes to the PPP program. But for now, this is one way to interpret PPP forgiveness. Please join the conversation if you have other thoughts.

Jody Linick is an AIPB Certified Bookkeeper, a QuickBooks® Certified Pro Advisor, and a member of the Intuit Trainer/Writer network.  Her company, FitBooks Pro (formerly called Linick Consulting), specializes in remote bookkeeping services for professional services firms using QuickBooks Online. You can find her series of Blog posts here.

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Sam Otto
By UncleSam
Aug 27th 2020 09:56 EDT

I would agree with this assessment though I do see it as temporary as I believe congress will probably reverse the IRS guidance on this as there appears to be bipartisan support for that. Though with our luck as tax preparers it won't happen until Dec/Jan as congress always waits till last minute when making decisions. Especially in an election year. In the mean time I personally have run tax projections assuming that they were deductible but I have been sure to inform clients that the projections are based on this underlying assumption.

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