PPP Loan Forgiveness
A Two-Step Process for S-Corporations
Paycheck Protection Program (PPP) loans were a great resource for small business owners looking for financial assistance to keep their operations going during the challenges caused by COVID-19. These loans were offered through the federal government, allowing businesses to access up to $10 million in funds, with up to 100% of the loan forgiven. PPP loans provided businesses with money to cover payroll costs, rent, mortgage payments, utilities, and more. The goal was to help keep employees on payroll, helping to maintain job retention during the coronavirus pandemic. PPP loans also provided businesses with additional funds to cover any necessary COVID-19 related costs. This money could be used for extra equipment, inventory, supplies, or other necessary costs related to the virus. PPP loans were a great way to provide some financial stability and help small businesses stay afloat during the pandemic.
Fortunately, borrowers can apply for Paycheck Protection Program (PPP) Loan Forgiveness. This is a process for businesses to obtain relief from the Small Business Administration. The first step is for businesses to apply to their lender to qualify for loan forgiveness. The application will be used to assess the eligibility and amount of loan forgiveness requested.
Once the loan is forgiven, business owners can still be liable for future taxes on the forgiveness amount if the business is sold, inherited or ownership is otherwise transferred. The tax liability is eliminated in the year of forgiveness; however, in order to eliminate all future tax liability, there is a second, little known step, that must be completed in a subsequent year to the initial forgiveness, in which the PPP loan must be reclassified (again) on the tax return. This can become a complex issue if not properly recorded. For this reason, it is wise to seek professional tax advice in order to ensure that all applicable steps are taken to avoid future tax liabilities as a result of PPP loans thought to be forgiven!