What am I missing? Deductibility of expenses paid with PPP loan

[Happy Camper]

The CARES Act stated that the forgiven funds for the PPP loan would not be considered cancellation of debt income. Then IRS Notice 2020-32 stated that the expenses paid with forgiven PPP loan money would not be deductible. This made perfect sense to me as why would you get a deduction for expenses you didn't actually pay.

Now there is a bi-partisan bill in the House that if passed will allow businesses to deduct expenses paid with the PPP loan. The AICPA supports this bill. This seems to me as if the effect will not actually be funds to cover employee paychecks (which would be subject to tax) but non-taxable funds that will flow to business owners.

I come to that by expecting these Journal Entries

if expenses are not deductible: Receive loan-debit: Cash Credit: Liability When forgiven: Debit: liability Credit: Expense

if expenses is deductible: Same as above except when the loan is forgiven, what do you credit except Owner Equity?

Am I looking at this the wrong way? I can't even wrap my mind around how it will affect the QBI deduction!

[TaxGuyBill]

Seems right. One of the purposes is to help the business itself. Although in the long run the deductibility of the forgiven loans will help the owners, it provides the actual business itself money so it can continue to run, including making payroll payments AFTER the 8 week period. You need to remember that the reduced income is lasting much longer than 8 weeks.

[Dude]

Dear great grandson,

I was around when the mess you are paying for was spawned. Please don't hold me responsible. I did after all make the most of it by killing it with Roth conversions.

[TAXNJ]

Dear great grandson,

I was around when the mess you are paying for was spawned. Please don't hold me responsible. I did after all make the most of it by killing it with Roth conversions.

Also, another message for your great grandson.

Is your generation still giving our $, outsourcing our technology, manufacturing (equipment, supplies and drugs) to the world as my generation did so we can have cheaper products and make friends? Just decide how it helped us because we were the smart ones.

Oh, don’t charge tariffs to others but they can charge us. You don’t want to be rude.

[spanel]

The CARES Act stated that the forgiven funds for the PPP loan would not be considered cancellation of debt income. Then IRS Notice 2020-32 stated that the expenses paid with forgiven PPP loan money would not be deductible. This made perfect sense to me as why would you get a deduction for expenses you didn't actually pay.

Now there is a bi-partisan bill in the House that if passed will allow businesses to deduct expenses paid with the PPP loan. The AICPA supports this bill. This seems to me as if the effect will not actually be funds to cover employee paychecks (which would be subject to tax) but non-taxable funds that will flow to business owners.

I come to that by expecting these Journal Entries

if expenses are not deductible: Receive loan-debit: Cash Credit: Liability When forgiven: Debit: liability Credit: Expense

Cash - Debit Note Payable - Credit. Any forgiven amount Debit Note Payable Credit - Other Income

if expenses is deductible: Same as above except when the loan is forgiven, what do you credit except Owner Equity?

Am I looking at this the wrong way? I can't even wrap my mind around how it will affect the QBI deduction!

This way your expenses will tie out, especially your wages and salaries.

Chris