Stimulus and Taxation

[Snaggletooth]

I am under the impression that Stimulus money is not taxable.

But applied to a business sense, assume there is EIDL grant money, PPP loan with forgiveness, and all manner of other COVID benefits. I am going to assume these are not taxable as well.

But what about Expenses paid from this tax exempt money? IRS has held for a long time that expenses paid from exempt funds are not deductible. They held firm onto this.

I understand late in 2020 that Congress got involved and by congressional action, made such expenses deductible. If my information is correct, this is going to have a HUGE impact on business taxation for 2020. I need for the group to confirm this is correct.

Please - a plain English answer is greatly appreciated. A link to 40 pages worth of IRS language that I have to interpret is going to defeat my purpose in coming to the forum.

[spanel]

December Legislation made the expenses paid with the PPP/EIDL money deductible. The forgiveness on the loans were already non taxable.

Chris

[ttbtaxes]

Be mindful of two things;

1) Basis increases in the year the PPP loan is discharged,

2) Not every state is conforming to Federal treatment regarding the deduction. The PPP wages may be an addback on the state return.

[Rapid Robert]

1) Basis increases in the year the PPP loan is discharged,.

Now I'm confused.

So you are saying there is a triple-dip going on here?

1) tax-free government handout (loan forgiveness)
2) extra tax deduction for spending the government money (deductible expenses)
3) basis increase for getting a government handout? (basis increase to what?)

[New York Enrolled Agent]

Now I'm confused.

So you are saying there is a triple-dip going on here?

1) tax-free government handout (loan forgiveness)
2) extra tax deduction for spending the government money (deductible expenses)
3) basis increase for getting a government handout? (basis increase to what?)

When the loan is forgiven you have tax-free income which is a positive increase in basis to the shareholder(s).

[sbring]

Is the federal $300 charitable contribution including non cash contributions?

[Dude]

Why stop at PPP? Maybe after they forgive student loans they will allow borrowers to keep the interest deduction. Yes Virginia there really is a magic money tree in the backyard.

[sami]

Will increase the basis by the amount of PPP forgiveness, will this amount be stated on M1 (where) or only on the basis schedule. Any link to obtain more information on reporting for 1120S on PPP loan forgiveness amount. Thanks

[Lion]

$300 charitable contributions are for cash ONLY, including credit cards, PayPal, Venmo, etc., but NOT non-cash contributions, such as clothes and household goods to Goodwill or a church thrift shop.

BASIS is increased by nontaxable income, so PPP loans WHEN forgiven; and is an M1 adjustment, income on books, not on tax return.

[sami]

Thank you, your answer was a big help. I am glad we have experienced preparers to get help from and to learn from.

[Snaggletooth]

When the loan is forgiven you have tax-free income which is a positive increase in basis to the shareholder(s).

Ah yes! A triple-dip indeed! For some entities (most commonly S corps and partnerships) the basis for calculation includes *non-taxable income as an addition and **non-deductible expenses as a subtraction. The sword cuts both ways.

[BOB W]

PPP forgiveness was stated as: "forgiven or will be forgiven" that I read for EOY adjustment. Debit PPP Loan Payable and credit Contributed Capital, with a notation PPP Forgiveness. That money can be used to pay down debt or anything business related. Even going so far as paying back loans from officer or to take distributions. It is shareholder/member money now, with no strings attached.

[Rapid Robert]

OK, I guess with basis, the forgiven loan increases it but the allowed expenses will decrease it, so it's a wash (consistent with Congress' pre-lobbyist intent that the PPP loans be a neutral pass-through for the business owner). What does the sole proprietor increase the basis of? Does some new intangible asset get added in the books?

Also, I'm not quite clear why "tax-free income" and an "exclusion from income" are the same thing, technically.

The equivalent action for individuals would be to let the amount of the EIP/RRC be added to the standard or itemized deduction on Fom 1040. A huge tax break, but only for those who took the government handout.

[BOB W]

Proprietor credits Capital in a double entry system. Same as any other entity,,,,,,,,,,,,,,,,,,,,,,, Nothing to do with intangibles.....