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Are those PPP loans to small businesses going leave a big surprise at tax time?

A decision by the IRS to remove tax deductions might hurt business owners' bottom line, but help could be on the way
Credit: AP Images

PHOENIX — If you are a small business owner, this pandemic is hard enough to deal with. But a decision by the IRS last week might sucker punch you come tax time.

The IRS decided to take away a key part of the Paycheck Protection Program when it issued a notice that essentially says if the PPP loan is forgiven under the current statues, the business owner cannot deduct business expenses used in the forgiven loan. An extra deduction means more money back in your pockets, and that's always good for the bottom line. But the IRS is now essentially saying that businesses can't double-dip.

The new code raised many eyebrows, including those of several senators. Senate Finance Committee Chairman Chuck Grassley, (R-IA) Ron Wyden, (D-OR) along with John Cornyn, (R-TX), Marco Rubio, (R-FL), Tom Carper, (D-DE), Catherine Cortez Masto (D-NV) and Steve Daines (R-MT) introduced the Small Business Expense Protection Act. The act changes the new IRS code to allow small businesses to deduct expenses paid with a forgiven PPP loan from their taxes. 

“When we developed and passed the Paycheck Protection Program, our intent was clearly to make sure small businesses had the liquidity and the help they needed to get through these difficult times,” Grassley said in a statement. 

“Unfortunately, Treasury and the IRS interpreted the law in a way that’s preventing businesses from deducting expenses associated with PPP loans. That’s just the opposite of what we intended and should be fixed."

RELATED: Everything small business owners need to know about the Paycheck Protection Program

U.S. Treasury Secretary Steven Mnuchin disagreed in a recent interview with Fox Business News. Mnuchin said PPP loans are not taxable, and therefore business owners can't claim deductions for workers that were not paid for.

“Treasury's guidance barring deductions for expenses paid by PPP loans is a gut punch for businesses struggling to stay afloat. It defies commonsense for Treasury to provide help on the front end, but then take it away on the back end" said Wyden. 

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