Many PPP loan borrowers who took advantage of this special program earlier in the year after some of the most significant and sudden impacts of Covid-19 are being pushed towards leveraging forgiveness.

However, it’s important to understand all of the implications of pursuing forgiveness and other options available to you. Loans under the Paycheck Protection Program are generally forgivable with at least 60% of the proceeds went to payroll expenses.

The purpose of the Paycheck Protection Program under the CARES Act was to enable small businesses to navigate more effectively during the coronavirus to avoid having to lay off staff. Simple forgiveness applications are available for those firms that borrowed $50,000 or less. Some lenders are reaching out to PPP loan applicants to submit the forgiveness application but it’s important to understand there could be significant tax planning details that need to be discussed with your tax planning professional before moving forward with a forgiveness application.

Over $525 billion in PPP funds were released over the summer between April 3rd and August 8th. That’s for a total of 5 million different PPP loans. The Treasury Department and the Small Business Administration have indicated they are ready to begin processing loan forgiveness and have started with those borrowers who took $50,000 or less. Forgiveness applications can be submitted anytime up until the loan matures.

Plenty of banks are reaching out to borrowers with letters encouraging them to have the balance eliminated by using the application for forgiveness. Some of the wording of these letters might encourage small business owners to take action quickly and file for forgiveness even though they haven’t thought through all of the consequences. This could be a big tax mistake because it may not be in your best interests to apply for forgiveness right away.

The next round of Covid-19 relief has been up in the air with legislators for the last several months and this doesn’t change the fact that many small businesses have tax deductibility at the heart of their concerns for their tax strategy. Borrowers won’t be able to claim tax deductions for business expenses that are covered by forgiven loan proceeds even though forgiveness of the PPP loan is tax free.

For these reasons, your final decision about PPP loan forgiveness should be one you evaluate closely.

Make sure that you discuss deductibility challenges with your experienced tax planning professional to have a better understanding of what’s involved in this process and how you can proceed. I’m meeting with clients virtually to talk through their strategy needs; reach out today for more support on helping your Georgia business navigate PPP loan forgiveness.