News You Can Use: October 2020

Sandy Botkin
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1While you can no longer get the dischargeable PPP loan you still can apply to the SBA and get up to $150,000 low interest loan for your business. Just go on the SBA’s website to check it out.

2Most expenses related to PPP loans are NOT deductible: Getting a dischargeable PPP loan is a good deal; however Congress was so intent in making the discharge tax free that they forgot to deal with expenses paid by the loan. IRS has rules that for S corporations and C corporations all expenses paid with PPP funds are NOT deductible. Also if you operate as either an S corporation or C corporation you have to prove that you paid for the qualified expenses of payroll commercial rent utilities or mortgage interest on the commercial property in order to get the discharge.

However, get this: If you are self employed you suffer NO tax bite. Self employed taxpayers with no employees has his or her loan forgiven based on his or her 2019 net income. Thus there is no “spend” on payroll. Thus for Schedule C taxpayers no such expenses need even be paid or proven to be paid in order to get the full discharge.

Several members of Congress have written to IRS about this. but IRS won’t budge on this unfairness issue. Thus if you are either an S corp or C corp, you might want to contact your representative or senator about this unfair problem in order to get Congress to correct this discriminatory result.

3Here is something that I would bet none of you know about. Normally if you purchase equipment or a car and don’t use it in business, you can’t write it off. However, if you start using this equipment or vehicle years later in your business, you can deduct the lower of the original cost or the market value of equipment whichever is less.

What I didn’t know is that you also automatically deduct this amount under the concept of bonus depreciation unless you elect out of bonus depreciation. This will allow you to write off the equipment over a period of years instead.

Example: You purchased an antique desk for $5,000 in 2018 that has appreciated. You start your business in 2020 when the desk is worth $9,000. Without electing out of bonus depreciation you would automatically deduct the lower of the original cost of market value which is $5,000. I would bet your accountant didn’t know about this.

Now we normally don’t recommend electing out of bonus depreciation, there might be some situations that would arise when it would be beneficial. For example if you expect to be in a much higher tax bracket in the future, you might want to elect out of writing the equipment off this year under bonus depreciation.

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