The Small Business Administration announced in mid-October that it has just released a new and improved loan forgiveness application for the Paycheck Protection Program, otherwise known as the PPP. This is a win for businesses that borrowed $50,000 or less. (Note, there are other eligibility requirements such as retaining all of your employees and not cutting hours or wages more than 25 percent.)
If that’s you, you can celebrate because you can now fill out the “EZ” form and skip a lot of complicated math and uploading of loads of documentation. There’s still some math and some documentation required, and you still need to keep other related records in case of audit. But, for most farmers, any reduction in math and paperwork is likely welcomed!
The other thing for farmers to keep in mind about the PPP loans (and hopefully forgiveness of said loans) is that it can cause some accounting and tax challenges. When the PPP is just a loan, it’s a liability – and it shows up on your balance sheet. When the loan is forgiven, it usually becomes income. But, the situation is a little sticky for PPP loan forgiveness. The IRS isn’t calling a forgiven loan income, just yet. Instead, they’re saying expenses paid for with PPP funds are non-deductible expenses. Huh?! As we approach the end of the tax year, the distinction matters. The different characterization of the PPP money can affect tax filings and statements banks may need to provide to banks and lenders. Unfortunately, available guidance on how to handle this accounting issue is not very clear right now.
We will update you as we get clarity. In the meantime, pin this as an issue to figure out soon and enlist the help of an accountant as your tax year closes.