If you are gearing up to apply for forgiveness for your SBA PPP Loan with form 3245-0407 here are some things to consider:
Business owners who received the SBA Payroll Protection Program Loan are gearing up to ask for its forgiveness. The 8 week period allotted to use the funds to pay Payroll costs (75% of the total loan amount) and Business expenses (25% of the total loan amount) has drawn to a close or is nearing a close for most recipients of the stimulus funds.
Founder, John MIlikowsky walks you through SBA Loan red flags and forgiveness criteria
What you need to know about the SBA PPP Loan forgiveness, your 2020 taxes and the red flags that may cause your SBA loan to be audited.
Expenses paid with the loan funds are not deductible on your 2020 taxes.
If you received money under the SBA PPP and you paid expenses such as rent, utilities or other business expenses, be aware that you cannot deduct those expenses from your 2020 taxes.
The reasoning behind this decision is that the money is “free money” assuming your loan was forgiven. If you were given free money and paid expenses with those funds, you cannot then deduct the expense from your taxes. If all other 44 weeks of the year you deduct a certain business expense, be sure that for the 8 weeks of the PPP loan term, you do not deduct that expense on your 2020 taxes.
Another option, outlined by our friend and fellow San Diego financial guru, Thor Eakes of Eakes and Company CPAs, is to declare the loan funds as income and go ahead and deduct those expenses. Depending on the amount of the PPP loan, that option may be better and cleaner for your business.
Did you under report Wages?
If you are thinking back on your SBA PPP application and you realize you under-reported wages and could have gotten a greater loan amount. Hold your horses. Banks will likely ask you to return the total initial loan amount and reapply for the loan with your revised reporting. If you have the funds still available to return, consider the possibility that you may not get the revised loan, that the funds may be depleted before your second application is approved or that you may simply be approved for the same amount as your original approval - wasting time, resources and energy.
Did you submit false information to a government agency?
If, on review of your SBA PPP loan application, you believe that you mis-reported anything in your application, contact the team at Milikowsky Tax Law immediately. We can review your tax returns from previous years and your current financials to determine how far off your initial statements were and remedy any potential audit exposure you may have created.
By doing a full risk assessment and deep dive into your financials, you can mitigate risk for fines and penalties as well as criminal exposure you may have created by mis-reporting to a government agency (SBA is a government agency).
The road to economic recovery is not going to be easy. With state tax revenues down, audits will likely be on the rise. States and the federal government will be eager to uncover false application data and pursue audits to recover mis-allocated funds. If you have concerns about your loan application, reach out to our team. Our expertise is criminal tax defense and government audits. We have the experience to reduce your exposure BEFORE an audit is initiated as well as once one has begun.