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Closing Because of the Pandemic? Beware of Potential Tax Hits

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Small businesses have felt the brunt of the COVID-19 pandemic, with thousands of enterprises forced to close since the beginning of Judi bola.

As if going under because of a pandemic isn’t bad enough, some will face tax hits from their closures if they aren’t careful. Moreover, some are left wondering what to do with their COVID-19 loans and grants. As a result, instead of being able to walk away after closing up shop, they’re forced to navigate taxes and potential penalties.

“The last thing people think about when wrapping up a business is their tax obligations,” Mike Slack, senior tax research analyst at H&R Block’s The Tax Institute, told business.com. “They are running at a loss; they didn’t generate any taxable income. But there are still a lot of tax implications.”

Whether it’s filing your business’s final tax return or determining if you have to treat COVID-19 loans as income, there are several things small business owners have to consider when closing operations.

PPP loan proceeds may be taxable.
In the early days of the pandemic, the federal government released more than $2 trillion in aid under the CARES Act, with billions of dollars going to help small businesses stay afloat. Under the act’s Paycheck Protection Program, small business owners received loans that were forgivable if they used the money to keep workers on the payroll.

Despite all these efforts, thousands of small businesses couldn’t survive. Now they’re left wondering if they have to pay taxes on the money they received or, worse, pay back the loans.

“As currently written in the CARES Act, PPP proceeds are not taxable, but the IRS made a determination in notice 2020-32 that indeed it is taxable in a back-ended way,” said Mark Alaimo, who sits on the American Institute of Certified Public Accountants’ (AICPA) Personal Financial Specialist Committee.

Under this IRS rule, PPP borrowers can’t deduct the expenses they incur to qualify for loan forgiveness. It throws murkiness into the mix and is a rule the AICPA is squarely against.

“That means if you have a $200,000 loss and if you received a $250,000 loan, you may have $50,000 worth of income,” Alaimo said. “The easiest thing people can do is assume all PPP proceeds are taxable income even if it’s been forgiven.”