Dispatch #52 - What if PPP loans turn out to be taxable?
What if PPP loans turn out to be taxable?
The CARES Act intended for the forgiven portion of PPP loans to be non-taxable, but then the IRS issued a ruling that essentially makes it taxable again.
I’m hopeful that Congress will align and countermand the IRS. But what if they don’t?
At a macroeconomic level, it means that American businesses, including building contractors, will return to the government a sizable chunk of the $521 billion in PPP loan benefits disbursed, which makes no sense in terms of supporting an economic recovery.
And at the microeconomic level of the individual construction firm, the world where I operate, it means my clients could have a surprise tax bill, as per the chart below.
It could happen, so we'd better plan for it. Failure to do so means we’re not controlling for a known risk to the business plan.
Here’s how I’m handling it:
Discuss the topic with my clients’ CPAs and decide whether to increase the 2020 estimated tax payments to cover this liability, or assume it will be a 2021 liability;
Enter the anticipated tax payment into the correct month of the contractor’s 13-month cash flow forecast;
Adjust the forecast as new information becomes available.
Need help with this or other financial matters faced by construction contractors? Let’s talk!
David Stern CFO makes every effort to provide useful and accurate information. This content, however, is not intended as a substitute for specific business-related financial advice. We disclaim all warranties and liabilities from its use.