Up to $50K Forgiven on Loans for Small Biz Owners
Business owners who borrowed $50,000 or less through the Small Business Administration’s loan program can get the up to that amount forgiven. Though they must file the appropriate paperwork.
However, accountants urging business owners not to jump at the opportunity to have their debt forgiven. This is likely because the Small Business Administration (SBA) may create more favorable terms in the coming weeks.
The PPP loans were included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which Congress passed earlier this year to provide emergency assistance for individuals, families, and businesses affected by the coronavirus pandemic.
Business owners who borrowed $50,000 or less must fill out a one-page form, ignoring some of the calculations required of other borrowers. You can download and fill out the Form 3508S here.
It’s recommended that borrowers speak to their banks to determine when they can apply and review terms. Treasury Secretary Steven Mnuchin said PPP loans totaled $525 billion to America’s small businesses, “providing critical economic relief and supporting more than 51 million jobs,” in a press release Thursday.
Borrowing money always has some kind of tax implication. This is no different. However, regarding this debt forgiveness, they remain unclear. Despite loans of $50K and under being100% forgiven, there’s still the issue of whether the money will be taxable or tax-free, as Congress intended. That will require new legislation or inclusion in the next stimulus bill – if there is one. Another issue could be timing. Deductions for these loan expenses may be taken in 2020, but the income from the loan, as viewed by the IRS, is not reported until 2021, when loan forgiveness occurs.
This will cause some uncertainty when taxes are filed on how exactly this will be handled.
So, why a $50,000 cutoff?
The SBA initially said it would streamline forgiveness for loans of $150,000 or less.
But on Thursday, the SBA explained that a bit further. The new rules affect about 3.5 million loans (68% of all PPP borrowers), but only $62 billion (or 12%) of all the SBA money lent, according to the latest SBA figures.
Of the 3.5 million loans, nearly half reported one or zero employees on their applications. If you’re the sole proprietor or business owner, technically you’re not an employee.
Not so fast! Should you wait to file for loan forgiveness?
Some tax pros are recommending to hold off on filing right away. Experts believe that the filing process could potentially get better and easier. The SBA began approving PPP forgiveness applications from banks and other lenders on Oct. 2, so it’s still early.
That said, the possibility of getting a bit more money or a higher threshold could happen if you wait to file a bit late. So, patience could very well be a virtue, but it still all depends on what comes out of Washington.