As many of you begin gathering information for the completion of your PPP applications, there is a growing conversation about the timing of your application and when it would be best to apply. Based upon our interpretation, it would be best for all applications to be approved in 2020 as opposed to 2021 if possible. This is based upon several assumptions.
- Based upon current IRS guidance, expenses satisfied with PPP funds are not deductible for income tax purposes.
- Notwithstanding the 2020 election results, lower tax rates in 2021 are highly unlikely. Therefore, forgoing the deductibility of these PPP expenses in the current year where tax rates are known is a good strategy.
- We expect that most practices will have higher collections in 2021 than in 2020. If PPP forgiveness occurs in 2021, the lack of expense deductibility could move you into a higher effective tax rate.
We suggest you contact your PPP lender and ask if they are prepared to accept forgiveness applications. If your lender is ready, begin the application as soon as possible. Know that the forgiveness process will take some time, and you will likely not be in control of the process after the application submission.
From a personal tax planning perspective, we suggest structuring your income tax payments and/or withholding as though your loan is forgiven this year. If it is not, then carry forward any refund into the 2021 year to cover liability resulting from forgiveness if it falls in 2021.