Profit Loss – Owe Taxes
Could You Owe Taxes Even Though You Took a Loss in 2020?
Some shops took losses this year, even after accepting PPP grants, and looking at our clients’ situations, we’re seeing that they may still owe taxes for 2020.
How does that even make sense, right? Well, according to IRS Notice 2020-32, any expenses associated with non-taxable income will not qualify as business deductions.
If you took out a PPP loan that was forgiven, this means that the items paid for with the PPP will not be deductible on your 2020 tax returns, essentially converting those funds into taxable income.
Ok, so, this is actually logical – consider a non-profit with tax exempt status. Since they don’t pay taxes on income, it wouldn’t make sense to allow them to seek tax credits for the business expenses incurred.
The only chance for this to change would be if Congress acts, but at this time, shop owners with a forgiven PPP loan will not be able to deduct those business expenses since the government already paid for them.
Luckily, there are lots of ways to legally and ethically save on your taxes. We compiled a list of 5 Tax Mistakes That Cost You Thousands, available for FREE download. If you’re concerned about your 2020 taxes and want help with your unique situation, book a time with me!