Is Paycheck Protection Program debt deductible as business expense

The United States government passed, among other things, Paycheck Protection Program ("PPP") to aid small businesses to keep their employees on payroll, pay for certain employee benefits related to healthcare, to pay for interest on mortgage obligations, rent, utilities, and to pay for interest on other debt obligations. These expenses are covered in the loan being issued under PPP and as long as the amount is used as described above, the loan may be forgiven by the government. The amount received in covered loan cannot be included in the taxpayer's gross income. This results in savings for the small business owners: 1) if the loan is forgiven, the owner does not have to pay it back; and 2) the forgiven amount is also not taxable as income.

All expenses incurred in the usual course of business are deductible from income taxes. The IRS announced that expenses paid from the funds received under PPP are not deductible from the income tax as a business expense. This result is consistent with the IRS's long standing principle of preventing double tax benefit to any taxpayer. To the extent payroll, health benefit, rent, utilities, interest on mortgage, or interest on other debt obligation is paid from the PPP loan amount, the amount so used cannot be deducted from the income tax as a business expense.

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