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Daycare and Taxes>To Anyone Who Received PPP Funds, How Are You Tracking Expenses?
tn0087 10:20 AM 08-10-2020
Assuming PPP forgiveness goes through as planned and funds used from PPP are forgiven, does anyone know yet what that does to expenses paid for with that PPP income in 2020?

Hypothetical 2019 Example:
- 2019 gross profit is $15,000
- 2019 expenses are $5,000
- 2019 net profit is $10,000

- 2020 PPP loan forgiveness is $2,083.

If I make the same $15,000 gross for 2020 including my forgiven PPP income, my gross drops to $12, 917. With the same $5,000 expenses, my net profit drops to ~$8,525.

Can we still write the full $5,000 expenses against the "adjusted" gross even though some of those expenses were bought with tax free money? Are we supposed to be tracking what is bought with PPP income and what isn't? Or am I (hopefully) just really misunderstanding this....
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TomCopeland 11:04 AM 08-10-2020
Originally Posted by tn0087:
Assuming PPP forgiveness goes through as planned and funds used from PPP are forgiven, does anyone know yet what that does to expenses paid for with that PPP income in 2020?

Hypothetical 2019 Example:
- 2019 gross profit is $15,000
- 2019 expenses are $5,000
- 2019 net profit is $10,000

- 2020 PPP loan forgiveness is $2,083.

If I make the same $15,000 gross for 2020 including my forgiven PPP income, my gross drops to $12, 917. With the same $5,000 expenses, my net profit drops to ~$8,525.

Can we still write the full $5,000 expenses against the "adjusted" gross even though some of those expenses were bought with tax free money? Are we supposed to be tracking what is bought with PPP income and what isn't? Or am I (hopefully) just really misunderstanding this....
Here's how this works. Your gross profit doesn't change, since the amount you are receiving as income remains the same. The PPP money is not taxable income. Under the current interpretation of the PPP rules, the $2,083 you use to pay for business stuff cannot then be deducted as a business expense. Therefore, your original $5,000 of expenses get reduced by $2,083 for a new expense number of $2,917. Your new net profit is $12,083. Now, there is an effort in Congress to change this and not require PPP borrowers to reduce their business expenses by the PPP amount. We will have to wait and see on this.
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tn0087 01:23 PM 08-10-2020
Ah, I see. Thank you, Tom!
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Tags:covid-19 and daycare, loan, ppp, tax advice, tom copeland
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