Senator Mitt Romney, R-Utah speaks as non-partisan Senate and House members gather to announce a framework for new coronavirus control laws at a press conference on Capitol Hill on December 1, 2020.
Kevin Lemarque | Reuters
Senate Majority Leader Mitch McConnell, R-Ky., Overturned a new Covid-19 bailout bill hours after its proposal on Tuesday, leaving small businesses unsure about their future.
Bipartisan lawmakers launched a $ 908 billion aid package Tuesday morning. The measure was dead in the water that afternoon when McConnell refused it.
The move would have earmarked $ 288 billion in aid to small businesses, including the offer of a second round of corporate loans through the Paycheck Protection Program – a forgivable loan program set out in the spring of the CARES Act.
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PPP loan recipients are generally eligible for loan if they use at least 60% of the proceeds to cover labor costs. Those who fall below the threshold can be partially forgiven.
McConnell’s veto sends lawmakers back to the drawing board where they may have another opportunity to tweak the business relief.
According to tax professionals, offering more PPP funding may not be enough to help businesses struggling with cash.
“You will have a group of people who will be concerned about getting more PPP funding,” said Megan Gorman, founding partner of Checkers Financial Management in San Francisco.
“They didn’t get the guidance they needed for the first round and they are figuring out if they can do it,” she said.
Constantly changing instructions
Senator Angus King (I-Maine) holds a table as non-partisan Senate and House members gather to announce a framework for new laws to fight coronavirus at a press conference on Capitol Hill on December 1, 2020.
Kevin Lemarque | Reuters
Aside from offering a second PPP loan draw, the proposal, repealed on Tuesday, would have ensured that recipients of aid would not be taxed in the first round of forgivable loans and it offers simplified forgiveness for loans under $ 150,000, said Rep. Josh Gottheimer, DN.J., at a press conference on Capitol Hill Tuesday morning.
He was one of the lawmakers working on the proposal.
More than 5 million PPP loans were approved earlier this year – $ 525 billion.
The program encountered some difficulties during the year, including the steady introduction of “Frequently Asked Questions” guidelines from the Treasury and Small Business Administration.
Another point of contention was whether small businesses can deduct expenses covered by the loan.
The position with the Treasury Department and the IRS was that borrowers cannot deduct expenses because the loan is tax-free. On the other hand, the legislature has proposed laws that allow depreciation.
The Treasury and IRS said last month that business owners who “reasonably believe” that their PPP loans will be granted cannot deduct the cost.
All of this has created more confusion for businesses: if the expenses can’t be deducted, they can increase their income on paper and increase their tax burden, according to tax professionals.
The new framework legislator released on Tuesday mentions “deductibility” but it doesn’t give details on how this would play out for small businesses.
Cold feet from potential borrowers
Even if small businesses could use the funds, they are skeptical when it comes to getting help that creates more complexity and uncertainty.
“You will have post-traumatic stress disorder from this first round,” said Tony Nitti, CPA, partner in RubinBrown’s Denver Tax Services Group.
“If they fix the problems from the first round, the borrowers will have more interest,” he said. “When people know that there is a lump sum loan of less than $ 150,000, a lot of people will sign up for it.
“But nobody wants to go through this process that we have gone through again,” said Nitti.