“Our plan…is to just pull our hair out.” This was Tina Barrett’s comment regarding the tax complications surrounding the Paycheck Protection Program (PPP) loans provided by the Small Business Administration. Barrett is the director of the Nebraska Farm Business, Inc., which assists farmers in tax planning and preparation. PPP loans were passed as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES) and were intended to help small businesses with less than 500 employees maintain payroll and cover expenses.
Nebraska small businesses received 44,074 loans amounting to $3.4 billion. Nationwide, 69 percent of the loans were for less than $50,000. According to a Platte Institute report last summer, agriculture businesses received 19 percent of the loans in Nebraska with corn farming, beef cattle ranching, and cattle feedlots receiving the greatest number of loans within agriculture. Nationwide, agriculture comprised 1.5 percent of the loans.
Farmers and ranchers receiving PPP loans can seek loan forgiveness. Congress intended that forgiven PPP loans would be excluded from taxation. Unfortunately, rules issued by the Internal Revenue Service (IRS) declared that normal and customary business expenses incurred while operating with forgiven PPP loan funds are not tax deductible. This denies farmers and ranchers the ability to deduct payroll, rent, mortgage interest, and utility expenses which were paid for with forgiven PPP loans. Bills have been introduced in Congress to correct the problem, one of which Sen. Deb Fischer is a cosponsor, but nothing has been passed by Congress. Farm Bureau supports a correction and sent a letter to Congress asking it to pass one before the end of year. It was hoped the correction would be attached to a COVID-19 assistance package, but passage yet this year is looking less and less likely each day.
What are farmers or ranchers to do regarding 2020 taxes if they expect to seek PPP loan forgiveness? First of all, seek the advice and counsel of your accountant or tax preparer before the end of the year. Barrett says there are ways to manage around the problem with the expectation Congress will pass a fix. However, solutions will differ with the unique circumstances and tax goals of each operation. Plus, other tax changes and COVID-19 assistance programs will affect tax planning too. Such planning, though, needs to occur before the end of the year. For more information, watch Barrett’s webinar presentation on the tax law changes at: https://farm.unl.edu/farm-tax-law-changes-2020-tina-barrett-nebraska-farm-business-inc-dec-10-2020-webinar.