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Your PPP Loan Forgiveness Will Probably be Less Than Anticipated
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Article Highlights: Paycheck Protection Program Loan Terms Loan Amount Loan Forgiveness Reduction in Pay Decrease in Employees Qualified Expenses Limitation Documenting Forgiveness Now that you have gotten a Paycheck Protection Program loan (PPP), it is time to start planning how to spend the loan proceeds so some portion of the loan will be forgiven. As the loan title implies, the purpose of the loans is to enable employers to keep their employees on staff and maintain their normal rates of pay during the 8-week period immediately following the funding of the loan. The term of a PPP loan is 2 years at an interest rate of 1%, and any portion of the loan not forgiven must be repaid at the end of the 2-year period. If you recall, when applying for the loan, you were required to provide documentation to verify your average monthly payroll for the 12-month period preceding your application. However, for calculation purposes, each employee’s payroll for a year had to be limited to a maximum of $100,000. If your company was not in business and paying employees by February 15, 2019, it was considered a “new” business and the average monthly payroll was based upon the average payroll for January and February 2020. Other special testing periods are used for seasonal businesses. Since self-employed individuals are not included on payroll, the amount a self-employed individual includes in the average monthly payroll computation is 1/12 of the business’s net profits (subject to the same $100,000 limit that is applied to an employee’s annual compensation). Regardless of how your business’s average payroll was determined, the PPP loan amount is based on 2.5 times the average monthly payroll as determined by one of these methods. Example: Assume your business was not new or seasonal and the loan was applied for on May 1, 2020. You would have added up your company’s payroll for the prior 12 months, May 2019 through April 2020 (subject to the $100,000 limit per employee), and then divided the sum by 12. Assuming the result totaled $80,000, you would have qualified for a PPPL of $200,000 (2.5 x $80,000) at 1% interest, all due and payable in 2 years. These loans are partially forgivable if they are used for the intended purpose of keeping your employees employed during the 8 weeks following the funding of the loan. It is important to be aware of how forgiveness is determined so you can maximize loan forgiveness for your particular circumstances. It may seem simple on first glance, but this is before taking into consideration all of the minutiae built into the loan forgiveness computation that will reduce the forgiveness. Reduction of Pay – You must determine any reduction in pay that is in excess of 25% on an employee-by-employee basis. These reductions in excess of the 25% will reduce the forgiveness amount dollar for dollar. There is no reduction in pay for an employee whose reduction is restored by June 30, 2020. Decrease in Employees – Where the average number of employees has been reduced during the 8-week period as compared to a prior testing period, the forgiveness is proportionally reduced. For example, if there were an average of 10 employees during the testing period and an average of 9 during the 8-week period, then the forgiveness will be reduced by 10%. You will be able to choose either January 15 to June 30, 2019 or January 1 to February 29, 2020 as your testing period. Limitation of Expenses Other than Payroll – Although the loan proceeds are primarily intended for maintaining payroll, other qualified uses include rent, lease, business interest and utility payments in force before February 15, 2020. However, these expenses are limited to 25% of the forgiven debt.
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Tax and Financial Insights
by NR CPAs & Business Advisors
2026 IRS Mileage Rates: Key Updates and Insights
The IRS has rolled out the inflation-adjusted mileage rates for 2026, offering taxpayers an efficient way to claim deductions for vehicle-related expenses incurred for business, charity, medical, or moving purposes. These adjustments reflect the continued economic shifts impacting car operation costs.
Effective January 1, 2026, the new standard mileage rates are established as follows:
- Business Travel: Increased to 72.5 cents per mile, inclusive of a 35-cent-per-mile depreciation allocation. This marks a rise from the 70 cents per mile rate set for 2025
- Medical/Moving Purposes: Reduced slightly to 20.5 cents per mile, down from 21 cents in the previous year, reflecting the variable cost considerations.
- Charitable Contributions: Consistent at 14 cents per mile, a fixed rate unchanged for over a quarter-century.
As is typical, the business mileage rate considers the integral fixed and variable costs of automobile operation. Meanwhile, the medical and moving rates remain contingent on variable expenses as determined by the IRS study.
It is critical to note that the One Big Beautiful Bill Act (OBBBA) held firm on disallowing moving expense deductions except for specific cases within the Armed Forces and intelligence community, marking a substantial shift since 2017.
When engaging in charitable work, taxpayers might opt for a direct expense deduction over the per-mile method, covering gas and oil costs. However, comprehensive upkeep and insurance costs are non-deductible expenses.
Business Vehicle Use Considerations: Taxpayers can alternatively compute vehicle expenses using actual costs, which might benefit from shifting depreciation rules, particularly through bonuses and first-year advantages. Keep in mind, however, reverting from actual cost calculations to standard rates in subsequent years is restricted, particularly per vehicle protocol and when exceeding four vehicles in concurrent use.
Additionally, parking, tolls, and property taxes attributable to business can be deducted independently of the general rate, an often-overlooked advantage by many business owners.
Tax Strategies for Employers and Employees: Reimbursements based on the standard mileage framework, providing the right documentation is in place, remain tax-free for employees. Meanwhile, the elimination and continued prohibition of unreimbursed employee deductions continue, with particular exceptions offered to qualified personnel across specific occupations.
Opportunities for Self-employed Individuals: Entrepreneurs remain eligible for deductions on business-related vehicle use via Schedule C, with potential to account for business-use interest on auto loans.
Heavy SUVs and Deduction Advantages: Heavier vehicles exceeding 6,000 pounds but under 14,000 pounds open opportunities for substantial tax deductions through Section 179 and bonus depreciation avenues. The lifecycle of such a vehicle bears implications on recapturing initially claimed deductions, urging cautious tax planning.
For professional guidance on optimizing your vehicle-related tax deductions and understanding their implications on tax strategies, contact our office in Coral Gables, Florida, where expert advice and strategic insights are just a call away.
Educator's Deduction Reform: Key Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces significant enhancements for educators' tax deductions starting in 2026, offering both strategic opportunities and planning considerations for educators who qualify. With the reinstated itemized deduction for qualified unreimbursed expenses, educators have a broader spectrum of financial relief. This is complemented by the retention of the $350 above-the-line deduction, allowing educators to maximize their tax benefits by selectively allocating expenses between these avenues.
Understanding the nuances of these changes is crucial for educators and financial advisors alike. The dual-option deduction strategy can potentially enhance tax efficiency, thereby aligning with broader financial planning goals.
At NR CPAs & Business Advisors, based in Coral Gables, Florida, our expertise in tax preparation and planning provides invaluable support to educators navigating these changes. Our comprehensive approach, combined with personalized advice from our experienced team, ensures compliance and optimization in line with the latest tax legislations.
Given these updates, it is imperative to engage with seasoned professionals to fully leverage your deduction strategies. Contact us today to streamline your tax planning under OBBBA's new guidelines and maximize your deductions for upcoming tax years.
