Questions to ask your tax preparer or accountant about PPP and loan forgiveness

In this 4-minute read:

  • Should I apply for the PPP loan?
  • How should we spend/keep track of the PPP loan?
  • Should I be concerned about a tax audit or review if I received the PPP loan?
  • What should I do in case the SBA decides to review my PPP loan?
  • What are my tax implications for a forgiven PPP loan?

The PPP loan gets a little complicated when you bring into question any obligations that you may have after you’ve received and spent the funds—like what are your tax obligations? Or will the SBA decide to review your loan?

As you’re applying for the PPP loan, getting ready to apply for loan forgiveness, or even after you’ve already finished going through all of these processes, there are some important conversations that you should have with your accountant and/or tax preparer to help you better understand the loan and any responsibilities you may have when all is said and done. 

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Should I apply for the PPP loan?

It’s likely that your accountant is very involved in at least advising you on important money decisions regarding your business. After all, you hired them for a reason. 

That should be the case with the PPP loan too. This gives you another person to discuss the PPP loan with who is aware of your financial situation and how this loan can help your company. Discuss with them if the loan is necessary, and if so, whether it is likely to be forgiven. 

Even if your loan isn’t 100% forgiven, consider if this loan is something that can help your business through a financially trying time. The interest rate on any unforgiven portion of a PPP loan is 1%, which is a pretty amazing rate for business loans.

 Have this discussion with your accountant and come to a decision together on whether or not the overarching benefits outweigh having to pay back a loan. 

How should we spend/keep track of the PPP loan funds?

If your accountant keeps track of your finances and acts as your bookkeeper too, then this is an important question to ask them. Obviously, according to the rules, if you want 100% PPP loan forgiveness, at least 60% of your loan will need to go towards payroll costs, but outside of that your accountant will likely have the best perspective of what your finances look like and which business expenses the other portion of the loan should go towards. 

They’ll also likely be the person keeping track of your expenditures to help make sure you get your loan forgiven, so you’ll want to know that they have a plan in place for this. 

Should I be concerned about a tax audit or review if I received the PPP loan?

The SBA does plan to review certain PPP loans, but generally only those that are greater than $2 million. That doesn’t mean that your loan won’t be reviewed if it is smaller than that, so discuss this with your accountant or tax preparer to determine if this is a concern that your business should have. 

In the coming months and years the PPP will likely come under considerable scrutiny depending on which way the political winds are blowing. So if you apply for PPP funding, you should be prepared to justify your need, and show how you spent the money (which you will need to do anyway to have your loan forgiven).

What should I do in case the SBA decides to review my PPP loan?

If you and your accountant decide that it might be possible that the SBA reviews your PPP loan, then it’s important to discuss the best ways to prepare for that review. 

Some things that you should discuss and have prepared include:

  1. Be ready to back up your reasoning for taking out the PPP loan, whether you were hit particularly hard financially or just preparing for the worst during an economically uncertain time. 
  2. Keep track of all of the documents you used to calculate your loan amount, including financial statements, payroll records, employee counts, and your loan application. 
  3. Keep good records of how you spent your PPP funds. This could be a spreadsheet of how the money was used along with financial statements, invoices, bank records, etc. to verify those expenditures. 

You might also like: Tracking PPP expenses to maintain forgiveness (tools and tips!) 

What are my tax implications for a forgiven PPP loan?

Most forgiven business loans become taxable income, but the PPP loan is supposed to be tax-free, at least on the federal level. Discuss this with your accountant or tax preparer to determine if there are any other tax implications outside of federal taxes. For example, some states may require you to still pay taxes on the PPP loan if it is forgiven. 

Learn more: Do PPP loans affect business taxes and deductions? 

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