Will PPP expenses Be Deductible?

Dec 21, 2020

Will PPP expenses Be Deductible?

PPP Expenses WILL be Deductible – Lower Your Withholding So You Don't Overpay Your 2020 Taxes

Congress is finalizing another Covid-19 bailout package estimated to cost around $900 billion.  Details are being worked out, and the law should be passed in the next few days.  One of the changes will permit businesses to deduct the payroll, rent, and other permissible PPP costs that the IRS had been disallowing.  Finally!

This will reduce your 2020 tax bill.  We recommend lowering your year-end withholding so that you don't overpay.  Why give the government an interest-free loan until you can request and receive your refund several months into next year?

If your practice is incorporated, you can use extra payroll withholdings before year-end to cover your pre-payment shortfalls.  This is easier than increasing quarterly estimates, and the withheld taxes are counted for calculating the under-prepayment penalty as if they were prepaid evenly throughout the year. If you need to catch up, you can go so far as to allocate your entire pay to payroll taxes and drop your take-home pay to zero. The pre-payment penalty is avoided if you prepay quarterly (or through payroll withholdings) the lesser of (A) 90% of this year's ultimate tax or (B) 100% of last year's tax (110% of last year's adjusted gross income if the number at the bottom of page one of your 1040 tax return was over $150,000 (or $75,000 for singles or for married individuals filing separately).

With only a few days left in 2020, you will have to act quickly.  Ask your CPA for a new reduced estimate of your federal and state tax liabilities and coordinate the large year-end withholding payment through your payroll provider.

Key Point – The payroll companies don't handle these requests often enough, and they can make mistakes.  You must confirm with the person on the other end of the phone that they understand that this is a pure withholding payment and not an addition to payroll.  If you are unsure that the agent understands what you want to do, then ask to speak with a supervisor.  If you have questions about this process, your CPA can help.


Collier & Associates, Inc. will update our blog as the CARES Act progresses. We take pride in continuing to keep our subscribers and website visitors updated on current events during this extraordinary time.

We will work diligently to answer general inquiries via our website if time permits and in a little more detail within our Newsletters. However, if your questions are detailed in nature, please request to set up a conference call for a formal consultation. Thank you.


Collier & Associates, Inc. provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act on this information without seeking advice from professional advisors.

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