Question

The tax relief law (for Covid) passed by Congress last month created the Paycheck Protection Program. The programs provides loans to small businesses. However, provided the small business spends the loan amounts on certain items, such as payroll and rent, the loan does not need to be paid back. The law also states that the forgiven debt will not be included in gross income. BRIEFLY state whether you think the expenses (payroll and rent) that the taxpayer / recipient uses the funds received to pay are/should be deductible and why.(Briefly is two sentences. Feel free to use bullet points).

Plz write down sentence with explanation.

Plz type it, no hand writing.

:)

Answer 1

In my opinion, the expenses like pay roll and rent paid out of the loan received as part of covid relif are deductable in the computation of income tax.

The conditions laid out by the tax rule for the deductabilty of an expense is that ,expenses are "ordinary, necessary and reasonable" for the business to run and help to earn revenue. These should be "helpful and appropriate" to the business. For a business, expenses like rent or payroll are ordinary and necessary. Also help full and appropriate to the business. So these expenses are deductable.

Inorder to determine the deductabilty, nature of expense and it's appropriateness is relevent and not the source from which it is paid.