CA Passes AB 80 for PPP Loan Expenses

California Assembly Bill No. 80, enacted on April 29, 2021, allows for the deduction of expenses
paid with forgiven Paycheck Protection Program (PPP) debt. To qualify for the deduction of expenses
paid for with PPP proceeds, the business must show a 25% reduction in gross receipts in the first, second
or third quarter in 2020 compared to the same quarter in 2019. If the forgiveness application was
submitted on or after January 1, 2021, then the fourth quarter of 2020 can be used. If the business was
not in operation for all of 2019, it can compare any quarter in 2020 to the quarters that it was in
operation. If the business was in operation for all of 2019, they can also choose to compare the 2019
calendar-year to the 2020 calendar-year. Gross receipts include all revenue received by a for-profit
business but exclude net capital gains and losses. For California tax purposes, gross income does not
include any covered loan amounts or advances from Economic Injury Disaster Loan Program that have
been forgiven.

For California purposes, if the business is able to show that their gross receipts dropped by 25%
or more between the respective quarters (2020 and 2019), then they are able to deduct the expenses
paid for with their PPP loan funds. If the business did not experience a 25% or more drop in gross
receipts for respective quarters, it loses the ability to deduct any of these expenses and therefore will
have higher income for California tax purposes.

The bill applies to taxable years beginning on or after January 1, 2019.
As a reminder, PPP loans are funds given to businesses as part of the Covid-19 Relief package
that can be forgiven, tax-free, if used to pay for specific expenses like payroll, employee benefits, rent,
utilities, or mortgages for office space.

If you have any questions about this new law, feel free to reach out to your DKC representative.

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