North Carolina Tax Legislation Update: Taxpayers May Now Deduct PPP Expenses
Taxpayers and tax professionals have been in limbo for many months awaiting legislation that would finally answer the question “Are expenses related to forgiven PPP loan proceeds going to be deductible for North Carolina tax purposes?” And after much anticipation and several reiterations of the law, the Current Operations Appropriations Act of 2021 (COAA, 2021), which contains the answer, has been signed into law by North Carolina Governor Roy Cooper.
So, what is the answer? The answer is yes, for tax years beginning before January 1, 2023 (i.e., tax years 2020, 2021 and 2022) taxpayers are allowed to deduct such expenses.
Prior to this recent legislation, North Carolina law required taxpayers to addback any such expenses that were deducted on their federal income tax return. Taxpayers and tax professionals were hopeful that this law would be overturned prior to the filing deadlines for the 2020 tax returns; however, as both the business and individual deadlines came and passed the law remained unchanged. Therefore, many North Carolina taxpayers properly filed their 2020 tax returns including the required addback of these expenses.
So, now what? Now that these expenses are deductible for 2020, many taxpayers will be eligible to file an amended return to claim a refund of taxes they paid as a result of the required addback. However, due to the significant amount of returns that will be impacted by this law change, we recommend waiting to see if the North Carolina Department of Revenue (NCDOR) publishes guidance that may help simplify the amended return process.
It is important to note that this provision also applies to other expenses incurred related to tax-exempt income such as Economic Injury Disaster Loan (EIDL) grants, EIDL loan subsidy payments and Shuttered Venue and Restaurant Revitalization grants. Expenses associated with these tax-exempt funds are also deductible for tax years 2020, 2021 and 2022 and North Carolina tax returns previously filed adding back these types of expense may also be amended.
As always, please reach out to your trusted BRC tax advisor if you have any questions regarding this or any of the other tax provisions included in the latest legislation.
Click Here – for a BRC article that provides a summary of the most significant tax provisions included in the Current Operations Appropriations Act of 2021.