**Can PPP Loans Be Used for Business Expenses?**
The Paycheck Protection Program (PPP) was created to help businesses keep their employees on the payroll during the COVID-19 pandemic. Businesses that received PPP loans can use the funds for a variety of business expenses, including:
* Payroll costs
* Rent or mortgage payments
* Utilities
* Interest on mortgage or other debt obligations
* Personal protective equipment (PPE)
* Other business expenses that are “ordinary and necessary”
**What are ordinary and necessary business expenses?**
The Internal Revenue Service (IRS) defines ordinary and necessary business expenses as those that are “common and accepted in the industry” and that are “helpful and appropriate for the development of the business.” Examples of ordinary and necessary business expenses include:
* Advertising
* Car and truck expenses
* Depreciation
* Dues and subscriptions
* Insurance
* Legal and professional fees
* Office expenses
* Rent or lease payments
* Repairs and maintenance
* Supplies
* Travel
* Utilities
**Are there any restrictions on how PPP loans can be used?**
Yes, there are some restrictions on how PPP loans can be used. For example, PPP loans cannot be used to:
* Pay off existing debts
* Make capital expenditures
* Pay dividends or other distributions to owners or shareholders
* Make payments to related parties
**How do I determine how much of my PPP loan I can use for business expenses?**
The amount of your PPP loan that you can use for business expenses is based on your average monthly payroll costs. You can use the following formula to calculate your average monthly payroll costs:
Average monthly payroll costs = Total payroll costs for the year / 12
Once you have calculated your average monthly payroll costs, you can use the following formula to determine how much of your PPP loan you can use for business expenses:
PPP loan amount – (Average monthly payroll costs x 2.5) = Maximum amount that can be used for business expenses
For example, if you received a PPP loan of $100,000 and your average monthly payroll costs are $20,000, then you can use up to $40,000 of your PPP loan for business expenses.
**How do I account for PPP loan expenses?**
You should account for PPP loan expenses in the same way that you account for other business expenses. This means that you should record the expenses in your accounting system and track how the funds are used. You should also keep all documentation related to your PPP loan expenses, such as invoices, receipts, and bank statements.
**What are the tax implications of PPP loans?**
PPP loans are not taxable income. However, the expenses that you pay with PPP loan funds may be deductible for tax purposes. For example, payroll costs that are paid with PPP loan funds are deductible for federal income tax purposes.
**What are the loan forgiveness requirements for PPP loans?**
PPP loans are eligible for forgiveness if the borrower meets certain requirements, such as:
* Using at least 60% of the loan proceeds for payroll costs
* Maintaining the same number of employees or increasing the number of employees
* Not reducing employee salaries or wages by more than 25%
Borrowers who meet the loan forgiveness requirements will not have to repay the PPP loan.
**How do I apply for PPP loan forgiveness?**
Borrowers can apply for PPP loan forgiveness by submitting a loan forgiveness application to their lender. The lender will review the application and make a decision on whether or not to forgive the loan.
**Additional resources**
* [PPP Loan Forgiveness Application](https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-program/ppp-loan-forgiveness)
* [IRS Notice 2020-32](https://www.irs.gov/pub/irs-drop/n-20-32.pdf)