Taxation & SBA Loans: Top Things You Should Know

 Your taxable income greatly influences the return your receive or the taxes you must pay during tax season. As a small business, monitoring your taxable income and properly saving to avoid fees is necessary. If you received an SBA loan and are concerned about how it will influence your taxes, let us help to assuage your fears. At 504 Capital, we provide SBA 504 loans to small businesses in Virginia, North Carolina, and Maryland. To help other small businesses, we wanted to create a short guide that answers all your questions about taxation and SBA loans. 

Are SBA Loans Taxable?

An SBA loan is a loan backed by the Small Business Administration of the United States government. These loans are designed to assist small businesses with purchasing land, commercial real estate, supplies, furniture, fixtures, etc. 

Like other business loans, SBA loans are not considered part of your business's taxable income. This means that, in most cases, an SBA loan is not taxable. There are, of course, exceptions to this rule, but in general, your SBA loan will not be taxed come tax season. In fact, you may even qualify for a deduction depending on the amount of interest you have paid off.

Loan Forgiveness and Taxation

As we mentioned earlier, there are always exceptions to the rule, and in this case, loan forgiveness is the exception. Let’s say you take out an SBA loan and then apply for loan forgiveness and are approved. The amount of the loan that was forgiven is subject to income taxes at the federal level. 

However, again there is an exception to the exception. If your forgiven loan was a PPP loan or an Economic Injury Disaster Loan (EIDL) then you will likely not be subject to income tax. If, however, your PPP loan was forgiven under the Coronavirus Aid, Relief, and Security (CARES) Act, you may be taxed on the forgiven amount at the state level (depending on state regulations). 

Navigating SBA 504 Loans During Tax Season

For most small businesses, an SBA loan will not negatively impact them during tax season. Many small businesses reduce their tax liability by deducting a portion of their SBA loan interest on their return or writing off items that the SBA loan helped them to purchase. When it comes time for tax season, the best thing to do is hire a business tax professional to complete the necessary paperwork. They will ensure you make the most of your SBA 504 loan.

504 Capital - Providing SBA Loans in Virginia

Now that your fears of being taxed on an SBA loan have been assuaged, are you interested in applying for one? 504 Capital is a Certified Development Company approved by the Small Business Administration to distribute SBA 504 loans. We have helped numerous businesses grow and thrive with our assistance, and we would love to help yours. Reach out to someone on our fantastic team to see how we can help your business expand. 

Call us at 757-623-2691 or fill out our online form for more information.