In anticipation of the new federal stimulus package, we want to let you know that California law specifically requires PPP loan forgiveness to reduce deductions. California does not conform to this federal law, which is amended as part of the stimulus package. Taxpayers will still be required to reduce their deductions on the California return because California enacted AB 1577 (Ch. 20-39), which specifically prohibits taxpayers from claiming any deductions or credits for expenses that are paid with forgiven PPP loan amounts.
So when tax planning, reduce business expenses by the amount of the PPP loan forgiveness on the California return.
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