Effect of Receiving SBA Disaster Loan on Taxes
Provided by HG.org
Small Business Association disaster loans are received when a company or individual suffers through a natural or manmade disaster such as a flood, hurricane or detonation area. These loans are available to assist these individuals or groups through hard times, and the effects on taxes are often beneficial when the person receiving the loan has no other debt needing payment.
SBA loans are not the same as income in any form. The Internal Revenue Service does not view the SBA debt as a type of revenue that will affect taxes. This lets a business owner or individual that may acquire disaster relief through a loan the ability to acquire one of these without negative effects to credit or taxes. There are other forms of disaster relief that provide benefits to the person, and these are available after a natural or manmade disaster affects the business or home. When the SBA is part of the situation, the monies received are usually for the building, buying back stock for products or assisting in moving through the disaster.
Qualified Disaster Relief
While the government and other agencies are part of disaster relief based on disasters in certain locations, the SBA is there for small business owners. The loans are disaster relief and other qualified payments provided to the business are not income no matter what source they come from. When the payments given to the company are to cover items that insurance and other reimbursements don’t cover, the monies are not income or part of the taxation in the state. However, there are certain considerations that may affect these circumstances. The factors may include deductions of other payments, insurance settlements and collected money from individuals trying to help the business.
Taxation with SBA Disaster Loans
Because the SBA loans for disaster relief have no affect on taxes, these business owners have no possible complications ahead when acquiring the necessary funding to recover from such disasters. Flooding into the commercial property may damage the carpeting, floors and walls. However, these funds may restore the structure and replace the carpeting to previous conditions. Earthquakes that crack and break walls and ceilings are recoverable through disaster loans with the SBA. The monies received through the loans are not income, and this presents an opportunity to fully recover and possibly renew a property after the disaster.
Some possible complications arise with SBA disaster loans when other payments received by different sources are part of the owner’s circumstances. These could require repayment or a calculation in tax forms. It is important to disclose what funding received applies to the disaster situation to avoid any tax law violations. Some of the other payments acquired during the catastrophe are for property loss, destruction of equipment and as insurance settlements. The loan may supply funding for these issues as well, but any other payments could be subject to repayment or taxable income specifics on forms.
Contributions with SBA Loans
When a business owner has funds from an SBA disaster loan, he or she may eventually get to the point where company revenue starts picking up again. At this point, he or she may start making payments on the loan which what is usually a much lower interest rate than other federal or state loans require. Then, he or she may pass on additional contributions to other members of the community. These charitable donations are important in times of need and during disaster periods. While the SBA loans may not affect taxes, these chartable donations often bring tax deductions to the company.
Charitable donations do not count towards and individual. These must go through proper channels and apply to a company or a qualified charity. It is important to use the proper documentation and certain sections of the IRS code that are found online or through an official agency building. These may assist with deductions to taxes that apply through both normal and disaster times. Sometimes, it is important to hire a legal expert to ensure there are no IRS violations that occur. Investigations into the company could yield negative consequences when any legal offenses incurred are found.
Tax Legal Support
Even though SBA loans do not affect the individual or company taxes, it is still important to hire a tax lawyer. These representatives may assist with various specifics and ensure the company is back on the path to possible success. The lawyer may also ensure that violations are prevented to the state and federal laws.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.