Adam Jarchow: PPP Can Cause Tax Issues

Adam Jarchow of Jarchow Law, LLC, says that businesses who have received a Paycheck Protection Program (PPP) loan should be wary of the tax implications in 2021. Adam, who also owns several businesses, says that due to these tax implications, in 2021, "lots of small businesses will be hit with this. It’s going to hit like a ton of bricks [...] thousands will fail.”

Adam broke down a scenerio via Twitter.

Imagine for a moment that you own a restaurant in LA. It’s a good business. You’re busy. You employ 50 people. You pay $10K a month in rent. But business is good. But margins are slim. You make decent money. $150k a year. But LA is expensive. Not much savings in the bank. 1/
— Adam Jarchow (@AdamJarchow28) December 16, 2020

Covid hits. Your governor shuts you down. Income goes to zero. But so does COGs, rent (forbearance from an understanding landlord) and employees are laid off. So you are surviving (barely). Federal govt comes along with a new program called PPP. 2/
— Adam Jarchow (@AdamJarchow28) December 16, 2020

The PPP program means the govt gives you a forgivable loan, but only if you spend 100% of it in a short period of time (initially 8 weeks) in the manner the govt wants (mostly on employee wages). So you do. You bring everyone back. 3/
— Adam Jarchow (@AdamJarchow28) December 16, 2020

You pay the PPP money to employees for the most part. But you also catch up with the landlord and utilities. By summer, when restrictions ease, the PPP money is gone. You can open at lower capacity and outdoor. Not great. But ok. You’re breaking even. Making a few bucks even. 4/
— Adam Jarchow (@AdamJarchow28) December 16, 2020

Now it’s Fall. Business slows a bit. We have a spike. It slows a bit more. And then the second shutdown. PPP is gone. You have burned your summer reserves. You are right back to where you were last Spring. But there’s a vaccine. “We can do this. Just a couple more months”. 5/
— Adam Jarchow (@AdamJarchow28) December 16, 2020

Then, early in the New Year (2021) you go see your CPA. He lays it on you. You owe Uncle Sam $150k on your $500K PPP. Ya see, the PPP is taxable income. So even though you have zero cash. You have taxable income. 6/
— Adam Jarchow (@AdamJarchow28) December 16, 2020

In the New Year, lots of small businesses will be hit with this. It’s going to hit like a ton of bricks. Thousands will fail. Many will hit the bread lines after losing their service industry jobs. Of course, Congress could fix this. But it won’t. It will be a mess. #End
— Adam Jarchow (@AdamJarchow28) December 16, 2020