PPP Tax Implications for Colorado Businesses

For businesses across the country, 2020 has presented its share of challenges. Many small businesses struggled to remain financially viable in the face of these hardships, and some were forced to shutter their doors for good. When Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act last spring, several small businesses were able to secure funding from the Paycheck Protection Program (PPP). As we move into 2021, businesses may wonder how their PPP loans could impact their business taxes. So far, the information is a bit nebulous—but the proposed Covid relief plan may offer some much-needed clarity. Let’s take a look.

Paycheck Prevention Program for Small Businesses

In the wake of the substantial financial challenges facing small businesses, the Small Business Administration and the Department of Treasury implemented the Paycheck Protection Program (PPP). The goal of the PPP is to provide “small businesses with the resources they need to maintain their payroll, hire back employees who may have been laid off, and cover applicable overhead.” As long as at least 60 percent of the PPP funds are used to cover payroll costs—and the remaining funds are used for mortgage interest, rent, or utilities—the entire loan may be forgiven. For those businesses that do not meet all of the requirements for complete loan forgiveness, partial loan forgiveness may be available.

Implications of the Bipartisan Emergency COVID Relief Act

If Congress passes the Bipartisan Emergency COVID Relief Act of 2020, small businesses may receive a number of additional supports. For instance, many small businesses struggled to secure PPP loans in the spring, as some large businesses leveraged their close ties to banks in order to receive PPP loans first. The proposed measure intends to target small borrowers, including those with fewer than ten employees, as well as businesses located in underserved areas. However, the tax implications of the PPP loan remain uncertain.

PPP Tax Implications and Deductions in Colorado

As of mid-December 2020, small businesses that have secured PPP loans may still wonder about the tax implications of this relief. Although the PPP loan is tax-free, the Department of Treasury and the IRS state that businesses cannot claim a deduction for these expenses. However, bipartisan lawmakers have supported legislation that could allow businesses to take these deductions. As we move forward into the new year, businesses will be anxious for more clarity so that they can prepare for the upcoming tax season.

If you have any questions about business taxes in the Broomfield area, contact Judex Law, LLC at (303) 523-4022 today to speak to a knowledgeable business law attorney.

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