Paycheck Protection Program (PPP) Loans
SCHEDULE C SOLE PROPRIETORS
On April 14, 2020 the Small Business Administration released guidance on the application of the PPP loans for independent contractors and sole proprietors who report their business income on Schedule C of Form 1040.
PLEASE NOTE THAT ALTHOUGH YOU MAY BE ELIGIBLE FOR A LOAN, THE PROGRAM HAD A TOTAL FUNDING LIMIT OF $349B AND THAT IS ESSENTIALLY GONE AS OF APRIL 15, 2020. UNLESS CONGRESS PROVIDES FOR ADDITIONAL FUNDING, THE PPP LOANS MAY NO LONGER BE AVAILABLE. WE HIGHLY SUGGEST YOU CONTACT YOUR BANKER IMMEDIATELY TO DISCUSS YOUR ELIGIBILITY.
LOAN APPLICATION REQUIREMENTS
- You must have been operating as of February 15, 2020
- Further guidance will be issued for those not operating in 2019 but in operation by February 15, 2020
- You must have self-employment net profit on Schedule C for 2019
- If you have not yet filed your 2019 tax return, you are required to complete Schedule C as part of your loan application.
- Your principal place of residence is in the U.S.
- Net profit on 2019 Schedule C divided by 12 multiplied by 2.5
- Maximum net profit is $100,000
- If you have employees, also add:
- gross payroll from 2019 not to exceed $100,000 per employee plus
- employer paid health insurance, employer paid retirement benefits plus
- state unemployment tax paid
- take the total of the above divide by 12 and multiply by 2.5
- For those with no employees, the maximum loan amount will be $20,833 ($100,000 / 12 x 2.5)
DOCUMENTS FOR LOAN APPLICATION
- 2019 Schedule C
- If you have employees, 2019 Form 941’s
- Proof of employees on February 15, 2020 (payroll report)
- Proof business operation on February 15, 2020 (financial statements, bank statements, etc.)
USE OF FUNDS DURING 8 WEEKS AFTER LOAN IS FUNDED
- Owner compensation replacement, based on 2019 net profit from Schedule C
- This is limited to $100,000 divided by 52 weeks multiplied by 8 weeks or $15,834
- Employee payroll, employer paid healthcare expenses, employer paid retirement plan expenses, and state unemployment taxes
- Mortgage interest on business property
- Business rent expense
- Business utility expense
- Note – these items must have been claimed as expenses on your 2019 Schedule C.
Please note that it is highly likely that part of the loan will not be forgiven as many Schedule C taxpayers won’t have sufficient qualifying interest, rent, and utilities to cover the gap between the loan amount and the amount allowed for owner compensation replacement. The maximum amount of this “gap” for those without employees is $5,449 (maximum loan of $20,833 less the limit on owner compensation replacement of $15,384). Most Schedule C taxpayers will not have $5,449 worth of qualifying expenses over an 8-week period. However, any amount not forgiven is simply a loan, covered by the terms below, that can be repaid immediately after the 8-week period or anytime during the 2-year loan term.
TERMS OF LOAN IF NOT FORGIVEN
- 2-year term
- 1% interest
- Six-month deferral of loan
The loan applications and eventually an application for forgiveness after the 8-week period are coordinated through designated banks. We highly recommend you contact your bank immediately.
Please contact your 9258 Wealth Management financial advisor if you have questions or wish to discuss your specific situation and the applicability of the PPP loans.
Call us at 513.791.9258