Memo – Forgiveness Of Coronavirus PPP Loans For Many Sole Proprietors Limited To 73.85%

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To listen to the podcast version of memo click here —> Podcast Version

At this point, all banks should be accepting forgiveness applications. So, as soon as you feel you have spent your PPP on all appropriate and forgivable items, contact your bank to get your forgivess process started. To read my post about the forgiveness applications CLICK HERE

UPDATED PPP FORGIVENESS RULES FOR NEW LEGISLATION

• Extends the covered period (date at which the access to PPP funds will end) to December 31, 2020, from June 30, 2020 (of note, there is approximately $130 billion remaining to be allocated under authorized PPP funds.)
• The 8 week period applicable to forgiveness has been extended to 24 weeks.
  • This is important as now 100% of the PPP loan given to a sole proprietor with no other payroll can be forgiven!
• The minimum 75% rule spent towards payroll costs to be eligible for full forgiveness has been decreased to 60%.
• Extends the deferral period (P&I) from 6 months to a date that is the earlier of the date of remittance of forgiveness to the lender or 10 months (in other words, a customized deferral period….could have done without that one.)

One Important Note: This podcast / memo was prepared with the majority of Schedule C filers in mind, who do not pay rent and utilities outside of their home offices. If you do pay rent or pay a mortgage for commercial space, then that rent, or mortgage interest, and utilities may also be forgiven. This may bring you up to 100% forgiveness on your PPP. Home Office rent and utilities do not qualify.

This memo is specifically for Sole Proprietors / Independent Contractors who applied for the Paycheck Protection Program Loan, or PPP, using their net income as shown on line 31 of their 2019 Schedule C. But it also has information every business owner can use related to the Coronavirus PPP Loan. 

As we have all heard, PPP loans are forgivable, if used for the proper purposes, which is mostly payroll costs. For sole proprietors filing a Schedule C, who do not have employees, your net Schedule C is your payroll cost used in the PPP loan calculation.

Remember, people you pay as subcontractors are NOT employees. And if you are a subcontractor, the person paying you is NOT your boss or employer. It is important to get the wording right, especially in these situations when loans and unemployment are involved.

Sole Proprietors can take EITHER the PPP or Unemployment so be careful. My advice is to apply for both, and take whichever gives you the greater financial benefit.

The time frame for forgiveness starts the moment you receive the funds, and that time frame is 24 weeks. This is significant for business owners who have not brought their employees back yet, and that is why the timing of your receipt of the PPP funds can be extremely vital, when considering forgiveness of the PPP loan later. For business owners with employees, be sure to spend as much of your PPP on payroll within that 24 week time frame, 100% if possible.

Please be very careful about this. I am advising everyone to comply with the strict letter of the regulations, so they aren’t surprised later when some or all of the PPP is not forgiven. So, again, the 8 week period to pay payroll costs begins when your PPP loan has been funded and provided to you.

Important questions about your current CPA or accountant:

1. If you don’t have a CPA, or
2. If your CPA has been absent during this emergency, or
3. If your CPA is clueless about these extremely important programs that relate to the survival of your business
4. Find A New One Immediately.
5. You are in luck because I know a pretty good one.

The following is an example based on a sole proprietor / independent contractor who files a Schedule C, and does not have any employees. Remember, a sole member LLC files a Schedule C, so they are included here as well.

Remember, if you choose the new the 24 week forgiveness window, 100% of a sole proprietor’s PPP can be forgiven.

1. 2019 Net Sched C (Line 31) = $85,000. 
2. Forgivable Loan Request $17,708 ($85,000 ÷ 12 * 2.5)

Although the loan request is based on 2.5 x the monthly average (÷ 12), the forgiveness is only 8 weeks of the weekly average, which comes out to 73.85%

Why is this important? The unforgiven portion needs to be paid back eventually. 

If you are in this situation, meaning a sole proprietor whose PPP was based on your 2019 net Schedule C, please be sure to only spend that unforgiven portion if you will be able to pay it back. My advice is to move that 26.15% to a savings account “rainy day fund”, and only use it in case of intense emergencies. Hopefully it won’t be used for anything, and you can simply pay that unforgiven portion back.

Questions? Concerns? Call me on (732) 673-0510.

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“If We Aren’t Working For You, Then You Aren’t Working At Your Best”

Chris Whalen, CPA
(732) 673-0510
81 Oak Hill Road
Red Bank, NJ 07701
www.chriswhalencpa.com

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