PPP Forgiveness for Schedule C Business Owners
Did you get a PPP loan as a Schedule C filer? This resource is for you!
Additionally: Is PPP Tax Deductible?
If you report your business income and expenses on Schedule C of your Form 1040, your PPP loan forgiveness should be pretty straightforward…In the following video and 4 example questions below we’ll outline exactly what your scenarios and requirements are to maximize your PPP loan forgiveness.
Schedule C PPP Overview
Let’s start with the basic assumptions to make sure you really do have a Schedule C business…
You operate as a sole proprietorship or a single-member LLC
You do NOT get taxed as an S-Corporation
You do NOT receive a W-2 paycheck from your business
You CAN have employees or subcontractors other than yourself
You received a PPP loan of any type
Update: If you received under $50,000 you can apply for PPP forgiveness with form 3508S. Download it here!
If you operate as a partnership, S-Corp, C-Corp, or another business format, you are NOT a schedule C business but you are still eligible for PPP forgiveness too!
When Did You Apply for PPP?
When you first applied for your PPP loan you likely submitted your 2019 schedule C tax return and payroll records (if you have W-2 employees), to your bank in order to calculate how big of a PPP loan you would qualify for, right?
If you have no W-2 employees: Your maximum loan amount should have been $20,833 as a sole proprietor (if you earned more than $100,000).
If you have (or had) W-2 employees: Your maximum loan was your average monthly payroll x 2.5 months (or 10.8 weeks) capped at $100,000 per employee (annualized).
So basically, the max would have received was around $20,000 per employee, including yourself, if your employees make over $100,000 per year…and proportionally less for each employee who made under $100,000/yr.
Now let’s discuss how exactly you should (and should have) paid yourself as a Schedule-C earner to maximize your PPP forgiveness
1. How Do I Pay Myself?
Question. I know that I can achieve full forgiveness based solely on my 2019 Schedule C income in 10.8 weeks under the 24-week program. Do I have to pay myself every week for 10.8 weeks?
Answer. No. Let’s say your PPP loan is for $20,000. You could, for example, take $20,000 out of your business account in one lump sum and put that in your personal savings any time during the 10.8-week period and then apply for forgiveness in week 11.
Because your PPP loan was based on your 2019 Schedule C net profit (yes, last year), you simply need to use the loan money for personal purposes in order to maximize your forgiveness. This is how you pay yourself and obtain loan forgiveness the easy way.
Sure, you need to use only 60 percent of the proceeds for yourself and could use 40 percent for interest, rent, and utilities. But think about it:
Pay yourself only: simple paperwork.
Pay interest, rent, and utilities: more rules and paperwork.
Keep it simple. Don’t make yourself suffer by making it more complex!
Borrowed under $50,000? Use form 3508S instead!
2. Waiting to Spend
Question. Can I wait a number of weeks before I spend my loan proceeds?
Let’s say I receive the PPP proceeds on August 1, 2020. Can I use the 24-week period and start on August 17, for 11 weeks? Would that be okay? And would it be eligible for forgiveness?
Answer. Yes, no problem. But let’s be clear:
Why would you even want to wait?
For PPP loans made on June 5 or later, the 24-week covered period is the rule (there’s no “can” here—no eight-week possibility).
There’s no requirement that a Schedule C taxpayer spread out the payments in any amount or fashion (see #1 above)
You don’t have any W-2 payroll or another impediment that would complicate your application
Considering most businesses are at the end of the 24 week period already, you want to make sure that you have already “spent” your PPP money properly during the covered period!
And once again, if you borrowed under $50,000 Use form 3508S instead!
3. Spending PPP Money in Chunks
I am a Schedule C taxpayer with no employees. My PPP loan amount was deposited into my business checking account on May 19, 2020. I am not electing the eight-week covered period. Instead, I am choosing the 24-week covered period, which ends on November 2, 2020.
OK, great. But there are two things to consider here.
Question 1. Can I write one check for every four weeks of payroll and deposit it in my personal checking account?
Answer 1. Yes—but this is not a payroll check. As a Schedule C taxpayer with no employees, you have no payroll. Your PPP loan was based on your 2019 net profit. And your forgiveness will be based on the same amount. You don’t need to spread out your payments. See #1 and #2 above.
Question 2. Does this check have to be cashed within that four-week period, or if it is written within that period, is that sufficient to apply for forgiveness?
Answer 2. In general, your check is a payment on the date it is written. Because you are dealing with yourself, you should ensure that the check is cashed soon after it is written.
Also, we don’t see any wisdom (in fact, just the opposite) in writing the check within the 24 weeks and then cashing it outside the 24 weeks. If you wrote yourself a check from your business account, just deposit it ASAP!
4. You Got the PPP Money but Had a Loss in 2019
Question. I am a Schedule C filer, ran at a loss in 2019, but withdrew $120,000 from the business as the business increased its debt position.
I used my draw amount to obtain a $120,000 PPP loan before the guidance was issued on how sole proprietors should calculate their pay.
If the business now has two employees, can both of those employees be used for the forgiveness application?
Answer. Yes, you can use the two employees on the forgiveness application, and you can use 24 weeks of pay. However, you may not receive 100% PPP forgiveness since you borrowed technically MORE than you should have as defined later on in the PPP program. In addition to your actual W-2 payroll for your employees, 40 percent of the forgiveness can come from interest, rent, and utilities also.
Example. Say the two-employee payroll for the 24 weeks totals $60,000 and the interest, rent, and utilities total $30,000. You would achieve $90,000 of forgiveness.
If you would like my assistance with your forgiveness application, ask about our flat-fee PPP loan forgiveness support packages. Click the button below to book a free call and get pricing today.