What If My Business Showed A Loss
Prior to the March 3, 2021 change, if you were self-employed and did not have employees, your business must have showed a net profit on either your 2019 or 2020 Schedule C to qualify for PPP. Now your business must show gross income or a net profit to qualify. Self-employed individuals with employees may also qualify based on payroll plus owners compensation using the methods described above. More businesses are likely to qualify for PPP using the new calculation.
Expenses Related To Ppp Loan Forgiveness And Aaa/oaa Treatment
The AICPA makes the following recommendation regarding these related expenses and their treatment for purposes of the S corporations AAA:
The AICPA recommends that the related expenses that are deducted and attributed to the PPP loan are not taken into account for AAA pursuant to section 1368. The OAA should include those related expenses as they directly relate to the tax-exempt income by operation of Section 276 due to PPP loan forgiveness. Treasury and the IRS should issue guidance reflecting this proper treatment and disregard Treas. Reg. § 1.1368-2 for this limited purpose.
The AICPA provides the following justification for this position:
The primary policy goal of subchapter S is to treat S corporations as a passthrough entity and ensure a single level of tax for S corporation shareholders. Section 276 explicitly provided for the deductibility of qualified PPP expenses, that PPP borrowers are not to reduce any tax attributes, and that no basis increase shall be denied by reason of the exclusion of PPP forgiveness from gross income. Section 276 intended to accomplish this statutory scheme by treating the PPP loan forgiveness as tax-exempt income for passthrough entities.
Upload Or Confirm Documents
On the Upload Your Documents page, you must upload all required documents or confirm that everything previously uploaded is correct and add any documents youre missing to ensure a completed PPP application.
If you dont already have the following attachments added to your application, please upload them:
- Drivers License for all owners with 20%+ share in the business: A color copy of the front and back of a valid Drivers License for each owner. Make sure to double-check that the Drivers License is not expired.
- Acceptable Payroll Documents :
- For businesses applying for a PPP Loan:
- 941 Quarterly Tax Filings
- 944 Annual Tax Filings
- Payroll Register for the previous 12 months
- 12 months most recent bank statements
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If I Elect To Use The Sba’s New Loan Forgiveness Application Will I Be Required To Submit Documentation
The latest guidance from the SBA states for first draw PPP loan forgiveness applications using the S form, documentation does not need to be uploaded, however, you are required to retain all records relating to your PPP loan and may be required to submit such documentation to the SBA, upon request.
For second draw PPP loan forgiveness applications, you may be required to provide revenue reduction documentation if your loan was $150,000 or less and you did not provide such revenue reduction documentation prior to your forgiveness application.
The SBA requires borrowers using Form 3508 and Form 3508EZ to submit documentation in connection with their loan forgiveness application. You will not be eligible to receive loan forgiveness without supporting documentation.
For detailed information on the application, including Covered Periods, the type of costs that are eligible for forgiveness, and what documentation you will need to submit in connection with your application, please visit the U.S. Treasury and SBA websites.
For additional assistance with PPP loan forgiveness documentation, view our documentation guide.
How You Can Use Your Ppp Loan
The PPP loan has specific guidelines for use than other SBA loans, especially if you are looking for 100% loan forgiveness. However, the requirements have been relaxed for small businesses during the COVID-19 crisis to maximize the impact of relief funds.
Heres how you can and cant use your PPP loan:
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Completed Ppp Application Form
- Include your contact name and email address.
- Indicate your Business Type .
- Check Yes or No for all questions on the form.
- If you answer Yes to questions 1,2, 5, or 6, you do not qualify for a PPP loan.
- If you answer Yes to question 3 or 4, you may still qualify, but you must include an Addendum on a separate sheet explaining the details.
Which Application Should I Use To Apply
There are two application forms that can be used to apply for a PPP loan.
Form 2483 is the main form that most businesses will use. Form 2483-C is specifically for self-employed individuals who will be applying for a PPP loan using their gross or net income taken from a Schedule C.
If you are not applying with a Schedule C, read on for more information on form 2483. If you are applying using a Schedule C, jump ahead to our overview of form 2483-C.
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What If You Dont Qualify For 100% Forgiveness
Amounts not forgiven simply convert into a 1% interest loan, payable over the next two years. Theres even a grace period. No payments would be required until the SBA remits the forgivable amount to your lender. If you do not request forgiveness, you will not have to make any payments for 10 months following the date of disbursement of the loan.
Can I Use Ppp To Refinance My Eidl Loan
Some borrowers have received both a PPP loan and an Economic Injury Disaster Loan . There are some very specific but limited circumstances where you can refinance an EIDL loan with PPP. Pay careful attention to the dates here!
- You must use PPP to refinance your EIDL if you received EIDL loan funds from January 31, 2020 through April 3, 2020 and used the EIDL loan funds to pay payroll costs.
- You may use PPP to refinance EIDL loan funds received from January 31, 2020 through April 3, 2020 and you used the EIDL loan for purposes other than payroll costs.
- You cannot use PPP to refinance an EIDL loan if you received EIDL loan funds before January 31, 2020 or after April 3, 2020. This is the majority of borrowers.
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Is There A Downside To Using Gross Income Instead Of Net Profit
Possibly. PPP borrowers must certify that current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant. However, there has been a safe harbor for loans below $2 million.
The SBA appears to be concerned that the gross income calculation may be more subject to fraud or abuse. So it has warned that if a Schedule C filer elects to use gross income to calculate its loan amount on a First Draw PPP Loan and the borrower reported more than $150,000 in gross income on the Schedule C that was used to calculate the borrowers loan amount, the borrower will not automatically be deemed to have made the statutorily required certification concerning the necessity of the loan request in good faith, and the borrower may be subject to a review by SBA of its certification.
It goes on to say that SBA will review a sample of the population of First Draw PPP Loans made to Schedule C filers using the gross income calculation if the gross income on the Schedule C used to calculated the borrowers loan amount exceeds the threshold of $150,000. If the borrower exceeds this threshold, then SBA will, for the sample drawn, assess whether these borrowers complied with the PPP eligibility criteria, including the good faith loan necessity certification.
Ppp Loan Issues Following Covid
The COVID-related Tax Relief Act of 2020 Section 276 provided clarification that in addition to the forgiveness of a Paycheck Protection Program loan being treated as exempt from federal income tax, any deductions paid with such funds that led to the forgiveness would also be deductible.
While the provision did provide that the forgiveness would lead to an increase in basis for the holder of interests in passthrough entities, the law did not deal with issues related to timing or the potential at-risk issues for the PPP loan, nor specify how the forgiveness and expenses impacted the accumulated adjustments account for an S corporation. These matters can lead to a number of issues that taxpayers and their advisers will need to resolve.
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Are Ppp Loan Proceeds Taxable Income On My Tax Return If My Ppp Loan Was Forgiven Under Covid
No. Loan proceeds received under the Paycheck Protection Program are not taxable income, regardless if the loan was forgiven or not. Forgiven PPP loans are not considered cancellation of debt income, and as such, you should not report these loan proceeds on your tax return. This applies to all taxpayers, whether your business is a sole proprietorship, single-member LLC, partnership, multi-member LLC, corporation, or any other entity type.
In the TaxAct program, you will not be asked to enter any PPP loan proceeds information. The IRS is not requiring nor requesting this information on tax returns. You should enter your gross receipts and other income items as you normally would.
Application Form 2483 Explained
If you are not applying with a Schedule C, apply with form 2483. Weâll go through the application form box by box. We recommend you follow along by downloading a PPP loan application here. Check in with your lender before filling in the application. Some lenders will require you to submit your information through their online portal as opposed to submitting a paper application.
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Application Dates For A Round 3 Ppp Loan
As noted above, applications for Round 3 first draw PPP loans from approved community financial institutions started on Mon., Jan. 11, 2021. Second draw applications began on Wed., Jan. 13, followed by first- and second-draw loans from small lenders with less than $1 billion in assets on Fri., Jan. 15, 2021. All SBA 7 lenders were approved to accept first and second draw applications starting on Tues., Jan. 19, 2021.
Beware of scammers. Just as with the first two rounds, if you are a small business owner you can anticipate hearing from scammers promising to help you obtain a PPP loan. Only go through approved lenders or the SBA.
Heres How You Can Spend Your Ppp Loan
- Replace your compensation
- Pay interest payments on a mortgage or loan you use to perform your business*
- Make business rent payments*
- Make business utility payments*
- Make interest payments on any other debt incurred before February 15, 2020
- Operations expenses for business software and cloud computing services and other human resources and accounting needs that facilitate business operations
- Payments to a supplier for goods that are essential to the operations of the borrower pursuant to a contract or purchase order in effect before the PPP loan is disbursed or with respect to perishable goods
- Property damage costs related to looting due to public disturbances in 2020 that are not covered by insurance or other compensation
*You must have claimed a deduction on your 2019 or 2020 taxes for expenses described in 2, 3, and 4 above.
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Average Monthly Payroll Costs
Your loan amount calculation starts with finding your average monthly payroll costs. Your average monthly payroll costs can be calculated using one of the following:
-
the one year period before the loan application
-
the calendar year of 2020
-
the calendar year of 2019
Once youâve chosen the time period you want to use, follow these steps:
Step 1: Add up the payroll costs for all employees whose principal place of residence is in the United States. Payroll costs include:
-
Salaries, wages, commissions or tips
-
Employee benefits including paid leave, allowance for separation or dismissal, and healthcare benefits including insurance premiums and retirement benefits
-
State and local taxes
If you are including your net or gross income as reported on a Schedule C, use form 2483-C.
Step 2: Subtract any compensation paid to an employee in excess of $100,000. This step is required because the PPP sets a cap on salaries of $100,000 per employee. For example, if you have two employees earning $120,000 over the year, subtract $40,000 from your payroll total.
Step 3: Divide the total amount from Step 2 by 12 months and put it in the Average Monthly Payroll box.
What Kinds Of Ppp Loans Are Available
There is funding for three categories of PPP loans in this legislation:
- First time PPP loans for businesses who qualified under the CARES Act but did not get a loan
- Second draw PPP loans for businesses that obtained a PPP loan but need additional funding and
- Additional funding for businesses that returned their first PPP loan or for certain businesses that did not get the full amount for which they qualified.
In this round, certain small news organizations, destination marketing organizations, housing cooperatives, and 501 nonprofits may now also be eligible for PPP loans.
For all PPP loans, no collateral or personal guarantee is required. For these new loans, any amount not forgiven becomes a loan at 1% for five years.
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I Dont Have Any Other Business Expenses I Can Claim For Forgiveness
If you cannot claim 100% of your loan as OCR or OCS, and if you donât have any eligible business expenses you can use the PPP funds for, the remaining balance of the loan will need to be repaid according to the PPP loan terms. At 1% interest for 5 years, itâs one of the best loan terms you can find, but there is no prepayment penalty if you wish to pay it all off early.
Business Name And Address
You are required to provide both your Business Legal Name and your DBA or Tradename if applicable. Your Business Legal Name is found on any government forms. A DBA or Tradename is what appears on bank statements or invoices if itâs different than your Business Legal Name. Your Business Address is also found in these documents.
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Who Is Eligible To Apply For A Self
In order to apply for a PPP loan as a self-employed individual or independent contractor, you have to meet the following criteria:
- Must be in operation before February 15, 2020
- Must have income from self-employment, sole proprietorship, or as an independent contractor
- Must live in the United States
- Must file a Form 1040, Schedule C for 2019
- Must have net profit for 2019
How Long Do I Have To Apply For Loan Forgiveness
The PPP rules currently provide that you may submit a loan forgiveness application at any time after the end of your Covered Period and before the maturity date of your loan, as long as you have an outstanding balance on your loan. However, we understand the SBA may be changing the deadline to apply for PPP loan forgiveness.
Please check with sba.gov for the latest guidance on your forgiveness application window.
Please note that your PPP loan deferral period will end prior to your maturity date. If you applied for forgiveness prior to your deferral period, you will need to begin making payment on any unforgiven amount once the SBA has made a decision on your forgiveness application. If you have not applied for forgiveness prior to your deferral period, you will need to start making payments at the end of your deferral period.
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Where Do I Put The Ppp Loan On A 1065
I disagree with your entire statement. The law passed on 12/29/2020 made the entire PPP loan forgiven NON TAXABLE and the deductions paid with the PPP loan deductible. It also made the Employee Retention Credits available to those receiving the PPP loan as long as the wages used for the ERC were not the same wages used for the PPP loan satisfaction. The PPP loan will go in box 10 or box 11 on the K-1 for either the 1065 or the 1120/1120S. Employers now have the opportunity to go back to their 941 tax returns and claim the ERC if they have any. You need to update your education.
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Does California Conform To The Exclusions For Other Sba Loan Forgiveness Or Grants
No, not at this time. AB 1577 and AB 80 only provide gross income exclusion for covered loan amounts forgiven pursuant to the CARES Act, the Paycheck Protection Program and Health Care Enhancement Act, the Paycheck Protection Program Flexibility Act of 2020, and CCA and EIDL grants under the CARES Act or targeted EIDL advances under the CCA.
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Sole Proprietors With Payroll Costs
If you are running payroll costs, your PPP loan calculation requires a few more steps.
Start by taking your gross income as reported on line 7 of a 2019 or 2020 Schedule C. You will then need to subtract any payroll costs as reported on lines 14, 19, and 26. The value you find after subtracting the payroll costs is capped at $100,000. Keep this number handy, it will be used to calculate your owner compensation share or proprietor costs later.
Add in your annual payroll costs for 2019 or 2020 . This can be found through your payroll provider or on IRS forms 941, 944, or 940. Remember that you can only include employees whose primary residence is in the United States and their earnings must be capped at $100,000 annualized.
Once youâve added your annual payroll costs to the amount taken from your Schedule C, divide by 12 to find your average monthly payroll expense. Multiplying this number by 2.5 will give you your PPP loan amount.
