Author Topic: SBA PPP and EIDL Small Business Loans (some money is forgivable)  (Read 329222 times)

Offline cgr

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2320 on: August 13, 2020, 09:58:54 AM »
@cgr
I totally believe you, but is there a source to the fact that on a schedule C there is no requirements of how/when to spend PPP funds? I looked at the loan forgiveness application but by the required documentation part I wasn't sure that they are exempt from proof that they used funds on "payroll". Is it written out clearly somewhere?

It's written out clearly for S Corps, C Corps, and K-1 1065 that they need to pay themselves- the same requirement is not noted for Schedule C. The only thing Schedule Cs need to provide is their Schedule C.

Have a look at this and tell me what you make of it:
https://home.treasury.gov/system/files/136/PPP--Loan-Forgiveness-FAQs.pdf
8. Question: How is the amount of owner compensation that is eligible for loan forgiveness determined?
C Corporations: The employee cash compensation of a C-corporation owner-employee, defined as an owner who is also an employee (including where the owner is the only employee), is eligible for loan forgiveness up to the amount of 2.5/12 of his or her 2019 employee cash compensation, with cash compensation defined as it is for all other employees.

S Corporations: The employee cash compensation of an S-corporation owner-employee, defined as an owner who is also an employee, is eligible for loan forgiveness up to the amount of 2.5/12 of their 2019 employee cash compensation, with cash compensation defined as it is for all other employees.

Self-employed Schedule C (or Schedule F) filers: The compensation of self-employed Schedule C (or Schedule F) individuals, including sole proprietors, self-employed individuals, and independent contractors, that is eligible for loan forgiveness is limited to 2.5/12 of 2019 net profit as reported on IRS Form 1040 Schedule C line 31 (...). Separate payments for health insurance, retirement, or state or local taxes are not eligible for additional loan forgiveness; health insurance and retirement expenses are paid out of their net self-employment income. If the borrower did not submit its 2019 IRS Form 1040 Schedule C (or F) to the Lender when the borrower initially applied for the loan, it must be included with the borrower’s forgiveness application.

General Partners: The compensation of general partners that is eligible for loan forgiveness is limited to 2.5/12 of their 2019 net earnings from self-employment that is subject to self-employment tax, which is computed from 2019 IRS Form 1065 Schedule K-1 box 14a (...) multiplied by 0.9235.4. Compensation is only eligible for loan forgiveness if the payments to partners are made during the Covered Period or Alternative Payroll Covered Period.


Bottom line: Schedule C's need to submit their 2019 Schedule C as proof that they were eligible for the disbursed amount. That's all there is to their forgiveness.
If you think about it, it makes sense this way. I'm sure plenty of independent contractors don't have separate bank accounts, and whatever comes into the business is their's anyway (this is how a sole prop works- everything flows to the owner) so why make them pay themselves if it all flows to their bottom line? All other entity types have net income for the business, and then a separate tax/accounting line for owners draws/payroll. Schedule C is the only entity that has no distinction between the two.

Offline Deal Guy

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2321 on: August 13, 2020, 10:14:12 AM »


General Partners: The compensation of general partners that is eligible for loan forgiveness is limited to 2.5/12 of their 2019 net earnings from self-employment that is subject to self-employment tax, which is computed from 2019 IRS Form 1065 Schedule K-1 box 14a (...) multiplied by 0.9235.4. Compensation is only eligible for loan forgiveness if the payments to partners are made during the Covered Period or Alternative Payroll Covered Period.[/i]

For a general partner in a partnership, is there any benefit one way or the other, of transfering the ppp into their personal account in one shot as soon as they get it, vs transfering it every week or so over 24 months?

Offline cgr

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2322 on: August 13, 2020, 10:23:40 AM »
For a general partner in a partnership, is there any benefit one way or the other, of transfering the ppp into their personal account in one shot as soon as they get it, vs transfering it every week or so over 24 weeks?

FTFY
If you're on unemployment concurrently I suggest paying yourself weekly/bi-weekly to have a clear record if needed. Otherwise I don't have much of an opinion either way other than it's annoying to have to pay yourself over that many weeks- I'd rather take it in 3-4 payments over 8 weeks. Remember: the sooner you exhaust your funds the sooner you can apply for forgiveness.

Offline ae123

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2323 on: August 13, 2020, 11:04:28 AM »
Two different people I know applied for a PPP loan with Cross River.
They are both self-employed (schedule C).
They both received a Statement of Credit Denial from Cross River for the same reason:

Reason for Denial: Unable to validate loan amount requested through documentation provided.

However, the application was done properly using their calculator.
Has anyone else been denied for this reason and what is there to do about it?
Thanks.

Offline Deal Guy

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2324 on: August 13, 2020, 11:28:29 AM »
FTFY
If you're on unemployment concurrently I suggest paying yourself weekly/bi-weekly to have a clear record if needed. Otherwise I don't have much of an opinion either way other than it's annoying to have to pay yourself over that many weeks- I'd rather take it in 3-4 payments over 8 weeks. Remember: the sooner you exhaust your funds the sooner you can apply for forgiveness.
So if you take it all in a week or 2, you can apply for forgiveness right away?
(Or perhaps wait for Congress to perhaps make forgiveness easier)

Offline cgr

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2325 on: August 13, 2020, 11:55:54 AM »
Two different people I know applied for a PPP loan with Cross River.
They are both self-employed (schedule C).
They both received a Statement of Credit Denial from Cross River for the same reason:

Reason for Denial: Unable to validate loan amount requested through documentation provided.

However, the application was done properly using their calculator.
Has anyone else been denied for this reason and what is there to do about it?
Thanks.

Did they upload their full return instead of just the Schedule C?

Offline cgr

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2326 on: August 13, 2020, 11:56:38 AM »
So if you take it all in a week or 2, you can apply for forgiveness right away?
(Or perhaps wait for Congress to perhaps make forgiveness easier)
Correct. The SBA clearly outlines that as soon as you've used all your funds (or all the funds you want to use) you can apply for forgiveness.

Online YitzyS

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2327 on: August 13, 2020, 12:53:29 PM »
Correct. The SBA clearly outlines that as soon as you've used all your funds (or all the funds you want to use) you can apply for forgiveness.
Is there a reason to not apply for forgiveness right away? Is there any reason to wait 24 weeks?

Offline cgr

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2328 on: August 13, 2020, 12:57:19 PM »
Is there a reason to not apply for forgiveness right away? Is there any reason to wait 24 weeks?

A) like I mentioned if you're on UI you want to spread your "earnings" out so even if they won't actually require you to prove if/when you paid yourself it might be better from the DOL end not to get it forgiven as earnings right away.

B) many are hoping that the SBA will change the rules and not require forgiveness applications for loans under 150k.

Offline ae123

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2329 on: August 13, 2020, 02:35:48 PM »
Did they upload their full return instead of just the Schedule C?
Just the schedule C.

We reached Cross River.
They said the issue was that the computer couldn't properly read the PDF uploads of the 6 months of bank statements. No idea why.
Usually, it would then move on to a manual review.
However, since it was so close to the deadline the application just stopped there and was denied.

Any talk of an extension of the PPP?

Offline oldguy

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2330 on: August 13, 2020, 02:36:31 PM »
A) like I mentioned if you're on UI you want to spread your "earnings" out so even if they won't actually require you to prove if/when you paid yourself it might be better from the DOL end not to get it forgiven as earnings right away.

B) many are hoping that the SBA will change the rules and not require forgiveness applications for loans under 150k.
If Someones loan is from a schedule C is there still any reason not to apply for forgiveness right away?

Offline cgr

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2331 on: August 13, 2020, 03:00:54 PM »
Just the schedule C.

We reached Cross River.
They said the issue was that the computer couldn't properly read the PDF uploads of the 6 months of bank statements. No idea why.
Usually, it would then move on to a manual review.
However, since it was so close to the deadline the application just stopped there and was denied.

Any talk of an extension of the PPP?

No talk of extension.
The HEALS Act does have a round 2 PPP for those who lost a chunk of income but you'd need to have confidence in Congress' ability to pass anything before you can get your hopes up.

Offline cgr

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2332 on: August 13, 2020, 03:01:25 PM »
If Someones loan is from a schedule C is there still any reason not to apply for forgiveness right away?
You quoted it in your reply...

Offline oldguy

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2333 on: August 13, 2020, 03:08:31 PM »
You quoted it in your reply...
Looks like I didn't understand. I thought with a schedule C your not giving any Money to yourself, so it's not considered earnings. What am I missing?

Offline cgr

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2334 on: August 13, 2020, 03:24:23 PM »
Looks like I didn't understand. I thought with a schedule C your not giving any Money to yourself, so it's not considered earnings. What am I missing?

It's all considered earnings.
For Schedule C the reason why payment is not necessary is because everything flowing through to the business automatically belongs to the owner and is owner earnings by default, while for C Corp, S Corp, and K-1 1065s the SBA requires payments to owners or else the money will stay in the business and not be utilized for owner earnings/payroll which is the point of this program.

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2335 on: August 14, 2020, 12:31:20 AM »
INTERESTING NOTE....

ONE LAST WORD OF CAUTION – It has not been clearly resolved for sole proprietors whether using OCR becomes a taxable event. While the CARES Act indicates that forgiven PPP amounts will not be taxed, this doesn’t clearly account for the OCR’s expressed purpose as a substitute for actual income. Absent clear resolution and a favorable determination, borrowers may need to report the amount of the OCR as taxable personal income.

https://www.jdsupra.com/legalnews/ppp-loan-forgiveness-for-sole-26406/

Offline cgr

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2336 on: August 14, 2020, 12:36:29 AM »
INTERESTING NOTE....

ONE LAST WORD OF CAUTION – It has not been clearly resolved for sole proprietors whether using OCR becomes a taxable event. While the CARES Act indicates that forgiven PPP amounts will not be taxed, this doesn’t clearly account for the OCR’s expressed purpose as a substitute for actual income. Absent clear resolution and a favorable determination, borrowers may need to report the amount of the OCR as taxable personal income.

https://www.jdsupra.com/legalnews/ppp-loan-forgiveness-for-sole-26406/

Honestly I don't understand that argument from the get-go. All employees and other owner compensation types will be paying income and payroll tax on their PPP receipts. Why shouldn't sole props? The only part that the IRS ruled on is the business side expenses- not the employee/owner side. Schedule C income is employee/owner side, not business side. Schedule Cs don't deduct owners draws and this shouldn't be deducted either.

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2337 on: August 14, 2020, 12:48:44 AM »
Honestly I don't understand that argument from the get-go. All employees and other owner compensation types will be paying income and payroll tax on their PPP receipts. Why shouldn't sole props? The only part that the IRS ruled on is the business side expenses- not the employee/owner side. Schedule C income is employee/owner side, not business side. Schedule Cs don't deduct owners draws and this shouldn't be deducted either.
Because if on the business side its not taxable, than you dont have to include it on schedule C line 1 as its not a taxable source of income, as so where should it show up on your return?
If its not on Schedule C how will it be transferred to Schedule SE?
« Last Edit: August 14, 2020, 12:54:52 AM by thebudgetdeals »

Offline cgr

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2338 on: August 14, 2020, 12:55:44 AM »
Because if on the business side its not taxable, than you dont have to include it on schedule C line 1 as its not a taxable source of income, as so where should it show up on your return?

Line 1 is not taxable in itself, it flows to line 31. Sole props pay payroll taxes on line 31, same as you do on a W2, and same as all owners will on their draws and employees on their payroll even if it originated from PPP. Schedule C has no separate business tax like there is for a C Corp, S Corp, or K-1.

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Re: SBA PPP and EIDL Small Business Loans (some money is forgivable)
« Reply #2339 on: August 14, 2020, 12:56:57 AM »
Line 1 is not taxable in itself, it flows to line 31. Sole props pay payroll taxes on line 31, same as you do on a W2, and same as all owners will on their draws and employees on their payroll even if it originated from PPP. Schedule C has no separate business tax like there is for a C Corp, S Corp, or K-1.
So where on schedule C will you have to enter the PPP amount?