@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.pdf8. 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.