Do you assists with ppp program questions?

[2dogkayak]

What are the forgiveness requirements for a sole proprietor without employees who borrows 2.5 times the monthly avereage of the prior year Schedule C line 31?

[sjrcpa]

We don't really know yet. SBA hasn't issued guidance on PPP forgiveness yet.

[The-Tax-Lady]

The PPP loans are for maintaining Payroll, Rent or Mtg. payments & utilities, and when used for those purposes, in the 8 weeks following the distribution of the PPP loan, that amount is subject to the forgiveness, provided you submit the authentication documents required by the lender. It's not guaranteed. If you have no employees, the forgiveness amount, if you were approved, would be  limited.

Schedule C, Line 31, Net Profit or Loss is not a number used for calculation on the PPP. 

[TaxGuyBill]

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@The-Tax-Lady wrote:

Schedule C, Line 31, Net Profit or Loss is not a number used for calculation on the PPP. 

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Sort of.  It is actually for "net earnings from Self-Employment", which Schedule C, Line 31 is the starting point (then it subtracts 1/2 SE tax, and possibly SEHI and employer retirement).

[sjrcpa]

Hot off the press

https://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Eligibility-Criteria-and-Re... 

[IRonMaN]

But those rules will change by the end of the week.

[qbteachmt]

This topic is confusing PPP with EIDL.

Please see the listing I started, here:

https://proconnect.intuit.com/community/coronavirus/discussion/starting-the-list-do-your-own-researc...

[TaxGuyBill]

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@qbteachmt wrote:

This topic is confusing PPP with EIDL.

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How is this confusing EID loans with PPP?  I don't  see anything in this thread about EID loans.

[qbteachmt]

EIDL is for Rent, debt, etc.

PPP is for Wages.

Two different provisions.

Did you go to where I posted the list? And it's in the pdf linked by sjrcpa, for PPP computation, you must include any EIDL into that computation:

"Step 4: Add the outstanding amount of any Economic Injury Disaster Loan
(EIDL) made between January 31, 2020 and April 3, 2020 that you seek to
refinance, less the amount of any advance under an EIDL COVID-19 loan
(because it does not have to be repaid)."

While the one can affect the qualification for the other, the Payroll wage PPP is not the same as the business impact EIDL, which is why PPP is not, for instance, for Rent, but EIDL is for rent, just for a specific example.

[sjrcpa]

"But those rules will change by the end of the week." if not sooner. 

I am particularly not impressed that you must include a 2019 Sch C with your application, even if you have not filed your 2019 tax return yet (which of course is not even due until July 15).

[TaxGuyBill]

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@qbteachmt wrote:

EIDL is for Rent, debt, etc.

PPP is for Wages.

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No, 25% of the PPP can be for rent, mortgage interest, utilities, and interest on debt.

[qbteachmt · Accepted solution]

Once again, I prefer to use resources and references:

"PPP vs. EIDL

The Paycheck Protection Program is one of two programs designed to help small businesses during the coronavirus crisis. The other is the Economic Injury Disaster Loan (EIDL) program. While both programs help struggling businesses get back on their feet financially, they have slightly different goals which are suggested by the names of the two programs.

The Paycheck Protection Program business loans account is a new stimulus package designed to help companies retain workers by covering eight weeks of payroll plus some other costs of remaining in business. This loan is 100% forgivable if you follow forgiveness guidelines.

The Economic Injury Disaster Loan program is an established program that helps small businesses overcome the loss of revenue during a declared disaster such as a hurricane, major fire, or, in this case, the COVID-19 pandemic. This loan includes a $10,000 advance (if you apply) that is automatically forgiven.1

You Can Get Both

Many small business owners do not know they can apply for both an EIDL loan and a PPP loan for the same COVID-19 disaster. There are rules, including the key requirement that you can't use money from both loans for the same thing. For example, if you use the proceeds from a PPP loan for payroll, you can't use an EIDL loan for payroll also."

From:

https://www.investopedia.com/your-guide-to-the-paycheck-protection-program-ppp-and-how-to-apply-4802...

And I will add that to the topic I started for Listing all of this, and I invited others to document the resources here, as well:

https://proconnect.intuit.com/community/coronavirus/discussion/starting-the-list-do-your-own-researc...

[qbteachmt]

I started that list because of the confusion between two different provisions that each happen to have a $10,000 value in them. On this forum, people keep confusing what the provisions are and what they are intended to provide.

[TaxGuyBill]

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@qbteachmt wrote:

by covering eight weeks of payroll plus some other costs of remaining in business. This loan is 100% forgivable if you follow forgiveness guidelines.

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Once again, 25% of the forgiven PPP can be for rent, mortgage interest, utilities and interest on debt.  NOTHING in this post (besides you) had anything to do with EID loans. 

[EDIT:  Actually, I think the math is actually 20% of the loan.  I think it is 25% in excess of the 8 weeks of payroll, which makes it 20% of the total loan.]

[qbteachmt]

"NOTHING in this post (besides you) had anything to do with EID loans."

And we never need to read between the lines for answering, either. For instance, the original question sure includes Borrowing: "who borrows 2.5 times the monthly avereage of the prior year Schedule C line 31"

which is not the description for the PPP or even the right factor or basis for PPP, as The Tax lady pointed out: "Schedule C, Line 31, Net Profit or Loss is not a number used for calculation on the PPP. "

So, reading between the lines, this Original question seems related not to PPP at all.

And I didn't write what is in quotes; I provided the link for what is in quotes.

And here's a nice fact sheet:

https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf

[qbteachmt]

Oh: the 25% value is an "anticipated" coverage from the fact sheet link I provided:

"The loan amounts will be forgiven as long as:
 The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
 Employee and compensation levels are maintained.
Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
Loan payments will be deferred for 6 months."

[TaxGuyBill]

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@qbteachmt wrote:

For instance, the original question sure includes Borrowing: "who borrows 2.5 times the monthly avereage of the prior year Schedule C line 31"

which is not the description for the PPP or even the right factor or basis for PPP,

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YOU need to do research on the PPP, and stop confusing threads.

Borrowing the amount of 2.5 times the monthly average is exactly the description of PPP.  The law also said it was for "net earnings for self employment" (again 2.5 times is correct).  The OP took that to mean Line 31 of Schedule C.  So again, everything had to do with the PPP.  You are the one that is confusing things.

Although I thought that the "net earnings from self employment" would not be Line 31, I think the link for the new information that Susan posted shows that Line 31 is correct.

[qbteachmt]

And I posted the Fact Sheet, which answers what was first asked regarding terms and forgiveness.

So, everyone has contributed.

[2dogkayak]

I am the original poster and this was my first post ever.  I wish I could have a do-over.

When I said Schedule C, line 31, I meant that as a starting point, not the final product. To that amount,  of course, would be added health insurance, retirement plans and other items allowable.

To re-state the question, once the amount of the loan is established (1/12 of something x 2.5), how much is eligible for forgiveness?  The SBA says 1/52 of annual compensation x 8 weeks. 

That does not compute to the amount loaned.

That is about 75% or so of the first calculation.

Which amount can be expected to be forgiven?

What kind of documentation would be required to show that the loan proceeds was spent on "owner compensation replacement? A canceled check marked "withdrawal"?

[qbteachmt]

"how much is eligible for forgiveness?"

Did you read the Fact Sheet I provided as a link, or any other resource?

One thing about this crowd is, it helps to do your research and even contribute new info to the Peer Forum, and not just rely on everyone to provide your easy answer while not knowing all the details, and not wanting to know them for your own client or your specific situation.

I provided a link to a topic I just started here today, and there are Lots of links from there, a chain of links, and the specific info needing to be provided is described there, too. I know because I saw it in passing. No one here should need to learn it just to reiterate it here. That's what resources are supposed to provide.

[sjrcpa]

For forgiveness, at least 75% must be spent on payroll. Rent,  or mortgage interest and utilities also count.

No one knows yet "What kind of documentation would be required to show that the loan proceeds was spent on "owner compensation replacement? A canceled check marked "withdrawal"?"

Yes you are correct that less than all of it could be forgiven. Simple math -borrow 2 1/2 months payroll. Forgiveness = two months payroll.

It's not your fault this blew up. Please stick around.

[TaxGuyBill]

Hmmm, my last post seems to have disappeared.

Sigh.  I'm not typing all of that again.

EDIT:  Oh, I found a way to retrieve it:

@2dogkayak wrote:

To re-state the question, once the amount of the loan is established (1/12 of something x 2.5), how much is eligible for forgiveness?  The SBA says 1/52 of annual compensation x 8 weeks. 

That does not compute to the amount loaned.

That is about 75% or so of the first calculation.

Which amount can be expected to be forgiven?

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First, sorry about our tangent conversation.  You did great for your first question.

8 weeks of average income can be forgiven, PLUS rent, mortgage interest, utilities and debt interest during that period.

So you can get a loan for 10-ish weeks for pay, but only 8 weeks of pay can be forgiven.  The other 2-ish weeks is for the qualifying rent, mortgage interest, utilities and debt interest.

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@2dogkayak wrote:

What kind of documentation would be required to show that the loan proceeds was spent on "owner compensation replacement? A canceled check marked "withdrawal"?

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Susan posted the BRAND-NEW guidance for that above (I'll add the link below).  At my first reading, just showing your 2019 Schedule C works.

https://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Eligibility-Criteria-and-Re...

[2dogkayak]

I was asking because my typical sole proprietor, even Uber driver,  works out of his/her home, pays no rent, has no debt and has nothing on which to spend 25%.

There is some double talk in the SBA documentation, and it seems to contradict itself. One place is says you have to re-pay 25%, and elsewhere, it says it is a windfall and it is forgiven.

That is the way I read it.  That is why I asked.

[qbteachmt]

I am recommending a typical Sole Proprietor to apply for UI. Not for Loans that might or might not be forgiven. Look at how well the whole School Debt Forgiveness program is going, for a reference.