Are you wondering how loan forgiveness works for Sole Proprietors that received a PPP loan based on their 2019 Schedule C net profit? There are some key differences in how loan forgiveness works that are important for sole proprietors to understand.
Let's use an example: Say you earned $75,000 net profit on your 2019 Schedule C Line 31. This means your PPP loan amount will be $15,625 ($75,000 / 12 * 2.5)
The 8 week period begins on the date your PPP funds are deposited in your bank account.
Sole Proprietor Loan Forgiveness (8 weeks)
The SBA has determined that it is appropriate to limit the forgiveness of owner compensation replacement for individuals with self-employment income who file a Schedule C to eight weeks’ worth (8/52) of 2019 net profit. This is most consistent with the structure of the Act and its overarching focus on keeping workers paid, and will prevent windfalls that Congress did not intend.
What does this mean?
1) Based on a $75,000 Schedule C profit your loan forgiveness for payroll costs will be $11,538 ($75,000 / 52 weeks * 8 weeks)
2) You don't have any tracking requirements for payroll. The payroll cost calculation is 8/52 of 2019 net profit.
3) After deducting payroll costs, you will have $4,087 of PPP loan remaining that can be used for business rent, utilities, or mortgage interest.
+You must have claimed these expenses on your Schedule C as business expenses in 2019 for the 2020 expenses to be eligible for forgiveness during the 8 week period.
+If you work from home you can NOT claim your home mortgage interest or home utilities as forgiveness deduction.
Therefore, If you are a Sole Proprietor who works from home, you WILL have a remaining loan amount because the payroll cost deduction is less than the original loan amount and you will have no other forgivable business expenses. In this example the remaining loan amount will be $4,087.
4) You will need to provide documentation for the remaining two weeks worth of cash flow, proving you spent it on mortgage interest, rent, lease, and utility payments.
Remember if you also received an EIDL grant, this amount will also reduce your PPP loan forgiveness.
The EDGe team of experts now offers PPP loan forgiveness tracking for your business.
If you need to talk through specific options for your business, Molly, Paula, and I are here to help. Schedule a 30 minute consultation via Zoom where we will discuss your specific business situation for only $49. If you have any questions, feel free to reach out to any of us. And keep checking our emails, blog, and social media for updates.