Some clarifications today – some not so good, some okay, some good.

Possibly bad: SBA EIDL grant is limited to $1,000 per employee, up to $10,000. This is a new invention—you probably got the e-mail. “The Advance is available as part of the full EIDL application and will be transferred into the account you provide shortly after your application is submitted.”

My reaction: Do we have to re-apply? Show me the money! Has anyone we know seen a dime?

The good: Partnerships can include “self-employment income of general active partners” as payroll cost, up to $100,000 annualized each. But, partners cannot file an individual PPP loan application.

My reaction: I was correct to include guaranteed payments in our original worksheet, but have now updated to include other self-employment income. (That is generally the pro-rata share of partnership or LLC net income for other than limited partners.)

The ugly: PPP loan and forgiveness amounts for sole proprietors have been curtailed. And, a 2019 schedule C must be included with the application. So much for the July 15 tax deadline.

My reaction: I’m redoing the worksheet and thinking about writing my congressperson.

  • Here’s how to calculate the PPP loan amount for self-employed individuals:
    1. Take 2019 Schedule C net profit on line 31 up to $100,000 (No depreciation add-back.)
    2. Add Payroll costs, if any: 2019 Gross wages up to $100,000 annualized per employee; employer paid health insurance; retirement contributions, state payroll tax
    3. Divide the total by 12, multiply times 2.5
  • The loan can be used for owner compensation (Number 1 above) and the usual expenses (payroll, mortgage interest, rent, utilities) but only if these expenses were claimed on the 2019 Schedule C that is filed with the application. The logic is this loan is to “maintain existing operations and payroll and not for business expansion.” So if your business scaled in 2020 you need to go back to the future.
  • What can be forgiven and treated as a grant?
    • An eight-week accounting of allowed expenses, but 75% must be used for owner compensation and payroll costs;
    • And, loan forgiveness is limited to a proportionate share of 2019 net profit, based on the now tiresome and repulsive 2019 Schedule C.
  • What do I need to submit with my application, you ask?
    • 2019 Schedule C; 2019 Forms 1099-MISC received, if any; 2019 invoice, bank statement or “book of record” that proves you are self-employed; Same info for 2020 to prove you were in operation on or around February 15.

Read the full text here. The exciting part starts at the bottom of page 4. https://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Eligibility-Criteria-and-Requirements-for-Certain-Pledges-of-Loans.pdf

Stay safe and healthy!

Tune in for the next exciting episode when Batman turns to Robin and says, “There may not be another episode! This trying to be a thought-leader for government programs is for the birds.”

Best,
Steve

McNeely & McNeely CPA Newsletter

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