The PPP Thread

[Cubicle]

^^^ I know you know, but for others... Schedule C people: 8/52 of Schedule C line 31 is what I repeatedly keep seeing, as of now.

I think many doctor Schedule C people will fall into the $15,385 max forgiveness camp.

[Rthoma23]

Does this affect the IRS position on loan forgiveness, i.e. it's not deductible and essentially taxed as income?

https://www.irs.gov/pub/irs-drop/n-20-32.pdf

Unfortunately, this new bill did not address the IRS's stance that expenses paid with PPP loan will NOT be deductible as business expenses. There is a bill in the Senate (https://www.congress.gov/bill/116th-...bill/3612/text) that would fix this. It would be nice if this passed.

If you're a partner or sole proprietor, I'm thinking the 24 weeks will allow you to "spend" a greater amount of the loan on owner compensation. Under initial terms the max amount was 15,385 (100,000 x 8/52). I'm thinking this new bill will increase the max amount to 46,154 (100,000 x 24/52).

If you allocate more of the loan to owner compensation you may be able to avoid some taxes. The SBA is allowing owners to use a portion of this loan to pay themselves. Owner draws (in a sole proprietorship or partnership) are not business expenses and are not taxable.

For example if you have a $100,000 PPP loan and you spend $15,385 on owner compensation and $84,615 on business expenses (payroll, rent, etc.), then the IRS says you will pay taxes on $84,615. If, under this new bill, you allocate $46,154 to owner compensation and $53,846 to business expenses, you will only pay taxes on this $53,846.

The SBA will have to release many more pages of guidance if this new bill is signed into law.

[CordMcNally]

Unfortunately, this new bill did not address the IRS's stance that expenses paid with PPP loan will NOT be deductible as business expenses. There is a bill in the Senate (https://www.congress.gov/bill/116th-...bill/3612/text) that would fix this. It would be nice if this passed.

If you're a partner or sole proprietor, I'm thinking the 24 weeks will allow you to "spend" a greater amount of the loan on owner compensation. Under initial terms the max amount was 15,385 (100,000 x 8/52). I'm thinking this new bill will increase the max amount to 46,154 (100,000 x 24/52).

If you allocate more of the loan to owner compensation you may be able to avoid some taxes. The SBA is allowing owners to use a portion of this loan to pay themselves. Owner draws (in a sole proprietorship or partnership) are not business expenses and are not taxable.

For example if you have a $100,000 PPP loan and you spend $15,385 on owner compensation and $84,615 on business expenses (payroll, rent, etc.), then the IRS says you will pay taxes on $84,615. If, under this new bill, you allocate $46,154 to owner compensation and $53,846 to business expenses, you will only pay taxes on this $53,846.

The SBA will have to release many more pages of guidance if this new bill is signed into law.

I imagine they'll end up making the whole thing non-taxable because what about the businesses who are coming up on the end of the 8 week period who have basically spent the entire loan as initially planned? I assume most business created a separate account to allocate the money each payroll. Will they then allow any part of the loan already 'spent' on employee payroll to be put back into that account and then 'spent' on owner compensation? Seems like it creates a lot of unnecessary steps.

[Rthoma23]

I imagine they'll end up making the whole thing non-taxable because what about the businesses who are coming up on the end of the 8 week period who have basically spent the entire loan as initially planned? I assume most business created a separate account to allocate the money each payroll. Will they then allow any part of the loan already 'spent' on employee payroll to be put back into that account and then 'spent' on owner compensation? Seems like it creates a lot of unnecessary steps.

Great point

[Rando]

It might go without saying but:

Small businesses who received PPP funds and who were already planning to submit a forgiveness application with their bank will need to wait, as the SBA and Treasury will be updating guidance and the PPP forgiveness application. The good news for many small businesses is that the additional 16 weeks will provide more payroll cycles and will result in more PPP funds being forgiven. The changes to PPP in this new bill are significant and will allow more small businesses to benefit from this popular small-business relief effort.

I was considering doing a special payroll next week as that was when my 8 week PPP period ended, but it looks like it behooves everyone to just stick with their regular payroll schedule.

https://www.entrepreneur.com/article/351489

[jacoavlu]

the way this has worked out, the employers who paid all their employees for 8 weeks or whatever while furloughed and business not open, kinda got screwed.

[Tim]

the way this has worked out, the employers who paid all their employees for 8 weeks or whatever while furloughed and business not open, kinda got screwed.

But that was the primary objective. Keep the business and staff in place and cause no harm. The PPP is to protect the small business owner paying employees. Not contractors, not vendors, not inventory. No a financing deal. W-2 payroll , keep it running and you will be forgiven. Guess not.

[jacoavlu]

But that was the primary objective. Keep the business and staff in place and cause no harm. The PPP is to protect the small business owner paying employees. Not contractors, not vendors, not inventory. No a financing deal. W-2 payroll , keep it running and you will be forgiven. Guess not.

agree. “Screwed” is relative

owner who shut down, people went unemployment, then is able to rehire and use PPP funds during 24w period fares better than owner who used PPP funds to pay employees not to work.

[jhwkr542]

the way this has worked out, the employers who paid all their employees for 8 weeks or whatever while furloughed and business not open, kinda got screwed.

A lot of businesses didn't have the choice to stay open during this time period though.

[jacoavlu]

A lot of businesses didn't have the choice to stay open during this time period though.

understood. It’s just the way the PPP morphed, some biz came out better than others.

For some biz the majority of the PPP funds are basically passed through to employees (paid while not open)

for others the funds end up being much more owner support (paid after re open)

[countryphysician]

The maximum compensation through the PPP Loan for one employee was $15,384 ($100k/52 weeks x 8 weeks). Since the PPP was extended to 24 weeks, does the maximum compensation increase to $46,152 ($100k/52 weeks x 24 weeks) or is it still $15,384?

[Rando]

The maximum compensation through the PPP Loan for one employee was $15,384 ($100k/52 weeks x 8 weeks). Since the PPP was extended to 24 weeks, does the maximum compensation increase to $46,152 ($100k/52 weeks x 24 weeks) or is it still $15,384?

I think we're still waiting for the final guidelines to come out which likely will address that.

[GasFIRE]

More PPP clarity for sole proprietors:

https://www.forbes.com/sites/brianthompson1/2020/06/17/sba-finally-clarifies-ppp-loan-forgiveness-rules-full-forgiveness-for-self-employed-borrowers/#794164674110

[docnews]

More PPP clarity for sole proprietors:

https://www.forbes.com/sites/brianthompson1/2020/06/17/sba-finally-clarifies-ppp-loan-forgiveness-rules-full-forgiveness-for-self-employed-borrowers/#794164674110

Wow! So basically for sole proprietorships who received PPP it looks as if it's a $20,833 government gift and not even a loan! This is insane!!

[GasFIRE]

Not a gift. The IRS hasn’t updated or changed their position yet that the forgiven PPP loan is imputed income. Also interesting that for 24 weeks owners compensation is capped at $20,833 but if paid to an employee the cap is $46,154 (24 weeks of $100K annualized compensation). The saga continues.