Divide that number (capped at $100,000) by 12 and then multiply by 2.5* to determine your loan amount.” If you don’t know what to put … Multiply by 2.5 to determine the PPP loan amount to request to cover 2.5 months of average profits (“payroll”) for a self-employed business. Listen very carefully to this next part. Find your 2019 IRS Form 1040 Schedule C line 31 net profit. If the net profit amount is over $100,000, reduce it to $100,000. 1. The new IFR allows a Schedule C filer who has yet to be approved for a PPP first- or second-draw loan in the current, $284.5 billion phase of the program to elect to calculate the owner compensation share of its payroll costs based on either net profit (as reported on line 31 of Schedule C) or gross income (as reported on line 7 of Schedule C). Filed (or will file) Schedule C with their Form 1040 to report their business income to the IRS. You filed or will file a Form 1040 Schedule C for 2019, showing self-employment income. 4. ... Gerri, thank you so much for this step by step guide for filling out the PPP Loan Forgiveness Application. The PPP loan is a bookkeeping entry. If you haven’t filed 2019 tax returns, fill out 2019 Schedule C. You can fill it out to compute the value. The compensation expense would be reported on your Schedule C (Form 1040) at tax time. In addition, you must have been in business by February 15, 2020 to be eligible for the First or Second Draw. If this amount is over $100,000, reduce it to $100,000. If you are a business owner who is confused on how to fill out your PPP Loan Forgiveness Application Form, please refer to this blog for a simple guide. Calculate the average monthly net profit amount (divide by 12) (from step 1) On February 22, 2021, the Biden-Harris administration announced these important PPP rule changes that allow PPP borrowers who file using IRS Form 1040 Schedule C to use GROSS profits, rather than NET profits, to calculate their maximum PPP loan amount. Because the amount of money you were supposed to receive for your PPP loan was your Schedule C Line 31 divided by 12 times 2.5—essentially, 10 weeks of payroll—some people may have been given too much money. Your PPP loan and its forgiveness for “compensation” are capped at $15,835 under the eight-week covered period or at $20,833 under the 24-week covered period. How To Complete SBA Form 3508S for PPP Loans Under $50,000. If this amount is zero or less, you are not eligible for a PPP Loan. PPP loans are calculated using the average monthly cost of the salaries of you and your employees. According to the SBA, you don’t have to file your 2019 tax return before you apply for a PPP loan. Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value). Your salary as an owner is defined by the way your business is taxed. Five Steps if you want to use 2020 information for your PPP loan application prior to filing your taxes. How sole proprietor PPP loans are calculated. As you pay yourself, you would Debit compensation and Credit Cash. But if you also had (say) an employee who earned $2,000 a month, the PPP formula will provide you with another $5,000 for that. If this amount is over $100,000, reduce it to $100,000. In order to receive the PPP loan, the biggest requirement for a sole proprietor is to prove their net income for 2019. 2. Author: Harmony Kolling, CPA. By Bill Cunningham. Schedule C filers that are applying for PPP loans for the first time are able to get a higher PPP loan amount based on the new PPP loan formula for Schedule C filers. When you received the money, from your PPP loan, it would be a Debit to Cash and a Credit to Loans (liability). If this amount is zero or less, you are not eligible for a PPP loan. What if I haven’t filed my 2019 tax return? But I don't have an LLC or any official entity for my business, and I don't keep the most meticulous books, so I didn't think I would be eligible for a PPP (Paycheck Protection Program) federal loan.. You were in operation on February 15, 2020. “For PPP loans not approved by March 3, 2021, you have the choice of either using the amount on line 31 (net profit) or line 7 (gross income) on your Schedule C tax form to qualify. To fill out your 2020 Schedule C you will also have to fill out IRS Form 8829 Expenses for Business Use of Your Home that requires you to calculate your Time-Space Percentage. Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value). 2. If I haven’t applied for my PPP loans yet and I use Schedule C, should I wait to apply? Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value). Furthermore, to qualify, you must certify in good faith that the loan is … Entities with significant ties to China are ineligible for a second draw PPP loan. Now, let’s break down the 3508EZ form into manageable chunks that you can fill out. If this amount is over $100,000, reduce it to $100,000. So if she fills out a schedule C with fudged numbers in order to apply for a PPP loan, will this potentially have issues with the IRS if she does not include that schedule C on her taxes? If this amount is zero or less, you are not eligible for a PPP loan. If you want to compare quarters, you can pick any quarter in 2019 and multiply your gross income for that quarter by 75%. The max for PPP loans is $100,000 annualized income, so cap any net profit over $100,000 for the following steps. However, you will have to fill it out because you will need information from it to apply for your loan. This was perfect for those of us that are self employed and trying to navigate the maze of forms and calculations. Fill in the top section with your relevant information. If this amount is zero or less, you are not eligible for a PPP loan. Divide this total by 12 to find your average monthly net profit. Some items to note: Schedule C filers who were in business as of 2/15/2020, with SE income are eligible for a PPP loan if their principle place of residence is the U.S. and they have filed or will file a 2019 Form 1040 with a Schedule C. An interim final rule (published on March 3, 2021) enables those who fill out Form 1040, Schedule C, to elect to make the loan calculation using gross income rather than net profit. Here’s an instructional video to help you. The cap amounts are computed using your net profit from line 31 of your 2019 Schedule C. If your 2019 Form 1040 Schedule C shows a loss, your business will not qualify for a PPP loan. ... How to Fill Out the PPP Loan Forgiveness Application Form: 3508 EZ. If you’re a sole proprietor or self-employed and file a Schedule C, your PPP loan is calculated based on your business’ gross profit (or gross income).. a. Max is $100k. If this amount is zero or less, you are not eligible for a PPP loan. Now, let’s get to it and break down the 3508EZ form into manageable chunks that you can fill out. She keeps watching these YouTube and tiktok videos of people saying to just fill out a schedule C and then apply for a PPP loan, but I feel like she's crossing the line into fraudulent areas. Use your 2019 IRS Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value). You need to check your PPP loan amount to make sure you know the amount that will be forgiven. If you did receive a PPP loan in 2020, you are not eligible for the First Draw (with the above exception). 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