There is a new Paycheck Protection Program (PPP) formula for business operations that report their taxes on a Schedule C with their personal tax returns.
Previously, the formula was based on net profit from that schedule. With high dollar fixed assets creating larger amounts of depreciation and the use of accelerated methods of depreciation for the motorcoach industry, the tendency is for net profit to be small or even negative.
Who uses schedule C? Sole proprietorships which are unincorporated businesses owned by one person, or single member limited liability companies (LLC) that are considered a disregarded entity for federal income tax purposes. If a single member LLC has chosen to be taxed as an S Corporation or C Corporation, the company uses a form 1120-S or 1120 for income tax reporting.
What is the new formula if the business had no employees (no W-2)?
Gross receipts (line 7, schedule C) divided by 12 and then multiplied by 2.5. The gross receipts used for this formula may not exceed $100,000.
What is the new formula if the business had employees?
Gross receipts (line 7, schedule C) divided by 12 and then multiplied by 2.5. The gross receipts used for this formula may not exceed $100,000.
PLUS
Employee payroll and payroll costs divided by 12 and then multiplied by 2.5.
Payroll costs include:
- Employee compensation not exceeding $100,000 per year per employee
- State and local taxes on payroll
- Employer contribution to employee’s health insurance
- Employer contribution to employee’s retirement
The SBA is currently offering SBA loans through March 31, 2021.
If your PPP loan is $150,000 or less as many of the self-employed PPP loans will be, there is a simplified forgiveness form available from the SBA. The form name is PPP Loan Forgiveness Application Form 3508S. The most recent revision of this form is January 19, 2021. On this form the borrower certifies that the business has complied with all the requirements of the PPP Rules and that the information provided is correct. Sometimes banks are still collecting information in addition to the ones on the printed forms from the SBA.
Tax Planning Opportunity May Also Apply
If your company also had employees, you should consider the interaction between the PPP loan and the employee retention credit (ERC) to maximize the COVID relief options available to your company. Qualified wages for the ERC credit include wages and health insurance for employees. Some employees related to a greater than 50% owner are excluded from this calculation. For 2020 (March 13 – December 31), the refundable payroll tax credit can be as much as $5,000 per employee. For 2021, the refundable payroll tax credit can be as much $7,000 per employee per quarter.
Related:
Why PPP recipients should rethink Employee Retention Credit
UMA member Tracy Fickett, CPA, operates BUSBooks, a specialty accounting firm dedicated to the motorcoach industry. If you have a question, you can reach her at tracy@busbooks.co.
