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Paycheck Protection Program (PPP) for Sole Proprietor

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Small businesses, including sole proprietors qualify for loans under the Paycheck Protection Program (PPP). The second round provides an additional $310 billion of funding specifically for PPP.

For example, if your sole proprietorship made $80,000 last year (without any employees), your basic loan calculation is as simple as $80,000/12 multiplied by 2.5. You could receive a PPP loan of $16,666. Click here for the U.S. Treasury Depart instructions for calculating your loan. For previous information provided by Nabers Group about the PPP program click here. We continued our coverage on PPP Round 2 here.

Urgency, Confusion, and Anxiety

There is confusion, as you would expect with any new large government program. The rollout is happening fast, which makes things more confusing. The first thing you should know is that this is not an endless stream of funding. This makes it dissimilar to the supplemental unemployment package.

Once PPP funds are depleted, no more loans will be available unless Congress passes additional legislation. The first round of funding went quickly. Therefore, your loan application should be your top priority if you want to be part of this round. The feds want to get this money flowing in the economy as quickly as possible.

To immediately view the information that your lender will need, view the application form here. For a list of participating lenders click here. (Banks have their own applications. They generally require that borrowers use those.)

Don’t Delay On Your Application

If you need some of that money, get your application in now. There is anecdotal evidence smaller regional banks and credit unions did a great job the first time around. Contrarily, the big national banks had spotty performance when it came to small businesses. If you have a banking relationship with a smaller local bank, you probably want to begin by applying with them. Encouragingly, (although there is no indication this will happen) Brian Moynihan, CEO of Bank of America, has suggested that Congress further increase funding to help all small businesses. However, as it is now, it is first-come, first-served.

If you don’t have a relationship with a bank, there may be an alternative that will work for you. These online sources are making PPP loans even though they are technically not banks:

PPP for Sole Proprietors

You may have some anxiety or confusion about how to use loan funds. Remember the point of these funds is to keep employees on your payroll. But, what if you don’t have employees?

Tax advisors and banks are seeking guidance on how to substantiate sole proprietors as a “primary employee”.  As a sole proprietor, you file Schedule C on your 1040 tax return.  According to the U.S. Treasury, “regardless of whether you have filed a 2019 tax return with the IRS, you must provide the 2019 Form 1040 Schedule C with your PPP loan application.” If you’ve already filed your taxes, submit your filled-out Schedule C to your lender. If you haven’t filed your taxes yet, check your books for 2019 to calculate your net income and fill out your Schedule C properly.

If you work as a 1099 independent contractor, report your freelance income annually on Schedule C of your tax return. This is likely also documented on 1099-MISC forms you collect from the companies or individuals who hired you as a contractor. Copies of 1099-MISC. may also be required with your application.

Sole Proprietors and Independent Contractors

The CARES Act defines payroll costs for sole proprietors and independent contractors as:

   “The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period.”

Additionally, C-corps and S-corps must use payroll to pay their owners. Corporations pay tax separately from the individual. As the business owner, document your pay through payroll. Remember, distributions or dividends from a corporation are not considered salary or self-employment income.

Also – be aware you cannot receive both Unemployment Benefits and a PPP loan at the same time.

Non-Payroll Expenses

PPPs for sole proprietor loans are forgiven if 75% of funds go to payroll costs within 8 weeks following receipt of the loan proceeds. That leaves the remaining 25% for other business expenses. This includes rent, mortgage obligations, utilities, and other fixed-debt obligations. Under that umbrella falls expenses for a home office to the extent of your home office tax deduction.

Remember, these expenditures must happen within 8 weeks following receipt of the loan proceeds. Keep all paid invoices, statements, lease agreements, or canceled checks that will help prove these expenses.

In the PPP for sole proprietors, these percentages have important implications. And, they are different from businesses paying the funds out as wages to employees. If you’re a sole proprietor, 75% of the loan acts as a straight replacement for lost profit. Therefore, it doesn’t need to be spent in a particular way (it’s your money to do what you want). You must spend the remaining 25% on mortgage interest, rent and lease payments, and utilities to be forgiven.

Key Take-Aways

  • PPP for sole proprietors began April 10, 2020. Funds ran out too fast to help most small businesses. Replenished funds ($310 billion in new money) submissions began April 27.
  • The additional money will go fast. Submit an application immediately and then consult with a tax professional while you wait.
  • You can borrow 2.5 times your average monthly payroll costs.
  • Define your payroll costs as net earnings from self-employment.
  • Loan forgiveness: spend 75% of the loan proceeds on payroll costs and 25% on mortgage, rent, and utilities. To qualify for forgiveness, spend the funds in the 8 weeks following receipt of the loan proceeds.

After you apply, you may need to check on the status of a previous application – if there was one. Ask if you should apply again or if the previous application remains in progress.  This situation is fluid and you need to be talking to your bank.


This is additional funding towards economic recovery but probably not the end of the funding. Political leaders are already turning their focus to the next round, probably with a focus on stimulating the stalled U.S. economy. Almost certainly, there will be more coming. Nabers Group will continue to put this in perspective for the small business owner with a Solo 401k. You may also want to read this article: What to Expect from the CARES Act.

Have questions about growing your retirement account? The 401k experts at Nabers Group will help you get your retirement funds into your control, where they belong.

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