If you’re a sole proprietor, independent 1099 contractor, or gig worker who received a PPP loan it’s possible that 100% of your loan can be forgiven. Here’s how.
PPP Loan Forgiveness Owner Compensation Replacement Video Transcript
hey everyone rodney goldston here and in
today’s video we’re going to be discussing
owner compensation replacement and full
ppp loan forgiveness
welcome to insights for impact this is a
place for entrepreneurs and people
looking to pick themselves to do work
that
matters for people who care now
let’s jump right into the owner
compensation replacement issues
so if you are a self-employed person or
a 1099 contractor
you now have the ability to use your pp
to get a ppp
loan and to use a portion of the
proceeds
as a replacement for loss profit
using a concept called owner
compensation replacement
now when the loan first came out and
many people
still think of the loan as having to use
it
to pay salaries to keep your employees
on staff or employee however what
happens
if you are a entrepreneur or solopreneur
or a sole proprietor what the government
has rolled out in april is this concept
called owner compensation replacement
now in light of the new ppp guidelines
what’s really interesting is that you
you may be able now to get the entire
loan
folks the entire loan forgiven
automatically
without even having to anything with the
money other than leave it in your bank
account
where it landed the first time so let’s
dig in
owner compensation replacement what is
it
and how did it come to be so back in
april the u.s
treasury in the sba introduced this new
concept called
owner compensation replacement and the
reason they did it is because
we as self-employed people we don’t pay
ourselves to payroll
we don’t typically have employees we use
freelancers and
things like that 1099 contractors and
what this concept
allows the independent contractor or the
sole proprietor
to do is to simplify
and claim a portion of the loan
to make up for the lost income due to
covet 19.
so what you can do is you can use a
portion or all of the loan and i’ll
show you that later as income
replacement rather than to pay salaries
due to losses incurred through covet 19.
who can claim owner compensation
replacement
so it turns out that anyone who files a
1040
schedule c qualifies to
file for owner compensation replacement
or ocr and it doesn’t matter folks
whether you have
employees or not how much
can you claim well
the ppp loans have a coverage period of
24 weeks
now over the 24 weeks you can claim two
and a half
months of your net profit for 2019 so
what you’re going to do
is you would look on your schedule c on
line 31
and that is your net profit reported on
the schedule c now assuming
uh your ppp loan did not include any
payroll expenses this will be equal to
the entire
ppp loan amount now the maximum
that you can get in a ppp loan is twenty
thousand
eight hundred and thirty three dollars
now if you receive the loan prior to
june 5th here’s the caveat if you
receive the loan prior to june
5th 2020 you can choose an eight-week
coverage period
if you receive the loan after june 5th
you have to use the 24 week
coverage period but my understanding is
that if you received it
prior to june 5th you can request
permission
to use the 24-week coverage period if
that benefits you
so the way this works out is that you
can claim eight weeks worth
of uh 2019 net profit under
the eight week program and 10 weeks
net profit under the 24 week program
how do you claim owner compensation
replacement
so folks there’s no special conditions
for you to claim this you simply need to
transfer the money
out of your business account into your
personal account and i’ve even read some
things online
on some cpa websites that suggest you
don’t even have to transfer the money
out
you can just leave it there and fill out
the appropriate
easy forgiveness application to claim
the
owner compensation replacement benefit
now
be sure to check out my video when i
as i walk through completing the easy
application form to claim
the owner compensation replacement
benefit is owner compensation
replacement
free money yes essentially it is you can
treat the owner compensation replacement
as a grant or as personal income
and use it however you want now with the
updated guidelines as i’ve mentioned
early earlier it’s only allowing for
two and a half months worth of net
profit
for the ocr so that means that your
entire
ppp loan could be used for personal
purposes essentially it’s free money
how does owner compensation replacement
work with
pua or unemployment benefits
so because of the way these programs
were rolled out
and there are three main programs that
the government’s rolled out there’s uh
the
idol program e-i-d-l which you can check
out my video on that as well
there is uh pua or unemployment
for self-employed people and this ppp
loan or paycheck protection loan
but because of the way these are rolled
out in the guidelines things were kind
of murky
and you may have applied for
unemployment and got it
and then later applied for the ppp loan
because
the money ran out the first time really
quick and so you went ahead and applied
for unemployment
but now you’ve applied for the ppp loan
and you’ve got and
and it’s been granted to you so can you
have both the unemployment and the ppp
the ppp loan going on at the same time
and the
answer is yes you can
however you need to report
anything that you receive from the
paycheck protection
program to your state’s
unemployment office and they will
probably just
compensate or deduct from your
unemployment
accordingly is owner compensation
replacement
taxable income so uh that’s a tough one
so and i’m going to read something here
this says while the cares act indicates
that forgiven ppp amounts are taxed
and can be treated like a tax-free grant
we believe this doesn’t clearly account
for the ocr or owner compensation
replacement
and is and its purpose as a substitute
of
actual income so until further guidance
is published we recommend working under
the assumption
that you will need to report the claimed
ocr
or owner compensation replacement as
personal income
on your 2020 tax return so
folks just be prepared because the the
sba and treasury
have not come out with a very clear
guidelines
on how the ocr or owner compensation
replacement
will be considered is it considered
income for us or is it considered a loan
so if it’s considered income for the
sole proprietor or entrepreneur or
solopreneur
then you’re going to need to set aside
money to pay taxes in 2020
on your ppp loan
can you pay yourself a bonus to and the
answer to that question is
no you cannot pay yourself a bonus also
you’re going to be limited to just the
owner compensation replacement
0:08:42.880,0:08:46.320
up to the one hundred thousand dollar
annualized
salary cap now if you have already
completed your ppp loan and the funds
have been dispersed
and you’re looking to fill out the
forgiveness
application form be sure to check out my
video as i take you step
by step and free in uh fulfill for
filling
out the ppp loan forgiveness form
and if you haven’t already don’t forget
to subscribe to the channel and if you
got anything out of this video please
give it a thumbs up if you didn’t go
ahead and give it a thumbs down
and let me know in the comments section
if this video was helpful how does
the owner compensation replacement work
with idle or the e-i-e-i-d-l
disaster loan one thousand dollar grant
so many of you may have applied for the
eidl disaster loan and the one thousand
dollar grant if you haven’t already you
can check out my video on how to do that
and i explain that program and go ahead
and let me know in the comments section
right now
if you applied for the eidl
a one thousand dollar grant yes or no
did you apply for or didn’t you now if
you happen to
have applied for this is going to be
very very important and you got it
this is very very important the one
thousand dollar grant
will be deducted from the amount of
money that you received in your pp
loan as forgivable so here’s what i mean
by that
if you apply for the ppp loan the
paycheck protection program
loan program and let’s say you were
granted twenty thousand.
