Why Sole Proprietors, Independent Contractors, and Self-Employed Individuals Should Apply for Paycheck Protection Program Funds Today

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Why Sole Proprietors, Independent Contractors, and Self-Employed Individuals Should Apply for Paycheck Protection Program Funds Today

The Paycheck Protection Program (PPP), generally speaking, provides for two and a half months of payroll expenses to those who have employees. This led some sole proprietors, independent contractors, and self-employed individuals, to think they did not qualify when the program first opened.

For those self-employed with no employees, the calculation is a little different, but if you made money last year, you do qualify and should seriously consider applying. Why? At the moment, without further congressional action, the additional $600 a week in Pandemic Unemployment Assistance benefits expire July 25th. Yes, you can continue collecting unemployment for a total of 36 weeks, but, likely, the amount you will receive will not cover the bills.

While PPP is not a long-term solution, it can help keep your business afloat while you weather current conditions. It gives you a little room to breathe while you figure out the best way to move forward with your business.

You cannot use PPP at the same time you are collecting unemployment, but you can pause unemployment and report your PPP income as you would do with any other income, and continue collecting once PPP runs out. Of course, this only makes sense if the PPP amount you receive is higher than what you would otherwise collect from unemployment.

How do you calculate the amount you can apply for?

At this point, you should have filed your 2019 tax return. You are going to be using Schedule C of your tax return, so pull that out and have it handy. Take a look at your 2019 IRS Form 1040 Schedule C, line 31 (net profit amount). If the amount is over $100,000, reduce it to $100,000. Please note if that amount is zero or less, you do not qualify. Divide the net profit amount by 12 to get your monthly average, and multiply that amount by 2.5.

What documents do you need to gather to apply?

Have your ID ready (driver’s license, etc.), your 2019 tax return, and a document that proves you were in business on February 15th of this year, which is the official date of declaration of a disaster for COVID-19. This document can be a bill under the business’ name, or an invoice a client paid. Requirements may vary slightly by lender, so be sure to take a look ahead of time and have all information and documents ready.

What do you use it for?

You can make weekly or biweekly draws from your business account (where the PPP should be deposited) to your personal bank account. Please note for anyone applying now (after June 5th, 2020) your forgiveness amount is capped at 2.5 months worth of your 2019 net income, to a maximum of $20,833, which is the maximum you would qualify for if you calculated your loan amount correctly.

You have up to 24 weeks to use the funds, and if you do have a business location that you pay rent or utilities for, you can use up to 40% of the funds to cover those costs. Please note at least 60% has to go towards compensation replacement.

The forgiveness application process is fairly simple for self-employed individuals with no employees, and we are here to assist you both with the initial loan application, as well as with the forgiveness process.


The deadline to apply is August 8th, 2020, but funds may run out before then. Do not delay!

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