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[Rick Braa] PPP rules surrounding owner income and when to apply for tax forgiveness
Acclaimed restaurant consultant Rick Braa held a webinar on the Paycheck Protection Program. In parts three and four of this webinar, he went into the rules surrounding owner income and when to apply to tax forgiveness. We highly recommend that you watch these videos, as there are a lot of technical details in this section.
Braa opens with recent clarification around S-corps and C-corps, noting that LLCs and partnerships have less clarity. If you are an owner of an S-corp or C-corp, and you own less than 5 percent of the company, you are treated like any other employee. If your ownership is greater than that, you are limited to a salary of $20,833.
Partners are limited to that, plus your K1 self-employment earnings. The rules concerning LLCs are different and lacking in clarity at this time.
It is important to know that expenditures that are part of forgiven loans are NOT tax-exempt. The expenses you pay are not deductible, and in some cases, this can be a considerable number. Braa noted that this was not the intention of the original stimulus and so may be fixed or changed in the future, should Congress ever come together again. Just bear in mind that if you have a $500,000 loan that was forgiven, all of that money can still be taxed.
In the next part of the webinar, Braa goes into when you should apply for forgiveness. The rub is, at this point many banks are simply not lending. The huge volume of loans has been very taxing, and banks are struggling for manpower to handle this volume. They’ve outsourced calculations for forgiveness as a result.
Braa went into the process — you have 10 months to file for loan forgiveness. Once you have filed, banks have 60 days to submit to the Small Business Administration (SBA) for approval. Essentially, Braa said, you wait until you hear back from the SBA before you start paying back your loan. This can be advantageous and allow you to save money if you anticipate having to pay a portion of your loan.