In October, the Small Business Administration released a simpler loan forgiveness application for PPP loans of $50,000 or less. This action allows the financial institution that you received your loan from to streamline the PPP forgiveness process.
If you applied for your PPP loan with a Form 1040 Schedule C, you will need to have the following documents:
- Payroll/Wages: 2019 Form 1040 Schedule C
- Utilities: utility account statements verifying payments for February 2020 and each month during your covered period
- Rent: monthly landlord account statements for February 2020 and each month during your covered period
- Mortgage interest: lender account statements for February 2020 and each month during your covered period
You have up to 10 months after your covered period ends to apply for forgiveness.
You are not required to start making loan repayments until your forgiveness decision is determined. When repayment does begin, any loan amount that is not forgiven will need to be repaid, along with a 1% fixed annual interest rate on the amount not forgiven.
Note: if you do not apply for forgiveness, your business will need to start repaying its loan within about 16 months of receiving the funds.
Remember that the SBA may request more information and documents while reviewing your application—and for up to six years after your loan is forgiven. Keep all of your documents just in case.
After the loan has been forgiven, you should be prepared for the forgiven loan to impact your 2020 taxes. While a forgiven PPP loan is tax-exempt, using the loan can also reduce how much you can write off on your business taxes. This means that some of your everyday expenses like payroll, rent and utilities that would normally be deductible from taxable income would not be deducted. Without this deduction, your business may in fact owe more taxes at the end of the year than normal.