Question

2020 Schedule C, self-employed how to report PPP received

Forum|Forum|5 years ago
March 17, 2021
2 replies
0 views

I received the first draw of PPP fund as a self-employed, and I paid compensation to myself from the PPP fund.

Even though the PPP fund itself is NOT taxable? Wondering how to report the compensation paid to myself from PPP fund?

You're correct. The PPP loan is not taxable however the expenses you pay with the PPP loan are deductible on your income tax return. For example: your compensation.

The PPP loan is a bookkeeping entry. When you received the money, from your PPP loan, it would be a Debit to Cash and a Credit to Loans (liability). As you pay yourself, you would Debit compensation and Credit Cash.

The compensation expense would be reported on your Schedule C (Form 1040) at tax time.

For additional information, see What is the Paycheck Protection Program (PPP) Loan?

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

N

nongkangmaAuthor

As for compensation expense, which item I should put on Schedule C. say, which line?

It seems like NOT make sense to me if I don't report income instead only report as expense as a whole.

How does it work?

LenaH

It depends. Direct labor would be a part of Cost of Goods Sold (Part III, Line 38). Direct labor is considered compensation to employees that directly relate to earning the income. Wages that are indirectly related (such as office employees), would be on Line 26 of your Schedule C.

PPP is not considered income and would be entered anywhere on your Income Statement. Rather, it is a balance sheet item. If it has not been forgiven as of December 31, 2020, it usually sits in a Loan account. Then, once forgiven, it would be a debit to the PPP loan account and a credit to a non-taxable income account in your accounting software (if you utilize one).

@nongkangma

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

N

nongkangmaAuthor

Thanks for your explanation!

I already paid self-employment tax on this compensation paid from PPP fund. We should do that or not?

LenaH

Some more clarification is needed to answer your question correctly - Did you take distributions of profits or issue yourself a W-2?

If it is a W-2, then you report it under wages on your 1040 and deduct it on your Schedule C, Line 26.

If it is a distribution, then that is also a balance sheet item and would not be reported on a Schedule C. You are being taxed on your net profit on your Schedule C.

@nongkangma

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"