Farmers mainly were excluded from the initial batch of Paycheck Protection Program loans, but a change in the way farmers’ payments are calculated might result in larger payouts Ipass direct lender.
Payments were calculated in the first round based on farmers’ net income, which is income after deductions and costs. This figure is often low or negative due to the amount of depreciation claimed by farmers on equipment. Farmers may apply for 2021 using their gross revenue.
“That was a slight disadvantage for companies seeking PPP financing, and Congress took notice,” Wendie Seaton, an associate professor at Iowa State University’s Center for Agricultural Law and Taxation, stated Illinois Soybean Association’s 2021 Soybean Summit was held online. “If you are a self-employed farmer, you are authorized to use it for owner compensation. You get that money as income for yourself, similar to a paycheck for the self-employed.”
Farmers and small enterprises may get PPP loans from conventional lenders such as banks and Farm Credit agencies.
The loans are forgiven if at least 60% of the revenues are used for eligible costs, which include self-employment remuneration for sole proprietorships, and single-owner limited liability companies (LLCs) that pay income taxes using a Schedule F. Owner remuneration is treated differently in partnerships, C companies, and S corporations.
That money will not be taxed as income under the amended rules established by Congress in December, and it will not affect the deductions you may claim.
“In this scenario, it is really free money to be utilized by small firms experiencing uncertainty as a result of COVID,” she said. Applications are due March 31, and this adds another federal program to the list of considerations farmers must make before planting season begins.
Three financing alternatives are available to farmers under the reauthorized and enlarged PPP.
— Farmers who did not apply in 2020 are eligible for first-draw loans.
— Farmers who obtained a PPP loan in 2020 may apply for an increase based on the revised calculation if they have not completed the forgiveness procedure.
— Farmers who obtained the first-draw loan in 2020 may apply for a second-draw loan but must demonstrate a 25% reduction in revenues for the first quarter of 2020 compared to the same period in 2019. Farmers could apply for second-draw loans even if their earlier loans were not forgiven.
Farmers will utilize line 9 of their Schedule F to establish the amount of owner compensation to include in their computations. However, this amount will be limited to $100,000. Thus, a farm that earned $100,000 or more in 2019 and had no staff expenditures is eligible for a maximum loan of $20,833.
“Once your loan is released, once the bank hands you the funds, you have an eight- to 24-week covered period in which to spend the profits,” Seaton said. This includes paying staff if you have them or owner compensation if you do not. “Technically, the easiest method to do this is to write yourself a check; bingo, you’ve spent the money in the manner intended, and you should be entitled to complete forgiveness.”
Due to the program’s infancy, tax experts are still awaiting formal instructions from the Small Business Administration, which manages the PPP, on some problems, most notably timing concerns around coverage periods for first- and second-draw loans.
Additionally, Seaton suggested a few other concerns to bear in mind. The application acknowledges that the present economic uncertainty necessitates the loan request to maintain the applicant’s operations.
“What we’re doing is creating an ambiguous affirmative,” she said. “We do have certain safe harbors in place that indicate that if your loan is less than $2 million, you will be regarded to have made the transaction in good faith.”
Additionally, the identities of PPP loan beneficiaries are made public, as are the sums received.
In August, the original PPP terminated with an unclaimed balance of more than $134 billion. Repealed appropriations for the program were $284 billion. According to Seaton, “the money does not seem to be running out at an alarming rate.”
According to the Small Business Administration’s approval report, approximately $184 billion remained as of Feb. 7, 2021. “Therefore, consult your lenders and tax advisors to determine your eligibility. Ensure that you enter the building and take your place in line.”