How to track your expenses for PPP forgiveness

Mar 09, 2021

Now that the second round of the Paycheck Protection Program (PPP) has started accepting applications, it's time to start on your PPP Forgiveness application. Although there are different versions of the form (3508S, 3508EZ, 3508), the process for maintaining and tracking your expenses should still be the same. As a freelancer, it is important to track your expenses related to PPP forgiveness so your process for the application is seamless.

Before we dive into how to track your expenses, we should first note the items that are considered forgivable. According to the Small Business Administration (SBA) guidelines here, the following non-payroll items are deemed forgivable under the PPP:

- Covered rent on a business space

- Covered mortgage interest on a business space

- Covered utilities

- Covered operations expenditures: payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting of tracking of supplies, inventory, records, and expenses

- Covered property damage costs: costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation

- Covered supplier costs: expenditures made to a supplier of goods for the supply of goods that are essential to the operations of the Borrower at the time at which the expenditure is made, and made pursuant to a contract, order, or purchase order in effect prior to the beginning of the Covered Period (for perishable goods, the contract, order, or purchase order may have been in effect before or at any time during the Covered Period)

- Covered worker protection expenditures, such as purchasing PPE

Since different business structures will have different documents to submit, we can focus on what will generally be required. The goal is to provide sufficient documentation for any and all of the costs that are eligible for forgiveness. If you are requesting your payroll costs to be forgiven, you will need to provide adequate documentation supporting your payroll costs. Below is list of acceptable documentation related to payroll costs, according to SBA guidelines:

  • Bank account statements or payroll reports
  • Tax forms (or equivalent payroll reports):
  • Payment receipts, cancelled checks, or account statements

If you are requesting additional business expenses to be accounted for as part of the loan forgiveness, additional documentation will be required to support the request. Per the SBA, below is a list of acceptable documents that are non-payroll related expenses:

  • Business mortgage interest payments: Copy of lender amortization schedule and receipts verifying payments, or lender account statements
  • Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments
  • Business utility payments: Copies of invoices and receipts, cancelled checks or account statements

The most recent update to the PPP made forgiveness easier for borrowers who received less than $150,000. They can use Form 3508S, a streamlined form that requires fewer calculations, as well as less documentation for the borrowers. With these updated guidelines, there may not be a need to submit some, if any, of these items of documentation at the time of the forgiveness application, depending on your situation. Even though certain documents may not be requested at the time of the forgiveness application, it is still a good idea to retain records for your own business. It is also recommended to retain records of how calculations were made to provide as supplemental documentation. Bear in mind that the SBA may request information and documents as part of its loan review.

Below are a few tools for tracking expenses:

- Accounting software: this provides the ease and flexibility of categorizing and tagging of all your expenses, keeping this information readily available to you when needed.

- Microsoft Excel Spreadsheet: a simple and easy way to keeping track of all your expenses.

- Save your receipts: if saving paper receipts is too much of a hassle, scan them right from your phone and just upload them to your computer so you can access them any time.

I am sure many of you may have additional questions. So, I invite you to reach out to me with questions that you have! Please reach out to us at RMP Accounting.

Rabeel Patoli

Rabeel Patoli is a New York-based CPA focused on assisting small business owners and individuals with bookkeeping, tax prep, and more.