Over the last week or so, there have been several bills passed by Congress and signed into law. The largest one signed on Friday March 27, 2020 is called the CARES Act. It has many provisions designed to help support individuals, small businesses and nonprofits in these very difficult times. We are studying this legislation as we continue completing tax returns in this busy time of year.
Part of the CARES Act provides direct financial assistance to small businesses and nonprofits, to help ease cash flow difficulties while commerce is fully or partially suspended to slow the spread of the corona virus. There are a few provisions that we want to explain immediately for our sole proprietorship and self-employed clients because the relief offered could help you more quickly resume your business activity when commerce returns to normal.
Payroll Protection Program (PPP) Loans
A $350 billion fund, to be administered by the Small Business Administration (SBA), has been set up to keep people employed (or working if self-employed). This fund will make forgivable small business loans through SBA approved banks. The definition of small business specifically includes sole proprietorships and self-employed individuals. To participate in this program, contact your banker to ask if your bank can help you with these loans. Application for sole proprietorships opens on April 3, 2020 and for self-employed individuals, application will open on April 10, 2020. The maximum you can borrow is 2.5 times your average monthly net income from the business activity. The loan will have an annual interest rate of .5% and must be repaid within two years of the loan origination date. Meeting certain conditions, which have not yet been clarified, will make you eligible to have part or all of the loan to be forgiven. There are many more nuances to this program as well. When we find a sample application for self-employed people we’ll send one out.
Deferral of Self-Employment Tax
50% of your self-employment tax, which is a component of your 2020 estimated tax payments for the period between mid-March 2020 and the end of 2020, may be deferred. Half of the total deferred liability must be paid by 12/31/2021 and the remaining half must be paid by 12/31/2022. Additional time to pay a portion of your 2020 self-employment tax is basically an interest free loan to all self-employed people during 2020. It will be important to track the total deferred liability and plan your cash flow carefully so that the payment deadlines can be met. This relief program may or may not be available if you take a PPP loan.
April 15th due dates pushed out to July 15th
Filings and tax payments normally due by April 15, 2020 are now not due until July 15, 2020. This 3-month grace period also applies to funding your 2019 IRA, Roth IRA and Health Savings Account (HSA).
What are your next steps?
Let us know you would like our help with these relief provisions and we can figure out a way to connect with you to work through your specific situation. We are still learning about all the rules included in the recent legislation and are contacting bankers we know. Ideally, we can target April 6 and thereafter for a follow-up with you.