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Dear clients and prospective clients, due to the flood of information regarding the tax implications surrounding the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), I have decided to add this page to our website to better help you find the answers for which you are seeking. As a small, one-man preparer tax firm, yet with hundreds of clients, the vast majority of whom own a small business, and for whom we are still endeavoring to prepare their tax returns on a timely basis, I felt the need to create this separate page of our website to address many of the questions that you may be having during this turbulent time. Please understand I am using this resource as a means to communicate universally to many people with one response so I don’t have to take additional time to respond personally to each separate, individual inquiry. This helps us serve as many people as possible and stay focused on our primary mission to prepare as many returns – with hopefully tax refunds – as quickly as possible. Thank you for your patience and understanding during this challenging time.
First, and foremost, let me remind you what one of the elders of our church, Gateway Church, told us in his message of March 29, 2020. He told us 1) this is not the end, 2) you are not alone, and 3) this is not our home. At a time when churches cannot have community services, Gateway’s service was watched by over 200,000 people online, and the March 29th service was broadcast to all 103 Texas state prisons. Moreover, Gateway’s experience from its congregation was that for every 1 person requesting assistance, there were 5 people seeking to provide assistance. Therefore, this situation has not caught God off-guard and HE IS STILL IN CONTROL. To listen to this message, go to the following link Gateway Church.
After performing some research, it appears that a self-employed independent contractor, such as a Mary Kay Independent Beauty Consultant or Sales Director who receives, instead of pays, commissions cannot qualify for the federal Paycheck Protection Program (PPP) based on commissions alone. She must use “net earnings from self-employment,” which is reported on Schedule C, line 31 of her individual income tax return. (see link below to the U.S. Chamber of Commerce’s PPP brochure) Alternatively, I went to the Texas Workforce Commission website and asked their online chat service this question, “Does a self-employed Mary Kay Cosmetics independent contractor receiving reduced commissions due to the economic slowdown caused by COVID-19 qualify for these benefits?” Here was their answer, “If you are self-employed and have been impacted by COVID-19, you may qualify for unemployment benefits under the Federal Stimulus Bill. So while you may not be able to qualify for the federal Paycheck Protection Program, you may be able to qualify for state unemployment benefits. If you have not yet submitted a claim for unemployment, you can apply for benefits either online at any time using Unemployment Benefits Services or by calling TWC’s Tele-Center at 800-939-6631 from 8 a.m.-6 p.m. Central Time Monday through Friday, and 8 a.m. to 5 p.m. Central Time on Saturday.” At least, for now, you may be able to qualify for unemployment benefits. Contact your state’s agency to apply. Most all small business owners will want to apply for the Small Business Administration’s (SBA) Economic Injury Disaster Loans (EIDL) and Emergency Economic Injury Grants (EEIG). The EIDL can be refinanced into a PPP loan, and the EEIG is an emergency advance of up to $10,000 issued within 3 days of application that does not need to be repaid under any circumstance. (see link below to Small Business Owner’s Guide to the CARES Act) Also, the NATP CARES Act Summary below explains the various sources of potential financial relief to taxpayers imposed by the IRS. If you report your experience to us via email, we can publish those results here for others to benefit.
Please refer to this page for any answers to tax-related questions, and thereby refrain from emailing or calling our office for questions already answered here, which may tie up my time and prevent me from preparing tax returns for clients who are waiting for potential tax refunds for some financial relief. Instead, stay tuned to this page for updates and answers as we receive them. For now, you may review the following sources for answers, and watch for more to come:
START HERE (READ THIS ONE FIRST) – NATP-CARES-Act-Summary-HR748
Questions and answers regarding IRS (federal) filing and payment deadlines
A list of state tax filing guidance for each state
Small Business Owner’s Guide to the CARES Act
Access Paycheck Protection Program through American Express
Texas Workforce Commission news release explaining federal stimulus to fund benefits for Texans
U.S. Treasury page of links to assistance for small businesses
U.S. Chamber of Commerce Emergency Loan Guide
SBA Coronavirus (COVID-19): Small Business Guidance & Loan Resources
- Can I NOT claim my dependent and have him/her file his/her own return in order to receive the $1,200 (taxpayer vs. $500 dependent) Recovery Rebate? Answer: No. If the parents do not claim the dependent, this does not change the fact that the dependent is still a dependent under §151. Dependents under §151 may not claim themselves and, therefore, are not eligible for the $1,200 Recovery Rebate. Thus, whether the parent’s claim the dependent or not, the dependent cannot claim himself/herself as an independent taxpayer. So you better claim him/her to at least receive the $500 additional Recovery Rebate for a dependent under age 17 ($-0- for dependents age 17 and over), as well as any $2,000 child tax credit (for dependents under age 17) or $500 other dependent credit (for dependents over age 16).
- If I am self-employed as a sole proprietorship, can I receive the federal government’s Paycheck Protection Program (PPP) benefits? Answer: Yes. Of course you can apply for the PPP loan based on wages paid to any employees. However, as the sole proprietor, your “wages” for purposes of calculating average monthly payroll when applying for the PPP loan are the net earnings from self-employment (i.e., net profit reported on lines 31 of all Schedules C). This is born out because lenders will ask you for a) your entity’s formation documents, b) 2019 tax return, c) IRS Forms 941 for all four quarters for 2019 reporting wages paid, and d) a certificate of good standing from the Secretary of State for your state. Additionally, the bank will look at your 2019 tax return, specifically Schedule(s) C and Schedule SE, to determine your net earnings from self-employment (net profit) to calculate your average monthly payroll. This could be your commissions earned as an independent contractor minus your business expenses. Consequently, if your business did not show a profit, you will be ineligible for this program, since the PPP loan is not designed to replace your commissions; it is designed to replace your net profit.
- What are the details surrounding the forgiveness of this PPP loan? Answer: See the link above to the SBA’s Small Business Owner’s Guide to the CARES Act. First, you have to use the loan proceeds for payroll costs, such as wages, commissions (paid out), and employee health care costs, as well as rent, utilities, and business interest on debt incurred before 2/15/20. Forgiveness is allowed on these covered costs during the covered 8 week period compared to the same covered costs for the same period last year. Take note that any expenses paid for with forgiven PPP loan proceeds (considered non-taxable income) will not be deductible. For additional information, see the SBA issued PPP FAQ memo.
- Are there other benefits or financial relief that I can receive as a self-employed sole proprietorship? Answer: Yes. Again, see the link above to the SBA’s Small Business Owner’s Guide to the CARES Act. While you may not be able to qualify for the federal Paycheck Protection Program, nearly every small business owner who has been negatively impacted due to the COViD-19 virus will want to apply for the EIDL and EEIG mentioned above. Also, you may be able to qualify for state unemployment benefits, including enhanced federal unemployment benefits. For those in Texas, if you have not yet submitted a claim for unemployment, you can apply for benefits either online at any time using Unemployment Benefits Services or by calling TWC’s Tele-Center at 800-939-6631 from 8 a.m.-6 p.m. Central Time Monday through Friday, and 8 a.m. to 5 p.m. Central Time on Saturday. For those in other states, contact your state’s agency to apply. At least, for now, you may be able to qualify for the EIDL and EEIG, as well as state, and now potentially federal, unemployment benefits.
- How can I receive a direct deposit of my Economic Impact Payment (stimulus) if I did not get a refund for 2018 or 2019? Answer: The IRS is setting up a “Get My Payment” application in mid-April (due by April 17th) to allow you to a) check your payment status, b) confirm your payment type (whether direct deposit or check), and c) enter your bank information for direct deposit if they don’t already have that information. Go to http://www.irs.gov , click on the “Get Info on Economic Impact Payments” banner, and then click on the “Get My Payment” button.
- Is the Economic Impact Payment (stimulus) taxable income for 2020? Answer: No. According to the Tax Foundation and Forbes, these payments are treated as refundable tax credits for 2020, which is why non-filers can receive them. THEY ARE NOT TAXABLE.