Has your business or income been affected by the coronavirus crisis?  If you are self-employed or an independent contractor without any employees, here are a few tips from recent legislation for ways that you can help bridge some gaps until the you can make up some of your income.

  1. First, you can apply for the PPP beginning today Friday, April 10th.  The application process for small businesses started last Friday, but local banks should be allowing the Self-employed and Independent Contractors sign up today.  Check your bank to see if they are now accepting applications from businesses like yours.
    1. The maximum loan size is up to 2.5 times your average monthly 1099-MISC or net self-employment income for the past 12 months.
    2. All amounts spent on the following list of items during the first 8 weeks of the loan term are 100% forgivable: (a) to replace your 1099-MISC income or your net self-employment income, (b) interest on mortgages, (c) business rent, and (d) business utilities. Note that if more than 25% of this amount is used for interest on mortgages, c business rent, and business utilities, not all of the amount spent may be forgivable.
    3. The term is 2 years, Interest rate is 1% and payments are suspended for the first 6 months of the loan.
  2. Next, you can apply for an Economic Disaster Injury Loan with Advance directly from the SBA
    1. The EIDL will give you an advance of up to $10,000 that is forgivable.  The issue that we have seen though, is that due to high demand it seems to be based on the number of employees to the tune of $1000 of credit per eligible employee.
    2. Interest rate is 3.75% for small businesses and independent contractors and 2.75% for nonprofits for the loan (which does not include the advance) and the term is up to 30 years.
    3. These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.
    4. You can apply for both an EIDL and PPP, however you cannot use the funds on the same items.  Therefore, it would make sense to put each of these loans in different accounts and keep track of how they are spent.  Also, using the PPP on the forgivable costs and the EIDL on other items would most likely be the best way to go.
  3. Unemployment (This sucks, I know, but if a government forced shutdown of your business doesn’t merit an unemployment claim, I do not know what would).
    1. The CARES Act (Section 2102) also allows for self-employed individuals and Independent Contractors to file for Unemployment if the filer:
      1. is diagnosed with COVID-19 or experienced symptoms or is seeking a diagnosis
      2.  has a member of his or her household that has been diagnosed with the illness
      3. is providing care to a family member with COVID-19
      4. has primary caregiving responsibility to a child that is unable to attend school due to COVID-19
      5.  cannot reach his or her place of work because of a quarantine or advice of a health care provider to self-quarantine
      6.  has become a breadwinner after the head of household has died from COVID-19
      7. has had to quit his or her work as a result of Coronavirus, or
      8. has a work location that is closed as a direct result of a COVID-19 public health emergency.
    2.  Indiana is far behind in accepting unemployment benefits for the self-employed because of incredibly high volumes and the fact that we just have never allowed for it in the past.  But please try and file and you will be
    3. When they are accepted, benefits will be paid retroactively back to March 29th and will consist of the federal $600 per week.  Here are tips on how to add yourself as an employer to the Indiana system.   
  4. Delay IRA Contributions and Tax Payments from 2019. 
    1. Do you have a tax bill due from your 2019 taxes?  You can postpone paying that (and filing your taxes) until July 15, 2020.  This could help with Cash Flow for the next couple of months.  2020 Estimated taxes for the first quarter are also delayed until July 15, but be careful because they are not postponing estimated taxes for the second quarter or beyond, so you could have a large estimated tax bill come July 15.
    2. Were you planning on making IRA Contributions for the year 2019?  Now you can postpone those contributions until July 15th as well.  This could also help with cash flow while allowing for the ability to preserve the right to:
      1. Lower your tax bill from 2019 (if contributing to a traditional IRA)
      2. Take advantage of saving for retirement via taking advantage of IRA limitations each year.
  5. Take advantage of the Forbearance on Federal Student Loans
    1. This program should be automatic based on the CARES act starting on March 13th.
    2. What Student Loans qualify?  All Federal loans taken out after 2010 including Parent PLUS Loans.
    3. What Student Loans do not qualify?  Private Student Loans (ie you have refinanced to a lower rate), FFEL Loans and Perkins loans only qualify if they are federally held.  So if in doubt ask your loan servicer.
    4. Payments and Interest are waived until September 30, 2020
    5. If you want to continue making payments to pay down your principal faster CONTACT YOUR LOAN SERVICER.  All continued payments will go directly to your principal, and you can move back to suspend payments at any time between now and September 30th.
  6. Distributions from IRA’s and 401k’s 
    1. This is not my favorite, and most likely should be a last resort, especially with the market down, but the CARES act allows for distributions of up to $100,000 from your qualified account.  You can then decide to pay the amount back over a 3 year period without tax consequences.
    2. Who qualifies for this provision?  Anyone….
      1. Who is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention.
      2. Whose spouse or dependent (generally a qualifying child or relative who receives more than half of his or her support from you) is diagnosed with COVID-19 by such a test.
      3. Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, or having work hours reduced due to COVID-19.
      4. Who is unable to work because of lack of child care due to COVID-19 and experiences adverse financial consequences as a result.
      5. Who owns or operates a business that has closed or had operating hours reduced due to COVID-19 and has experienced adverse financial consequences as a result.
      6. Who has experienced adverse financial consequences due to other COVID-19-related factors to be specified in future IRS guidance.
    3. Again, this should be utilized as a last resort due to the facts that:
      1. You may not have clarity on your business prospects on the future
      2. If you do not pay it back there could be a huge tax liability
      3. You are robbing yourself of retirement savings, and who knows when you may be able to save again.

Please Note that this should not be considered advice to take advantage of any of the following programs as we do not know your situation, it is merely a list of resources that are newly available to you.  You should contact your CPA and/or Financial Advisor/Planner before making these decisions as they will have a better knowledge of you and your business and can best direct you in which direction to go.

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  1. […] After running out of money for the Economic Injury Disaster Loan Grants in mid-April, and only reopening to Ag businesses after the second tranche of funding was passed into law on April 24th, the EIDL Grants are now open to all small businesses, and allow for advance payments of the EIDL loan of $1000 per eligible employee.  This means that independent contractors, freelancers, and gig workers are eligible to receive a $1,000 grant that does not have to be repaid.  Also, you can qualify for the actual loan with some favorable terms. […]

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