Paycheck Protection Program (PPP)
Now remember things can still change – the Small Business Administration (SBA) and the IRS keep releasing new guidelines when it comes to the PPP, but here’s where things stand as of July 7. The CARES Act that enacted the PPP specifically says that the amount of the loan that is forgiven won’t be included in your taxable income for the year. For example, if you received $10,000 and qualified for it to be entirely forgiven (aka you don’t have to pay it back) you won’t need to include this amount in your taxable income when you calculate your taxes. But here’s the catch: every expense that was paid with that $10,000 cannot be deducted from your other income. For example, if you paid your $200 phone bill with the PPP loan, you can no longer include that $200 into your deductible business expenses for the year. Again, things can still change, so make sure to keep an eye out for new information from the IRS as the months go by.
Economic Injury Disaster Loan (EIDL)
Remember that the EIDL is made up of two parts: the loan and the advance (which for freelancers is capped at $1,000). If you took out a loan, you won’t need to pay any taxes on it – it’s a loan, not income. For the advance / grant, as of today, it appears that you will need to include it in your taxable income. Which also means you will be able to deduct everything you used that advance to buy, so you shouldn’t pay any taxes on it (since you deduct the whole amount).
Pandemic Unemployment Assistance
Make sure to prepare for this: unemployment is considered taxable income, therefore you are required to pay taxes on it. At the end of the year, you will receive a 1099 listing all the money you received. In most cases, you can ask for your state to withhold your taxes directly at the source, that is directly from your unemployment check just like a paycheck – you simply need to file the form W-4V. If you do not wish to do that, make sure to save a minimum of 15.3% of that income for your self-employment taxes. Feel free to use Lili’s Tax Bucket to make sure you’re prepared.