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Wednesday, April 29, 2020

Financial strategies if you are self-employed

If you have lost income due to the pandemic, you have options under the CARES law


The CARES law extends some unemployment benefits to the self-employed - plus deferred taxes, student loans and mortgage payments.

The coronavirus pandemic has hit many Americans' wallets. And if you're self-employed or doing gig work, you may be wondering what all of this means for your finances. However, the help is available in the form of the Coronavirus Aid, Help and Economic Security Act (CARES).

"The centerpiece of the government's economic response to the pandemic is the CARES Act, which particularly includes sole proprietors, independent contractors and the self-employed," said Jon Bacon, Associate Wealth Advisor at Harris Financial Advisors in Torrance, California.

This law contains some far-reaching provisions to protect business owners. These tips can help you manage your finances and loans wisely when you are dealing with the economic uncertainty surrounding COVID-19.

Financial strategies for the self-employed

  • Unemployment benefit, which is extended to self-employment, is a constant
  • The deadlines for filing taxes have been postponed
  • Tax breaks for the self-employed are being expanded
  • Consider small business loans and credit cards carefully
  • Further advantages of the CARES Act
  • What you can do

The unemployment benefit was extended to self-employment

Unemployment benefit can help cover living expenses if you are unemployed. Being self-employed would normally preclude you from receiving benefits, but at least temporarily that is no longer the case.

The CARES law includes the Pandemic Unemployment Assistance (PUA), which includes non-traditional workers. The program offers up to 50% of the average weekly benefit that unemployment pays to workers in your state. If your state's average weekly benefit is $ 600, you can get up to $ 300 a week depending on your income.

You could receive additional benefits through the Federal Pandemic Unemployment Compensation (FPUC) program. This program provides federal unemployment benefit of $ 600 per week for those entitled to unemployment benefit, including PUA. This program runs until July 31, 2020.
To be able to use these benefits, you have to register with the state unemployment agency. Although this varies from state to state, you may need the following to complete your application:

Driver's license or state ID number
Social security or other tax identification number
Proof of income from self-employment, including 1099, your most recent tax return and bank statements
Bank account information if your state pays unemployment benefits directly
Claims can be submitted online or by phone, but are prepared for delays, says Richard M. Prinzi, Jr. CEO of the Professional Tax Alliance.

"State computer systems are unable to adapt quickly. If you haven't had a W-2 in the past two quarters, it will take some time," he says.

In addition, a record number of Americans register unemployment after COVID-19, so you may have to wait several weeks for your application to be approved and benefits received.

Prinzi also points out that while federal unemployment benefits are retroactive, states may have a different policy regarding retroactive benefits. Even if you don't currently need the benefits, it may be helpful to review your state's eligibility and eligibility policies. In this way, you are prepared for the fact that your income from self-employment dries up completely.

Even if you don't currently need the benefits, it may be helpful to review your state's eligibility and eligibility policies. In this way, you are prepared for the fact that your income from self-employment dries up completely.

Tax return periods for quarterly taxes, income taxes pushed back
The government has given Americans, including self-employed entrepreneurs, more time to prepare and file their tax returns. The new registration period for income tax ends on July 15, 2020. If you expect a refund, do not hesitate to submit your taxes.

However, if you owe money, you have more time to pay because the due dates for the estimated quarterly taxes have also been adjusted.

Estimated quarterly taxes must be paid if you are expected to owe more than $ 1,000 in taxes for the year as a self-employed person. Usually these payments are due in April, June, September and January of the following year.

The schedule has been adjusted for 2020:

Payment 1: Due on July 15, 2020
Payment 2: Due on July 15, 2020
Payment 3: Due on September 15, 2020
Payment 4: Due on January 15, 2021
If your self-employed income has dropped due to COVID-19, you may want to consider postponing the estimated quarterly tax payments and filing your income tax return if you have not already done so.

Waiting may give you more time to set aside the money you need to cover your estimated tax liability for quarterly payments. This also has no effect on your submission for the 2019 return.

Tax breaks for the self-employed are being expanded
In addition to giving you more time to file your taxes, the CARES Act offers some other tax benefits for the self-employed.

First, there is an option to defer payment of the social security portion of the self-employment tax. Social security accounts for 12.4% of the self-employment tax: the rest consists of Medicare taxes.

According to the rules of the CARES law, you can defer payment of social security tax, with half of the amount due in late 2021 and the rest due in 2022. If you postpone taxes temporarily, you can keep more money in your pocket if you do business or gig work has had a significant success due to the coronavirus pandemic.

If you temporarily defer taxes, you can keep more money in your pocket if your company or your gig work has suffered significant damage due to the coronavirus pandemic.

The law also includes paid sick leave for the self-employed. The credit can be applied for up to 10 sick days and will be available until the end of 2020.

You don't need a corona virus to get the credit. You can use this as long as you are subject to a quarantine arrangement or your doctor has recommended self-quarantine. Additional credits are available if you take care of someone under a self-isolation arrangement or children who cannot go to school.

Consider small business loans and credit cards carefully
To help companies during the coronavirus pandemic, the Small Business Administration has expanded its loan program to include emergency aid.

In particular, there are three programs that you may be interested in if you are self-employed:

Economic Injury Disaster Loan: This program provides eligible business owners affected by COVID-19 with emergency funding of up to $ 10,000.
SBA Express Bridge Loans: You can borrow up to $ 25,000 if you already have a relationship with an SBA Express lender.
SBA Debt Relief: If you already have an eligible SBA loan, you can temporarily postpone payments by six months.
Prinzi says that even if you're a small freelancer or gig worker, applying for an advance on disaster relief or other funding options with the SBA can be worthwhile.

See related: 8 small business grants that can help you stay afloat

Funding loans can take some time, so you may get approval for a business credit card faster. A cash back business credit card could prove to be extremely valuable right now because of so many travel restrictions.

In the short term, a balance transfer can lead to a certain relief in payment and cash flow if this is necessary, and at the same time save money for interest costs.

If there is already a credit balance on a business credit card, you can save considerable interest with a credit transfer card.

"A short-term transfer can provide some relief in payments and cash flow when necessary, while saving money on interest costs," said Chad Rixse, director of financial planning and financial adviser at Forefront Wealth Partners.

If balance transfer is not possible, Rixse recommends other debt management options, including credit card hardship programs or a personal loan. With zero interest rates, a personal loan could be an attractive option if you have good credit.

If you opt for a balance transfer, you don't do it without a plan, Bacon says.

"Understand how much you can withdraw during the promotional period to see if it's worth it or not," he advises. And don't forget to add a residual transfer fee.

See related: Pros and cons of transferring business card credit to a 0% personal card

Further advantages of the CARES Act
The CARES law is not specific to the self-employed, but it contains other provisions that offer further relief.

Payments for federal student loans will be made from March 13, 2020 to September 30, 2020 in administrative forbearance. There will be no interest on your loans during this time. If you have an eligible loan from an eligible lender, you can also get a temporary mortgage exemption.

The CARES law also enables self-employed and independent contractors to receive stimulus checks if they are entitled to income. The maximum payment per person is $ 1,200, with $ 500 per child allowed for families.

If you saved in a SEP or SIMPLE IRA designed for the self-employed, the CARES law makes it easier to get this money when you need cash. There are no penalties for early withdrawals of up to $ 100,000 from IRAs, although distributions are taxable.

However, the income taxes owed on these withdrawals could be spread over three years, says Bacon.

"Alternatively, withdrawals can be returned to the retirement account within three years," he said.

What you can do

The coronavirus pandemic is changing the way everyone manages their finances. It can be even more complicated for the self-employed.

Bacon suggests that you use this time when everyone is at home to think about new products or services that you could develop to increase your income. And work to offer as much value as possible to the customers and customers you already have, so that they stay loyal to your company in difficult times.

When you receive unemployment benefit, keep in mind that it is only temporary. You must have a plan for when this safety net will be removed.

Reducing expenses and eliminating expenses that you can't do without, personally or in your company, is an obvious next step, says Rixse. If you can't cut costs, look for a cheaper alternative.

And when you get unemployment benefits, keep in mind that it's temporary. You have to have a plan for when this safety net will be removed, says Rixse. If you are now able to put savings aside, it could make the transition easier once the unemployment benefit expires.

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