Should You Incorporate Your Business?

Should You Incorporate Your Business?

You may have started your business as a simple sole proprietorship that files its taxes as a Schedule C on your Form 1040. As your business grows, you may want to change the structure. Here are several scenarios where it may make sense to do just that.

Reasons to Create Business Entities

  • Establishing limited liability. The primary reason businesses form corporations and limited liability companies is to create a separate legal entity that provides legal protection. If your business receives a legal summons for a claim, for example, having limited liability may protect your personal assets like your home and car.
  • Hiring your first employee. Businesses are generally liable for their employees’ actions taken on behalf of the company. If an employee performs an act that causes an outside party to sue your business, the outside party can come after your personal assets to satisfy the lawsuit if you don’t have limited liability. You should, therefore, incorporate your business if you anticipate hiring your first employee in the near future.
  • Establishing credibility. Having LLC or Inc. after your business’s name conveys maturity in your business to customers and vendors.
  • Accessing credit and/or capital. Incorporating can also make it easier for your business to obtain financing through banks or investors. Banks want to see that your business is legitimate and not simply a hobby. Bringing in investors also requires a business form that allows you to do this. Individuals often co-mingle personal funds with business activity, making it hard to consider lending money.

What you need to do

There are several different business entities to consider, including corporations and limited liability companies. There are pros and cons to each entity that must be considered. Added to the complexity are constructing the correct legal filings and related tax obligations for sales tax, income taxes, unemployment and workers’ compensation.

The process of selecting the right structure for your business is not for the faint of heart. Develop connections with professionals that can walk you through this decision-making process.

Small Business Owners Get Good News on PPP Loan Forgiveness

Small Business Owners Get Good News on PPP Loan Forgiveness

Small business owners, self-employed workers and freelancers received some welcome news when Congress recently passed the Paycheck Protection Flexibility Act. This new law clarifies how businesses can qualify to have all or a portion of its Paycheck Protection Program (PPP) loan forgiven.

Here is what you need to know:

December 31, 2020 is the new deadline to spend loan proceeds. When the PPP program was rolled out this spring, businesses were given 8 weeks after loan funding to use the loan’s proceeds if they wanted to qualify for loan forgiveness. That timeline has now moved to 24 weeks. Due to the extended stay-at-home orders and further assessment of the pandemic, the new deadline is now effectively December 31, 2020.

More loan proceeds can be used for non-payroll expenses. The original law required 75% of loan proceeds to be spent on payroll. For businesses with high cost of goods sold or who had trouble convincing furloughed workers to return to work, hitting this 75% threshold was problematic. The new law reduces the amount of loan proceeds required to be spent on payroll to 60%.

More flexibility in fully restoring workforce. Borrowers now have through December 31, 2020 to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. There are three exceptions allowed for not having a fully-restored workforce by Dec. 31. Borrowers can adjust their loan forgiveness calculations because of:

  • Employees who turned down good faith offers to be re-hired at the same hours and wages as before the pandemic;
  • Difficulty finding qualified employees;
  • COVID-19 related operating restrictions

Loan terms extended. For loans that do not qualify for forgiveness, borrowers now have up to five years to repay the loan instead of two. The interest rate remains at 1%. Since your bank has 60 days to process your loan forgiveness application and the SBA has 90 days to process the request, your initial payment is now effectively five to six months after your forgiveness application.

What you need to do

  • Download EZ Application Form. If you are a self-employed worker, independent contractor or sole proprietor who has no employees, you may be eligible to use the EZ Loan Forgiveness Application. Click here to download the EZ form. Click here to download instructions for the EZ form.
  • Download Regular Application Form. If you aren’t eligible to use the EZ Loan Forgiveness Application, then you’ll need to complete the regular loan forgiveness application. Click here to download the regular application.
  • Stay in contact with your lending institution about when and how to complete the loan forgiveness application.
  • Consider reaching out to your legislators to let your voice be heard on how you were impacted and to share your story on your PPP loan experience as several U.S. Senators indicated that there will be more changes in the future regarding the program.

Answers to Common COVID-19 Unemployment Questions

Answers to Common COVID-19 Unemployment Questions

The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act provides individuals and businesses significant financial relief from the financial strain caused by the coronavirus epidemic.

Here is a snapshot of the unemployment benefits section of the bill and how it affects individuals and businesses.

  • Who qualifies to receive unemployment benefits? In addition to full-time workers who are laid off or furloughed, the Act provides individuals who are not already eligible for state and federal unemployment programs, including self-employed individuals and part-time workers, a set amount of unemployment compensation.
  • How much will I receive? There are two different components to the new law’s unemployment benefits:
    • Each worker will receive unemployment benefits based on the state in which they work, and
    • In addition to their state unemployment benefits, each worker will receive an additional $600 per week from the federal government.
  • How will benefits for self-employed workers be calculated? Benefits for self-employed workers are calculated based on previous income and are also eligible for up to an additional $600 per week. Part-time workers are also eligible.
  • How long will the state unemployment payments last? The CARES Act provides eligible workers with an additional 13 weeks of unemployment benefits. Most states already provide 26 weeks of benefits, bringing the total number of weeks that someone is eligible for benefits to 39.
  • How long will the federal payments of $600 last? The federal payment of $600 per week will continue through July 31, 2020.
  • How do I apply for unemployment benefits? You must apply for unemployment benefits through your state unemployment office. Most state applications can now be filled out online. Workers who normally don’t qualify for unemployment benefits, such as self-employed individuals, need to monitor their state’s unemployment office website to find out when they can apply, as many states need to update their computer systems to reflect every type of worker who is eligible to collect unemployment benefits under the CARES Act.

What to do now

If you have not already done so, you must file for unemployment with your state as soon as possible. State offices and websites are being slammed, so the sooner you get in the queue the better for you and your loved ones. And remember, these benefits now apply to self-employed and part-time employees.

How to Succeed as an Independent Contractor

How to Succeed as an Independent Contractor

Are you one of the now 33% of Americans who work as either an independent contractor or freelancer?

If you answered yes, you are now a participant in the gig economy, a modern term for an economy characterized by workers who earn money through short-term contracts or freelance work.

Succeeding as an independent contractor can be challenging because it requires understanding a different set key success factors than being a full-time employee. Here are some tips on developing your skill set as an independent contractor and where to turn to if you need help.

  • Contract for companies with generous payment terms. The formula for companies to pay its contract workers varies from business to business. Investigate a company’s policy for paying its contract workers to make sure it’s what you’re expecting. Remember, cash is king!
  • Market your services by creating an online portfolio. If being a contract worker is your full-time job, you’ll need to always be looking for your next gig. One great way to market yourself to prospective businesses is to create an online portfolio that showcases the work you can perform. You can choose to build a website using a do-it-yourself service or hire a developer to create a custom website.
  • Stick to budget. As a full-time employee, you know the exact date you’ll receive your paychecks and usually the exact dollar amount. As a participant in the gig economy, however, you could earn a bunch of money in one month and hardly any money the following month. Prepare a financial budget so you can use income earned during your good months to cover costs during low income months.
  • Stay one step ahead of the IRS. Paying taxes is now your responsibility. Participating in the gig economy requires more knowledge about how to meet your tax obligations. So ask for professional help. Plus use other tools at your disposal. For instance, the IRS Gig Economy Tax Center gives guidance on how to figure out what you may owe the IRS. The website is https://www.irs.gov/businesses/gig-economy-tax-center.
  • Get advice from others. Working primarily by yourself can leave you isolated from fellow workers. Join a local group of self-employed workers that meets on a regular basis to network and learn what other workers are doing to be successful.

Remember you are not alone. The complex nature of tax obligations for contractors can easily be navigated with professional help.

COVID-19 Bill Enhances Your Unemployment Benefits.   What you need to know!

COVID-19 Bill Enhances Your Unemployment Benefits. What you need to know!

The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act provides individuals and businesses significant financial relief from the financial strain caused by the coronavirus epidemic.

Here is a snapshot of the unemployment benefits section of the bill and how it affects individuals and businesses.

  • WHO QUALIFIES TO RECEIVE STATE UNEMPLOYMENT BENEFITS? In addition to full-time workers who are laid off or furloughed, the Act provides individuals who are not already eligible for state and federal unemployment programs, including self-employed individuals and part-time workers, a set amount of unemployment compensation.
  • HOW MUCH WILL I RECEIVE? There are two different components to the new law’s unemployment benefits:
    1. Each worker will receive unemployment benefits based on the state in which they work, and
    2. In addition to their state unemployment benefits, each worker will receive an additional $600 per week from the federal government.
  • HOW WILL BENEFITS FOR SELF-EMPLOYED WORKERS BE CALCULATED? Benefits for self-employed workers are be calculated based on previous income and are also eligible for up to an additional $600 per week. Part-time workers are also eligible.
  • HOW LONG WILL THE STATE UNEMPLOYMENT PAYMENTS LAST? The CARES Act provides eligible workers with an additional 13 weeks of unemployment benefits. Most states already provide 26 weeks of benefits, bringing the total number of weeks that someone is eligible for benefits to 39.
  • HOW LONG WILL THE FEDERAL PAYMENTS OF $600 LAST? The federal payment of $600 per week will continue through July 31, 2020.
  • HOW DO I APPLY FOR UNEMPLOYMENT BENEFITS? You must apply for unemployment benefits through your state unemployment office. Most state applications can now be filled out online. Workers who normally don’t qualify for unemployment benefits, such as self-employed individuals, need to monitor their state’s unemployment office website to find out when they can apply, as many states need to update their computer systems to reflect every type of worker who is eligible to collect unemployment benefits under the CARES Act.

What to do NOW!

If you have lost your job, you must file for unemployment with your state as soon as possible. State offices and websites are being slammed, so the sooner you get in the queue the better for you and your loved ones.

Additional Paid Leave for Workers Affected by COVID-19 – What you need to know!

Additional Paid Leave for Workers Affected by COVID-19 – What you need to know!

The Families First Coronavirus Response Act is a new program that offers COVID-19 assistance for both employees and employers.

This new law provides businesses with fewer than 500 employees the funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members.

Here is a summary of the new law’s benefits for employees and employers:

  • Paid sick leave for workers. The new law provides employees of eligible employers two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay ($510 daily limit applies) where the employee can’t work because the employee is quarantined and/or experiencing COVID-19 symptoms and seeking a medical diagnosis.
  • Paid leave for workers. Employees can receive two weeks (up to 80 hours) of leave at two-thirds of the employee’s pay ($200 daily limit applies) if they need to care for someone in the following situations: The need to care for an individual subject to quarantine, to care for a child whose school is closed or childcare provider is unavailable for reasons related to COVID-19.
  • Extended leave. In some instances, an employee may receive up to an additional ten weeks of expanded paid family and medical leave at two-thirds the employee’s pay ($12,000 overall twelve week payment limit applies).
  • Companies will get paid back. Businesses who pay employees the mandatory sick and childcare leave according to the new law will get reimbursed through a payroll tax credit.

What it means for you

  • Employees can take the necessary time to recover from being infected with COVID-19, or to care for a loved one, without fear of losing their job or salary.
  • Employers can help their employees financially while navigating COVID-19 related shutdowns.

What you need to do now

EMPLOYEES. To take advantage of the Act’s paid leave provisions, you must provide your employer with documentation in support of your paid sick leave. There is yet no official application that needs to be completed. If you believe that your employer is required to provide paid leave but is not making paid leave available, or for other questions or concerns, you may call the Department of Labor’s Wage and Hour Division at 1-866-4US-WAGE or visit www.dol.gov/agencies/whd.

EMPLOYERS. While the details are being worked out on how to implement these new rules, here is what you need to do now:

  1. Keep detailed records – Be prepared to defend your request for federal assistance. Keep good records of who’s asked for paid time off because of COVID-19 related circumstances. Ask your employee to provide a doctor’s note when appropriate, along with a narrative written by the employee describing who in their family is infected or suspected of being infected with COVID-19 along with symptoms. Make sure the note is dated and relates to an approved reason for leave.
  2. Talk to your payroll provider – If you have someone doing your payroll, they are often the first ones who will know how you will receive reimbursement. This new law will take time to fully roll out. Payroll companies will eventually issue guidance on how to report paid leave provided under the Families First Act and which forms need to be completed to obtain the corresponding tax credits.
  3. Post this notice! – Employers MUST post a notice of the Families First labor requirements in a conspicuous place on its premises. Click here to download and print this notice.
  4. E-mail the notice! – An employer may satisfy the posting requirement by e-mailing or direct mailing the notice to employees, or by posting this notice on an employee information internal or external website. If your employees are working from home, this may be the only way to let them know the benefit exists.

Remember, there are upper limits to compensation that you may need to review and there are many other federal programs being rolled out. It will take time to implement them. Be patient, be safe and stay alert for any updates.