So if the amount of unemployment you were eligible for was not sufficient, you might have turned to gig work!  Maybe you gave voice lessons or personal training online through Zoom, or started driving for Uber, or started selling things on Etsy. And that means you might have earned a lot more than you were expecting outside of a traditional employee job. What might that mean for your taxes this year?

1.  You do need to report it.  If you were working for a company, you will likely get a 1099-NEC, but a lot of you may have just gotten paid through Venmo or Paypal etc for things like online voice lessons or tutoring or personal training, etc. That money is not free!  You do need to report it on your taxes.  If you do not, it can get you in big trouble.  And if you come to me and say, yeah, my income on paper is so low because I earned 10k from Venmo, but I don't want to report that...then you unfortunately can't be my client.  I can be fined for preparing a return that understates income, so it's not something I can help you with!

2. You can take deductions on it!  You may be used to not doing deductions because you think you need to have a certain amount for it to count, or you thought they repealed deductions.  That's true for employees, but not for gig workers and the self-employed!  You definitely should be taking deductions to reduce your taxable income, check out my spreadsheets!

3. Be prepared to pay 20% on that money! Normally when you are an employee, you don't worry about taxes, they are handled for you.  But when you are on a 1099 or self-employed, you get to be the one to handle it.  You have to pay both the income taxes (federal and state) and the self-employment taxes.  Self-employment taxes are usually the biggest shocker.  These are the taxes that pay for Social Security and Medicare, and they are about 15%. When you are an employee, they just come out of your check automatically (and half is paid by your employer and isn't even on your paystub!) and they aren't even on your tax return.  But when you are self-employed, you pay them on your taxes on top of income tax.  That's why you can wind up paying what seems like a very high percentage, even if you didn't earn that much money.  You can be only paying 3% in federal income tax, 2% in state, but then 15% in self-employment, and that's how we wind up with 20%.  

4. Don't get into a vicious cycle of tax debt!  If you didn't know you needed to be setting aside so much, this tax season might be a nasty shock, but you will climb out of it.  Pay the taxes in full if you can, or set up a payment plan with the IRS and the state.  The interest on payment plans is WAAAAAAAY lower than that of credit cards, so it's a much better deal to do a payment plan than put them on a credit card.  And start dealing with 2021 now and going forward.  Make estimated payments on your 1099 and self-employment income (how to videos on that coming soon!) so that this doesn't happen again.  Also, you might be penalized for underpayment if you owe too much when you pay your taxes, which is another good reason to get going on estimated payments.  

So it looks like a good chunk of my client base was on unemployment for a large part of 2020 what with all theater and hospitality shut down.  Many of you might have had brief stints on unemployment before, but in 2020 you might have been on it for 9 months.  That can have some major tax implications!

Federal - you get the option to withhold 10% for federal taxes on unemployment.  If you didn't do that, then yeah, this is gonna get pretty bad.  This is an example calculation for a single person.  If you were on NY unemployment for 9 months, getting the max, you might have gotten up to 30,000 of unemployment.  Adding in what you might have earned in the 10 weeks we had before everything went to h*ll, your overall tax rate would be in the range of 7 to 8%.  So the 10% would cover you just fine, and you will likely get a refund.  If you didn't withhold, plan to have to pay 7 to 8% on however much unemployment you got.  
Will the 10% definitely be enough to cover you?  Yes, unless your overall income rises over 45k, then your tax rate will be higher than 10% so the withholding won't be enough to cover it and you might owe unless you have enough coverage from your other income.  

States - different states handle this very differently.  NY and NYC tax unemployment like regular income. NY only withholds 2.5% and it is pretty much never enough, especially not for NYC taxes as well.  Unless your income is really low, under 13k, it's not going to be enough for a NYC resident.  So if you are a NYC resident who was on unemployment, plan to have to pay state.  If you are a NYer outside of NYC or not a resident of NY, but you got NY unemployment, you still have to pay taxes in NY, but at least it's not NYC.  But again, the 2.5% will not be enough if your income is over 20,000.  NY taxes ramp up pretty fast unfortunately.  
What about other states? Well if you live in a state with no income tax, they won't tax your unemployment of course.  And CA, MT, NJ, OR, PA, and VA do not tax unemployment, so yay!  IL charges, but they have a flat tax, so the withholding should be close.  And that covers most of my clients, if there is another state you want me to look into, let me know.  
What if you live in one state, but got unemployment in another?  Well, it's just like having a job in another state, you have to pay in the state that gave you the unemployment and take a credit in your home state, if applicable.  So if you are, for example, a resident of NJ who got NY unemployment, then you have to pay NY.  NJ won't charge you, but you still have to pay NY.  Of course. If you are, say, a CT resident who got NY unemployment, CT taxes are lower and so while you might have to pay NY, you will get a credit for paying them in CT and that should cover you. Be warned, if you are a NY resident, but got unemployment from say, NJ or CA that don't tax unemployment and therefore don't withhold, you are screwed and will have to pay NY (and NYC if you live there too).  If you are a resident of NY/NYC and you got unemployment from, say, CT, where they do withhold but not enough, you will also have to pay the difference.  Basically living in NY/NYC is going to force you to pay. Start preparing now!  Also be warned, MD doesn't charge taxes to non-residents for unemployment, so they often don't do state withholding, so if you got MD unemployment but live in a state that does tax unemployment, you are going to have to pay. 

Bottom line, most people should be ok on the federal but there are a LOT of scenarios where you might owe quite a bit to states, so be prepared! File as early as you can so you have as much time as possible before taxes are due April 15. 

Hey earlybirds!  If you were hoping to file early, well, the IRS just threw a wrench into that.  They just announced that efile will not be opening until Feb 12, which is 2-3 weeks later than normal.  That doesn't mean we can't still have our appt before then!  If you are an earlybird, we can get your return done and ready to go, and then you will just need to sign the efile documents later, right around Feb 12, and then I can file it from there.  But it's still good to be early!

Now that the Democrats are going to control the House and Senate as well as hold the Presidency, it seems incredibly likely that there will be more Covid-related stimulus.  They might increase unemployment, there might be more programs for small businesses, there will almost certainly be aid to states and localities, but what most people want to know it, are we getting $2000?

First, if we do it probably won't be $2000 on top of the $600.  It sounds like they want to give out an extra $1400 to bring the total of payments up to $2000. 

Second, the people most in charge of this are Sens. Joe Manchin (D) along with maybe Susan Collins (R) and Lisa Murkowski (R).  They are the most middle votes in the Senate right now, and at least one of them has to agree to $1400 checks in order for it to happen.  If all of them refuse to vote for that, we don't get it. And Joe has stated he is iffy about it, so if we lose his vote we need one of the Republican ladies to step up. 

If we do wind up getting it, how will that work?  Well it could go a couple of ways.  If they do it fast enough, like right after Joe Biden gets inaugurated, they could just make it a credit on your 2020 tax return and get it to you that way. But I'm guessing it will take longer than that.  In that case, they will do like they did before, and either direct deposit the money or mail out checks.  So to prepare for that, make sure the IRS has your current address, fill out a change of address form at IRS.gov if you need to.  When you file your taxes, provide your DD info even if you owe if you file early enough to get the check that way.  We just want to avoid your check getting mailed to an address you aren't at anymore!

Stimulus checks and extra unemployment are great, but there is also another major program in the stimulus, the Paycheck Protection Program (PPP)!  While it's referred to everywhere as a loan, in most cases it's completely forgivable, meaning it really functions more like a grant, totally free money.  For my clients, here is why you may or may not want or be able to get one:

1.   You need to have a Schedule C on your 2019 taxes. This means you had 1099-Misc from a contracting job, or some other self-employment work (like nannying, personal training, teaching lessons) that you reported on your taxes.  This is not for people who just had W2s, you must have had business income. 

2. You can't get BOTH unemployment and a PPP loan at the same time.  The PPP loan is meant to cover 10 weeks of income, so if you get the loan, you have to stop claiming unemployment for 10 weeks. Now there is some wiggle room about when you stop for 10 weeks, but you do have to stop.  So it's important to weigh the benefits of unemployment vs PPP carefully.

3.  You have to be able to prove you were "in business" as of Feb 15, 2020.  So if you just get random 1099s every now and again, that might not be enough.  If you don't have contracting or self-employment income that got paid somewhere in the range of late-Jan to early Feb 2020, your application will likely be denied. 

Other than that, there aren't a lot of additional requirements!  You can get the PPP loan and still be getting other income, there is no requirement that your business has stopped.  In fact, it's meant to help keep your business open, so you can get it if you business has slowed to nothing or if your business is humming along.  If you have completely closed your business, that might be a different story, but if you are intending to keep your business going, even if it's on pause, then this loan was designed for you!  

How much can you get?  Take the profit amount on your Schedule C (line 31), and divide by 12, then multiply by 2.5 (or you can just multiply line 31 by .208333)  And it's totally forgivable without you doing anything special, just filling out a short form.  To compare to unemployment, divide that amount by 10.  If you are getting more than that number on unemployment, you probably don't want to do this. 

How can you get one?  It's not a good idea to go through a big bank, your application will be low on their priority list.  I would recommend using a fintech service like KServicing, BlueVine, or even PayPal. There are many, just google.  They are the best places to go for small loans when you don't have an existing banking relationship.  There are no fees to apply, the Feds are paying the fees to the banks.

What about a SECOND PPP Loan?  Yeah, so in the new stimulus bill, if you already got a PPP loan last year, you can get another one for the same amount (or potentially more) if you meet some requirements.

1.  You already got a PPP loan.
2.  You can show that you had a 25% decrease in revenue either for the whole year of 2020 compared to 2019, or for any quarter in 2020 compared to the same quarter in 2019.  If you don't have Quickbooks or some other software to keep track of your money, you might want to invest in that to create the necessary reports to prove revenue loss.  Or we can do a draft Schedule C for 2020 if you are doing the year-over-year loss. This is about revenue, not profit, so deductions are not involved in this.  

So if you are one of my clients who already got a PPP loan, you might be able to get another one!

If you want my help with this, please set up a personal financial planning appt on the scheduling page, I will be happy to help with your application for the loan and for forgiveness.    

Hi folks! So the House and Senate FINALLY passed a new stimulus bill and Trump finally deigned to sign it. So what's in it?

1.  The biggie, $600 checks. As we speak, they are being direct deposited to accounts, and mailed out.  Even if you got your previous $1200 stimulus direct deposited (DDed), you might not get your new one directly into your account.  If you got a refund DDed when you filed 2019 OR specifically included direct deposit info when you filed your return then your stimulus should be DDed.  If you owed money for 2019, even if you paid with direct debit, you are getting your check mailed and not DDed.  And it's getting sent to whatever address the IRS has on file for you, which is likely the address you used when you filed 2019. If that's not where you are, you will need mail forwarding or hopefully a roommate or something at your old address who can grab it for you.  If you have moved, have no ties to your old address, and haven't set up forwarding in time, then you can claim the $600 on your tax return, but you will have to wait til you file. The IRS has set a deadline of Jan 15 to get the money out, if you don't get your money by then, you have to wait til you file your 2020 taxes.  Check to see where your money is here. My first stim check got DDed, but I just got my new one in the mail, so they are really churning them out.  

2.  More unemployment!  They extended emergency unemployment benefits, and added $300 a week to whatever your state benefits are.  So it's like the $600 extra per week you were getting last year, just, you know, less. 

3.  Opened up a new round of PPP loans!  If you had Schedule C income in 2019 (so 1099s or self-employment!) and are NOT on unemployment, a PPP loan might be a great idea for you.  They call it a loan, but it's 100% forgivable, so really, it's a grant.  You can't get it with unemployment though, because it's meant to cover wages for 10 weeks.  If you think you might benefit from a PPP loan, please do get in touch with me.  And if you already got one, you can get another one if you can prove you had 1 quarter of revenue in 2020 that was 25% lower than the same quarter in 2020.  Again, if this might be you, get in touch!

Hi lovely people!  I get a lot of the same questions from clients about various tax issues, so I wanted to start writing blog posts about common things that come up to help you all get answers faster, and save me replying to the same question again and again :)  So check in frequently to see what I am writing about, from how to organize your deductions, to new tax laws, to any changes in Jen's business practices!