5 things self-employed should know about CARES act

5 Things Every Self-Employed Should Know About the CARES Act

Formations Team

01 Apr
There's a lot of information about the CARES Act out there, so in our mission to help self-employed, we've compiled a shortlist of things self-employed can do today to prepare for it.
Self-Employed

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law on March 27. Since then, companies and individuals (us included) have been scrambling to make sense of what’s available. Some of the key questions are: what are the requirements? How much money can you get? How fast can you get it? Where and how? And more. 

After several days of reading through the bill and the various interpretations of it, as well as waiting to hear more clarifications from government officials, we’ve compiled a shortlist of things self-employed can do today to prepare for it. In addition, at the bottom of this post, you can find the key sections of the bill that are relevant for self-employed as well as some additional resources. 

Five things self-employed can do today to take advantage of the CARES Act

  1. Apply for the EIDL grant
  2. Get your finances in order
  3. Analyze your best course of action
  4. Apply for the rebates and any other personal relief funds
  5. Incorporate

1. Apply for the EIDL grant.

The Economic Injury Disaster Loans, managed by the Small Business Administration (SBA), is the fastest way to get money now with almost no requirements other than proving you are self-employed. You can get a $10,000 emergency cash grant even if you don’t qualify for additional funds. You can apply for these loans directly through the SBA. There are no loan fees, guarantee fees, or prepayment fees. As of March 30, the new streamlined online application is up and running. Make sure to apply for Economic Injury for the Coronavirus, rather than physical damage due to another disaster (that is a different declaration number). You have to have been in business by January 31, 2020 to qualify, so you can’t start a business now and receive this kind of grant. 

2. Get your finances in order.

Most of the requirements for the full EIDL loan or the Paycheck Protection Program (PPP) will include showing clean financials to be eligible and determine your loan amount as well as your forgiveness amounts. There’s no reason to wait with cleaning your books and getting all your financial documents in order. You will need your business 2019 data organized and your January-February 2020 data cleaned. 

3. Analyze your best course of action.

The bill has several provisions and some options to maximize the amount of money you can get and how much will be forgiven. You can start analyzing your best course of action now, so you know what to apply for and how. For example, you can apply for both EIDL and PPP loans, as long as they cover different expenses (not a duplicative purpose). This is also true if you’re pursuing other local or regional government assistance. You should understand your financial needs before you apply and where you will get the best “return.”

4. Apply for the rebates and any other personal relief funds.

The personal rebates are for all Americans and there’s no reason to wait with applying for them. You need to file your 2019 taxes so you can get them. If you have a complicated 1040, we recommend using a CPA, otherwise, you can do it yourself. As a self-employed, submitting your Schedule C (or 1120S) can be more complicated, so we encourage using a CPA or reaching out to us for help.

5. Incorporate.

While the government has made an effort to include sole props and independent workers in the bill, it’s clear that it would be easier for the IRS and lenders to service corporations. Even if you’re simply a single-member LLC, or better yet, an S-Corp, it would be easier for you to apply for the loan and increase your chances for forgiveness. If you are already an LLC, we highly recommend converting your business to S-Corp, with a late S-election for 2019, or simply for 2020 so you can issue paychecks after the loan is approved and obtain the necessary documentation for the forgiveness.

A few dates to know

  • The application process for the PPP loans for small businesses (including S-Corps) starts on 04/03.
  • The application process for the PPP loans for sole proprietors and independent contractors starts on 04/10.
  • The application process for EIDL grants is open now.
  • Personal tax filing due date was automatically delayed to July 15, 2020.
  • Payroll taxes can be deferred until January 1, 2021.
  • To qualify as a sole prop or small business, your business had to be in operation before February 15, 2020. 

We can help!

Given the immediacy of the CARES Act and the amount of new information, we are working to organize the data, applications, and recommendations for our customers and other full-time self-employed. For the next few weeks, we’re offering free consultation call to help qualified self-employed figure out their best route, as well as offer our help with getting them ready for the application process. If you are interested, please contact us here.

Some resources

 

Several sections in the bill are specifically relevant for self-employed

  • 1102. Paycheck protection program – allows self-employed to receive a loan at the amount of 2.5 times their monthly payroll cost.
  • 1106. Loan forgiveness – allows the loan to be forgiven if the funds are applied towards a specific set of expenses.1102. Paycheck protection program – allows self-employed to receive a loan at the amount of 2.5 times their monthly payroll cost.
  • 1110. Emergency EIDL grants – provides an immediate grant of $10K against the future loan, even if the loan is not approved. The entire grant is forgiven.
  • 2201. 2020 RECOVERY REBATES FOR INDIVIDUALS. – sets the amounts any individual can receive from the government based on their 2019 tax filing status. 
  • 2302. Delay of payment of employer payroll taxes – allows self-employed to delay the employer-side payroll taxes.
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