Full Scale Tax Service

Based on recent IRS guidance, any Payroll Protection Program (PPP) loan forgiveness may have a tax impact on your freelance business. If you are planning to apply for PPP loan forgiveness, or you already have and are waiting for a final determination, here’s what you need to know:

1. If you are applying for PPP loan forgiveness based on payroll, rent, or other eligible expenses, they will not be tax deductible (preventing a double dip by taxpayers), and by inference this may increase your taxes. If for example you are applying for a PPP loan forgiveness amount of $10,000 of payroll and $5,000 of rent expenses, that $15,000 cannot be deducted on your 2020 tax return—which increases your tax liability.

2. If your PPP forgiveness is based on sole-proprietor or active LLC members profits, you should not consider them to be taxable on your 2020 return. This is because the profits are viewed by the IRS as equivalent to a freelance business owner’s salary, on which they pay income and self-employment taxes. As such this will not have a tax impact for PPP loan forgiveness and are not deductible. Keep in mind that salaries over $100,000 are excluded from forgiveness eligibility.

This is also great to know as you wrap up your financials from this year and prepare to file your taxes.
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Contact me to learn how to make preparing your taxes as easy as possible.

When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions. If you itemize, you calculate your deductions one by one. Itemizing is more of a hassle, but it’s worth it if your itemized deductions exceed the amount of the standard deduction.

For tax year 2020, the standard deduction went up slightly to adjust for inflation.

Keep in mind that every situation is different as far as whether you should take the standard deduction or whether you should itemize. Tap the link in bio to learn more about how I can help you.