PPP Updates For Self-Employed and Independent Contractors: Single-Page Forgiveness Form, 2nd Draw Applications Open

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Updated. There are many people who are eligible for 100% forgivable federal assistance from the Paycheck Protection Program, but aren’t applying for it, either due to misinformation or being discourage by all the bureacracy. Many PPP loan recipients are self-employed workers, sole proprietors, freelancers and/or independent contractors that file a Schedule C who may be eligible only for a modest amount, but that amount can still make a big difference. I am not an accountant nor a lawyer, but I encourage the (really) small businesses out there to get help if impacted by COVID. It’s not too late, and COVID isn’t over!

New focus on business with LESS than 20 employees. The Treasury Department just announced that businesses with more than 20 employees will be shut out of the PPP for a two-week period starting Wednesday, 2/24. In other words, only businesses with less than 20 employees can apply for PPP loans during the next two weeks. From ABC News:

In an attempt to improve equitable distribution of loans, administration officials said changes would also be aimed at helping sole proprietors, independent contractors and self-employed individuals to receive more financial support by revising the program’s funding formula.

PPP Round 2 loan applications now open. First of all, if you never took a PPP loan, you can still apply for a first-draw PPP loans under the more lenient first-draw eligibility rules. Second-draw PPP loans have a different set of eligibility rules, notably you need to show a reduction in revenue. If you are a self-employed worker with no other employees and have higher than a $100,000 net income (2019 IRS Form 1040 Schedule C line 31 or equivalent), then you must reduce it to $100,000. Here are the full SBA 2nd Draw guidelines. In terms of loan size, you can still get 2.5 times your average monthly net profit from 2019.

The next general hurdle is that you must show a 25% drop in income when comparing the same quarter in 2019 and 2020:

Applicant must demonstrate that gross receipts in any calendar quarter of 2020 were at least 25 percent lower than the same quarter of 2019. Alternatively, Applicants may compare annual gross receipts in 2020 with annual gross receipts in 2019 if they were in business in 2019.

Looking for a PPP lender? One problem is that most banks are restricting PPP applications to those with existing business credit relationships. Many freelancer and independent contractors don’t have that. The small-business fintech Fundera has an open PPP loan application (both for first and second-draw loans) to help freelancers and independent contractors find a lender without any no prior relationship.

Single-page form for PPP Round 1 loan forgiveness now available. If you have an existing loan under $150,000, there is now a single-page form that requires you to submit no additional documentation (it must still exist, of course, and they may ask you for it later if audited). That form, called the PPP Loan Forgiveness Application Form 3508S, has been released and lenders are starting to accept them. You may even be able to use the longer 24-week covered period and get more of your loan forgiven than with the previous 8-week period. (I haven’t heard of widespread final forgiveness being granted by the SBA yet.)

Looking for a self-employed or small business payroll provider? I want to mention Gusto here, as I use them for payroll and saw them create many tools this year to help their users satisfy the PPP documentation requirements and help them take advantage of this relief. If you are a single-person company, they have a basic tier that costs only $25 per month, which is much less than the major payroll providers. (You can also split up your direct deposit however you like, handy for various banking promotions.) Right now, referred user can get a $100 Visa gift card after running your first payroll with Gusto (my referral link).

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Creative Business Idea: Selling Baked Goods Online via Etsy

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My family enjoys watching Kid’s Baking Championship on Food Network, and I’m always impressed how many of these 8-13 year-old contestants have a side baking business! Last weekend, the WSJ article How Etsy Became America’s Unlikeliest Breadbasket profiled home bakers selling their baked goods online through Etsy. That could be a perfect business education for a teenager, including concepts like business plans, accounting, customer service, online marketing, and basic coding.

Cottage food laws. Many states allow exemptions that don’t require you to use a commercial kitchen to sell “non-potentially hazardous” items like bread and other baked goods. I knew about “cottage food laws” in terms of church bake sales, but I wasn’t aware that some states have much more relaxed laws than others. For example, some states require you to sell in-person and you must hand-deliver it yourself to a customer within your home state. However, the following states allow you to sell bread and other baked goods via online marketplace and deliver them via mail:

  • Colorado
  • Idaho
  • Iowa
  • Maine
  • Maryland
  • Nebraska
  • Ohio
  • Oregon
  • Pennsylvania
  • Tennessee
  • Utah
  • Vermont
  • Virginia
  • West Virginia
  • Wisconsin

Source: Forrager.com, May 2020. Note that some states will require an annual home inspection and/or permits.

The WSJ article profiled the Etsy shop ChickensintheRoad by Suzanne McMinn. She lives in West Virginia, which has some of the most open cottage food laws. McMinn shares some of her Etsy history in this blog post. Both an experienced baker and soapmaker, she realized that the competition was much more intense in the soap category. She now specializes in fresh baked goods as well as various dry food and seasoning mixes.

What is a hand-crafter worth? Can you buy biscuits–or cookies or fudge or soap or bread of whatever–for less at the grocery store? YES. But you don’t get the hand-crafter. You don’t get the individual batch per order. You don’t get homemade. You don’t get that attention to detail. You don’t get that packaging that makes every order of a dozen biscuits (or whatever) look like a present under the Christmas tree. That is what you get from a hand-crafter on Etsy.

Making the most out of your valuable knowledge. Thanks to a recent profile on Good Morning America, it looks like McMinn isn’t even taking any new orders until late June. She’s booked solid! Her skills are definitely valuable, but I can’t help but notice that if she is not baking, she’s not making money. She’s still selling her time for money.

What I would love to see her do is create a series of online videos for making some of her specialties, and then charge for access. Yes, there are many videos for free on YouTube, but what about those superfan customers that want to recreate her exact biscuits? The best part is that it would only take a one-time commitment of say, 10 hours. After that, the upside is unlimited.

Actually, you know what would make the most money? A full digital course that would teach others how to start their own online home baking business. For example, her blog post also revealed the triple-wrapping method that keeps her biscuits at maximum freshness even when delivered in a USPS box. I’m sure she has make many mistakes along the way that would be valuable to know ahead of time. You could charge anywhere from $100 or far upwards depending on how much detailed, step-by-step content was included. Again, the upfront cost is fixed and the upside is unlimited. She could make $1,000, but she could also make $100,000 if she sold 1,000 copies over time. She could always keep on baking, but now she’d also be making money 24 hours a day, even when she’s sleeping.

Indeed, she’s pretty funny and I appreciate her sense of humor:

Remember that year, when I first moved to Sassafras Farm, and all the pipes froze, and I had no money, and it was like, Kids, be happy we have running water, that is your Christmas present? This year is almost like that, but with running water, and it’s like, Kids, be happy there are a couple leftover cookies after I make this batch I’m shipping, cuz other than that, you can just starve! OR PAY ME BECAUSE I CHARGE FOR FOOD.

There’s nothing like someone telling you that what you’re doing isn’t worth what you’re charging right when you’re dying of exhaustion from doing it.

Anyhow, I thought this was a cool example of how someone’s special knowledge can be turned into a living by taking advantage of new opportunities, in this case new cottage food laws and the Etsy online marketplace. I’m also always trying to show my kids ways to decouple time and money, and not forever work for an hourly wage.

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Bank of America Paycheck Protection Program (PPP) List of Required Documentation

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As a follow-up to my initial post on the Paycheck Protection Program (PPP), there has been a some speculation as to the specific documentation required to prove your eligibility and payroll numbers. Each lender may have some discretion as to exactly what they require, but here is what Bank of America has listed as required documentation to submit:

Organizations with employees who file Tax Form 940:

  • Tax Form 940 from 2019
  • Bank of America Paycheck Protection Program Loan Amount Template
  • Bank of America Paycheck Protection Program Application Addendum
  • Tax form 941 or Payroll processor records for the period including Feb 15, 2020

Documents for Sole Proprietors or Self Employed, who do not file Tax Form 940:

  • 1040 Schedule C, if filed for 2019 OR
  • Draft 1040 Schedule C for 2019 if not filed
  • Bank of America Paycheck Protection Program Application Addendum

Documents for All Other Small Businesses:

  • Form 1099-MISC for 2019, for services rendered as an independent contractor
  • Bank of America Paycheck Protection Program Application Addendum

As far as I can tell, the BofA Application Addendum contains the same certifications and questions as the paper PPP application.

Hopefully, this will help you get your documents in order ahead of time so that you can get your applications approved more quickly.

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Paycheck Protection Program (PPP): Forgivable SBA Loans For 2.5x Monthly Payroll

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If you are a small business impacted by COVID-19, including self-employed and independent contractors, you have hopefully been following the developments of the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan Emergency Advance (EIDL) being rolled out by the Small Business Administration (SBA) and U.S. Treasury. Details are still being ironed out, but PPP could cover up to 2.5 months of your payroll costs. Here are some general highlights from the Treasury PPP overview PDF along with some details from the Bank of America PPP application:

Loan Amount = 2.5 times Average Monthly Payroll. “The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.” In the Bank of America PPP application, two possible options given were to use 2019 payroll or 2019 1099-MISC totals, and then multiple the average monthly payroll by 2.5. So if you averaged $6,000 per month, you can ask for a loan for $15,000. Income over $100,000 annually per employee isn’t covered. Here are some details:

For purposes of calculating “Average Monthly Payroll”, most Applicants will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee. For seasonal businesses, the Applicant may elect to instead use average monthly payroll for the time period between February 15, 2019 and June 30, 2019, excluding costs over $100,000 on an annualized basis for each employee. For new businesses, average monthly payroll may be calculated using the time period from January 1, 2020 to February 29, 2020, excluding costs over $100,000 on an annualized basis for each employee.

Fully Forgiven. “Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.”

In my Bank of America, the details are given that it is a 2-year loan at fixed 1% interest. As noted, payments are deferred for the first 6 months. If you use the money in an eligible manner (see below), it is fully forgiven and not treated as taxable income.

Must Keep Employees on the Payroll—or Rehire Quickly. “Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.” In other words, this is supposed to encourage companies to keep employees and is separate from unemployment insurance.

All Small Businesses Eligible. “Small businesses with 500 or fewer employees—including nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors— are eligible. Businesses with more than 500 employees are eligible in certain industries.”

Businesses are limited to one PPP loan. Each loan will be registered under a Taxpayer Identification Number at the Small Business Administration (SBA) to prevent multiple loans to the same entity. Owners with more than one business may apply for a separate loan for each entity.

Application Dates and Details. “Starting April 3, 2020, small businesses and sole proprietorships can apply. Starting April 10, 2020, independent contractors and self-employed individuals can apply. We encourage you to apply as quickly as you can because there is a funding cap. […] You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.”

While technically you can apply at any SBA 7(a) lender, as of 4/5 many of them don’t even have any formal application process at all! Bank of America started accepting applications early, but first required both an existing BofA business checking relationship AND a BofA loan relationship as of 2/15/20. They later relaxed the rules to require at least an existing BofA business checking relationship as of 2/15/20. Most banks are limiting the applications to existing clients, but I’ve tried to list a few that don’t have such a restriction.

In addition, the US Treasury now has a paper application that you can submit to any eligible lender. I have no idea what will be the best. Small local bank? Mega bank? I would assume that if you have an existing relationship with a bank, they would be able to just deposit the money into your primary business account. But I’ve learned to stop making assumptions in 2020!

The funds are supposed to go out first come, first served, although they may expand the amount available. I’m sure that is not helping the chaos. No documentation was required upfront for BofA, but I would get your payroll documentation ready to submit as soon as they ask for it.

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Solo 401k vs. SEP IRA Contribution Limit Example For $50,000 Income

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I use a Solo 401k plan because it lets you contribute the most tax-deferred money for a modest amount of self-employed income. At the end of each year, I can more clearly estimate my total income for 2019 and thus my maximum contribution limits. There are several online calculators out there (try Dinkytown or BCM Advisors), although I would cross-check your answers to make sure they agree. Your Solo 401k contribution has two components:

  • Employee salary deferral contribution. Employees may defer up to 100% of their compensation, up to $19,000 for the 2019 tax year ($25,000 for employees age 50 or older).
  • Employer profit sharing contribution. Employers may contribute up to 25% of compensation (sole proprietorships must make a special calculation), up to a combined total of $56,000 for the 2019 tax year ($62,000 if age 50 or older).

Here are some sample numbers if you are under age 50 with $50,000 in Schedule C income as an unincorporated sole proprietorship. The numbers are a bit tricky because you have to do things like take out half of the self-employment tax paid, etc. Let the calculator figure out the details, but you can still see that the Solo 401k (aka Individual 401k, aka Self-Employed 401k) offers a much higher contribution limit than a SEP IRA or SIMPLE IRA.

Here are some sample numbers if you are under age 50 had a $50,000 W-2 income from your S-Corporation. These numbers are a bit cleaner, as when you run payroll the employer side of payroll taxes are taken out of the employee paycheck.

Being able to defer up to 63% of your income ($31,500 out of $50,000) into tax-advantaged accounts is great for aggressive savers. In addition, both Traditional Pre-tax and Roth versions are allowed for the employee portion of contributions as long as your administrator supports it. Note that if you are already making employee contributions to a 401k-type plan from another job, you are still responsible for staying under the $19,000/$25,000 total cap across all your jobs. If you are consistently maxing out your 401k salary deferral in another job, then it may make more sense to stick with the SEP-IRA as it comes with less paperwork.

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Solo 401k: Best Self-Employed Retirement Plan For Aggressive Savers ($50k/$100k Income Example)

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Each December, I run the numbers to see how much more I can contribute to my Self-Employed 401k plan, aka Solo 401k or Individual 401k. Fidelity, Vanguard, and Dinkytown (used below) have calculators to figure out contribution limits to various types of retirement plans (Solo 401k, SIMPLE IRA, SEP IRA, Profit Sharing Plan).

In general, as long as your income isn’t too high ($275,000+) and you aren’t deferring salary from another workplace retirement plan, the Solo 401k will allow you to defer the largest percentage of your business income. This is because the Solo 401k allows you defer as much as $18,500 (2018) in salary as an employee as well as 20% of your net self-employment income as an employer (both sides of your business) up to $55,000 total (2018). For example, if your income from your side business was $5,000 and you had no other salary deferral elsewhere, you could put 100% of that into a Solo 401k. (If you are age 50 or over, you can also add a $6,000 catch-up contribution to the salary deferral limit.)

Here are sample numbers for a $50,000 net income to your self-employed business. This assumes you are a sole proprietorship or an LLC taxed as a sole proprietorship. The math for a single-owner corporation is slightly different.

At $50,000 net business income, you can defer 56% annually ($27,793). This is exactly $18,500 more than if you went with the SEP-IRA.

Here’s the comparison for a $100,000 net income to your sole proprietorship.

At $100,000 net business income, you can defer 37% annually ($37,087). Again, this is exactly $18,500 more than if you went with the SEP-IRA.

Now, the Solo 401k does require a bit more paperwork. For example, you will need to file the IRS Form 5500-EZ separately every year once your Solo 401k assets exceed $250,000 to avoid steep IRS late penalties. SEP-IRAs have no such annual requirement. Therefore, if you don’t intend to take advantage of the higher contribution limits of a Solo 401k, I would consider sticking with the SEP-IRA. But if your goal is a high savings rate and maximum tax-deferred funds, look into the Solo 401k. I would compare the offerings from Vanguard, Fidelity, and Schwab. (Mine is at Fidelity.)

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Charlie Munger’s Life as a Financial Independence Blueprint

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blueprintCharles Munger is probably best known as the Vice Chairman of Berkshire Hathaway and partner of Warren Buffett. The University of Michigan Ross School of Business recently shared a hour-long talk with Munger on YouTube (embedded below). Munger has plenty of mentions on this site already, but my main takeaway from this talk was a more nuanced overview of his early years and how he personally achieved financial independence before really getting involved with Warren Buffett.

Here is a summary of my notes from the talk:

  • He was not born poor, but he was also not born into exceptional wealth. Munger wanted to go to Stanford for undergrad, but his father encouraged him to go to the University of Michigan as it was still an excellent school but more affordable. He ended up dropping out after only one year in 1943 to serve in the US Army Air Corps.
  • Military service, then law school. After World War II, he took college courses with the GI Bill and eventually went to Harvard Law School (getting accepted even though he never earned an undergraduate degree).
  • Successful law career. He practiced as a successful real estate lawyer until he achieved about $300,000 in assets. This was 10 years of living expenses for his family at the time (he now had a wife and multiple kids). At this point, he started doing real estate development at the same time. When this took off, he stopped practicing law.
  • Successful real estate development. When he achieved about $3 to $4 million in assets, he also wound down his real estate development firm. He was now “financially independent” but still mostly anonymous.
  • At this point, he decided to become a “full-time capitalist”. This last stage is what led him to his current status as a billionaire philanthropist. Along with his work with Warren Buffett and Berkshire Hathaway, he was also the chairman of Wesco Financial, which also grew to be a conglomerate of different wholly-owned businesses along with a carefully-run stock portfolio. Wesco Financial eventually became a wholly-owned subsidiary of Berkshire Hathaway.

Using Charlie Munger’s life as a blueprint, here’s a pathway towards financial independence.

  • Work hard, get an education, develop a valuable skill. Munger didn’t start Facebook from his dorm room or trade penny stocks in high school. He served in the military, earned a law degree, and went to work everyday for years. At this point, work means exchanging your time for money, but hopefully at a good hourly rate.
  • Use that work career and save up 10x living expenses. Munger called himself a “cautious little squirrel” saving up a pile of nuts. He dutifully saved his salary while supporting a family and kids (and some other personal family drama that a luckier person wouldn’t have to deal with). I don’t think you’ll need 10x if you don’t have a family to support.
  • To accelerate wealth accumulation, you can now take some more risk and start some sort of business. You need something that scales, something that’s not paid per hour. Munger did real estate development. If you look at people who got wealthy quickly, nearly all of them are business owners of some type.
  • At some point, your investments will enough money to support your living expenses. This is financial independence. It doesn’t matter what you do during the day, as you earn enough money while you’re sleeping. However, many people choose to continue doing one of the paths above: (1) employee-based career, (2) active business management, or (3) actively managing their investments.

Bottom line. Charlie Munger offers up great words of wisdom in this talk. He reminds us that our choice in marriage is much more important than our choice in career. He reminds us that just showing up every day and plugging away will yield great dividends over time. He reminds us that easy wealth without work is not a good thing for society. (He also says to give Bitcoin a wide berth.)

However, you can also learn a lot by noting and observing his actions. Munger was not a huge risk-taker. He grew his wealth in steps and never exposed his family to possible ruin. He worked hard for a long time and only became extraordinarily rich and famous later in his life. He primarily wanted to be independent “and just overshot”.

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S-Corporations vs. LLC: Example of Self-Employment Income Tax Savings

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corpsealUpdated. I have been the President and CEO of a profitable US corporation for over 10 years. I’m also all the other executive positions – CIO, CFO, COO – as there is only one employee (me). Here’s a brief overview of why I chose to incorporate my business into an S-corporation. Please don’t take this as tax advice, this is simply an explanation of my own actions.

I chose to an S-Corporation over an LLC for a variety of reasons (some of which I don’t remember anymore), but one of them was – why else? – to save some money. I wrote a wordy post years back – Forming An S-Corporation To Reduce Self-Employment Taxes. Here’s a more concise example from MyCorporation, a website that will complete and file the incorporation documents for a fee*:

In an S-Corporation, only earnings paid to an owner as salary is subject to payroll taxes. Any money left in the business for reinvestment or distributed to the shareholder as a dividend is not subject to self-employment tax.

Maria is a sole proprietor bringing in sales of $90,000. After she pays her costs & expenses, her profit is $60,000. As a sole proprietor, she is required to pay self- employment tax of 15.3% on this entire $60K of profit, which equates to $9,180.

Now, let’s assume Maria formed an S-Corporation for her business, and chooses to pay herself $35K for the year in salary, and take the remaining $25K of profit through a distribution. She still earns the same $60K in profit. But, let’s look at the tax situation. Because corporations only pay Social Security & Medicare taxes on salaries, she’s only liable for $5,355, saving over $3,800 in taxes!

scorp_bigger

I must add that the IRS states that the salary has to be “reasonable” based on the compensation of similar work elsewhere, so don’t get crazy with this. You can’t pay yourself $20 and a Diet Coke.

If you have a single-person LLC, the default tax situation is very similar to that of a sole-proprietorship. The income passes through to an individual’s tax return on Schedule C. However, there are other benefits like limited liability protection of personal assets. (You can also choose to have the LLC taxed as an S-Corporation. Confused yet? I would consult a local attorney for more details on this.)

Additional costs of S-Corporations. As an employer, the S-Corporation has to pay unemployment taxes. The exact rate varies from state to state, but the federal minimum is about $450 per year if your annual income is at least $7,000. However, as both the employer and employee, it is difficult for me to “lay myself off” and claim unemployment benefits. You may also be required to provide other benefits as required by your local area, such as short-term disability insurance.

In addition, I have to run payroll for myself. You can deal with all the federal, state, and local employment forms yourself, which I did for a while, but it can get tedious and the penalties for mistakes can be high. You can also hire a professional payroll service, which can run from $30 to $100 a month.

These additional S-Corp costs can quickly add up to over a thousand dollars per year. As a result, if I had a relatively small income, I would have been better off either staying a sole proprietorship or with a single-member LLC (taxed as a sole proprietorship). The S-Corp starts becoming more worthwhile as the annual profits increase.

Additional costs of LLCs. LLCs can also be subject to state-specific fees. For example, the state of California charges an annual minimum franchise tax of $800 to both S-Corps and LLCs.

Bottom line. There are many facets to the S-Corporation vs. LLC discussion. Unfortunately, it can get quite complicated. I’ve just tried to provide an example of potential differences in taxation and payroll expenses.

* I actually used LegalZoom to file my incorporation papers, which is their main competitor. I don’t really remember any big differences between them, but was happy with my Legalzoom experience.

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The Rise of Sole Proprietorships, LLCs, and S-Corporations

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The Tax Foundation has an interesting article on pass-through businesses, where the business income “passed-through” to the individual income tax return of the business owner. Pass-through businesses include sole-proprietorships, partnerships, S-corporations, and LLCs designated to be treated as sole-prop/S-corp/partnerships for tax purposes. These usually represent small businesses started by an individual, couple, or very small group of people.

You may be surprised to know that 9 out of every 10 companies in the US are pass-through businesses. These aren’t just dinky lemonade stands, either. Pass-through businesses combined earn over half of all business income, and they employ the majority of the private-sector workforce.

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The ranks of solo entrepreneurs are growing. If this path sounds attractive to you, you won’t be alone! Being an entrepreneur is not a requirement for financial independence, but I believe that enjoying what you do everyday does help a lot. Some people are quite happy being an employee of a large corporation or government entity. Some might yearn for increased autonomy. Still others do both with a side business, aka “side hustle”.

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A sole-proprietorship is the default business type for a US individual. You got paid for mowing someone’s lawn? You’re a sole-proprietorship. You decided to drive for Uber? You’re a sole-proprietorship. This website started out as a sole-proprietorship and later became an S-Corporation to save money on self-employment taxes.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


IRS Estimated Taxes Due Dates 2017

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

irsclipIf you have significant self-employment or other income outside of your W-2 paycheck that is not subject to witholding (interest, rents, dividends, alimony), you may need to send the IRS some money before the usual tax-filing time. This is my annual reminder to either slide in a last-minute payment for 2016 if needed, or plan ahead for four equal installments in 2017.

Here are the due dates for paying quarterly estimated taxes in 2017; one last one for 2016 tax year and four quarterly installments for 2017 tax year. This is for federal taxes only, state and local tax due dates may be different.

IRS Estimated Tax Payment Calendar for Individuals

Tax Year / Quarter Due Date
2016 Fourth Quarter January 17, 2017* (Tuesday)
2017 First Quarter April 18, 2017 (Tuesday)
2017 Second Quarter June 15, 2017 (Thursday)
2017 Third Quarter September 15, 2017 (Friday)
2017 Fourth Quarter January 16, 2018 * (Tuesday)

 
* You do not have to make the payment due January 17, 2017, if you file your 2016 tax return by January 31, 2017, and pay the entire balance due with your return. You do not have to make the payment due January 16, 2018, if you file your 2016 tax return by January 31, 2018, and pay the entire balance due with your return.

Who needs to pay estimated taxes?
In general, you must pay estimated tax for 2017 if both of the following apply:

  1. You expect to owe at least $1,000 in tax for 2017, after subtracting your withholding and refundable credits.
  2. You expect your withholding and credits to be less than the smaller of
    • 90% of the tax to be shown on your 2017 tax return, or
    • 100% of the tax shown on your 2016 tax return. Your 2016 tax return must cover all 12 months.

If you forget to pay (like I’ve done before), then you should make a payment as soon as possible even though it is late. This will minimize any penalty assessed.

How do I pay? When does the payment count?

  • By check. Fill out the appropriate IRS Form 1040-ES voucher (last page of the PDF) and snail mail to the indicated address. The date of the U.S. postmark is considered the date of payment. No fees besides postage.
  • By online bank transfer. You can store your bank account information and pay via electronic funds transfer at EFTPS.gov or call 1-800-555-4477. It takes a little while to set up an online account initially, so you’ll need to plan ahead. For a one-time payment, you can also use IRS Direct Pay which does not require a sign-up but it also doesn’t store your bank account information for future payments. Both are free (no convenience fees). The date of payment will be noted online.
  • By debit or credit card. Here is page of IRS-approved payment processors. Pay by phone or online. Fees will apply, but the payment will count as paid as soon as you charge the card. You may also earn rewards on your credit card.

The following credit cards currently have the ability to offer rewards equal or greater than 1.87%, meaning you could theortically make money by paying your taxes with them. Please read my card-specific reviews for details.

How much should you pay in estimated taxes? You’ll need to come up with an expected gross income and then estimate your taxes, deductions, and credits for the year. The PDF of Form 1040-ES includes a paper worksheet to calculate how much in quarterly estimated taxes you should pay. You can also try online tax calculators like this one from H&R Block to estimate your 2016 tax liability, and divide by four quarters.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Podcast Recommendation: The Distance

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

thedMany of the podcasts I listen to aren’t financially-related, but I’ve recently been catching up The Distance Podcast which profiles the owners of private businesses that have been around for at least 25 years. Here’s their own description:

What’s the hardest thing about business? Not going out of business. The Distance features stories of private businesses that have been operating for at least 25 years and the people who got them there. Hear business owners share their stories of hard work, survival and building something that lasts. The Distance is a production of Basecamp, the company behind the leading project management app.

A few observations after several episodes:

  • If you’ve been around for 25 years, then you are both (1) good at what you do and (2) you turned down buyout offers.
  • These businesses were not highly-leveraged with debt, and thus could survive the lean times like the 2008 financial crisis.
  • Many of these founders could have sold for a sizable sum and retired (at least modestly) years ago.
  • Why didn’t they sell? For one, they have pride in the their work. Building houses, growing food, carving ice sculptures, or making cardboard boxes. It matters to them that it is done “right”. They feel loyalty to their employees and community.
  • Some are workaholics. If you’re going to always work, why not be the boss? If you sold, you’d have to start over or work for someone else.
  • These businesses are often kept in the family. Keeping it around to pass down to the next generation is another reason not to sell.
  • Some might only be in it for more money. But that seemed to be rare.

Most mass media business profiles focus on multi-national corporations (Apple) or some hot-shot tech unicorn (Uber). I found myself having a soft spot for these mom-and-pop businesses that stubbornly do their own thing.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


IRS Estimated Taxes Due Dates 2016

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

irsclipIf you have self-employment or other income outside of your W-2 paycheck this year, you may need to send the IRS some money before the usual tax-filing time. Here are the due dates for paying quarterly estimated taxes in 2016; they are supposed to be in four equal installments. This is for federal taxes only, state and local tax due dates may be different.

IRS Estimated Tax Payment Calendar for Individuals

Tax Year / Quarter Due Date
2016 First Quarter April 18, 2016 (Monday)
2016 Second Quarter June 15, 2016 (Wednesday)
2016 Third Quarter September 15, 2016 (Thursday)
2016 Fourth Quarter January 17, 2017* (Tuesday)

 
* You do not have to make the Q4 payment due January 17, 2017, if you file your 2016 tax return by January 31, 2017 and pay the entire balance due with your return.

Who needs to pay estimated taxes?
In general, you must pay estimated tax for 2016 if both of the following apply:

  1. You expect to owe at least $1,000 in tax for 2016, after subtracting your withholding and refundable credits.
  2. You expect your withholding and credits to be less than the smaller of
    • 90% of the tax to be shown on your 2016 tax return, or
    • 100% of the tax shown on your 2015 tax return. Your 2015 tax return must cover all 12 months.

If you forget to pay (like I’ve done before), then you should make a payment as soon as possible even though it is late. This will minimize any penalty assessed.

How do I pay? When does the payment count?

  • By check. Fill out the appropriate IRS Form 1040-ES voucher (last page of the PDF) and snail mail to the indicated address. The date of the U.S. postmark is considered the date of payment. No fees besides postage.
  • By online bank transfer. You can store your bank account information and pay via electronic funds transfer at EFTPS.gov or call 1-800-555-4477. It takes a little while to set up an online account initially, so you’ll need to plan ahead. For a quick one-time payment, you can also use IRS Direct Pay (just introduced in 2014) which does not require a sign-up but it also doesn’t store your bank account information for future payments. Both are free, there are no convenience fees. The date of payment will be noted online.
  • By debit or credit card. Here is page of IRS-approved payment processors. Pay by phone or online. Fees will apply, but the payment will count as paid as soon as you charge the card. You may also earn rewards on your credit card. Check if there is a discounted fee available via limited-time promotion.

How much should you pay in estimated taxes? You’ll need to come up with an expected gross income and then estimate your taxes, deductions, and credits for the year. The PDF of Form 1040-ES includes a paper worksheet to calculate how much in quarterly estimated taxes you should pay. You can also try online tax calculators like this one from H&R Block to estimate your 2016 tax liability, and divide by four quarters.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.