CoronaTax is all about free money and new opportunities. And, boy, that’s what is needed right now with the current US economy
There is one thing to consider, though. Taxes.
Consider for a minute that your business took a steep nose dive when the shelter in place order came. For weeks, you weren’t able to open up, the expenses piled up and you didn’t make a dime.
And then you got a bail-out. It could have been unemployment now available for self-employed persons for the first time ever. Or it could have been a PPP loan, that turned into grant when you spent the money for qualified expenses in the first 8 weeks.
And you got an economic stimulus check.
You make it through 2020, somehow. It was a rough year, but you’re still standing.
And then it’s tax time and the panic sets in. How does the money you received change your tax return?
The economic stimulus payments are tax free. You don’t pay tax.
Unemployment benefits are subject to tax. Most states give you the option to elect to have tax withholding from the checks. If you don’t have tax withheld, you may have a big (and unpleasant) surprise come tax filing time!
The PPP loan is not taxable. Loans never are because you have to pay them back. Congress said that the part that converted to a grant would not be taxable. However, the IRS then took away the deductions for expenses. That in effect made the grant taxable. (The grant didn’t increase taxable income directly, but by losing deductions, taxable income did indirectly increase.) Congress has disagreed with the IRS’s interpretation, but is a little overwhelmed with everything else and hasn’t acted to correct that yet.
Like with the PPP loan, the loan itself is not taxable. There is a portion that is forgiven as a grant. At this point, the IRS has not ruled on whether it is taxable. However, given the issue with the grant portion of the PPP loan and taxability, I suspect we’ll hear something from them.
Student Loan Forgiveness
The CARES Act made employer-paid student loan repayment assistance programs tax-free from March 27, 2020 through December 31, 2020. Other student loan forgiveness programs are taxable.
Interest and Penalty Suspension for Debt
There are a number of credit card companies, car financing lenders and other consumer debt companies that are offering forbearance on payments, interest free. Forbearance does not mean that debt is forgiven. It simply means that the payment is delayed. When the forbearance is allowed without penalty or interest, there is no change to your tax situation. If they actually forgive debt, then the amount forgiven would be taxable.
In this rapidly changing tax and financial world, it’s important to make sure you have the latest and most accurate information. Don’t just rely on social media memes. When it comes to taxes, you need to have an expert on your side.