From the Blog

A Head Start on Tax Advice

Posted by Samira Rajan @Dec 17 2020

“Today we have a guest blogger! Laurel Leckert has been a Small Business Tax Counselor at Brooklyn Coop for a few years. She wants you all to be aware of a couple of tax surprises.

“It’s hard to believe but tax season is around the corner, and as with everything else in 2020, it comes with bad news and financial hardship for many of our community members. Especially, and unfortunately, for those of us that gained some benefit from government assistance in 2020, there are negative tax consequences based on that assistance.

“Let’s take the expanded unemployment benefits. Unfortunately, if much of your income in 2020 was unemployment pay, your tax refund will be far less than you’re used to, and you may even owe taxes this year.

“There are two main reasons:

Unemployment income is taxable. If you did not opt to have taxes withheld from your payments, you will owe the taxes at tax time.

2. Unemployment income is not considered “earned” and therefore does not qualify you for the Earned Income Tax Credit (EITC).

“Another benefit came in the form of Payroll Protection Program (PPP) loans. The hope of many business-owners who received a PPP was that the loan would be forgiven. If you’re a freelancer or business owner who received forgiveness in 2020, or if you intend to apply for forgiveness in 2021, then there are a few things to keep in mind for your taxes.

“From the point of view of your tax return, the forgiven PPP loan is not taxable income. However, whatever you spent your PPP money on (payroll, rent, and utilities) cannot be written off as business expenses, so it’s basically a wash. For example: if your business received a $10,000 PPP loan which was forgiven based on having spent the full $10,000 on wages for your employees, you do not need to add the $10K in your business’ income, but you also have to reduce your write-off for wages by the same $10K.

“There is one piece of good news if you received a PPP loan and do not have any employees. As a sole proprietor, your loan was based solely on your business’ net income (profit). If you applied for loan forgiveness based on your business’ profit, then you actually win since the PPP money is not included in your income, and you can’t write off your own pay anyway.

“More good news: Brooklyn Coop’s tax counselors are here for you! Feel free to send your business tax questions to Laurel (laurel@brooklyn.coop) or Tammy (tammy@growbrooklyn.org).

Have a wonderful holiday season and we’ll see you in 2021!”

Samira Rajan is the longest-serving employee of Brooklyn Coop and currently the Director of both the credit union and Grow Brooklyn. She started here as an Americorp*VISTA for a single year of service back when we were Bushwick Coop in 2001, got hooked by the challenge of building a community financial institution, and hasn’t left.