Month: October 2020

Help for Pandemic Credit Woes

Your Economic Impact Payment was spent a long time ago, your work hours were cut, and your bills are getting harder to pay. Well, you are not alone. Widespread unemployment and economic hardships from COVID-19 are anticipated by financial experts to create a financial and credit crisis. My regular readers have already been alerted to the many scams out there to take advantage of vulnerable people. Those scams include “help” with credit and debt issues. 

Good news! Reputable (and often free) help is out there to help with your pandemic credit woes. Here are three options for credit and debt counseling that really help:

  • Nonprofit Credit Counseling

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free financial education. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. They discuss your entire financial situation with you, and help you develop a personalized plan to deal with your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions. The Federal Trade Commission offers tips on finding an agency and questions you should ask before you start. https://www.consumer.ftc.gov/articles/0153-choosing-credit-counselor

  • Credit Union Membership

Credit unions are nonprofit financial institutions, while banks are for-profit, meaning they are either privately owned or publicly traded. Credit unions have lower fees and are all about community. They often provide free financial wellness and other services to help their members make good financial decisions, stay on top of bills and payments, and manage a budget. Check out Bank Rate to find a credit union near you and how to become a member. https://www.bankrate.com/banking/best-credit-unions/.  

  • Community Development Financial Institutions

Community Development Financial Institutions (CDFIs) are banks and credit unions that focus on serving people in low-income communities that have historically been locked out of the financial system. Unlike other financial institutions, CDFIs rely less on credit scores when providing loans and other products. In addition, they emphasize developing long-term relationships with members of the community to help them gain financial literacy, establish savings goals, build credit, and access affordable loans. Check out the official CDFI website to locate a certified financial institution near you. https://www.cdfifund.gov/programs-training/certification/cdfi/Pages/default.aspx 

Millions of people are suffering financial woes due to the coronavirus pandemic. If you or someone you know is impacted and needs help, nonprofit credit counseling, credit union financial wellness services, and CDFIs are some of the reputable resources that are out there for you. It might be difficult to take the first step, but that debt burden will feel lighter after you do. 

Tax “To Do” List for Closing a Business

Data from Yelp Inc., the online reviewer, shows that more than 80,000 businesses permanently closed from March 1st to July 25th of this year. About 800 small businesses filed for Chapter 11 bankruptcy from mid-February to July 31st, according to the American Bankruptcy Institute. They estimate that total bankruptcies in 2020 could be up 36% from last year.

Closing a business is a tough decision. It’s painful. It also creates a long “To Do” List, including final tax responsibilities. Figuring out everything that needs to be done can be confusing. Fortunately, the IRS recently launched a redesigned webpage to help business owners and self-employed individuals navigate federal tax steps when closing a business.

The IRS’ “Closing a Business” webpage has explanations, instructions, links, and forms for:

  • Filing a Final Return and Related Forms

You must file a final return for the year you close your business. The type of return you file and related forms you need will depend on the type of business you have (e.g., sole proprietor or partnership). 

  • Take Care of Your Employees

If you have employees, you must pay them any final wages owed, make final federal tax deposits, and report employment taxes. You must also provide an IRS Form W-2, Wage and Tax Statement, to each employee. 

  1. Pay the Tax You Owe

Whether it’s by check or online, all taxes must be paid in full. 

  • Report Payments to Contract Workers

If you have paid any unincorporated contractors at least $600 during the calendar year in which you close your business, you must report those payments.

  • Cancel Your EIN and Close Your IRS Business Account

The employer identification number (EIN) assigned to your business is the permanent federal taxpayer identification number for that business. The IRS will not close your business account until you have filed all necessary returns and paid all taxes.

  • Keep Your Records

How long you need to keep your business records, such as employment tax records, depends on the document. Generally, tax records should be kept for four years and copies of tax returns should be kept permanently.

The IRS’ “Closing a Business” webpage outlines the steps needed to close a business and help take care of any employees. No matter the business type, information on this page https://www.irs.gov/businesses/small-businesses-self-employed/closing-a-business helps business owners and self-employed individuals understand what to do after making the tough decision to shut down.

Taxes and the Growing Gig Economy

Smartphones and apps have made it easier for people to find work, or “gigs”, through new online marketplaces. But gig workers may not understand all the tax obligations of their work situation. For example, companies will probably classify them as independent contractors instead of employees, making them responsible for taxes, insurance, and other financial obligations that employers usually take care of. 

The gig economy was growing before COVID-19. Now that work is booming because of even more gigs that are lined up via apps or websites, also called digital platforms. Examples are:

  • Driving a car for booked rides or deliveries, such as Uber and Uber Eats;
  • Renting out property or part of it, such as on Airbnb;
  • Running errands or complete tasks, such as TaskRabbit; or
  • Selling goods online, like on eBay. 

Digital platforms are businesses that match workers’ services or goods with customers. Instead of the customer directly paying the worker, the customer pays the platform, and the platform pays the worker. Platforms are supposed to issue a year-end income report to workers (i.e., on IRS Form 1099-K or 1099-NEC/MISC). Workers that earn income via a digital platform are required to maintain financial records and report all income on her or his income tax return, just like any other freelance worker. 

Knowing about the tax obligations for gig workers is vital because many don’t receive a year-end tax report, like a 1099, for all their work. Income from gig work is generally taxable, regardless of whether workers receive information returns or not. Gig workers also need to know about the business expenses they can deduct to reduce their taxable business income. 

Keeping up with the tax rules is a growing issue as the gig economy grows. The IRS recently launched its Gig Economy Tax Center to help gig workers navigate through what they need to know. Check it out here –  https://www.irs.gov/businesses/gig-economy-tax-center. 

The Gig Economy Tax Center is designed to make it easier for taxpayers to find information about a variety of topics including filing requirements, quarterly estimated income tax payments, and deductible business expenses. They even produced a video to break it down for you –  https://www.irsvideos.gov/Individual/PayingTaxes/UnderstandingTheGigEconomy.

The gig economy is growing. Gig workers who educate themselves on all the tax rules for reporting income and allowable business expenses can get it all done correctly and quickly, leaving more time for earning income with more gigs.

Cyber Risk and Working from Home

With so many people working from home, cyber risk is higher than ever before. When you work from the office on your employer’s systems, security features are often in place that reduce the risk that “bad actors” will gain access to your data. But those security features don’t usually extend from the office to workers’ homes. 

Increased cyber risk results when basic IT controls aren’t addressed, leaving systems vulnerable to hacks and malware. Employers whose workers are accessing their business systems from home must train and provide remote support in these four IT control areas to reduce cyber risk:

  • Firewalls and Anti-Virus Software

Home-workers should be required to install a firewall and anti-virus software. Firewalls protect against outside attacks and can be configured to block data from suspicious locations while allowing relevant and necessary data through. However, firewalls do not prevent attacks; they only protect against malicious traffic. Anti-virus software scans computer files and memory for patterns that may indicate the presence of malicious software based on known malware from cybercriminals.

  • Program and System Updates

Home-workers should download and install all program and system updates. Skipping updates and patches creates vulnerabilities that can be exploited by hackers and scammers. Outdated updates were the reason for some recent – and awfully expensive – cyber fraud events at Equifax and Home Depot, among others. Workers should set up updates to be pushed automatically to their home computers and other devices to ensure they stay up-to-date.

  • Passwords and Two-Factor Authentication

Home workers must use passwords for all business systems access and should be encouraged to use two-factor authentication protections to add an extra layer of protection. Two-factor authentication means the user must enter username and password plus another step, such as entering a security code sent via text to a mobile phone. Passwords used at home should follow the same length and strength protocols as when they are used at the office.

  • Phishing Emails

Home workers should be trained never to open an email from a suspicious source, click on a link in a suspicious email or open an attachment without scanning it first. Otherwise, your worker could be a victim of a phishing attack and your data could be compromised. Workers should never click on links in pop-up windows, download “free” software from a pop-up, or follow email links that offer anti-spyware software.

More working from home equals increased cyber risk because basic IT controls at the office don’t automatically extend to home. This scenario can leave systems vulnerable to hacks and malware. Employers must train and support their home workers about firewalls and anti-virus software, system and program updates, passwords, and phishing scams to reduce cyber fraud and protect their business systems and data.