It’s safe to say that everyone has been impacted by the COVID-19 pandemic, but small businesses have been hit especially hard by consequential long-term closures and plummeting sales. While it’s important to be creative when cutting costs in times like these, it’s equally pertinent to keep your business aligned with rules set by the IRS and SBA — particularly if you are planning to apply for a PPP or EIDL loan.
As many business owners have laid off or furloughed employees, they’ve turned to independent contractors to finish the work that was left behind. “Gig workers,” as they’re often called, can be an effective way for businesses to stay flexible while on a tightened budget, but contracting them may also disqualify you for certain loans offered by the PPP and EIDL.
Keep in mind that 75% of your EIDL and PPP loans must be used for payroll expenses, which exclude the cost of hiring independent contractors — or anyone filing under a 1099. Understanding 1099 lax loan will serve you well when applying for an SBA loan, but it can also help you avoid paying a fine for AB-5 violations down the road. There are certain exemptions to the law, but you will need to fully understand the definition of an independent contractor and the tax requirements before making the decision to outsource your projects.
In general, the fine print matters a lot when applying for SBA loans and we recommend that you review your application with a legal professional. Reach out today to schedule a consultation with Milikowsky Tax Attorneys.