Here's one reason for self-employed people to finish their 2019 tax return: You'll need it when you apply for the Paycheck Protection Program.
The federal government's $349 billion forgivable loan program opened to independent contractors and self-employed people on April 10, a week after the bumpy April 3 roll out to small businesses.
Just because the loan window is open to entrepreneurs doesn't mean they can easily tap the funds.
On Tuesday, Treasury and the Small Business Administration released guidelines on the documents independent contractors and self-employed people will need to apply — four days after the program opened.
Currently, banks are asking small businesses to submit payroll expense documents, including payroll tax reports, plus health insurance premium and retirement plan funding data.
Lenders have also limited their PPP applicants to entrepreneurs who already have existing business accounts or loans with them.
This doesn't sync with the way independent contractors operate – and it's why some accountants are talking about pushing through tax returns for 2019.
Indeed, Treasury is telling self-employed people they'll need to have Schedule C of their 2019 tax return — a document that details the profit and losses of a small business — when they apply.
"What's payroll for independent contractors and the self-employed?" said Carl Peterson, CPA and vice president of small firm interests at the American Institute of CPAs. "It can get complicated.
"They have Schedule C, but they may have other sources of personal income that's reported elsewhere within the tax return," he said.
Small businesses with formal payroll systems might not have a hard time obtaining the forms they need as part of the application process.
Those forms include IRS Form 941 – which employers file each quarter to show taxes withheld from workers' pay – and Form 940, which shows employers' share of contributions toward unemployment compensation.
Independent contractors and self-employed people, however, often run their business income through their personal checking account, said Katie Vlietstra, vice president for government relations and public affairs for the National Association for the Self-Employed.
"They literally transfer money or commingle money so that whatever comes in from the business goes into personal checking," she said. "That's the stumbling block we're hearing about."
That's where the 2019 tax return comes in. Schedule C of an individual tax return shows income and loss from a business you're running as a sole proprietor. Here, you'd spell out your income, expenses and contributions to employee benefit programs.
"The pieces are all there, which will be used in your reporting," said Peterson. "But someone has to put them all together in the package."
Independent contractors should also expect to have any Form 1099s they may have received over the course of 2019. They show your sources of income, and you need them to fill out your tax return.
Exactly what banks will need will vary from one lender to another, but here's a starting point of documents for independent contractors and the self-employed, per Vlietstra, Peterson and Treasury's guidance:
"To the best of your ability, if you can file for 2019, that would be helpful," said Vlietstra. "Any way that you can show income."
More from Smart Tax Planning:
About 30 million people missed out on these tax breaks
Skipping a mandatory distribution from your IRA? What you should know
How to get your taxes in quickly amid the pandemic