The application to apply for loan forgiveness has been issued, and to further assist our clients and community members, we have compiled a list of common questions we have been receiving regarding the PPP loan. Please note, additional guidance is needed on several issues and the following information is not intended to be relied upon for official guidance. If you have specific questions regarding the PPP loan, or another financial related question, we invite you to contact our team at CPS Investment Advisors at: info@CPSInvest.com
- Question: Can the PPP funds be used to pay bonuses or increase salaries?
Answer: Perhaps yes, but further guidance is needed.
Covered payroll cost are currently listed as salary, wages, commissions, or tips (Capped at $100,000 on an annualized basis for each employee) Current guidance does not restrict an increase in salaries or bonuses, but keep in mind that each employee is still restricted to the $100,000 analyzation cap. (Capped at $15,384 per individual)
- Question: When does the 8-week (56 day) covered period start?
Answer: The date the lender makes the first disbursement of the PPP loan to the borrower.
The SBA answered this question in Question #20 of the PPP FAQ’s.
IMPORTANT: See question #9 (What is the “Alternative Payroll Covered Period”?) for an election to possibly adjust the start date.
- Question: Are the expenses used for forgiveness cash or accrual?
Answer: It’s a bit of a hybrid.
The loan forgiveness application specifies the following:
Eligible Payroll Cost: “Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.”
Eligible nonpayroll cost: “An eligible nonpayroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.”
- Question: If my rent increase, or if I’m renewing my lease agreement soon, will the new lease payment count toward loan forgiveness?
Answer: Not under current guidance. A leasing agreement must be in force before February 15, 2020.
CARES ACT SEC. 1106 (4) states,” the term ‘‘covered rent obligation’’ means rent obligated under a leasing agreement in force before February 15, 2020”
- Question: Can I contribute to my profit sharing plan (PSP) with PPP funds?
Answer: Further guidance is needed.
Currently, employer contributions to defined-benefit or defined-contribution plans are considered covered payroll cost. However, because PSP contributions are more discretionary, we caution the use of the funds into this type of plan until more guidance is provided.
- Question: What utilities can I use the PPP funds for?
Answer: Electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020. See the CARES ACT SEC. 1106 (5).
- Question: Will I get a tax deduction for the expenses paid with the PPP loan?
Answer: Not if the amounts used are forgiven.
The IRS provides more guidance in IRS Notice 2020-32 stating, “Specifically, this notice clarifies that no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)”
- Question: I have the PPP loan & EIDL loan. Can I keep and use them both?
Answer: In general yes, but the funds cannot be use for the same purpose.
Each loan has different restrictions regarding the use of the funds. Make sure you are using the funds in accordance with approved qualifying/covered cost.
- Question: What is the “Alternative Payroll Covered Period”?
Answer: You can elect to start the “8-week” covered period beginning the first pay period following their PPP Loan disbarment date.
The following is from the Loan Forgiveness Application:
“For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”).”
- Question: A safe harbor exists for loans less than 2-million dollars. Am I still subject to review?
Answer: Yes, you are subject to review regarding loan forgiveness.
The $2 million safe harbor regards the “good faith” certification made by a borrower when they initially applied for the PPP loan.
The SBA addressed this on Question #46 of the FAQ’s on the SBA’s website:.
- Bonus Question: How long should I retain my records for loan forgiveness?
Answer: Six years after the loan is forgiven.
The following is from the Loan Forgiveness Application:
“The Borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of the Inspector General, to access such files upon request.
If you have any additional questions, please contact our team. Our CPS Team is committed to helping both our clients and community get through these uncertain times. If you, or someone you know, needs assistance, please be sure to reach out. Our advisors are working around the clock to answer all your money questions: info@CPSInvest.com
Sterling J Searcy Jr | CPA
Senior Tax Advisor
The ongoing COVID-19 crisis has created hardships for many individuals and businesses. With many businesses and government offices closed, simple tasks like renewing a driver’s license have become much more complicated. The Federal and State governments, along with many local governments, have taken steps to make things easier by extending deadlines for several kinds of taxes and document filings.
Federal and State Taxes
The due date for filing 2019 federal income tax returns and making tax payments has been extended to July 15, 2020. There will be no additional interest or penalties assesses due to taking advantage of this 90-day relief provision, and no paperwork needs to be filed to qualify. The extension also applies to estimated tax payments for tax year 2020, which are normally due on April 15, 2020.
Although Florida does not levy state income tax on individuals, businesses are subject to income/franchise tax (CIT). In response to the crisis, the Florida Department of Revenue issued an emergency order that extends deadlines for certain CIT returns and payments, but the extension varies depending upon the business’s fiscal year. Some filing deadlines have also been extended for Sales and Use Tax for February and March reporting periods.
The REAL ID Act, passed by Congress in 2005, mandates minimum security requirements for state-issued driver’s licenses and identification cards. REAL ID-compliant identification, signified by a star in the upper right-hand corner, will be required in order to access federal facilities and board commercial aircraft. The deadline for the REAL ID act was originally set for October 1, 2020. Due to the COVID-19 crisis, the deadline has been extended to October 1, 2021.
Florida Driver’s License
The Florida Department of Highway Safety and Motor Vehicles has granted a 60-day extension for Florida driver’s licenses and State issued ID cards expiring March 16, 2020, through April 15, 2020, and a 30-day extension for those expiring April 16, 2020, through May 31, 2020. Additionally, the order extends through June 30, 2020, the effective period of commercial driver licenses with expiration dates on or after March 16, 2020.
Local Governments and Utilities
The Polk County Tax Collector has extended the deadline to pay 2019 delinquent real estate property taxes to 5:00 PM, June 12, 2020. Also, the City of Lakeland has extended deadlines for paying delinquent utility bills, and the City of Winter Haven has temporarily suspended service disconnects for non-payment. TECO has also temporarily suspended service disconnections for overdue bills as well as implementing a 20% rate decrease during the summer months for residential customers.
Rick Bernard | MBA
Deciding how to invest your savings is one of the most important decisions you will make. Fortunately, successful investing doesn’t need to be complicated. You can make good investment decisions if you understand a few simple concepts and have a financial plan. The two most important concepts investors need to understand are risk vs. reward and asset class diversification.
Risk vs Reward
Investment options range from “very safe” to “very risky”. Riskier investments usually offer the chance for higher returns over the long run. Riskier investments also have a greater possibility of loss. Academic research shows that the most effective way to invest is by blending assets of different risk levels. This process is called diversification and is a key part of building a high-quality investment portfolio.
The three major asset classes appropriate for most investors are stocks, bonds, and cash.
Cash is usually considered to be the safest option, along with debt obligations of the US Government, which are often referred to as “Treasuries”. Cash, and mutual funds that invest in cash equivalents like money market funds, have the lowest risk. These kinds of investments also provide lowest potential returns. Often the return on cash is not even enough to keep pace with inflation. Keeping too much cash in your investment portfolio can cause you to lose real purchasing power over time.
Investment grade municipal and corporate bonds have more risk but are still generally considered safe investments. Bonds represent the debt of a company. Bonds are also known as “fixed income” investments. When companies borrow money, they issue bonds. Investing in a bond is the same as loaning money to the company that issued the bond. Bond investors expect to earn interest on their investments, and to have the loan principal paid back at some point in the future. If the company that issued a bond has financial difficulties, they may be unable to make the promised principal and interest payments. This risk is called default risk or credit risk. Investing in a fixed income mutual fund instead of individual bonds can help protect against default risk. Bonds are usually less risky than stocks, but riskier than cash.
Stocks, often called “equities”, are riskier than bonds, but also offer the chance for higher returns over the long run. Stocks represent ownership of a company. When you own a stock, you own a small slice of that company. Some investors choose to buy individual stocks, while others buy mutual funds or exchange traded funds. When you invest in an equity fund, you own shares in the fund and the fund may own stocks. Stocks offer higher potential returns, but also come with more risk than investing in bonds or cash.
There are some kinds of financial instruments with much greater risk than stocks, such as derivatives, futures, and options. These high-risk instruments are not appropriate investments for the vast majority of individual investors.
Which Should You Choose?
The mix of stocks, bonds, and cash is also known as your “asset allocation”. A high-quality investment plan makes use of all three of these asset classes. The right asset allocation depends on factors such as your savings goals, your time horizon, and your risk tolerance. Your financial plan should incorporate all these factors. The right asset allocation is ultimately the one that best supports your financial plan and maximizes the probability of successfully achieving your financial goals.
Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC, FLMI
Chief Investment Officer
The month of April was much better for investors than March had been. After what was a horrible month to endure, the market began to cautiously view April as a month of transition amid this crisis. Even though unemployment claims continued to rise, and states remained closed, the markets began to recover. Much of this had to do with COVID-19 developments and a clearer economic picture.
To start the month of April, infection rates and hospitalizations were growing across the country. It took a couple weeks to see the effects of social distancing on the medical statistics, but near the end of the month, key statistics were declining. At the same time, over seventy companies around the world were pushing drug treatments or vaccines through various stages of trials in order to have a toolbox to fight the virus. Nearing the end of April, several promising reports were published about different drugs suggesting treatments and vaccines may be closer.
As the viral statistics began to decline, the economic fallout became clearer through April. The number of unemployed individuals did rise to over 30 million, the highest since World War II. First quarter GDP came in at -4.8% and the second quarter is likely to be negative as well suggesting the country will officially be in recession for the first time since the financial crisis. While this information would normally be reason for concern, the markets rallied through the month.
Investors were rewarded for their patience as the month of April was the best month in the markets since 1987. The S&P 500, the Dow Jones Industrial Average, and the NASDAQ all finished up over 11% for the month. The markets did not ignore the negative economic data, but they focused on what was being done to combat the virus and support the economy. The Federal Reserve kept interest rates low and continued to support the bond markets by buying bonds. Congress and the President replenished the PPP funds and provided more funding for hospitals and virus-related aid. Finally, a few governors began reopening or publishing guidelines on how to restart the economy in their respective states.
While April was a great month, we want to remind everyone that volatility is likely to remain. It is too early to know if the worst is behind us or if more waves will come. It is likely that the second quarter economic data will be much worse than the first quarter, but also likely that the market will continue to look past the current data for the success of the reopening. Add this to a presidential election year and there is bound to be volatility.
Michael Scott | MBA, CFA
Senior Portfolio Analyst
Having spent the better part of two decades helping clients create, review, and assist with changes to their estate plans, I’ve seen and heard quite a few scenarios when dealing with estates. Below are a few tips to help you through the process of estate planning. Following these simple steps will be instrumental when visiting with your financial planner and estate attorney to draft, review or change your estate plan.
Making a Will
This may sound trivial to some, but not having a Will is like not brushing your teeth and then hoping your teeth look great for the rest of your life. It’s possible, but not likely. A Will can be a simple document that explains where you want your assets and valuables to be sent after you pass. Keep in mind that retirement accounts have their own beneficiaries, and these instructions may be different than who or where you want other items to be sent such as heirlooms or cash from bank accounts. A Will can also create trusts after your passing to protect assets and direct where and when they are to be distributed. This is especially important if you have minor children.
Have you recently had a child? Been married or divorced? Are there children involved? Not only might you update everyday items like cell phone users or address changes when you move-for estate planning, some life events can make your current plan useless and require change. Consider the example of a second marriage with children. You marry someone with children, and you have your own. In some states, when you pass, your assets go straight to the spouse. The spouse may have a plan to leave their assets to their children thus leaving your children out of any inheritance. Having your own plan in place to ensure your children receive something is paramount and far too often overlooked.
Consider Health Care Decisions
Most Floridians remember a case in Tampa where a woman was on life support for years because the husband and her parents argued over the woman’s directives. The battle even ensued on national news. Having a Living Will and Healthcare Surrogate can stop those types of situations from occurring because the Living Will and the Healthcare Power of Attorney will know which decisions to make as well as end of life arrangements, including organ donation.
If you’re the sole proprietor or large shareholder of a business, you should have a plan on how to sell your shares or business. Do you have a buyout option in place? What about life insurance agreements? Many times, the spouse of the deceased isn’t involved in operations and may not want the burden to take over. The other owners would probably feel the same. A carefully crafted agreement would easily explain how the business would continue to run or how to sell those shares in the event of a death.
Understanding The SECURE Act
The SECURE Act, signed into law December of 2019, changed estate plans in a major way. If your estate plan was created before December of 2019, a review of the plan with your estate attorney is necessary to ensure your wishes can still be followed given the new rules on retirement assets. Keep in mind that certain laws are set to expire in 2025, which is why I recommend reviewing your estate plan every few years. Not only does life happen, but estate laws change too.
Organize Your Life
Finally, keep your estate documents in a safe place, maybe a cloud repository to keep copies of important documents to review when needed, but allow the attorney or bank via safe deposit box to hold originals. Also, if you are the only one with knowledge of your usernames and passwords to bank accounts, investment accounts, etc., provide your spouse or family the know how to obtain that information when necessary. When in doubt about any of the above steps, ask your financial planner or trusted fiduciary. We’re here to help.
Derek M Oxford | CFP®, AEP®
Across the globe, the pandemic situation seems to be improving. Many nations continue to struggle with the economic fallout, but case counts and mortality rates hint that things are getting better. In the United States, the first wave of COVID-19 is waning, and many states are looking toward reopening their economies. Public health authorities remain concerned that a second wave of the virus will emerge. Meanwhile, investors are contemplating the possible shape of the recovery. The shape of the economic recovery will depend on how willing and able consumers are to return to their old spending habits.
Employment and Consumer Spending
Prior to the COVID-19 crisis, unemployment was at 50-year lows. Widespread unemployment is an unfortunate effect of the public health measures used to contain the virus. Economic data shows that tens of millions of Americans have already filed for unemployment benefits. The unemployment rate is expected to peak at 20% or perhaps higher. Wise investors know that the employment situation is “old news” as far as the markets are concerned. It is very possible to see the market go up on news that is “less bad” than expected, even while the headlines are bleak.
In times of crisis, Americans have historically reacted by saving a bit more. Many retailers, restaurants, and most entertainment venues are now closed, increasing the savings effect dramatically. In March of 2020, the personal savings rate registered the largest one-month increase on record, and now sits at the highest level in nearly 40 years. The last time the personal savings rate was this high was November 1981. While it is possible this increase in savings is a “new normal”, it is much more likely Americans will rapidly return to their free-spending ways. Using some “walking around sense”, it is not hard to see that most places that people can shop, are full of people shopping. New Year’s Resolutions usually expire a few weeks into January. This new trend of saving will probably last about as long as it takes businesses to reopen, and then consumers will hit the stores with cash to spend.
This Recovery Brought to You by the Letters V, U, L, and W
Investors and the markets are now contemplating what shape the recovery will take. The four most likely possibilities are described as being in the shape of a V, a U, an L, or a W.
- A V-shaped recovery is still possible, but rarely in history is an economic recovery as rapid as the decline.
- A U-shaped recovery is also possible, if fear of the disease keeps consumers home and businesses closed even after restrictions are lifted.
- For much of March, the markets were concerned the recovery would take the shape of an L, a sharp decline followed by a long period of stagnation. The swift public health response, and massive relief and stimulus, make this unlikely.
- If a second wave of the virus emerges, the recovery might take the shape of a W, especially if parts of the economy need to be closed again.
The good news for investors is that government officials and businesses now have much more experience with containment than they did a few months ago. If a second wave emerges, this experience will make future containment efforts more effective and less expensive. In the meantime, sentiment among consumers and businesses alike hint that the recovery will most likely be somewhere between a V and a U.
It is too soon to tell what shape the recovery will take, but we do know that the economy and the markets will recover. We also know that old habits die hard, and US consumers are very likely to continue to spend as they have in the past. For investors in great American businesses, the future is still bright.
Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC, FLMI
Chief Investment Officer
As we settle into our 2nd month of social distancing, we have had time to reflect on what has occurred since the start of the crisis. As with all major economic and global events, we are constantly trying to understand how we got to this point and in turn, what does history provide as a roadmap of what to expect moving forward.
Let us be clear, we are in unprecedented waters and this sudden and immediate draw down of the global economy due to a pandemic is certainly a unique event that we have not encountered in our lifetime. From an economic standpoint, what makes this event so unique is that we are experiencing both a demand and supply shock to the global economy. But while the circumstances relating to the sudden shutdown due to a pandemic might be unchartered, we can turn to history to find a few other examples of when we had both a demand and supply side shock.
Over 100 years ago, the world was faced with another pandemic, the Spanish Flu. Some of the same measures that we are currently putting into place today were used back then as well. Social distancing, wearing masks, etc. In addition to the pandemic, America was also dealing with the end of WWI and the return of troops back from Europe. We saw a gradual return to normal following the control of the pandemic and consumer confidence took months to take hold where consumers were finally comfortable enough to go about their daily lives. The pandemic slowed down the post-war recovery but what followed from that pent-up demand and supply chain led to the roaring 20’s and a period of great economic prosperity.
In the early 1940’s this country was thrust into WWII. During the build up to the war and over the course of the conflict, over 11% of our population was sent off to fight. This turned consumers into soldiers and the focus of the country went toward the war effort. One of our responses to this crisis was to turn to a non-traditional workforce, women. Additionally, capitalists and manufacturing companies were forced to repurpose their efforts to making necessities like tanks, airplanes, and guns. Similarly today, we are seeing a major shift in the workforce. Through modern technology, alternative workforces are being created through virtual offices, curbside pickups, home delivery services, etc. And of course, we are once again seeing American ingenuity in repurposing some of our manufacturing efforts toward the production of medical equipment, personal protective equipment and sanitizing systems.
The third example in recent history was the 1973 oil crisis. The crisis exposed our dependence on foreign oil and its control on our society. It left Americans waiting hours in line for gas, disrupting productivity and severely slowing down the US economy. This crisis ultimately put us on a path toward securing energy independence and moving from an oil importer to an oil exporter. Similar to the oil crisis, this virus has put a spotlight back on our dependence of foreign manufacturing for critical goods, specifically in the area of healthcare supplies and medications. Look for a post-virus push toward bringing more manufacturing back to the US that will not only create more jobs post-virus but also help shore up our supply chains to ensure our national security.
We are certainly in the midst of what will hopefully be a once in a lifetime event. But what history tells us is that American capitalism, grit and ingenuity typically leads to advances and growth post-crisis.
Our CPS Team is committed to helping both our clients and community get through these uncertain times. If you, or someone you know, needs assistance, please be sure to reach out. Our advisors are working around the clock to answer all your money questions: email@example.com
Michael A Riskin | CPA/PFS, CFP®, MST
Vice President | Treasurer | Partner