Right now, our world is consumed with the impacts that COVID-19 is having on our health and our economy. So many have lost their jobs and are struggling to make ends meet. You may have experienced a financial hit in recent weeks, and it could mean that you need to reevaluate your own budget. In this time of financial uncertainty, it can be empowering to take control over your finances. Taking action now will relieve stress levels and will set you up for success in the future.
- Building Your Emergency Savings Fund
This season of uncertainty is why an emergency fund is critical. Having three to six months of living expenses is recommended, but if you aren’t there yet, now is the time to make a plan.
You may need to scale back on the non-critical spending, especially if you are currently out of work. You may find that continuing to cut this type of spending out of your budget, even after you are back to work, will help you reach your emergency savings goals quickly and efficiently.
Call your mortgage institution, student loan provider, credit card companies or even your utility services to ask if they can extend your payments. This can prove to be a powerful option. Pushing the pause button will allow you to build up your emergency savings.
- Consider Refinancing Your Loans.
Now, more than ever, may be a good time to look at refinancing your loans. The Federal Reserve lowered interest rates to 0%. When this happens, you may be able to lock in lower payments over 10, 15, or even 30 years due to lower interest rates. If you can find a lender that has low closing costs, the option of refinancing may benefit you. If you need help finding a lender, contact your advisor.
If you have credit card debt, now might be the time to look into consolidating them, if the interest rate is lower than what you are currently paying. Another option is to look for credit cards offering a 0% interest rate to roll over the balance and pay it down more aggressively. You would want to make sure that the rate is set for its entirety and not just a few months. After paying off the card, make it a point to avoid using it. The spending habits are what you want to get control over, so that you don’t find yourself in the same boat again.
- Look for Other Sources of Income
While there are companies that cannot keep their doors open due to the virus, there are many well known organizations that are ramping up hiring. Here is a list of 30 major US Companies currently hiring. If you can pick up some extra work on the side, it can help boost your savings even faster.
- Stay Connected
Actively connecting with people is a great way to collaborate and build relationships. It’s also good for your mental health to stay connected whether that be phone calls or virtual meetings. Look for groups on social media that share in the same interests as you. Follow and comment on posts and like photos that you find interesting. Call or video chat your friends or family. Share your own story and start conversations to get people to share their ideas. Create a space where you can share your skills, values or experiences.
- Do Not Touch Your Investment Balances
It is always recommended to invest consistently, and many people are doing this by contributing to their retirement plans at work. Right now, checking your investment balances daily will send your emotions on a roller coaster ride. There is no successful science to “timing” the market. Instead think of “time in” the market as your strategy. With the markets fluctuating the way that they have the last few weeks, you’re taking advantage of the opportunities to buy more. Think of it this way, when are you more likely to spend money at a department store? When there is a sale or when everything you want is full price? Right now, you are getting the sale price!
The impact of this virus is different for all of us; it looks different and it feels different. Taking control of your finances can be an emotional lifesaver, and we hope that these tips can help to alleviate any stress you are feeling. Most importantly, here at CPS, we hope that you and your family are staying safe and healthy. We’re in this together.
Tamara L Fales
Retirement Plan Advisor
By now, numerous versions of how to apply for the Payroll Protection Program (PPP) or Economic Impact Disaster Loan (EIDL) in relation to COVID-19 have been pushed out either in newsletters, emails, or social media.
The purpose of this article is not to explain the technical details, but to stop and think whether a business should apply for the bridge loans like EIDL, PPP, or take the appropriate tax credit from this pandemic. Let’s quickly explain them again.
The Families First Coronavirus Response Act (FFCRA) is a monumental program for small and midsize employers. The FFCRA will provide a 1:1 credit for the cost of providing paid sick and family leave wages to their employees kept on staff related to COVID-19.
Employee Retention Credit (ERC): a refundable credit for qualified businesses equal to 50% up to $10,000 in qualified wages (March 13-March 31) and 50% of qualified wages paid during the 2nd quarter of 2020 on Form 941, 941-SS or 941-PR. This credit is for those employers that had to partially or fully shut down due to governmental orders, also seen as businesses with a significant decline in gross receipts compared to 2019. A great connection the FFCRA has is that the ERC ties into the already existing Emergency Paid Sick Leave Act (EPSLA) and Emergency Family and Medical Leave Expansion Act (FMLA). Those wages paid for the EPSLA or FMLA are fully refundable under the ERC.
For sole-proprietors, the IRS has specific provisions to allow for certain tax credits to apply in relation to the above, but the periods in question will be April 1, 2020 through December 31, 2020. This tax credit is instead applied to self-employment tax rather than wages paid to employees.
This program has a neat provision for an advance of $10,000 to provide economic relief to qualified businesses experiencing a temporary loss of revenue due to the effects of COVID-19. Even though the name says “loan,” this advance does not need to be repaid. Funds have been provided in days; a fair turnaround compared to traditional private loans from banks. Ensure the use of these funds qualifies under the act, but more can be available under the EIDL if necessary. Just understand the loan provisions to pay it back.
This program allows for 2.5x the average monthly gross wages paid during 2019 (or the last rolling 12 months or a seasonal average depending on the business). You must also keep the same average number of full time employees (FTEs) determined on February 15, 2020 through June 30, 2020. At least 75% of the funds need to be used for payroll and the other portion to be used for rent/utilities. If not, the excess becomes a loan at 1% due in two years.
Putting It All Together
For small business owners, what does it all mean? Which program is best? How will they receive the most money or best opportunity to survive during this time? This is where professional advice comes in. Sit down with your CPA, banker, or trusted advisor. Discuss with them about the pros and cons of each program to determine how to proceed. It’s also important to note that the tax credits first touted won’t be available for those businesses that take these special loans or grants. No one is talking about that.
A sole-proprietor with a low wage base may just need the advance of the EIDL to cover outstanding business costs. A business that had to completely close down due to the governmental orders may see that they need the PPP to keep their employees from making more during unemployment with that extra $600 flat weekly pay from the CARES Act vs what the business owner was paying them (hence a need to pay them more to incentivize them to stay loyal). Do not just look at these programs as “free money” because the specifics for their use are well defined.
When the first program for businesses came out, the EIDL seemed like a great loan opportunity at the time. Then, the PPP came out, and it seems like a no brainer. A business owner can lean on a financial professional to make the right decision for their business. No one wants to end up owing money they didn’t anticipate or not receiving as much as they needed because they applied for one over the other.
Contact us for support. Lean on your trusted advisors to help navigate you through a not-so-seemingly easy opportunity. We’re here to help.
Derek M Oxford | CFP®️ | AEP®️
The coronavirus pandemic has captured the world’s attention. There is now an enormous amount of information about the coronavirus and related government programs in the media and on the Internet. Unfortunately, there are already reports of coronavirus-related scams in many parts of the country. Scammers know that this is a stressful time for many of us. Protecting your financial life from scammers is just as important as protecting your health.
Here are some tips to help you avoid potential scams:
Part of the recent CARES Act includes sending tax rebates directly to most Americans to aid them in these difficult times. Remember, the government will not ask you to pay anything upfront to receive your stimulus check. The government will not ask you for your Social Security Number, bank account information, or credit card information over the phone. The IRS expects to start distributing stimulus funds within a few weeks. Anyone who claims they can help you get yours sooner is probably lying. No government agency will call you about your stimulus check. Anyone claiming to need your personal information for this is a scammer and should be avoided.
Many individuals are out of work right now due to the quarantine and stay-at-home orders. If have debt payments coming up and need assistance, your lender may be able to help. It is up to you to contact your lender and discuss your situation with them. Be wary of anyone who contacts you offering assistance, especially if they ask you for your personal information or want to charge you a fee for help with debt relief. Your bank will never call you asking for personal financial information, including your online account passwords.
Finally, anyone pressuring you to make a decision immediately or threatening you about your finances should not be trusted. Like many individuals, you might have needs that must be addressed quickly. Scammers know this and will try to take advantage of the situation. If you aren’t sure whether the person you are talking to or website you’re visiting is legitimate, STOP and contact your trusted financial advisor at CPS, or contact local authorities.
Look Out for Elderly Family Members and Friends
The public health crisis is especially scary for people at risk of serious illness, like the elderly. If you have elderly family members or friends, give them a call and let them know not to trust anyone contacting them offering help over the phone. If you have any questions regarding what resources may be available to you or about potential scams, please contact your advisor at CPS Investment Advisors.
We’re here to help, because we’re all in this together.
Michael Scott | MBA, CFA
Senior Portfolio Analyst
Our CPS Investment Advisors team is here to help all small businesses through the application process. Don’t go at this alone. We’re here for you.
Click HERE to download the checklist and application needed to apply for the Paycheck Protection Program (PPP).
NEW Website PPP Checklist 5-18-2020
The United States Government has recently passed the CARES Act; Coronavirus Aid, Relief, and Economic Security Act. This bill has allocated $350 billion to assist small businesses; to maintain their employees and provide capital to keep operations running amid this pandemic & economic downturn. This initiative is known as the Paycheck Protection Program, which will provide 100% federally guaranteed loans to small businesses.
Small businesses are eligible if you meet certain criteria:
- Few than 500 employees (to include full-time, part-time, and any other status of employee)
- A 501(c)(3) with fewer than 500 employees
- Individuals who operate as a sole proprietor
- Individuals who operate as an independent contractor
- Self-employed individuals who regularly carry on any trade or business
Lenders will be looking at February 15, 2020 as this is the date in which the borrower needed to already be in operation and paying employee salaries and payroll taxes or had paid independent contractors. In the application, small business owners will be asked to certify that the loan request is necessary to support ongoing business practices during the current economic conditions & that the loan proceeds will be used to retain workers, maintain payroll, or make mortgage, lease, and utility payments. If you are self-employed, there is a tax credit for sick leave and family leave. It also allows for emergency paid sick leave for quarantine or testing for COVID-19.
Included in the bill is a payroll tax credit on wages to retain workers. It lets small businesses borrow as much as $10 million with an interest rate no higher than 4%. Payroll could be covered for up to 8 weeks. These loans could cover mortgage or rent payments and utility bills. These are loans backed by the Small Business Administration (SBA) and can be forgiven in the future as long as your company meets the conditions, effectively making your loan a grant. Principal being forgiven and only the interest to be paid. There are minimal requirements, no personal guarantee. The main goal of this initiative is to keep businesses running and paychecks going to employees. It’s best to be in contact with your trusted banker & payroll professional to get the process started as guidelines and payroll calculations could get complicated.
An update to previous info regarding EIDL, disaster loans, is that it allows an emergency grant of $10,000 to be issued even if you don’t end up qualifying for the EIDL. Remember, no double dipping. The EIDL and the PPP loan (which could become a grant) should not be used for similar costs. If you get both, keep records of what was used for payroll, rent, and utilities so that portion of the loan becomes the grant.
Tax Day is now July 15, 2020. The Treasury Department and Internal Revenue Service have recently announced the federal income tax filing is automatically extended from April 15 to July 15. If you are set to get a refund, the IRS urges you to file as soon as possible. Most tax refunds are still being issued within 21 days. There are no additional forms to file or no reason to call the IRS to qualify for this automatic relief. If you need additional time beyond July 15 deadline, then a request to file extension on Form 4868 must be completed. Remember, this also extends the deadline to fund retirement accounts (including health savings accounts) and profit-sharing accounts. If 2019 is looking like a better year than 2020, maybe contributing to your retirement plan for 2019 makes more tax “cents” than holding off to fund later. With recent market declines, now may be a great time to consider funding. Check with your trusted tax professional regarding this planning opportunity.
Payroll Taxes & Social Security
If you’re an employer and your business was affected by coronavirus, you could be eligible for 2020 tax credit equal to 50% of the wages you pay your employees.
The credit will be given for the first $10,000 of salary, including health benefits, paid to each eligible employee, and applies to qualified employee wages from March 13, 2020 through December 31, 2020.
To be eligible, your business had to have shut down during the pandemic, or your gross receipts to have gone down by more than 50% compared to the same quarter last year. If your business has 100 or fewer full-time employees, it doesn’t matter if you shut down or not.
Employers and self-employed people can also defer payment of the 6.2% employer share of the Social Security tax over two years. Half of it will need to be repaid by December 31, 2021 and the other half by December 31, 2022.
A great financial plan is having cash on hand. Being in position to purchase assets when other business owners cannot weather the storm or when assets get depressed in value because nobody wants to own them, are examples of when cash is king. Times like these, being the contrarian, or as Warren Buffet once said, “Being greedy when everyone is fearful.” Be ready to take advantage of the opportunity that presents itself, don’t act emotional instead be proactive. Another idea for a small business owner is to increase cash flow by taking advantage of low interest rates. If you have a mortgage, consider refinancing at historic low rates. It’s always important to have a plan, small business owners should have two, one for their business and one for themselves. If you need help with your financial plan, contact a fiduciary that will put your best interests ahead of their own!
- SBA.gov for all your small business info and to apply for disaster loans.
- Keep a separate file for all things related to COVID-19; copies of applications, check copies, etc. Consider a separate bank account for tracking purposes in the future.
- When filling out the application(s), be sure to use the fillable version and avoid handwriting if at all possible, to avoid any potential delays. If you are required to submit additional docs, be sure to use the SBA forms.
- PPP applications will be ready to submit as early as Friday, April 3, 2020. So, get them prepared and over to your trusted banker for submission.
We don’t know what we don’t know. The process is available, and pieces are in place, but the outline is not completely defined. As we learn more, as the SBA continues to provide guidance, we will continue to update and send out. Contact CPS with your small business questions. Stay safe and don’t touch your face like you haven’t touched your portfolio.
Tony Corrao | CFP®️
The team at CPS Investment Advisors is here to help. If you have questions or concerns, please don’t hesitate to reach out to us. We are fully operational and available during normal business hours while applying social distancing best practices for everyone’s safety. Our tax department is still processing returns, so if you’re one of the lucky few due a refund, don’t wait, go ahead and file!
Last Wednesday, (March 25th, 2020), the U.S. Senate passed a $2 trillion coronavirus stimulus bill known as the CARES Act or Coronavirus Aid, Relief and Economic Security Act and the U.S. House of Representatives approved the landmark bill today (March 27th, 2020). The CARES Act is legislatively known as U.S. Senate Bill 3548 (S. 3548) / U.S. House of Representatives Bill 748 (H.R. 748). Considering the bill is over 600 pages in length, we will be working diligently to understand the new laws and deliver the information to clients as soon as possible. Even though the full impacts of COVID-19 are still unknown, individuals, businesses, and investors can rest a little easier knowing help is here.
Below are some of the relief items contained in the bill that you can expect to see once the logistics of the new laws are in place:
CARES Act Overview
- Income for American Households: The bill includes language that will provide a one-time direct deposit of $1,200 per individual, $2,400 per couple and $500 per eligible child into the same account used for tax refunds/payments. If there’s no account on file, a check will be issued. The credit is phased-out for taxpayers with Adjusted Gross Income (AGI) above $75,000 for single filers, $112,500 for heads of household and $150,000 for joint filers. Deposits are expected to occur within a few weeks from the bill being passed. For tax purposes, this ‘income’ will be treated as an advanced refund of your 2020 Tax Credit.
- Small Businesses: The bill includes an SBA-backed loan program to help small businesses pay expenses with potential for those loans to be forgiven. Forgiveness will only be considered for proceeds used to keep employees on payroll, to include certain non-profit organizations. Additional loan forgiveness may be available for 8 weeks of cash flow, rent and utilities at 100% up to 2.5x average monthly payroll.
- Assistance to large businesses (job creators): The bill includes language that will provide loans, loan guarantees, grants and investment authority totaling $529 billion. This money will be used by the U.S. Treasury and the Federal Reserve Bank for all sectors, with additional focus on helping airlines, logistical companies, and businesses critical to national security.
- Increased Access to Health Care & Direct Funding to combat COVID-19: The Bill contains $340 billion in additional budget allocated to local governments, hospitals, research of new treatments and vaccines, and other entities directly involved in combating the pandemic.
- Early Access to Retirement Plans: If you, your spouse or a dependent are diagnosed with COVID-19 or if you’ve experienced adverse financial hardships as a result of the Pandemic you may qualify to withdraw (borrow) up to $100,000 or 100% of your account value, whichever is less, from your retirement accounts penalty free so long as you pay it back within 3 years. Note that income taxes will still be due, over the next 3 years, on hardship withdraws. Before withdrawing funds from your retirement account, call your financial advisor or tax professional to discuss ramifications or alternatives.
- Required Minimum Distributions (RMDs) waived for 2020: The bill also gives owners of IRA’s and beneficiaries of inherited IRA’s (BDA’s), otherwise required to take a minimum distribution, the option to not take their RMD for 2020. The amount of RMD, under normal circumstances, is based off the account balance at the end of the prior year and considering we are down from near-record highs of December 31, 2019, this is a huge relief. If you have already taken an RMD for 2020 and it is within 60 days of the distribution, you can roll those funds back to the account. The limit of one 60-day rollover per a 12-month period will apply. BDA’s are not eligible for 60-day rollovers if a distribution has occurred per IRS Regulations.
Overall, the bill contains very timely measures to ensure America continues to thrive through the uncertainty of COVID-19. There will be more details available once the bill has been thoroughly reviewed by legal and tax professionals and lending institutions establish their guidelines for processing the CARES Act benefits. We will continue to update you on the options available to best navigate the current environment as the details become clearer.
While the logistics of the CARES Act are still being figured out, the following items are already in place to help combat the pandemic and stabilize the economy.
2019 Federal Tax Filing & Payments Extended to July 15th, 2020
According to IR-2020-58, an Internal Revenue Service’s News Release, the new 2019 Tax Filing & Payment deadlines have been extended to July 15th, 2020 regardless of the amount owed and without interest or penalties. The extension applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers, including those who pay self-employment tax. As it stands now, the IRS is still processing tax returns and is estimating a 21-day processing time. So, if you’re due a refund, don’t wait, contact your CPS Investment Advisors Tax Professional and get filed! For tax payers who pay quarterly, please note that there has not been any guidance or information released extending the 2nd Quarter payment deadlines.
2019 IRA & HSA Contributions ALSO Extended to July 15th, 2020
Under normal circumstances, contributions can be made to an Individual Retirement Account (IRA) for the prior year “by the due date for filing your return for that year” per IRS Publication 590-A. Due to the extension of the filing deadline to July 15th, 2020, IRA contributions for 2019 are also extended to that date. The same goes for your Health Savings Account (HSA) contributions, per IRS Publication 969. The IRS officially confirmed these contribution extensions in the Q&A section of IRS Notice 2020-18.
As a reminder here are the 2019 & 2020 contribution limits for HSAs and IRAs.
- 2019 HSA contribution limit is $3,500 for an individual and $7,000 for a family.
- 2020 HSA contribution limit is $3,550 for an individual and $7,100 for a family.
Note that HSAs are only available to those who are part of a High Deductible plan. Prior year funding can only be made if you were an eligible participant during the prior plan year. Check with your advisor or health plan administrator to determine your eligibility.
- 2019 IRA contribution limit is $6,000, plus $1,000 for anyone over 50.
- 2020 IRA contribution limit is $6,000, plus $1,000 for anyone over 50.
Note that IRA deductions have phaseout rules for participants of employer sponsored plans; be sure to check with your advisor or tax professional to find out more.
Relief to Employees and Small to Mid-Size Businesses
On March 18th, 2020 President Trump signed into law the Families First Coronavirus Response Act. This act is designed to “combat and defeat COVID-19 by giving American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members.” With refundable payroll tax credits, employers will be quickly and fully reimbursed dollar-for-dollar for paid leave (up to 80 hours) given to employees related to Coronavirus. “Businesses with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or childcare is unavailable in cases where the viability of the business is threatened.” IR-2020-57. The IRS has released a draft of Form 7200 (Advance Payment of Employer Credits Due to COVID-19), which employers may use to request an advance payment of the tax credits for qualified leave wages or qualified retention wages. Employers that file Form 941, Form 943, Form 944 , or Form CT-1 may use the form. Before filing Form 7200 , employers should first reduce their employment tax deposits to account for the credits. Then, employers can use Form 7200 to request the amount of the credit that exceeds their reduced deposits. Employers will need to reconcile any advanced credits and reduced deposits on their 2020 employment tax return. The form can be filed at any time before the end of the month following the quarter in which qualified wages were paid. If necessary, the form can be filed several times during each quarter. The completed form should be faxed to 855-248-0552. The draft form can be accessed at www.irs.gov/pub/irs-dft/f7200–dft.pdf Keep in mind, that these credits may be offset and unavailable by any participation in the Paycheck Protection Program.
Bridge Loans Available to Florida Small Businesses
On March 16th Florida Governor Ron DeSantis made funds available with the Florida Small Business Emergency Bridge Loan Program for small businesses (2 – 100 employees) impacted by COVID-19. The loan program will provide up to $50,000 in short-term, interest-free funds to small businesses economically impacted by COVID-19. Visit http://floridasbdc.org/disaster/ for more information on this and other programs available to small businesses.
RIRA Conversion Opportunity
Due to the sharp decline in the equity markets, now may be an opportune time to do a Roth Individual Retirement Account (RIRA) conversion. The 3 primary benefits to converting from a traditional IRA to a RIRA are:
- Growth of your investments inside the RIRA and distributions from the RIRA are tax free so long as you’ve held the converted assets in the RIRA for at least 5 years and you are at least 59 ½ years of age.
- Gives access to ROTH IRAs for high wage earners who are phased out from contributing to a RIRA.
- There are no limits to the amount you are allowed to convert.
Due to the taxable nature of converting a RIRA, please consult with your Financial Advisor or Tax Professional to see if this opportunity is right for you.
Steady as you grow!
Michael A Riskin | CPA/PFS, CFP®, MST
Vice President | Treasurer | Partner