Riding a Financial Roller Coaster

Blog post #442

Let’s imagine your investment portfolio is like a roller coaster.

There are different types of roller coasters, in this imaginary world.

Ride 1: This is not your typical roller coaster. It is very flat, with a gradual decline that is barely noticeable. Not much excitement. Kind of boring. Slow. You get into your car and you don’t even need to be buckled in. No seat belt is required. You can see that there are no curves or major ups and downs to deal with. You can tell the ride ends slightly lower than the starting point, but it is barely noticeable. It is safe and secure and easy to handle. From the beginning of the ride, you can see where you will end, safe and sound, as the ride is all outside.

  • This ride would be the equivalent of a portfolio that consists of only very conservative fixed income, with short maturities. There would be no stocks in this portfolio. Just CDs, government bonds, and maybe a few investment grade corporate bonds. Over time, the rate of inflation will probably exceed your rate of return.
  • Ride 1 has hardly any risk, but hardly any reward, in terms of fun, or financial gain.
  • This ride is generally recommended for older riders, or those with specific circumstances in the near term.

Ride 2: This is very different than Ride 1, but typical of most of the coasters in this imaginary theme park. As you near this ride, it appears daunting. You can clearly see that passengers are required to use a seat belt and an overhead harness. 

  • You can see that this ride starts with some ups and downs, as well as some major curves.
  • This coaster quickly enters a huge building, which you can’t see into. 
  • There is a large sign in front of the ride:  Shortly after the start of this ride, the remainder of the ride will be in the dark. You won’t know where the ride will take you.
    • You won’t know what will happen next. You can’t see where the ride goes, once it enters the building (like Space Mountain).
  • There is a very deep moat around the building, and it appears that the building was built far underground.
    • You expect that the ride will go very far down, at some points.
  • You are also thinking….there must be some pretty big hills and huge declines in this ride, but you will not know about them in advance.
  • You don’t know where the end of the ride is or even how long it is.
    • You can see that the building is massive, very tall and wide, rising much higher than the first ride you saw. It must go in many different directions.
  • As you near the boarding area for Ride 2you see another SIGN. It reads:
    • This ride is safe, but you must be prepared for ups and downs and unexpected curves.
    • You will not know what will happen in advance, at any point during this ride, once your car quickly enters the building.
    • The ride requires a seat belt and 2 shoulder harnesses, for your safety. We require all these safety measures for diversification, in case one does not work.
    • The length of time of this ride varies, sometimes greatly. Every ride will be different. This is what makes this ride unique.
    • This ride can be fun, but at times very scary! You have been warned!!
    • You can choose to ride alone, in a single-seater, or we offer a two-seater, so you can be accompanied by one of our expert guides, who will help with your experience. 
      • We highly recommend that you choose to ride with an expert guide.
      • If you chose to ride with one of our expert guides, they will meet with you in advance, to help prepare you for this ride.
      • They will also pull off the track and talk to you a number of times during the ride, to check and see how you are doing, and maybe make some adjustments, based on your experience and feelings during the ride.
        • They will not be able to tell you exactly when things will occur on the ride, but they will give you guidance that will enable you to be better prepared to make it through the entire ride.
    • You can get off mid-ride, and end the ride early if you want, but that will deposit you directly onto ride number 1. We don’t usually recommend that.
      • If you want to go back onto Ride 2, where you re-enter is almost impossible to predict. Re-entry to Ride 2 can be emotionally difficult.

Nearly all our clients are on Ride 2 and all elected to ride with an expert guide.

A few clients, as well as those anticipating buying a house or with kids entering or going into college, are on Ride 1.

You have survived Ride 2. You can handle it. 

You survived the downturn late in 2018. You enjoyed the large gains of 2019 and were enjoying additional gains through mid-February 2020.

Then another unexpected drop on the financial ride occurred, and the markets collapsed with the Covid onset.

And since March 23, just as unpredictably, the markets have strongly bounced back. April has been a very positive month.

We told you that markets would increase and decrease in ways that are unexpected and sometimes may not even seem rational. The key is to stay on the ride and to keep being prepared, and positive, about the future.

We will guide you along the way and help to make adjustments when necessary.

We don’t know how the ride will continue, but we are pretty sure there will be more good experiences than bad ones. And we will be there for you, as well as your friends and family members, if they want guidance on their financial journey.

 

Thoughts on Where We are Now and Headed

Blog post #441

As we near the end of April 2020, we thought it would make sense to step back and consider the past few months, as well as approaches for the future.

  • As we have stated many times in the past, one of the basic concepts that we have told our clients is that we do not have a crystal ball and we cannot predict the future. No one can accurately predict the future, repeatedly and successfully.
  • This is why we work with you as a fundamental building block to develop a personalized asset allocation strategy developed for your personal circumstances and needs.
    • Throughout this crisis, and many others that have preceded it, having an Investment Policy Statement (IPS), or asset allocation plan, has enabled clients to remain invested and in the long term, be able to continue and reach their financial goals.
    • We can’t control or predict the financial markets. But we can control your plan and how you are invested, to meet your short-term withdrawal needs and your long-term financial goals and objectives.
      • Thus, we recommend continuing to adhere to the strategy of maintaining your personal Investment Policy Statement (IPS), or asset allocation, especially in this very unpredictable period.
  • Despite a decline in your account value, which you could view as temporary, a key question to ask is: has this decline directly impacted your ability to have the financial resources that you need today, or within the next year?
    • While none of us are happy that account values have declined, the answer for all of our clients should be that they have the financial resources that they need for the short to intermediate term, for the next number of years. This positive answer is due to proper planning.
  • The stock market is not the economy.
    • Remember, the stock market tends to look into the future and may not reflect what the economy is doing right now. The stock market can be driven by many factors, such as cash flow and profit/loss projections, predictions and emotions.
  • Fed Chair Powell has done a terrific job so far.
    • The Federal Reserve has been strong, responsive and acted swiftly when needed, especially in March and early April. This is one of the key reasons that the stock market has recovered significantly from its March lows.
    • The Fed’s actions have helped to solidify the fixed income markets and has enabled many public companies to sell bonds during this crisis, to help them to have the liquidity to get through the shutdown period. The Fed’s decisions to purchase bonds of companies that were credit worthy prior to this crisis, and then expanded to less than investment grade debt, has also helped to stabilize the credit markets.
  • Diversification works, for both stocks and fixed income
    • We are strong believers in diversification at all levels, as are the mutual funds that we use to invest in.
      • The past few months has not changed our minds about this. If anything, during a crisis, diversification again has proven to be very important. 
    • While our client accounts have been volatile, there has not been the huge destruction of your investments compared to if we held a portfolio that had been concentrated in certain sectors, say for example…..lodging and travel, aerospace, airlines, retail, entertainment and energy. We have not had overall 40%-50%-60% declines, though these sectors are held as part of a diversified portfolios.
    • We don’t place bets on individual stocks or focus on sectors. The asset class funds that we use strongly believe in diversification and have guidelines across industries and companies, as well as geographic regions, for International and Emerging Market funds.
    • While we still believe in our core investment beliefs, that does not mean that we don’t make changes. We have modified our portfolios over past months, prior to and during this crisis, to reduce some exposure to small value holdings in both the US and internationally. We did this for the long term, as we wanted to increase exposure to small cap asset classes that were not strictly small value.
      • In the short term, this has been a positive move. Again, this was made to increase diversification further and should benefit clients over the long term, as we cannot predict which asset class will outperform, or when.
    • In fixed income, we have always been well diversified, and we are taking steps to strengthen your holdings, and add even greater diversification.
      • Due to the economic impact of the Covid crisis and the plunge in oil prices, certain companies that previously were investment grade or not at risk of near-term bankruptcy, are now potentially more at risk.
      • We have been proactive in selling bonds of companies that were previously much stronger financially. We would rather sell these bonds now, prior to their maturities, and not put your investment principal at further risk with these types of companies.
      • We are reviewing clients’ fixed income holdings very carefully, as we always have, for exposures to sector and financial risk.
      • We are using large and well-established bond funds with excellent track records, processes and methodologies, more than we did in the past, so your fixed income holdings will be even more diversified.
      • We will be more carefully monitoring the impact of this crisis on municipal bonds, as state and local revenues have been impacted. We already know that some of the strict purchasing guidelines we have in place, and have had since we started our firm, are still valid today, and have helped us avoid municipal bonds which are related to single sector issuances, like airport or certain single source building projects.
      • We want the fixed income “Foundation” of your portfolio to be as financially sound as it can be, even during this period of greater financial uncertainty.
  • Expect the unexpected
    • This certainly has been the case over the past few months. However, even with all this uncertainly, and there could be more in the future, we want you to have a sense of financial comfort.
  • We will continue to act and make rational decisions, not emotional ones. We are not going to place bets on when a vaccine will be discovered or how fast the economy will recover…..as no one knows those answers. We do know that sticking to a philosophy works, over the long-term. We will continue to do the following:
    • Regularly review and rebalance your accounts.
    • Place tax loss trades as appropriate, which will save you tax dollars.
    • Adhere to your financial asset allocation plan and modify that if your circumstances have changed.
    • Having a strong fixed income foundation and ample cash and liquid assets for those regularly withdrawing money.
  • We have again been reminded why we avoid certain types of investments.
    • We don’t invest in investment funds or products that are considered illiquid or restrict your right to redeem your money to a certain percentage a quarter or annually.
      • Many of these types of investments are not permitting withdrawals or severely restricting investors’ access to their money. We don’t want your money to be restricted, so we don’t use these types of products.
    • We don’t invest in high yield or junk bonds, as they have the greatest risk of default, and many of them declined significantly in value during past months. The higher interest rate that they offer are not worth it, if you don’t get your principal back.
    • We don’t invest in stocks primarily due to high dividend yield, as those companies tend to be the riskiest, like junk bonds. This does not apply to all companies, but those paying a very high dividend yield is often a sign of some type of underlying risk in the company. And usually the risk is not worth it, especially if the dividend is later cut or eliminated, or the price of the stock eventually declines significantly. This is what has occurred to many energy stocks. While the funds we utilize hold energy stocks, the exposure is quite small.
      • Bottom line….don’t reach for yield…..if the interest or dividend yield is far above the market average, there is usually a good reason…it is much more risky.

 

As always, we are here for you, and family members or friends who could use our guidance and assistance during this crisis.

Hope

Blog post #440

It seems like ages ago, but our third blog post of 2020 was called “Hope is Not a Plan.” I wrote that around January 15th.

In that post, I wrote that “Hope means that you want and desire something to happen in the future. But hope, on it’s own, implies that you cannot influence the outcome.”  My point was that planning was critical, and maybe more important than hope.

I realize now that I may have been at least partially wrong, as we all need hope. Now more than ever.

Wednesday, I read an email newsletter from Ari Weinzweig, one of my favorite business leaders, entrepreneur and author, who is co-founder of Zingerman’s Deli and Community of Businesses, based in Ann Arbor, MI.

In his Zingerman’s Guide to Good Leading Book 4, The Power of Beliefs in Business, as well as the newsletter, Weinzweig wrote about the 6 elements of hope in what he refers to as the “Hope Star.” These elements are:

  1. Help people see a better future.
  2. Help people see how they might get to that future.
  3. Show people how much they matter.
  4. Help people see how much their work matters.
  5. Help people see how small steps are the keys to success.
  6. Show people how they fit into a larger whole.

These concepts are on leadership and business but are applicable to all facets of life.

It is clear that we all need hope. Hope can be valuable. As Ari wrote in his newsletter, “when we all do these six things, hope levels go up. And that when hope levels improve so too does the quality of work, leadership effectiveness, learning and even personal health.”**

In our work with our clients, we strive to help each of you “see a better future,” even during times of economic downturns or difficulties in your personal lives. We are there for you, in good times and bad.

We have often described our investment attitude as being “rational optimists” and that is key, as it involves being hopeful, as well as being rational, and not emotional, in making decisions.

We want to play a key role in understanding your hopes and planning with you, so we can help you get to that future you hope for.

We realize that our work is important, and we take it very seriously. One of the reasons that we write this blog every week is so that you hear from us regularly, regardless of what is going on in the world.

As Ari points out in #5, small steps are the keys to success.

  • Each smart decision that you make.
  • The conversations, meetings and emails that we have.
  • Talking about your plans and intentions, as that increases the likelihood of them occurring.
  • The planning we do. The decisions we make.
  • Each time you save, invest and focus on the long term.
  • Adherence to our investment philosophy.
  • Your decision not to panic, when others might be.
  • Your decision to be positive and have hope.

These are all small steps that lead you to a hopeful and better future.

Weinzweig wrote about leaders. You can insert financial advisor and get the same result. “As leaders, our job is to make sure that people realize that all the little things they do every day add up to big results….It helps keep us going when the going gets tough….It may be hard to see in the moment, but in the long run, it adds up to big things.”***

Weinzweig also wrote this, which truly applies today. “I hope that tomorrow can be better than today; that our work will make a difference; that if we work hard and go after greatness, good things will happen. I hope that we can contribute positively to our emotional, intellectual, and financial improvement, and that of others around us.”****

We hope that our firm can provide the same things!

Special offer…courtesy of Ari Weinzweig, any of our clients or readers may use the code COMMUNITY2020 for 25% off of any of the books, pamphlets or digital learning at ZingTrain.com.  The 6 points of hope, discussed above, is Secret pamphlet #45. I highly recommend all their business books.

Sources:
**Zingerman’s Community of Business Ari’s Top 5 email newsletter, dated April 15, 2020.
*** Weinzweig, Ari. Zingerman’s Guide to Good Leading, Part 4, The Power of Beliefs in Business, 2016, page 330-31.
**** Weinzweig, Ari. Zingerman’s Guide to Good Leading, Part 4, The Power of Beliefs in Business, 2016, page 285.

The Current Reality and How to Deal with It

Blog post #439

The US and International stock markets have rallied strongly over the past few weeks, since the low around March 23rd.

We are facing one of the greatest challenges of our lifetimes, in both medical and economic terms. And while the growth rate of Covid-19 spread is clearly dropping due to physical distancing, we don’t think that the medical issues are anywhere near being resolved enough to enable the economy to fully recover anytime soon.

From the 2020 high, the S&P 500 (an index of 500 US-based large companies) dropped 35% to its low point around March 23. A major decline like that is logical, given the almost total economic shutdown in the US and in many other parts around the world. Indices of other stock market asset classes have declined as well, some by much more, both domestically and Internationally.

It does make sense that other sectors have gotten crushed even more than the overall 35% decline, such as airlines, hotels, retail and energy sectors.

But since March 23, the S&P 500 and other asset classes have recovered sharply. As I write this mid-day on Thursday April 9th, the S&P 500 has gained 28% from its bottom and is now a 20% move back to its earlier 2020 all-time high point.

The current reality is that the stock market, as it always does, is quickly reacting to news and future expectations. The stock market reacts quickly and unexpectedly, but not always logically. 

The above sketch by Carl Richards makes so much sense and is very logical. We are in the midst of a current reality that is unknown and unpredictable (the future is always unpredictable, but even more so now).

Stock markets are responding up and down, sometime widely, based on medical news, forecasts, predictions and hopes for an economic resumption. They are also responding to major Federal Reserve actions and other recovery program announcements and legislation.

So how do we manage your accounts, to help you reach your short and long-term goals, given this volatility and all the unknowns? We stick to the long-term plans that we have developed for you. We follow our long-term philosophy and discipline that we know has worked well for many years. It is really the only rational approach.

We certainly do not follow the chart below. We do the exact opposite.

When things were really scary and the market was declining in early to mid-March, we were tax loss selling. That means we were not getting you out of the market, but we sold investments to recognize taxable losses and replaced them at the same time with similar, but different investments.

In the past few weeks, we have gradually been re-balancing accounts, which is what the above sketch DOES NOT describe. We were buying low, not selling. When others were scared and selling, we were taking a very long-term view and have been buying more stocks. In late 2019 or early 2020, when others thought things were safe (and buying), we were gradually selling some stocks, if your portfolio allocation to stocks was too high, in excess of your personal investment plan stock target.

This logical and disciplined approach is really the only way to successfully navigate the stock market over the long term, in a calm and reasonable manner. We may not time the bottom, but we are not trying to.

We don’t know if there will be another bottom….weeks or months from now, if the medical news changes or an economic recovery takes longer than many other investors appear to be anticipating. This is why we are buying, but gradually.

For most of our clients, we are comfortable with a gradual re-balancing approach right now. For our younger clients who have a very long-term time frame, we are re-balancing more aggressively. We are handling your accounts on a very individual basis, as you each have different time perspectives, circumstances and goals.

We hope our investment approach and disciplined philosophy makes sense to you, and provides you with a form of comfort, during this time of great uncertainty.

We hope you and your families are healthy and safe, and can connect virtually or by phone, during this holiday weekend.

 

CARES Act and Tax Update

Blog post #438

The IRS, Federal Reserve, Congress and the President have enacted various measures in response to Covid-19. The goal in this post is to provide you with a summary of key information that could be most relevant to you.

Income Tax Return and Payment due dates delayed

The normal Federal tax deadline of April 15, 2020 for filing tax returns and making payments has been moved to July 15, 2020. Most states have made the same change.

  • You do not need to file any extension.
  • You don’t need to make payments that would have been due on 4/15/20…until July 15, 2020, if you owe money or would have needed an estimated payment for 1 Qtr. 2020.
  • The due date for funding a 2019 IRA or Roth IRA is now July 15, 2020.
    • Key point: If you intend to do this, you should make your deposit now…while the market is low (maybe it will be higher in July, we don’t know).
  • However, the 2nd quarter estimate due date of June 15, 2020 still applies….. so yes, that is now due before the 1st quarter due date of 7/15/2020. Leave it to the IRS!
  • If you usually have withholdings from IRA Required Minimum Distributions, you may not need to take the RMD in 2020, so you may need to pay estimated taxes in 2020. Discuss this with your CPA or tax preparer.
  • For more information on these changes, see the following link for a more detailed Q&A.

CARES ACT

The CARES Act was signed into law about a week ago and will impact almost everyone in the US. We are trying to provide a summary of the most relevant information of wide-ranging legislation, that impacts businesses, individuals, and others.

Within a day after the bill passed the Senate, one of the thought leaders of our national firm, Jeffrey Levine, produced a 25-page detailed summary (if a 25-page article can be both detailed and a summary!). We are providing a link here to the website, where you can find a PDF of Jeff Levine’s article. Jeff is the Director of Advanced Planning for Buckingham Strategic Partners, our national back office firm. Jeff is one of the country’s top financial planning’s experts. The link is at Kitces.com, where Jeff and his partner, Michael Kitces, write lengthy articles on financial planning. Michael is one of the top national speakers on financial, tax and estate planning, and both are great additions and resources to our firm, as they are now part of our national alliance partner firm.

As each topic is addressed below, if you want more detailed information, please see the instructions at the bottom of the post on how to access the PDF article* to view the appropriate page within the PDF.

Recovery Rebates for Individuals:

  • Married joint filers to receive $2,400, other filers receive $1,200, increased by up to $500 per child under age 17.
  • However, high income taxpayers will not receive any money at all.
    • Phaseouts are based on your AGI (adjusted gross income) for 2018, or 2019, if you have filed a 2019 income tax return, beginning at the following levels:
        • Married Joint: $150,000
        • Head of Household: $112,500
        • All other filers: $ 75,000
    • The exact amount of the phaseout depends on how many children you have under the age of 17.
    • See chart on top of page 8 of the PDF, for more details on the refundable tax credits.
  • The initial “recovery rebate amount” will be based on whatever income tax return you have filed, either 2018 or 2019, subject to when the IRS processes your return, and when they process/review whether you are eligible.
    • The rebate amount will later be adjusted based on your actual 2020 federal income tax return.
    • Unfortunately, if you earned $200K in 2018 and 2019, but expect to earn only $75,000 in 2020 due to this outbreak, you will not get a recovery check until mid-2021. However, if you make more in 2020 than in prior years, you won’t have to pay back the excess.
    • Key point: If you earned significantly less in 2019 than in 2018 or would fall below the above threshold levels for 2019, but not in 2018, it would make sense to file your 2019 Federal income tax return as soon as possible. 
    • Key point: If you had a baby or adopted a child in 2019, you should file your 2019 Federal income tax return as soon as possible, if you think you will qualify for a recovery payment.
    • See pages 6-10 of the PDF for more information on the refundable tax credits.
  • No one knows the exact date of when these payments will be issued. They may not be issued until May.
    • If the IRS has a bank account on file that was used for a 2018 or 2019 direct deposit refund or withdrawal, they will use that bank account.
    • If the IRS does not have a bank account on file, and you are eligible, it will be mailed to your last address of record.

Required Minimum Distributions are Waived in 2020:

  • Key point: If you are subject to taking a Required Minimum Distribution (RMD) from a retirement plan, such as an IRA or 401(k), which is generally those over age 70 ½, you don’t need to take an RMD for 2020.
    • We will discuss this with each of our clients as 2020 progresses. 
    • Key point: If you don’t need the RMD money for living expenses, this can substantially reduce your 2020 income taxes and allow you to keep the RMD amount in your IRA.
    • If you have already taken your RMD in the past 60 days, there are ways to return the funds, if you don’t need them. Contact us to discuss this!
    • Key point: If you will not be taking an RMD for 2020, but in past years you have used the RMD for your federal or state withholdings, you should contact us or your tax preparer, to discuss paying tax estimates, the first of which will be due on 6/15/2020.
    • This also applies to those who are beneficiaries of stretch distributions, for IRAs you received upon an inheritance.
    • For more information, see pages 11-15 of the PDF.

Business provisions:

  • Key point: If you have a small business and have been impacted by Covid-19, you should carefully review these provisions as soon as possible. Time is important.
    • Business owners should likely contact their CPA for guidance, as these programs interact, and you cannot do all of them. 
  • There are several different programs.
    • Today, April 3, the Paycheck Protection Program and forgivable loan program is scheduled to begin accepting applications via SBA approved banks. As of now, this is to be handled on a first-come, first serve basis. The final loan application has not been released as of Thursday am. These loans are forgivable if a business keeps their workforce largely intact and use the loans for eligible expenses such as payroll, rent and utilities. There is no guidance as to how fast these loans will be processed and funded.
    • If you have a business of less than 500 employees, you should review the provisions on pages 20-24 of the PDF, and evaluate which of the following makes the most sense for your situation, with your advisors:
      • Paycheck Protection Program,
        • If your business get this loan, it is not eligible for the next two items.
      • Employee Retention Credit for Employers,
      • Deferral of payment of payroll taxes, and
      • Net Operating Loss rules changed
  • Due date for funding pension plan contributions for calendar year 2019 plan year is extended to January 1, 2021.

Unemployment Compensation Benefits Expanded:

  • Key point: Self-employed individuals and others who are generally not eligible for unemployment, will now be eligible for up to 39 weeks of benefits.
    • This is a major change and can benefit many individuals who have been impacted, who run their own businesses. Think of independent contractors, consultants, hairdressers, massage therapists, people who own small retail stores, etc. 
  • Unemployment benefits can be increased by states by up to an additional $600 per week, for up to four months, to be funded by the federal government. This will be in addition to whatever state benefit you would be eligible for.
  • If you are now unemployed or have no revenue due to the state mandated shutdowns, you should check online with your state unemployment website. They may not yet be updated to provide for the self-employed provisions (MI was not as of a few days ago), but you should try to apply as soon as possible.
  • Unemployment compensation has been extended to 13 weeks.
  • See pages 19-20 of the PDF.

Coronavirus-Related Distributions:

  • You can take up to $100,000 in distributions from an IRA, employer-sponsored plan (like a 401(k) or 403(b) or a combination of both, during 2020, if you have been significantly impacted by Covid-19 (definition is broad, but there are guidelines).
    • These are exempt from the 10% penalty, for those under age 59 ½.
    • The distributions are not subject to normal 20% federal withholding rules.
    • They can be repaid within 3 years, if you want to. If you pay tax on a distribution and then repay the distribution within 3 years, you can go back and claim a tax refund.
    • They are subject to taxable income, either all in 2020 (if you estimate that this would be the lowest income year) or spread evenly over tax years 2020, 2021 and 2022.
    • See pages 11-12 of the PDF for more details

Loans from Employer Sponsored Retirement Plans:

  • You can borrow $100,000, increased from the normal $50,000. Payments can be delayed for up to one year. See page 13 of the PDF for more details.

Charitable Contributions:

  • If you no longer can itemize, you can now deduct $300 of cash charitable contributions beginning in 2020.
  • If you can afford to make major charitable contributions, and are so inclined to do so, you can deduct up to 100% of your AGI for “qualified charitable contributions” in 2020.
    • If you contribute more than your AGI, the excess can be carried forward 5 years.
    • Contributions to donor advised funds and family charitable foundations are prohibited.
    • Key point….we all know there is great need at this time….if you are so charitably inclined, please contact us or your tax advisor to discuss this impact.

Student Loan Borrowers:

  • Provisions include payment deferral until September 30, 2020, for which no interest will accrue, but it appears you must contact your loan provider, as well as employers can pay up to $5,250 of student loan obligations and that will be excluded from compensation. Please review pages 16-18 of the PDF.

Medical and Healthcare Provisions:

  • The items for “qualified medical expenses” for HSAs, MSAs and FSAs have been expanded, to include over the counter medications and female care products.
  • Other items, such as Covid-19 related expenses and telehealth services are considered covered. See pages 18-19 of the PDF.

For a chart and overall summary, see top of page 4 of the PDF, which covers rebates, IRA distributions, other provisions, unemployment compensation, and small business benefits.

There are likely to be changes to some of these items and this article does not cover all provisions of the CARES Act. Please consult with us or your tax professional before making any decisions.

Please forward this to others who may find it helpful, especially small business owners and those who can benefit from the new self-employed unemployment compensation, as those people may not be aware of these new provisions.

Source:

*Click on article link above.  Once you reach the article, click the printer and then choose PDF.  After choosing PDF, a box will pop up and you will click download your PDF.  Then you will want to save the PDF to your desktop.  After saving to your desktop, you will see a PDF saved as kitces.com… The CAREs….  Click on this to view the PDF.

Tax Relief Q&A

The IRS recently released answers to some commonly asked questions about the tax relief provisions designed to help taxpayers and investors dealing with economic fallout from the COVID-19 pandemic.

The primary benefit of this relief is an extension of time to file and pay your taxes. Specifically, what
would have been due on April 15, 2020, is now due on July 15, 2020.

Here are updated answers to the questions we’ve been tracking:

Question: Do I qualify for this relief?
Answer: Any individual, trust or business (incorporated or otherwise) is eligible for relief. If the return or payment is due on April 15, 2020, the new due date is July 15, 2020. If the return or
payment is due on a date other than April 15, 2020, this relief doesn’t apply.

Question: Is the $1 million maximum the same for everyone?
Answer: No, income taxes owed by individuals, trusts, corporations and other non-corporate
businesses that are due on April 15, 2020, regardless of the amount, are now due on
July 15, 2020.

Question: I will not be able to file my 2019 income tax return by April 15, 2020. What do I need to do?
Answer: Simply put, nothing! Your new due date for payment and filing is July 15, 2020.

Question: What about my first quarter estimated federal tax payment, normally due on April 15, 2020? When do I pay that?
Answer: Because it is a payment due on April 15, 2020, it is now due on July 15, 2020.

Question: What if I am still unable to file my 2019 income tax return by July 15, 2020?
Answer: You can request an automatic extension of time to file your tax return, which would
extend the final due date to October 15, 2020. To avoid any interest and penalties, you
will need to pay any remaining tax that you estimate is due with the extension request
filed by July 15, 2020.

Question: Does this mean that I can wait until July 15, 2020, to make my 2019 traditional IRA, Roth IRA and/or HSA contribution?
Answer: Yes. The deadline for making contributions to IRAs and HSAs is also extended to July 15, 2020.

Question: I own a business and have payroll taxes due in April. Does my business get relief?
Answer: No, normal filing and deposit due dates for payroll taxes continue to apply.

Question: My business owes the employer contribution for our company retirement plan. When is this due?
Answer: If payments would have been due on April 15, 2020, they are now due on July 15, 2020.

Question: If I’m not mistaken, my second quarter 2020 estimated tax payment is due on June 15, 2020.  Are you saying that, if I take advantage of this relief, I’m going to have to pay my second quarter 2020 estimated tax payment before I pay my first quarter 2020 estimated tax payment?
Answer: That’s correct.

Question: What if I’ve already filed my taxes and have a payment scheduled to be automatically deducted from my account on or before April 15, 2020? Will this payment automatically be rescheduled to July 15, 2020?
Answer: No, the payment will not be automatically rescheduled to July 15, 2020. If you do nothing,
the payment will be made on the date you chose. If you scheduled your payment as part of
filing your tax return by authorizing an electronic funds withdrawal from your account, call
IRS e-file Payment Services 24/7 at 1-888-353-4537 to cancel and reschedule your payment.

Question: I’m expecting a refund. Is there any reason for me to wait to file my tax return?
Answer: If you expect a refund, it is generally better to file your tax return as soon as
possible. Nothing associated with this relief changes that equation.

 

It’s important to note that this relief only applies to 2019 federal income tax liabilities. If you owe
state taxes as well, be sure to check with your tax preparer to see if any additional relief is available
at the state level.

This information could change quickly and without much or any notice if additional guidance
becomes available, so we will continue to monitor it and keep you informed.

 

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