Cares Act – Part 4

Click Here To Download Part 4

Caution: As I eluded to in the first segment, this interpretation of the CARES Act is a fluid situation, at
best. Based on subsequent articles, we are concerned that you may not be able to return unwanted
Required Minimum Distributions (RMDs) that were received more than 60 days ago. I have contacted our
top three custodians in order to get their interpretation because it is their interpretation that ultimately
matters. We will let you know as soon as we hear back.

We are now on the fourth segment in our series of discussions regarding the CARES Act. This portion of
the Act may be the most beneficial provided you are a business owner, which includes sole proprietors
with no employees. While it may provide the most impactful remedy, it is also the most confusing and
complex. The section of the CARES Act that focuses on the small businesses is called the Paycheck
Protection Program (PPP).

The prequel to the PPP is the Economic Injury Disaster Loan Assistance (EIDL). This program was launched
by the Small Business Administration (SBA) following the declaration of a national emergency to combat
the Coronavirus (COVID‐19). This program is for small business owners in all 50 states, Washington, D.C.
and U.S territories. There is also an immediate grant of $10,000, Emergency Economic Injury Grant. To
access the advance, you must first apply for the EIDL and then request the grant, which does not need to
be repaid.

The CARES Act was signed into law on March 27, 2020, by President Trump. The legislation includes the
PPP which provides up to $349 billion of federally guaranteed loans to qualifying small businesses. Loans
up to $10 million may be forgivable to qualifying small businesses. The funding for the EIDL is funded
through the SBA and is currently available. The PPP loans are provided by commercial banks and the
application process starts on Friday, April 3rd. EIDL loans can be refinanced by PPP loan proceeds.

I have attached several pieces of information, which includes the Coronavirus Emergency Loans Guide and
Checklist from US Chamber of Commerce. I have included the link to the SBA, below.

Finally, I need to provide the following disclaimer. I am far from an expert on SBA loans. I have never
helped a client obtained an SBA loan. In the past, the SBA had a reputation of providing loans at adverse
terms and conditions. However, I am planning to put my past inclinations toward the SBA aside and go
through the application process, myself. I will gladly assist you if you decide to go through the process. I
would also appreciate knowing your experience with the process. Please feel free to share this
information with family members, friends, and associates.

Best regards,

Cares Act – Part 3

Click Here To Download Part 3

Before we start the discussion of the 3rd segment as it relates to charitable contributions under the
CARES Act, I want to discuss the extension of the April 15th deadline.

Personal Income Tax Extensions related to COVID‐19
As you have probably heard, the IRS has automatically extended the Personal Income tax filing
deadline by 90 days to July 15, 2020. This is for the filing of tax returns and the payment of income
taxes due for 2019. If you did not pay enough income tax during 2019, either through withholding or
through estimated tax payments, there will not be a late payment penalty if the 2019 balance on the
tax return is paid by July 15th
This automatic extension also means you have until July 15, 2020 to make eligible contributions to
your IRA for 2019, and
your HSA for 2019.

The IRS has also granted an extension to pay your 1st quarter estimated tax until July 15, 2020. You
are probably thinking that the 2nd quarter estimated tax payment due date, which is June 15, has
also been extended. At this point the IRS has not granted an extension for 2nd quarter payments. This
is indeed an unusual situation where 2nd quarter payments are due before the 1st quarter!

Maryland has also extended the filing and payment of 2019 tax returns and tax due, and payment of
the 2020 1st quarter estimated tax, until July 15, 2020. In fact, most states have extended the
deadline. Presently, the only state that has not extended or modified the deadline is New Jersey.

Update on Charitable Contributions
Under the Cares Act, which was signed into law recently, for tax year 2020 eligible taxpayers get an
additional tax deduction of up to $300 for qualified charitable contributions made by them. Eligible
taxpayers are those who do not itemize, and a qualified charitable contribution is a charitable
contribution made to certain public charities in cash. This is an “above the line” tax deduction, which
means that it is in addition to the standard deduction. The dollar amount of the deduction doesn’t
seem to be much but it is a step in the right direction, especially at the present time. Also, the
deduction will reduce the taxpayer’s adjusted gross income which may qualify them for additional
tax breaks.

For those who elect to itemize their deductions for 2020, the CARES Act reduces the limitation on
deductible charitable contributions, which is presently at 60% of the taxpayer’s adjusted gross
income (AGI) to 100% of their AGI. As with the $300 above the line deductions, this increased limit
only applies to cash contributions and contributions made to certain public charities. Any excess
charitable contributions will be carried forward and deducted in future years.

You should consider taking advantage of the extended time if a balance is owed on either your
federal or state return. In addition, you should also consider taking advantage of the 2019 extended
deadline if filing the 2019 return would preclude you from receiving the stimulus rebate. We
discussed the rebate to individuals and families in the first segment.

Please call our office if you want to discuss the 2019 extended deadline.

Best regards,
Kevin Q. Williams

Cares Act – Part 2

Click Here To Download Part 2

This is the second part in a series regarding the CARES Act. The first segment discussed the tax credit or
rebate check that is being sent to qualifying individuals and families. The following is a discussion of the
impact of CARES Act on the retirement accounts.

The CARES Act focused a lot of attention on retirement accounts into 3 major areas: Coronavirus‐Related
Distributions, Enhancements to Loans from employer‐sponsored retirement plans, and waiver of required
minimum distributions in 2020.

  • Coronavirus‐Related Retirement Distributions. For those taxpayers impacted by the Coronavirus, they are eligible to take distributions up to $100,000 from IRAs and employer sponsored retirement accounts (401(k), 403(b) etc.) and receive the following benefits:
  • Not be subject to the 10% penalty or the mandatory 20% withholding requirements from employer plans.
  • Distributions can be repaid over 3 years. The repayment can be made anytime within a three year period in a single payment or multiple payments.
  • Income can be spread over three years. This provides planning opportunities with regard to income averaging and amend income tax returns.

Thus far, being impacted by the Coronavirus has been liberally defined by Congress as any of the

  1. Being diagnosed with COVID‐19;
  2. Having a spouse or dependent who has been diagnosed with COVID‐19
  3. Experiencing adverse financial consequences as a result of being quarantined, furloughed, laid
    off, or having hours reduced because of the disease.
  4. Not being able to work because they lack childcare as a result of the disease.
  5. Own a business that has closed or operate under reduced hours because of the disease;
  6. Meet some other reason that the IRS decides is permissible.

Enhancements to Loans from Employer Sponsored Retirement Plans. Prior to the CARES Act, the maximum
loan amount form a employer sponsored retirement plan was the lesser of 50% of the account balance or
$50,000. As a result of the CARES Act, the maximum loan amount is $100,000. The limitation of 50% of the
account balance is removed. Finally, loan payments that would be owed to the plan loan maybe delayed
up to one year if the loan was enacted by the end of 2020.

Required minimum distributions (RMDs) are waived in 2020. Similarly to what the government did in 2009,
the CARES Act suspends RMDS taken in 2020. This also includes the suspension of RMDs from
beneficiaries’ stretch IRA accounts. Moreover, if a taxpayer has already taken or partially taken their RMD
in 2020, the taxpayer can put the amount back into their retirement account. This provision would allow
the taxpayer to possibly put the money back into the retirement account when prices are lower than
when the taxpayer might have taken the distribution earlier in the year. In a way, one might compare it to
“selling short against the box.” In order to return the unwanted 2020 RMD’s, the taxpayer would only have
to meet one aforementioned six conditions under the Coronavirus Related Distributions. It appears that
taxpayer would have 3 years to return the unwanted 2020 RMDs.

If the taxpayer turned 70 1/2 in 2019 and choose to start their RMDs in 2020, they get a “double bonus” as
both RMDs – the one that had to be taken by April 1st for 2019 and the one for 2020‐ may be suspended.
Please note that the taxpayer cannot put the RMD back into a beneficiary IRA account.

There is a planning opportunity if the taxpayer has a guaranteed lifetime withdrawal benefit on a IRA
account. The withdrawal amount should not be returned to the IRA annuity where it originated, but
deposited into an IRA brokerage account.

Finally, I want to mention a minor area of change that I don’t believe will affect many of my clients is that
2020 is disregarded with regard to the 5‐year rule. For non‐designated beneficiaries of retirement
accounts, the 5 year rule actually becomes the 6‐year rule. Thus, the retirement account must now be
distributed to the non‐designated beneficiary within 6 years. Generally, this pertains to non‐natural
beneficiaries – estates, charities, and certain trusts.

The CARES Act provides opportunities, but introduces snares as it relates to retirement accounts. Before
taking any action, please contact my office so we can further discuss your personal situation.

Best regards,
Kevin Williams

Cares Act – Part 1

Click Here To Download Part 1

In light of the severe market disruption and economic impact of the COVID‐19 pandemic, we are monitoring the developments of the government’s response and communicating with individuals, families, and, small businesses. Due to the massive stimulus package, we are going to provide narratives on parts of the legislation. Today, we want to discuss the stimulus checks being provided to individuals and families.

Before we get started, I want to throw a caveat out there. This massive piece of legislation was put together in a matter of weeks. For comparison purposes, the Tax Cut and Jobs Act (TCJA) became law in December 2017. It was the biggest piece of tax legislation in 30 years and was put together in a matter of months. And, we are still seeking clarity on the TCJA. Therefore, we should anticipate changes due to corrections, guidance, and clarity on Congress’ intent, given the speed this legislation became law.

The Taxpayer’s Recovery Rebate. The CARES Act provides a refundable income tax credit against 2020
income up to $2,400 for married couples and $1,200 for other filers (ex. single and head of household). The
credit is increased for each child of the taxpayer under the age of 17. As you probably heard, the
government is going to advance the rebate based on the latest taxpayer information available – 2018 or
2019 tax return. Of course, not everyone is going to receive the rebate. The biggest obstacle is the
Adjusted Gross Income (AGI) limitation amounts, which are as follows:

Married Filing Jointly: $150,000
Head of Household: $112,500
Single and Others: $ 75,000

The credit is reduced by 5% for every $100 above the respective threshold. It is interesting to note that
two joint filing households with different number of qualifying dependents will exhaust the credit at
different AGI’s. For example, a couple with no qualifying dependents will reach the credit limit at an AGI
of $196,000. Another joint filing household with four qualifying dependents will reach the credit limit at
an AGI of $248,000 ([$2,400+$500+$500+$500+$500]/.05) +$150,000=$248,000.

Regarding to the AGI limitation, a taxpayer may want to delay filing the 2019 tax return if the 2018 tax
return shows an AGI that is more conducive to getting a rebate. Unfortunately, some taxpayers need help
now, but their 2018 and/or 2019 tax return(s) is/are going to prevent them from getting a check in the next
three weeks. In these cases where individuals were doing well until COVID‐19, they will have to wait until
the filing of their 2020 tax returns.

Finally, a person that is claimed as a dependent on a parent’s or other’s tax return will not get a check.
It has been estimated that 90% of taxpayers will receive a check.

Please contact me if you want to discuss how we can manage your AGI for 2020 and possibly get the rebate
in 2021 if you do not qualify for the tax rebate based on your AGI for 2018 and/or 2019 or have any other

Best regards,
Kevin Williams