With the tremendous uncertainty surrounding the coronavirus outbreak and its ultimate global socio-economic impact, many are left wondering what “normal” will look like in a post-coronavirus world. For those fortunate enough to be working remotely, they are wondering when they will be able to return to their offices. Overwhelmingly, everyone is concerned about the health and safety of friends and families, especially those in hotspots and on the front lines. One of the other major concerns weighing on people’s minds is: how and when will the economy recover?
In the hopes to alleviate some of the burden of economic insecurity, officials are taking action to provide relief for those impacted by the ongoing pandemic. The Fed has cut interest rates and, after much deliberation and anticipation, the historic stimulus package known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in late March. The CARES Act is the third piece of major legislation instituted as a result of the global Coronavirus pandemic and is by far the largest. It contains over $2 trillion in aid that will go to support American workers and businesses, while also allocating resources to health care service providers.
The CARES Act offers key details on how officials are hoping to drive economic recovery and give families and businesses a foundation to begin bracing themselves for the financial impact of the Coronavirus. While the CARES Act is historic in both scope and scale, the elements of the package that individuals and businesses qualify for varies greatly depending on a multitude of factors. Understanding which benefits of the stimulus individuals and businesses are entitled to require careful decision making and strategic planning. For high-net-worth families and business owners, here are the key components of the bill that they should focus on.
Important Retirement Planning and Tax Considerations
Much of the media coverage around the CARES Act has centered on stimulus checks of definitive amounts being distributed to lower- and middle-income families. While wealthier families most likely will not qualify for this direct stimulus, there are other elements of the act that will impact them, particularly surrounding retirement and tax planning. In the short-term, the filing deadline for 2019 federal individual income tax returns and the payment of applicable tax liability has been extended to July 15, 2020. This extension applies to individuals, trusts, estates, partnerships, associations, companies or corporations regardless of the impact of COVID-19 on operations. The due date for first and second quarter estimated payments for 2020 have also been extended to July 15.
In terms of longer-term planning, there are two significant changes to the rules surrounding retirement accounts. The first is that the 2020 Required Minimum Distribution (RMD) has been waived for all retirement accounts and beneficiary IRAs. This change has a number of planning considerations around reducing taxable income for those who waive their RMD. Additionally, it could impact charitable giving. For those utilizing the Qualified Charitable Distribution (QCD) from their IRA, additional consideration should be given as to whether the donation of appreciated securities generates a greater benefit or bunching QCDs in 2021 would provide a greater tax impact.
The second provision impacting retirement planning is that for those impacted by the virus, distributions under $100,000 are now allowable from IRAs and employer retirement accounts — 401(k), 403(b), etc. If distributions are made prior to age 59 ½, the 10% early distribution penalty is waived. The tax liability associated with these distributions can be paid over three years, and the amount distributed can be contributed back into the account within a three-year period without impacting plan contribution limits. Additionally, payback of existing loans within an employer retirement account can be delayed for one year.
Businesses Incentivized to Maintain Workforce
For business owners, especially small business owners, the CARES Act offers incentives to employers to keep employees on the books through this crisis and offers various channels for tax relief. Most significantly, the act authorizes $350 billion in federally guaranteed loans for small businesses with opportunities for loan forgiveness if they maintain their current levels of employees through the pandemic crisis. Additionally, the CARES Act includes the Employee Retention Credit — a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees, with the maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters being $10,000
Other tax provisions include the option for employers, and self-employed individuals, to defer payment of the employer share of the Social Security tax they are otherwise responsible to pay to the federal government with respect to their employees. Furthermore, the 80% income limitation for net operating loss deductions for the years beginning before 2021 has been temporarily repealed. For losses arising in 2018, 2019, and 2020, a five-year carryback is allowed (taxpayers can elect to forgo the carryback).
Trusted Experts Can Help Ensure the Right Relief
Evaluating the details of these provisions is complex, and making the right decisions around how to best capitalize on the options available requires careful, strategic planning. As additional details around the CARES Act and future stimulus efforts unfold, it’s critical to have the right team ensuring the appropriate next steps for your family, your goals and your wealth. The Wescott Advisor Team is a diverse and deeply experienced team of experts who partner with you to help achieve your financial goals, especially during these uncertain times. Our Tax Alpha Group has a thorough understanding of the nuances of the CARES Act, along with extensive knowledge of current tax law and other stimulus package implications.
During these unprecedented times, the Wescott Team has taken a proactive approach when it comes to the well-being of our clients’ financial and personal safety. Our advisors have kept clients assured and informed with a series of webinars and client communications on various topics from our investment portfolio to tax planning during times of volatility. The Wescott Investment Committee has taken thoughtful and decisive actions to make strategic portfolio changes to withstand a multitude of economic uncertainties. Additionally, our team ensures that your tax and retirement planning capitalizes on provisions in the CARES Act and other opportunities as we gain additional clarity on economic recovery and work to return to normal.
In recent days, the U.S. Senate has been in talks and negotiations to pass additional legislation to aid citizens, businesses and healthcare entities. Our advisors are monitoring these developments so they are able to provide our clients with the best possible financial and tax advice.
To learn more about navigating the financial impact of the coronavirus and its influence on retirement, tax and business planning, reach out to our Wescott Team.
