On Friday, March 27, 2020, the President signed into law the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.  As the world navigates the COVID-19 pandemic, it’s important to understand how this new Act can benefit financial planning for you, your family, or business.  Here are some important inclusions that could be relevant to your personal or business financial planning situation: 

Most Americans will get a Cash Rebate

As many people already know, a majority of Americans will receive a Recovery Rebate.  To get the full $1,200 rebate, you’ll have to be a non-dependent tax filer with under Adjusted Gross Income (AGI) under $75,000 filing single and $150,000 married filing jointly. Those with children will get an additional $500 per child under 17.  Those over the income threshold may be able to get a partial rebate up to AGI of $99,000 for filing single and $198,000 for married filing jointly.

It’s important to think through the timing of filing your 2019 returns.  If your income was under the threshold on your 2018 tax return, but might be over the threshold on your 2019 return, it may make sense to delay filing your 2019 return until you receive the rebate.  Another consideration is if you had a child in 2019, you might want to file your 2019 return as soon as possible to get the extra rebate funds, even though your return isn’t due until July 15, 2020.   

One frustrating aspect of this provision is that many people greatly affected financially by COVID-19 won’t get immediate relief.  For those that had income well above the threshold in 2019, but will have a significant drop in income in 2020, you’ll still get a rebate.  However, you won’t get the tax credit until you file your 2020 tax return in 2021.

Tax Savings for the Charitably Inclined 

The CARES Act gives some relief to those giving to charity during this tremendous time of need.  Non-itemizers, which now is over 90% of Americans, get a new $300 deduction for Qualified Charitable Contributions.  The practical maximum federal tax savings would be from $36 to $111, depending on your tax rate (12% to 37%). This deduction isn’t available for contributions to donor-advised funds.    

For those that give significant amounts of their income to charity, the AGI limitations on itemized deductions for cash charitable contributions are moved from 60% to 100%.  This mostly affects high net worth retirees that may have significant assets to give to charity, but not a lot of AGI to match the deductions against to maximize their tax savings.

IRA and Retirement Distributions Won’t Hurt as Much

Taxes on COVID-19  related distributions (CRD) from IRAs and retirement plans up to $100,000 are due over three years instead of one year.  The 10% penalty for distributions for those under 59.5 years old is also waived. Moreover, the taxes due on distributions are due over three years.  However, spreading the income over three years may not save a huge segment of the population given that they might be in a lower tax bracket in 2020 anyways given the COVID-19 pandemic. 

Required Minimum Distributions (RMDs) are Waived in 2020

Retirees with IRA balances catch a break on this as they don’t have to take a RMD, and don’t have to pay the associated RMD taxes on their IRA balances in 2020.  RMDs were going to be particularly devastating since the distribution amounts were going to be based on the end of 2019 account balances before the recent market downturn, which would have made them a much higher percentage of the account than in prior years.

For those that already took their RMDs, you might want to consider putting the distribution back into the account if you’re still within 60 days of the distribution.

Student Loan Debt 

Federal student loan interest won't accrue until 9/30/20.  You'll probably have to call the provider to suspend payments if you'd like to. For a limited time, student loan payments and up to $5,250 from an employer are non-taxable to you, so if there's any way to have your employer direct some of your gross compensation directly to student loans, you'll save money.

More Health Expenses Can be Paid for with Pre-Tax Dollars

Health Savings Account (HSAs), which are already one of the most underrated tax benefits available,  now allow more expenses, including over the counter medical expenses and menstrual products.   

Many Business Owners May Get Large Tax Refunds

Some business owners and real estate investors will benefit from Net Operating Losses (NOLs). NOLs  in 2018, 2019 and 2020 can now be carried back five years (up from 2 years) up to 100% of taxable income (up from 80%), which will result in large refunds for some people.  Moreover, cumulative losses that a taxpayer may claim attributable to businesses now have no limit (up from $250,000 for filing single and $500,000 MFJ) from 2018 to 2020.

Small Business Owners Can Get Relief through SBA Loans with Restrictions

Many business owners may want to start the SBA loan application as soon as possible as up to $10 million in SBA Paycheck Protection Loans with a max 4% interest rate are possible for qualified borrowers.  Loan forgiveness is possible for allowable expenses for the first 8 weeks after disbursement if you maintain employment, and the deadline to apply is June 30, 2020.  

Business Owners Receive Tax Credits if they Don’t Fire Workers

For business owners that have Employee retention credit - if you experience more than a 50% quarterly loss of revenue versus last year, you could be eligible for a $5,000 per employee tax credit.

For more information, you can read the details of the CARES Act in full.

David Flores Wilson, CFP®, CFA, CEPA is a New York City-based CERTIFIED FINANCIAL PLANNER™ Practitioner & Managing Partner at Sincerus Advisory. Click here to schedule a time to speak with us.