Wednesday, July 1, 2020

Is 60 the new 40?!

Pathways Advisory Group, Inc.
Dustin J. Smith, CFP®









Is 60 the new 40?!

That’s a literal claim, one of many made within in an interesting Wall Street Journal article that crossed my desk in early January.  A lot has transpired since, of course, but the premise that people are living longer and thinking differently about work remains important. 

We’ve been seeking context, with our clients, regarding financial independence – the point at which work becomes optional – for years.  This is different than the linear approach of the past. However, this particular article takes things a step or two further.

Dr. Mitchell, an academic at the University of Pennsylvania, was quoted that “some demographers say the baby who will live to 200 years old is already born”.  Although our David took this the wrong way, believing that he is the baby already born that they are referring to, it’s definitely thought provoking. How will financial independence discussions differ ten, twenty or thirty years from now? 

With the younger generation especially, we’ve already seen a shift away from destination planning to more lifelong habit discussions - the destination is murky, but the upside to healthy lifelong financial habits is not!

Another claim, that hits home for many of us, is that people who can and want to remain in the workforce live longer lives and have lower risks of dementia, depression and obesity. The article cites research from a Boston College economics professor Matthew Rutledge. Although each situation is unique, we do see people who “can and want to” continue working benefit from doing so. Financial independence does not necessarily fuel retirement. Staying active and engaged is clearly beneficial.

Finally, a law student commented that he “feels zero pressure to retire on time”, which makes me wonder about the financial implications of this evolving mindset. Will the next generation be more or less financially prepared for life? I hope the urgency to save remains – for me, it’s always been more about flexibility than the pressure to retire “on time” anyway.

It’s hard to say how today’s COVID-altered workplace will impact the future of this conversation, but it almost certainly will.  Workplace norms have been flipped completely upside down in just three months. Necessity, as you know, is the mother of all invention - here’s to thinking outside the box, with some urgency, as we return to a modified normal in 2020!

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Friday, June 5, 2020

Tax Form 5498

Have you received a tax form in the mail recently? If you just received a 2019 IRS Tax Form 5498, don't panic. Form 5498 is generated by investment custodians every May for Traditional IRAs, Roth IRAs or Educational Savings Accounts with activity during the previous tax year and usually does not lead to an amended tax filing.

Tax Form 5498 is informational. The IRS reconciles this activity with your Tax Return. If you received this form, ask yourself: Did I contribute to a Roth or Traditional IRA last year? Did I roll money into an IRA last year? Did I contribute or initiate activity out of an Educational Savings Account last year? Did I convert IRA money to a Roth IRA last year? If any of this activity applies to you, you received Form 5498.

Contribution information is typically requested on an accountant's questionnaire. IRA rollovers and conversions generate a 1099-R. Either way, your accountant should already be aware of the activity. Then what should I do with my copy? In most cases, simply add it to your freshly started tax folder for 2020. As your accountant reviews next year's tax file, he or she can confirm that the activity was addressed.

The above explanation is summarized and generic. Please consult your tax professional with any specific questions.

The Pathways Team

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Thursday, April 9, 2020

Small Business Aid from the CARES Act

Pathways Advisory Group, Inc.
Evon Mendrin, CFP®













Our journey through the recent CARES Act continues! We’ve written about the individual direct payments and charitable portions of the bill. We’ve also touched on changes to retirement accounts. Now, we’ll tackle aid for small businesses.

It’s hard to overstate how important aid is for small businesses right now. Customers are directed - in some states mandated - to stay home. Many businesses are directed to stop operations. Fortunately, there are provisions to help small businesses and nonprofits in need. Let’s take a look at what the CARES Act provides.

Table of Contents

Paycheck Protection Program Loans


There are two primary loan programs given or expanded by the CARES Act. First up is the Paycheck Protection Program (PPP). Things are changing rapidly as the government issues new guidance and everyone involved tries to interpret and prepare on a quick timeline. Let’s look at what we know based on recent guidance from the Treasury and the Small Business Administration.

What is the Paycheck Protection Program? The PPP is a $349 billion 7(a) loan program backed by the Small Business Administration (SBA) to help small businesses and nonprofits. Its aim is to “expeditiously” give aid to businesses and (as the name implies) keep employees on payroll. The biggest benefit of this program is it’s a forgivable loan if used for certain expenses! It’s also a non-recourse loan requiring no collateral.

What are the terms of the loan? The loan’s duration will be 2 years with a 1% interest rate. Payments on all loans, however, will be deferred for 6 months. Interest will accrue during this period.

How long does the Program last? The program lasts until June 30, 2020 - but it’s first come, first served.

Who qualifies for the PPP? Generally, any American small business impacted by the coronavirus with fewer than 500 employees (including affiliated businesses). Sole proprietors, independent contractors, self-employed, and 501(c)(3) nonprofits are also eligible. You’ll need to have already been in business on February 15, 2020.

Check out the SBA’s website for other entities eligible, as well as certain exemptions from the 500-employee and affiliation rules.

What can the loans be used for? PPP loans can be used for:

● Payroll costs, including benefits

● Interest (but not principal) on mortgages incurred before February 15, 2020

● Rent, under a lease agreement in force before February 15, 2020

● Utilities which services began before February 15, 2020.

● Refinancing Economic Injury Disaster Loan (EIDL) already taken out between January 31st and April 3, 2020 (explained below).

How much money can be borrowed? Businesses can apply for 2.5-times the average payroll costs over the previous 12 months up to $10 million. The payroll costs are capped at $100,000 per year for each employee.

Meaning, if someone earns higher than $100,000 per year, the amount above the limit is ignored for calculating the loan amount.

If you already took an SBA Economic Injury Disaster Loan between January 31st and April 3rd, you can include this as part of the calculation.

What’s included in “payroll costs”? You can include the following:

● Salary, wages, commissions, or tips (up to the $100,000 per year limit per employee)

● Employee benefits - including group healthcare coverage, retirement, and certain leave payments

● State and local taxes on compensation

● For a sole proprietor or independent contractor - great news! You can specifically count wages, commissions, income, or net earnings from self-employment as “payroll costs” (capped at the $100,000/year limit).

The SBA clarified that the $100,000 limit only applies to cash compensation (salary, wages, etc.)! It doesn’t limit the other non-cash items, such as benefits and state and local taxes.

What time period do you base your payroll costs on? You can use payroll data from either the previous rolling 12-months or from calendar year 2019.

Seasonal businesses can use the average monthly payroll from February 15, 2019 (or March 1, 2019) to June 30, 2019. Newer businesses who weren’t up and running at that time can use January 1 - February 29, 2020.

Also know that “payroll” is gross payroll. Don’t subtract out taxes withheld from the employee’s paycheck when calculating the loan amount. However, you cannot include the employer’s portion of FICA taxes in the loan calculation.

Do independent contractors (that aren’t regular employees) count as your employee for “payroll” calculations? The SBA indicated they do not, as independent contractors are eligible to apply on their own.

Working closely with your lender and accountant is key in making sure this is calculated correctly.

What amount of the loan is forgivable? Ah, the question on everyone’s mind and the biggest benefit of the program.

The amount used for payroll costs, interest on mortgages, rent, and utilities for the 8-week period after taking the loan is forgivable. This includes principal and any accrued interest. At least 75% of the loan must have been used for payroll.

You can submit a request for forgiveness to the lender that is servicing the loan - including any required documentation to verify employees on payroll and how the funds were used. The SBA is planning to issue more guidance on forgiveness, but it seems pretty important to keep detailed records on payroll and other forgivable costs during the 8-week period.

What’s the catch? Okay, there is a catch. As the PPP is meant to keep employees on payroll, the amount forgivable is reduced if you decrease your number of full-time employees. It will also be reduced if you decrease employee pay by more than 25% (for employees earning less than $100,000).

What if you already let employees go? If you’ve already made cuts to salary or employee count, you have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Where can we apply? Any participating lender, including lenders that don’t already process SBA loans. Check out the SBA's Find a Lender page to find one in your area. There have been some reports of banks only taking applications from current lending customers, and others who’ve stopped taking applications altogether, so check first with your bank. Also check with smaller local lenders (who might be quicker to communicate).

When can I apply? Applications were supposed to have started last Friday, April 3rd, for businesses and sole proprietors. Self-employed and independent contractors can apply beginning April 10th.

Planning Thoughts - the program is first come, first served. If you’ve been affected by the coronavirus, it makes sense to apply as soon as you’re able.

This is also a one-time deal. You can only apply once, so apply for the maximum amount you’re eligible for.

As part of the application, you’re certifying that your business has been negatively impacted by the pandemic. “Economic uncertainty makes the loan necessary to support your ongoing operations.”

There have been reports of some banks not taking sole proprietor applications until April 10th. It’s unclear what the difference is between “sole proprietors” and “self-employed” under PPP. The golden rule in all of this is to work closely with your banker.

You can apply for both the PPP and the EIDL (discussed next), but you can’t use them for the same expenses. You can refinance the EIDL into a PPP. . If you used the EIDL loan for payroll, you must refinance the loan to the PPP. This does not include any amount received under the Loan Advance, as that is a “grant” that is not required to be repaid.

It helps to understand that everyone’s absorbing new information as it comes out. There have been several pieces of guidance issued by the Treasury and the SBA over the last week. It seems everyone is working with incomplete information in a crunched timeline, so keep in touch with your professionals as things progress.

You can read through the Treasury’s Fact Sheet, as well as most recent SBA guidance HERE and Frequently Asked Questions HERE.

Economic Injury Disaster Loan and Loan Advance


The CARES Act expanded the Economic Injury Disaster Loan (EIDL) loan program to include businesses affected by the coronavirus.

Who is eligible for EIDL? Any small business with less than 500 employees (including sole proprietors, independent contractors and self-employed). Cooperatives, ESOPS, and tribal small businesses. Nonprofits and veteran’s organizations affected by the pandemic are also eligible. Businesses in certain industries may still be eligible if they meet the SBA’s size standards. You’ll also need to have been in business before January 31, 2020.

How much can I apply for? You can apply for up to $2 million of working capital. Up to $200,000 can be approved without a personal guarantee. No collateral is required for loans of $25,000 or less.

What are the terms of the loans? The interest rate is a fixed 3.75% (2.75% for nonprofits). The repayment length is up to 30 years and payments are deferred for one year. There are no prepayment penalties.

What can I use the EIDL for? The loan can be used for payroll, accounts payable, fixed debts, and other bills you can’t pay due to the coronavirus.

Where do I apply? The EIDL is provided through the SBA directly, and the application can be found on the SBA website.

What is the EIDL Loan Advance? To get funds quickly into the hands of businesses in need, the CARES Act created a loan advance that does not need to be paid back under any circumstances. The Advance amount is up to $10,000, and you must say you’re applying for the Advance on the EIDL application.

It’s important to understand this is up to $10,000. The earliest information said (and many sources still say) that the Advance was $10,000. End of story. However, at least one Senator and the Massachusetts SBA have said that it’s now $1,000 per employee, up to $10,000 total. This is definitely to the dismay of those who applied right away and are still waiting for funds.

Speaking of waiting, the law states that the Advance shall be paid within 3 days of the application. However, I’ve yet to hear of anyone who has received the Advance grant at all. We can assume there are extreme amounts of volume for this.

Planning Thoughts - For businesses in need, the EIDL is a decent place to look for relatively low interest loans that can be paid over long periods of time. It’s a good next step if ineligible for the PPP or need additional aid.

Businesses need to show some level of “economic injury” as a result of the coronavirus. However, you won’t need to certify that the loan is “necessary” as you do with the PPP.

As mentioned above, you can apply for both the PPP and the EIDL. However, you cannot use the funds for the same expenses. For example, you can’t apply both loans to the same payroll expenses. It may make sense to use the EIDL to supplement what’s received through the PPP.

Also, if you already took an EIDL (as mentioned above), you can refinance the loan into the PPP application. This is in addition to the 2.5x payroll calculation.

If it was used for payroll, it must be refinanced into the PPP (you can’t take a PPP for that amount to use for payroll). But on the bright side it’s now at a favorable interest rate and potentially forgivable. The amount of the Loan Advance grant cannot be refinanced, as it’s not required to be paid back.

Employee Retention Credits


The CARES Act also provides for an Employee Retention Credit to incentivize businesses that have closed or face decreased revenue to keep employees on payroll.

What is it? It’s a refundable tax credit for 50% of “qualified” wages paid to each employee, up to $10,000 per employee. So, the max credit per employee is $5,000. The credit is allowed against the employer portion of social security taxes (6.2% of gross wages), allowing you to use those tax dollars to pay wages.

Qualified wages are paid after March 12, 2020 through the end of 2020. This also includes employer-paid qualified health plan expenses that can be attributed to those wages.

There is a catch when calculating the credit. For larger businesses with more than 100 employees, you can only count wages paid to employees that are not providing services (not working) due to the virus. Essentially, this is an incentive not to let those employees go but to keep them on payroll.

For smaller businesses (100 or less employees), all wages are eligible to calculate the credit (still working or not).

Who is eligible? The credit is available to all private employers regardless of size, including tax-exempt organizations. However, businesses that are taking an SBA loan under the CARES Act (such as Paycheck Protection Program or Economic Injury Disaster Loan) are not eligible.

To qualify for the credit, one of the two things must happen:

● Fully or partially suspend operations during any quarter in 2020 due to any government authority because of the coronavirus, or

● Gross revenue significantly declines. Specifically, gross revenue in one quarter must be 50% or less than the same calendar quarter in 2019.

How long am I eligible? You stop being eligible at the end of 2020 or when you have a quarter of revenue that’s more than 80% of the revenue for the same calendar quarter in 2019 (whichever is earlier).

How do I claim the credit? You should work closely with your tax professional here. Claiming the credit will take the form of either lowering employment taxes already withheld by the credit amount or by requesting an advance of the credit with Form 7200. The IRS has a helpful FAQ that walks through claiming the credit. There's also some coordination to keep in mind with other sick/family leave credits created by law due to coronavirus.

Planning Thoughts - This credit cannot be taken if you’ve taken a loan through the PPP or EIDL. Which one do you take? Ultimately, it’s a big “it depends”. It will take a bit of math to determine which option is right for you.

The PPP lowers the amount forgivable if you reduce full-time employees and/or wages paid. If you need to greatly lower payroll or your full-time headcount (e.g., having some employees work part-time) and don’t plan to bring them back to normal by the June deadline, then the Credit may be more beneficial. It’s also possible to combine this Credit with NON-SBA loan options.

The credit is calculated and reported by calendar quarter (when employment taxes are reported by the business). But the total amount for the whole year is $5,000 per employee.

The credit can be taken by employers of any size (outside of state and local governments). So, this may be a benefit to large businesses that don’t qualify for the credit.

It seems self-employment taxes, while meaning to replicate both sides of a business’s payroll taxes, are NOT eligible for the credit.

The credit also seems to assume some level of cash available in the business. This may be some continued revenue or cash reserves - how else can a business keep paying employees, even when subsidized by a tax credit? So, it seems this credit isn’t an immediate help to a business that’s completely shut down with no revenue.

Deferral of Payment of Payroll Taxes


Another payroll-related tax break! Businesses can defer paying the employer-portion of social security tax! Social security tax is 6.2% of gross wage (up to the wage limit), paid each by the employer and the employee. This is for taxes due from the period the law was enacted until the end of 2020.

The business can defer 50% of their portion of 2020 social security tax until the end of 2021. The other 50% is due at the end of 2022.

Self-employed and sole-proprietors can also benefit. If you’re in this camp, you pay both the employer’s and the employee’s portion of social security tax (12.4% total). You can defer 50% of the social security tax (the “employer’s” portion).

In practice, 25% of the 12.4% tax is deferred until 2021, and the other 25% is due at the end of 2022. This seems to include lowering estimated tax payments in light of that.

However, you cannot use this provision if you also had a loan forgiven under the PPP.

Planning Thoughts – Small business owners who don’t have loans forgiven under the CARES Act can combine this provision with other aid available.

Unlike the Retention Credit, you CAN take an EIDL loan and combine that aid with delayed social security taxes.

If you forego the SBA loan options under the CARE Act, it appears this can be coordinated with the Employee Retention Credit. If there’s still social security tax due after the ERC is applied, it seems that the remaining portion due is the amount that can be deferred over the next two years.

Net Operating Losses Rules Adjusted


The Tax Cuts and Jobs Act changes the rules for corporations with net operating losses (NOLs) - allowing them to be carried forward indefinitely. However, the CARES Act re-adjusted those rules.

NOLs from 2018, 2019, and 2020 can be carried back up to five years. This should allow companies to amend past returns and claim a refund for extra taxes paid.

The NOLs can also offset 100% of taxable income for 2018, 2019, and 2020 (TCJA also changed this to 80% of taxable income.)

There’s quite a bit of aid out there for businesses struggling due to the coronavirus. There are also other programs available through SBA and leave and unemployment benefits provided by Congress.

Information and clarification are still coming out about the programs - work closely with your banking, tax, and financial professionals to navigate these tough times!

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Friday, April 3, 2020

Changes to Retirement Accounts in the CARES Act

Pathways Advisory Group, Inc.
Evon Mendrin, CFP®













Our recent blog post reviewed some of the aid provisions for individuals and families from the recently passed CARES Act. Today, in Part 2, we’re focusing on the law’s effect on retirement accounts. Let’s dig in!

Coronavirus-Related Distributions from Retirement Accounts


Congress created a specific category of withdrawals from retirement accounts for those that are impacted by the coronavirus - Coronavirus-Related Distributions. These are withdrawals from IRAs and/or employer-sponsored retirement accounts in 2020 totaling no more than $100,000.

You’ve been affected by the virus if any of the following apply:

     Diagnosed with the coronavirus
     Have a spouse or dependent that’s been diagnosed
     Experiencing adverse financial consequences as a result of being quarantined, furloughed, laid off, or having work hours reduced
     Unable to work due to lack of childcare because of the virus
     Closing or reducing hours of a business you own or operate
     Experiencing “other factors” the Treasury/IRS determines are okay

This list is quite broad, and it seems the intent is to allow broad access to those in need during the pandemic. Coronavirus-Related Distributions get the following perks:

     Exempt from the usual 10% penalty - this waives the penalty typically applied when you withdraw from a retirement account before age 59 ½. 

     No Mandatory withholding requirements - certain distributions and rollovers from employer-sponsored retirement accounts (such as 401k’s) generally have mandatory 20% federal tax withholding. Coronavirus-Related withdrawals are exempt from this.

     You can repay the distributions within 3 years - You have up to 3 years from the date of withdrawal to redeposit the amount into an eligible retirement account. This can be the original or another eligible account. If done, you can amend prior returns to claim a refund of tax paid for the amount redeposited.

     The taxable income for the amount withdrawn is spread over 3 years. You can also elect to take it all in 2020. If 2020 income is indeed much lower than usual, you’ll want to be sure it makes sense to spread it out from a tax standpoint.

Waiving Required Minimum Distributions in 2020


Generally, when owners of pre-tax retirement accounts reach age 72 (recently extended from 70 ½ by the SECURE Act), they are required to take a certain distribution amount each year. This is a Required Minimum Distribution (RMD). Distributions are also required when non-spouse beneficiaries inherit retirement accounts.

However, Congress is waiving all RMDs in calendar year 2020! This includes traditional IRAs, SIMPLE and SEP IRAs, 403b, 401k, and government 457 plans. The waiver applies to the account owners themselves, as well as beneficiaries taking annual required distributions.

If you turned 70 ½ in 2019 (still under the old law), but waited to take your RMD until early 2020 (before April 1), you also benefit. That distribution is no longer required, saving you two required withdrawals in 2020!

This is a big help for retirees who don’t need to take RMDs for living expenses - whether due to pension income or other taxable investments. The ability to avoid selling when stocks have declined - or even to rebalance - is a great long-term benefit. This also helps to keep the extra taxable income off of the 2020 tax return.

What if you already took the RMD for 2020 - even a part of it? Well, there’s no direct provision to return those funds to the account.

One potential way to return the funds - and avoid the extra taxable income - is to complete a 60-day rollover. If the distribution occurred within the last 60 calendar days, you can deposit the same amount withdrawn back into an eligible retirement account by the 60th day.

This can only be done if you have not already completed a similar 60-day rollover within the last 12 months. If taxes were withheld on the original withdrawals, the full amount needs to be re-deposited to avoid the taxable income. These can be tricky. It makes sense to chat with your financial/tax advisors on the process.

A second approach - if past 60-days - is if you can show you’ve been impacted by the coronavirus (as written above). If so, you can treat the withdrawals as Coronavirus-Related Distributions.

In that case, you can redeposit the withdrawn amounts over the next three years (from the date of withdrawal). Or, if you choose to keep the withdrawn amounts, you can spread the taxable income over the next three years.

What about beneficiaries? Can they redeposit the funds? Unfortunately, it doesn’t appear so. Beneficiaries can’t complete 60-day rollovers. There doesn’t seem to be a way to get them back into the account. (Different rules for spousal beneficiaries.)

Not perfect solutions, but you may be able to take some action. It makes sense to reevaluate your RMD plan for the rest of the year - including any potential Qualified Charitable Distributions - if the retirement funds aren’t needed for expenses.

2020 Skipped for 5-Year Rule RMDs


A non-designated beneficiary is a non-living, non-breathing beneficiary. Think estates, charities, certain Trusts. When a non-designated beneficiary inherits a retirement account from someone before they reach the age to begin RMDs, there’s a 5-year rule for distribution. The entire account must be withdrawn by the end of the fifth year after death.

However, the CARES Act allows those beneficiaries to skip 2020 when counting the 5 years. It can just be ignored, giving those beneficiaries a 6th year. Of course, this only works for an account owner that passed before 2020. If the date of death was 2020, the 5-years don’t begin until next year!

Loans from Employer-Sponsored Retirement Plans


Many 401k and other employer-sponsored retirement plans allow participants to take loans of a portion of their account values. If you’ve been impacted by the coronavirus (same definitions as above), the CARES Act adjusted the rules for these loans.

For those affected, the maximum loan amount increased to $100,000 (from $50,000).

100% of your vested account balance can be used (up to the $100,000 limit). Typically, when your account is more than $20,000, you can only take a loan of up to 50% of the vested balance.

Lastly, the law allows you to delay payments that would be owed from the date of the law through the end of 2020 for up to one year.

Hopefully, a source of last resort, this allows cash-strapped Americans one more source of funds.

These provisions should allow some relief to those extremely cash-strapped in light of the coronavirus. It also helps those who are able to avoid selling during a market decline and avoid the extra taxable income. Stay tuned for our next article on how the CARES Act helps small businesses!

As always, chat with your tax professional to determine how these provisions affect your tax situation.

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Tuesday, March 31, 2020

Direct Payments and Charitable Deductions from the Recent CARES Act

Pathways Advisory Group, Inc.
Evon Mendrin, CFP®












To help millions of Americans affected by the novel coronavirus, Congress passed – and the President signed – The CARES Act. Earning a solid 10-out-of-10 on the Catchy Law-Name Scale (our government cares!), the legislation provides over 2 Trillion dollars in aid.

This is Part One of multiple articles on the bill. Let’s dig in and take a look at what individuals and families can expect.

Recovery Rebates - Direct Payments to Individuals and Families


Likely the provision receiving the most interest, the CARES act provides Recovery Rebates – direct payments to the American public.

Married couples filing taxes jointly can receive up to $2,400 and all other tax filers can expect up to $1,200. Families will also receive up to $500 per qualifying child – that is, dependent children under age 17.

The payments come with phaseouts if your Adjusted Gross Income (AGI) is above certain thresholds. Payments will be reduced by 5% for every dollar over the following AGI thresholds:
  • Married Filing Jointly: $150,000
  • Head of Household: $112,500
  • Single/All other filers: $75,000
A few examples:

Jim and Jessica are married with three kids under 17. Their AGI is $160,000. Their potential rebate payment is $3,900 ($2,400 + $500 + $500 + $500). But their AGI is above the threshold by $10,000. So, their actual Rebate payment is $3,400. ($3,900 – ($10,000*5%)).

Jamie is single with one 15-year-old daughter. Her AGI is $50,000. She’s under the $75,000 AGI threshold, so her Rebate payment will be $1,700 ($1,200 + $500).
A single taxpayer with an AGI of $99,000+ ($198,000 for married filing jointly) is phased out and not eligible for the payment. However, if under the thresholds, then you can expect the full payment.

What year’s income is this based on? Here’s where it gets interesting. The payment is technically a refundable tax credit. The credit is for 2020 income but is an advance on that credit.

The 2019 tax return will be used to verify income and family status. If the 2019 tax return is not yet filed, the 2018 tax return will be used. When the 2020 tax return is filed, any extra amount you are eligible to receive will be sorted out in the form of a tax credit.

How will payments be delivered? It depends. Payments will be made electronically directly to bank accounts the IRS has on file for 2019 (or, if not filed, 2018) refund deposits. Those receiving Social Security will receive it in the same account they receive Social Security. It appears all other payments will be sent by check to the last known address on file.

The IRS announced it will create a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail.

When will payments be delivered? The bill requires they be sent as “as rapidly as possible,” and Treasury Secretary Steven Mnuchin mentioned a 3-week goal for those with direct deposit information. The IRS announced on March 30th that distributions will begin within the next three weeks. It is unclear whether those receiving paper checks will fall within this window.

What if I don’t receive my payment? The law requires that a notice is to be mailed to your last known address within 15 days after payment is sent. The notice will indicate how the payment was made, the amount, and a phone number to the IRS to report if you haven’t received it.

There are several points to consider and some uncertainty here. Due to the tax filing deadline being pushed back to July, it’s likely many Americans will not have filed 2019 tax returns. If not, 2018 income will be checked for this payment eligibility. Some odd situations can arise from this.

Because many may have not filed 2019, the payments received now may not reflect the reality of their lives. Many life changes could have happened after 2018. Marriages, divorces, children born, kids turning 17. All of this could change the potential payment received.

For example, someone who got married and had one child after 2018 could potentially have a $1,700 higher payment as a family. If the 2019 return is not filed, these changes aren’t seen by the IRS.

Income may also have dramatically changed between 2018, 2019, and even 2020! It’s possible 2018 income is too high to qualify for the payment. If the 2019 return hasn’t been filed, that higher income is used to verify eligibility.

It’s also likely many people will have dramatically lower income in 2020, even in light of higher income before. You won’t have a chance to benefit from the Rebate until the 2020 tax return is filed and your correct credit is calculated.

This can also work in someone’s favor. If your income is too high in 2019 (and 2020), but you haven’t filed the 2019 tax return, you may be eligible for the payment based on low 2018 income. At least one Senator’s FAQs page says excess amounts will not have to be paid back if the 2020 tax return is filed and it shows you were not eligible based strictly on your 2020 return.

So, what to do? Take a careful look at your 2018 & 2019 tax information and any life changes between those years. Talking with your tax professional makes sense in this situation. It may make sense to file 2019 tax returns so the IRS takes changes into account. It’s not clear when it’s too late to file for payment eligibility - or if it’s already too late.

What if you haven’t been required to file tax returns? In this case, the IRS will provide directions to file a 2019 tax return “with simple, but necessary, information” for the Rebate payments.

Check out the latest IRS information here on the Rebate payments.

New $300 Above-the-Line Deduction for Qualified Charitable Contributions


Congress created a new above-the-line deduction for qualified charitable contributions of up to $300. While it’s not a substantial amount, most taxpayers should be able to benefit. In order to take the deduction, a taxpayer cannot itemize deductions on their Federal return.

The donations must be in cash or check, and they specifically can’t fund either donor advised funds (DAFs) or 509(a)3 “supporting organizations.”

This comes after the Tax Cuts and Jobs Act eliminated some above-the-line deductions and increased the standard deduction. Many taxpayers no longer itemize deductions and don’t take advantage of itemizing charitable contributions.

Interestingly, the text of the law seems to indicate this is an ongoing deduction, stating it “shall apply to taxable years beginning after December 31, 2019.” It’s likely we’ll see additional guidance on the length of time.

AGI Limit for Cash Charitable Contributions Temporarily Repealed


The current limit for cash contributions to charity is 60% of AGI. The CARES Act increases this temporarily to 100% of AGI for “qualified” contributions, which means you can wipe out your 2020 tax liability with proper donations to charity. If total donations exceed the 2020 100% limit, the excess can be carried forward to future tax years for up to 5 years.

The same exclusions to DAFs and 509(a)3 organizations apply.

This should, hopefully, provide some incentive for those with means to donate to charities that might otherwise see large declines in donations.

As always, chat with your tax professional to determine how these provisions affect your tax situation. Stay tuned for our next article, looking at how the law affects your retirement accounts!

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Friday, March 27, 2020

Personal Reflections and Words of Encouragement













 Well 2020.

You’ve been quite the year so far.

At the New Year, life felt very different than it does today. Although the first cases of COVID-19 had already begun sprouting up, they were a world away. Most of us had no idea what life would look like a short three months later.

The economy felt strong. The market was at an all-time high. Housing prices were rising, mortgage rates were low.

Then, in a matter of weeks, everything changed.

Let me take you back to another memorable year...

The year was 2008.

After 2 years as a paraplanner and 4 years at Pathways, I was officially a Certified Financial Planner® practitioner. I had just passed the CFP® test and was beginning to meet with clients on my own.

And I was terrified.

We were in the worst bear market since the Great Depression. I was still “new” to investing and so green, and I had only seen the good times. This was something I had never experienced before. Suddenly, I saw first person how faith in markets could be tested. I held clients’ hands while going through it for the first time myself.

I had a century’s worth of returns at my fingertips and I was forced to really dive in. I had to know for myself how markets worked. I looked back at every bear market. How were they similar? What made them different?

I saw a trend in how the media reported market movement, particularly down markets. I saw multiple headlines, years apart, claiming the death of stocks or that this was a “new normal”. I understood just how much “noise” was out there, and the importance of making sure client’s heard my voice.

On March 9, 2009, I noticed there wasn’t a choir of people shouting “this is the bottom”! In fact, I didn’t hear much of anything other than more doom and gloom. When the market began its dramatic upward climb the next day, it was months before news outlets and “experts” acknowledged that maybe we were on the way up.

That bear market taught me a lot.

Here we are 12 years later and we are wrestling another bear.

In some ways, this bear market is completely different.

While 2008 was founded in subprime mortgages and risky lending, which slowly crumbled our financial structure, this one started with a strong economy blown apart by a world-wide pandemic.

One could say every bear market is “different”. For sure every bear market has its own instigator, as shown below.

Source: Dimensional Fund Advisors. Note Disclosure














 This chart shows how the market has responded to each crisis over the last 30+ years. What returns did the market have after 1 year? After 3 years or 5 years? Although each instigator is different, what’s interesting to me are the similarities. Each time, a mere 5 years later, the cumulative return is quite remarkable.

We have no idea how long our economy will take to recover from our current crisis, but if history is any indicator, it will. And faster than maybe we expect.

This is a scary time. We know this. We worry about our health, the health of those we love, our employment or small business, our medical system, our mental health as we shelter in place and remove ourselves physically from our social networks. And it is natural and normal to worry about our investments as well.

As we have expressed in our correspondence thus far, we reassure you that we are watching this with you. We are looking for ways to maximize the situation to your advantage, whether that be through harvesting capital losses to reduce taxes, rebalancing your Portfolio or simply talking through your concerns.

It’s been quite the journey since 2008. I am grateful for that experience and the 12 subsequent years since then. They have taught me so much, and going through these last few weeks, I understand just how much I have learned. I am grateful for the in-depth discussions we have had together about allocations and risk, the behavior of equities versus bonds and the dangers of market timing. It has prepared all of us for today.

To the new investor, through this time you will gain a rock solid testimony of markets. You will know what it truly feels like to live through the allocation you have chosen. You will get to witness early on the surprise of the recovering market. You will be able to face future bear markets with some confidence of “been there, done that”.

To the long-term client, we have prepared for this. Every discussion, every meeting, has built the foundation needed to withstand shaky ground. We have done it before and we will do it again.

As I sit here in my makeshift “home office”, I acknowledge that we truly are in an unprecedented time. I’m not sure I’ve seen this much fear in the world before, but I have also seen so much community. We are all isolated at home, but in this together.

I wish each of you good health over the coming quarter. Whether in the office or sequestered in our homes, we are here for you. Please never hesitate to reach out.


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