Year-End Planning Checklist

2020 has been a strange year for all of us, and although some financial planning deadlines have been modified due to the CARES Act, most 12/31 deadlines remain in place.  Below are items we are considering as we wrap up the year with our clients.  Should you have questions about whether or how any of the items below apply to you, please reach out to us as we will be happy to assist.  

 2020 Year-End Planning Items with 12/31 Deadline

  1. Maxing out 401(k) contributions:  Employees can contribute up to $19,500 (plus $6,500 extra for those over 50), into their 401(k)s for 2020.   If you have not yet contributed the maximum amount and your cash flow allows, consider increasing your contributions now to reach the maximum contribution amount prior to year end.  
  1. 401(k) Matching:  If your company offers a 401(k) match, it makes sense to take advantage of the full match opportunity every year.  If you have not received the full match for 2020, let us review your company’s 401(k) plan rules to determine if you can contribute enough to receive the full 2020 match before year end.  
  1. Charitable Giving for 2020:  There are some additional charitable deductions this year as part of the CARES Act.  There is a $300 deduction for taxpayers who don’t itemize, and for clients interested in large donations, taxpayers can deduct up to 100% of their adjusted gross income (up from 60%) for cash donations made to public charities. For clients with taxable accounts, we frequently recommend donating appreciated securities instead of cash via a donor-advised fund (DAF).  This strategy works well when a taxpayer has highly appreciated securities in taxable accounts, and/or in a year when income is higher allowing a client to benefit from a larger charitable deduction.  
  1. Gifting:  The annual gift exclusion amount for 2020 is $15,000 per taxpayer to each recipient.  (Married couples can give $30k.)  Make your annual gifts prior to 12/31 if you haven’t already!  
  1. Tax Loss/Gain Harvesting:  At Warren Street, we employ a continuous monitoring of client accounts for tax loss harvesting opportunities.  Similarly, if a client is experiencing a particularly low tax year, it may be the right time to strategically harvest capital gains.  
  1. Roth Conversions:  Although market downturns are not fun, they can certainly provide an opportunity for strategic Roth Conversions.  This is an annual planning item that we analyze for every Warren Street client.  
  1. LLC / Entity Formation:  If you are in the process of business entity formation for 2020, you may need to have your documents signed and filed prior to the end of the calendar year.  

If you have any questions about the above checklist or any other year-end planning questions, please feel free to reach out to your trusted wealth advisor. We are here to help!

Emily Balmages, CFP®, CRTP

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

How Will Emerging Markets “Emerge” From 2020?

It’s no doubt that U.S. equities remain the protagonist of the past decade. The longest U.S. economic expansion, coupled with the blossoming of numerous tech stocks like Amazon and Tesla, helped the S&P 500 climb to record highs. That was soon followed by the U.S. stock market’s astounding recovery in 2020, which continues to capture the attention of global investors.

Many forget, however, that the decade before looked entirely different. Back then, we had an entirely different “darling” called emerging markets which left the S&P 500 in the dust.

Data spanning 12-31-1999 to 12-31-2009

During the 2000’s, emerging market investments drastically outperformed the S&P 500 by 188.1% on a total return basis. Steadying economic data and optimistic outlooks for EM nations including Brazil, Russia, India, and China, or the BRIC nations, painted narratives of a new global convergence. Meanwhile, U.S. stocks continued limping from the aftermath of the dotcom bubble.

The Case for Emerging Markets

EM investments invest in the securities of a less developed country with improving economic conditions and increased involvement with the global economy. Aside from the BRIC nations, this includes countries such as Vietnam, Indonesia, Africa, and Argentina. EM regions are attractive for the following reasons:

  • Growing Contribution to GDP: Over the past few years, emerging economies contributed an increasingly higher percent share to global productivity. EM contribution to GDP was 56.9% in 2019, while advanced economies contributed 43.1%. The International Monetary Fund (IMF) forecasts this trend to continue into 2024, making emerging markets an attractive long-term investment opportunity.
Data as of 6-30-2020. Source: IMF
  • Favorable Demographics: 85% of the world’s population, or about 6 billion people, reside within emerging countries. Over 50% of the global population under the age of 30 live in EM nations. This will fuel a rising-middle class in years to come. Increased productivity amongst large-working populations will also uplift the region’s standard of living.
  • Hot Spot for Disruptive Innovation: Emerging markets typically lack the infrastructure and technologies of developed nations. This presents ample opportunity for the region’s younger, more tech-savvy population to embrace innovation. Global leaders including the World Bank have also recognized the tech disparity and have provided funding for infrastructure enhancements.

COVID-19 in Emerging Markets – Some Juggle While Others Struggle

Contrary to expectations, emerging markets have weathered the pandemic better than expected. A younger population and lower obesity rates have helped certain emerging countries wither down mortality rates. Accommodative fiscal and monetary policy through asset purchases and fiscal stimulus modeled after developed nations helped keep many economies afloat.

East Asian countries, China in particular, have exemplified great handling of the Coronavirus. As a result, EM has rallied 24.3% since the market bottomed (data spanning March 23 to December 8). China is also the only country expected to report positive GDP growth for 2020. Although it’s best to view Chinese data with a skeptical eye, investors cannot deny the nation’s swift return to economic activity.

Data as of 12-08-2020

Nevertheless, China’s success isn’t shared by all. Developing nations dependent on oil exports, tourism, or general commodities have and will continue to struggle as trade activity remains low. Certain EM hotspots including Russia and Brazil are also finding difficulty with containing virus spread. Highly indebted economies face risks of debt sustainability with limited room for policy enactment.

The Emerging Markets Story…to be Valued

EM equities experienced a mass exodus in March as investors questioned whether the infrastructure and economic inexperience of developing countries could properly combat the Coronavirus. Fund flows faced pressures until investors began acknowledging fruitful economic and health responses to COVID-19. Even after rallying this year, the long-term valuations for emerging markets look attractive.

Data as of 9-30-2020. Source: StarCapital

According to StarCapital research, emerging markets have the cheapest cyclically adjusted price to earnings ratio (CAPE) and price-to-book (P/B) ratio relative to developed countries over the next 10-15 years. Factor in the expected structural improvements, emerging markets exhibit ample opportunity for value appreciation should the demographic and technological trends fall in line. You may also find comfort in knowing that emerging markets are expected to have the sharpest recovery post COVID-19.

Data as of 10-16-2020. Source: Wall Street Journal

What Will the Next Decade Look Like?

Despite some commendable pandemic responses and attractive valuations over the next decade, it is imperative to consider COVID-19’s impact on the region’s secular trends. Take China’s “Great Rebalancing,” for example. After years of export-driven GDP growth, the country adopted a “Great Rebalancing” plan to generate their economic prowess from organic consumer-driven activity rather than overseas trade.

When the Coronavirus struck, both Chinese businesses and consumers halted activity. Unwilling consumers, shocked by the events in Wuhan, emptied the streets as factories shut down. Once a recovery was en-route, business activity quickly climbed back to pre-pandemic levels, but scarred consumers left their homes thrift-conscious and hesitant. This led some to believe that China’s “Great Rebalancing” plan was at stake.

The Chinese customer today, has regained confidence, mainly from the government’s ability to eliminate almost any possibility of second wave. As we said earlier, China’s success is not shared by all, and whether or not secular trends will hold in other emerging nations — who have varying health and economic conditions – will be a mixed bag.

Bringing It All Home

Although prudent investors can exploit opportunities in countries that have exhibited short-term resiliency, the ability to maintain a long-term perspective and understand the landscape of your investments is keen. Here at Warren Street Wealth Advisers, our focus is not only to avoid home-country bias and to uncover the next areas of outperformance, but also to educate our clients about our long-term decision making.

For any questions regarding international investments, emerging markets, or wealth management, please call 714-876-6200 or email phillip@warrenstreetwealth.com

Phillip Law, Portfolio Analyst

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

What to Expect For Expense Deductions if You’ve Taken a Paycheck Protection Program Loan

Earlier in 2020 the “Paycheck Protection Program” was passed, which allowed for much needed aid for struggling small businesses during the Coronavirus pandemic. One of the main features of the Paycheck Protection Program was the ability to potentially have your loan amount forgiven, tax free. 

While this is a great benefit, one of the many grey areas that arose was whether or not expenses that were paid by the business using PPP funds were eligible for a tax deduction. While the funds may have been spent on business related items that would normally be tax deductible, it was unclear whether this same treatment would be available for those who received tax free PPP loan forgiveness.

On November 18th, 2020 the IRS and Treasury Department Secretary Steven Mnuchin issued some additional guidance to assist in clearing up some of the confusion. The statement issued expressed that “since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible. This results in neither a tax benefit nor tax harm since the taxpayer has not paid anything out of pocket.” It then went on to state that “if a business reasonably believes that a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not.”  Therefore, they encouraged businesses to file for forgiveness as soon as possible. In the case where a PPP loan was expected to be forgiven, and it is not, the statement outlined that businesses will be able to deduct those expenses.

As you can imagine, this was not the desired outcome for many business owners. Currently there is a fight within Congress, the Treasury Department, as well as in the business and tax communities regarding this interpretation of the PPP language. Many in Congress from both sides of the aisle argue that this interpretation of the language in the Bill does not align with Congressional intent. For example, Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Ore.) released a joint statement expressing their opinion that the expenses should be considered deductible. With Congress currently negotiating both a spending bill and second stimulus package, many hope the rules around deductibility of these expenses will be specifically outlined soon.

If you are a business owner impacted by this, unfortunately the best course of action is to remain patient with hopes of some additional Congressional action coming shortly. As always with Congress, it is unclear when they will act and what will be in the final version of the Bill. Ideally, this will be addressed prior to Congress’ holiday adjournment on December 18th, 2020. For the time being we are forced to assume that these expenses will not be deductible until additional Congressional action says otherwise. As always, when it comes to anything tax-related, your best course of action is always to work directly with your CPA and tax professional.

Source – https://home.treasury.gov/news/press-releases/sm1187

Source – https://www.jdsupra.com/legalnews/the-irs-forgiven-ppp-loans-and-business-88352/#_edn25

Source- https://www.finance.senate.gov/chairmans-news/grassley-wyden-treasury-misses-the-mark-on-ppp-loan-expense-deductibility-guidance

Justin Rucci, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Will Your Vote Move the Market?

Election seasons are highly polarized and leave investors from both sides of the political aisle paralyzed by what-ifs and fear of the other. This seems more true now than ever. Given COVID-19, supreme court implications, and an incredibly divided nation in terms of policy wishes, we expect a volatile finish to 2020. Due to an expected record number of mail-in ballots due to the election, it’s even possible the results aren’t known for days or even weeks. It’s normal to be concerned, but does the data support it? Does taking investment action make sense?

Believe it or not, I wrote the above days before President Trump and the First Lady contracted COVID-19. Can 2020 have any more twists and turns? Our team at Warren Street sends our thoughts and well wishes to them both, their families, and their staff. We hope a speedy and full recovery ensues. The diagnosis for President Trump is undoubtedly troubling given his age and possible pre-existing conditions, it’s sure to inject additional doubt into investors’ minds. CDC data however is still dramatically in his favor and it’s safe to assume he’ll receive best-in-class care. Historically, election seasons have in-fact provided for increased volatility in the markets. In addition, the dispersion in results and returns has been all over the map especially in the short term. You should find comfort however in the fact that long term returns have generally been positive regardless of who’s been at the Presidential helm or a split vs. unified congress. More details to come.

Let’s start with volatility (chart below). Taking a look back to 1929 you’ll see that the election year realized volatility exceeds non-election year volatility in September-November by a rather dramatic amount as measured by daily standard deviation in returns. I can’t say whether the current September 2020  volatility is caused or simply correlated to this phenomena. With U.S. stocks down over 7% 9/1-9/23 there’s plenty going on in the world to not simply chalk this up to election hysteria.

Now that volatility is out of the way, let’s talk returns, starting with short term returns. It is abundantly clear what investors prefer, and it isn’t what you’d think. The President is less significant than the balance of power. Returns tend to be best with a split congress, or in the best performing case a Democrat for President with a Republican congress. Why might that be? Gridlock. Investors love the status quo, but more so corporations love the predictability that comes with it. The ability to invest, forecast, and produce without the prospects of a changing playing field often lends itself to unimpeded growth.

We all learned in 2016 that polling is VERY fallible. Here we find ourselves again with a rapidly changing landscape of polling results, and most of which seem to be consolidating into the margin for error. Meaning both the Presidential and the Congressional races can go any which way. If we were betting, we’d likely expect a blue wave (Biden win and Democrats take over the Senate). Most of this is because incumbents just simply don’t win while in a recession, it’s only happened once in the last 100 years. The bad news, a Democratic sweep is actually one of the worst outcomes for investment markets historically over the corresponding 2 years (blue below) post election. The good news, you can barely tell a difference after 4 years (light blue below) regardless of who is in office, Presidential or Congressional.

Source: FMRCo

So what do we do now? Proceed with caution. Obviously this election is unparalleled in so many ways, and because of that we can’t solely rely on historical data to give us permission to proceed with blinders on. Having said that, you can make a bullish case for U.S. and Global securities regardless of who wins. What types of companies and which geographies you favor might look very different however. Each party has a different impact on tax code, currency stability, trade relations, etc. It’s important to construct your portfolio with these varied outcomes in mind and not be married to one outcome to succeed.

If you want to review your current investment posture as we head toward the stretch of election season 2020, please don’t hesitate to reach out to our team.

Blake Street, CFA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Gold Rush of 2020

In 1848, thousands of people grabbed their shovels and crossed land and sea to Sutter’s Mill with hopes of striking gold. Almost 150 years later in 2020, a similar parallel is happening not in San Francisco, but rather in the investable market for this hot commodity.

Year-to-date (YTD), gold has experienced more inflows than other broad stock and bond funds, including SPY and AGG which track the S&P 500 and Barclay’s Aggregate Bond Index, respectively. Amongst a myriad of asset classes, investors are choosing gold as their choice for safekeeping, thus driving gold prices to an all-time high. This year alone, gold is up 33.53% YTD compared to U.S. Stocks at 4.69% YTD and U.S. bonds at 7.83% YTD. But why exactly is a gold rush taking place in 2020?

Source: YCharts

Data as of 8/05/2020

You may attribute the surge in gold prices to the pandemic, but mine deeper and you will find more.

Source: YCharts

Data as of 8/05/2020

Source: YCharts

Low Yield Environment: Earlier in March, the Federal Reserve cut the federal funds rate to 0 – 0.25% to stimulate the economy amid an economic crisis. As a result, treasury yields fell drastically. The 10 Year Treasury rate started the year at 1.88% and now only yields an all-time low of 0.52%, or -1.05% adjusted for inflation. Although treasuries are often used as a safe haven during uncertain times, negative real yields alongside inflation expectations might make gold a more attractive store of value.

Inflation Expectations: Fiscal stimulus through a $2.2 trillion package, rapid money printing, and unprecedented quantitative easing has prompted investors to seek gold as an inflation hedge. Current levels of inflation, however, do remain low at 1.19% year-over-year relative to the Fed’s target of 2.0%, and are likely to stay low in the short term (due to aggregate demand and supply shocks). While there is no tell-all sign indicating future long-term inflation is upon us, the following is certain: whether gold investors are overreacting or whether U.S. inflation is a ticking time bomb remains to be seen.

A Weakening U.S. Dollar: With fiscal debt as a percentage of GDP and M2 Money Supply at an all-time high, confidence in the U.S. dollar is diminishing relative to other currencies including the Euro. This comes at a time where the European Union appears to maintain a tighter grasp on COVID-19 outbreaks, alongside newfound unity in the form of a centralized stimulus package and debt mutualization. Overall, supposed weakness in the U.S. dollar has turned investors towards gold to maintain the purchasing power of their greenbacks.

With this context, it seems like anyone would jump at the chance to own gold; but to avoid grabbing a handful of pyrite (fool’s gold), let’s evaluate gold’s performance and properties as an asset class. During the 1980’s and 1990’s, gold yielded less than ideal returns. In the late 2000’s, the metal’s performance accelerated as investor confidence faltered during the Great Recession, but subsequently dipped in the 2010’s when the U.S. economy proceeded onto its longest economic expansion.

Source: YCharts

Data spanning 1/01/1980 to 12/31/2019

Based on history, we can draw two conclusions: 1) gold’s volatile nature indicates that its current run may not be sustainable over long periods of time and 2) gold’s performance suffers when investors regain confidence and begin to adopt a risk-on posture. To see gold’s performance coming out of recessions, see Appendix A. (link)

5-Year Correlation Matrix (Rolling Monthly Returns)

Data as of 8/07/2020

Source: YCharts

Gold generates zero passive income, so why do investors hold it? One reason is simply because it’s different and provides a diversification benefit. This metal exhibits less correlation compared to broader asset classes, meaning it simply behaves differently. A correlation of 1 indicates that the assets’ return behaviors are identical, while a correlation of -1 means they move in completely opposite directions. Given gold’s weaker correlations, it is likely to thrive when stocks or other asset classes experience large drawdowns. In other words, gold zigs while others zag.

Having understood the nuances of gold as investable asset and its diversification benefit over a long-time horizon, Warren Street Wealth Advisors previously made the decision to maintain gold exposure through Gold Minishares (GLDM) in our Diversifiers sleeve. Our investment strategies are now reaping the benefits of gold’s recent rally and allow for different courses of action. For example, with current gold prices bid up relative to historical levels, we can trim profits to invest in cheaper assets classes with higher potential for appreciation. This in essence, is buying low and selling high.

Gold prices will likely stay in the headlines and continue to gain traction in coming months. Regardless, we encourage you to start with your long-term asset allocation in mind and refrain from overthinking market entry/exit timing on any specific asset class. Preventing permanent capital impairment and building portfolios for your short term and long-term needs remains our top priority. We will diligently tax loss harvest and perform recurring rebalances along the way to take advantage of tactical long-term opportunities we see appropriate. That to us, is striking gold in 2020.

Appendix A:

Phillip Law

Portfolio Analyst, Warren Street Wealth Advisors

Warren Street Wealth Advisors, a Registered Investment Advisor. The information contained herein does not involve the rendering of personalized investment advice but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss.  

PPP Flex Act

There was some good news for our small business owners as the Paycheck Protection Program Flexibility Act of 2020 was signed into law today (aka PPP Flex Act).  The PPP Flex Act amends certain provisions of the CARES Act relating to PPP loans.  You can view the full text here:  Text – H.R.7010 – 116th Congress (2019-2020): Paycheck Protection Program Flexibility Act of 2020

Highlights include: 

1. Minimum PPP loan maturity of 5 years, and an allowance that lenders and borrowers can mutually agree to modify loan terms. 

2. Borrowers now have until the earlier of 24 weeks after loan origination or 12/31/20 to spend potentially forgivable loan proceeds (the original deadline was 8 weeks after loan origination).  

3. Borrowers may qualify for loan forgiveness without regard to reduction in full-time employees if they can document:   inability to hire or rehire employees OR inability to return to normal business activities due to HHS, CDC, or OSHA guidance or requirements.  

4. To qualify for forgiveness, 60% of loan proceeds must be used for payroll costs (the original requirement was 75%).  This means that up to 40% of the forgivable loan proceeds can be used for mortgage payments, rent, or utilities.  

5. Small businesses that receive PPP loan forgiveness can also now defer the Employer portion of Social Security taxes from 3/27/20 through 12/31/20.  

6. Notably, the PPP Flex Act did not fix the issue of expenses paid by forgiven loan proceeds being non-tax-deductible.  We do expect this technical fix to come eventually.  

We expect more clarification as additional legislation is passed this year, so stay tuned.  Please reach out to us with any questions as to how these changes apply to your business.  

As such, before proceeding, please consult with us and other appropriate professionals, such as your accountant, and/or estate planning attorney on any details specific to you. Please don’t hesitate to reach out to us with your questions and comments. It’s what we are here for.

Emily Balmages, CFP®, CRTP

Director of Financial Planning, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

If you have questions about any of this or would like to schedule a complimentary review you can Contact Us or call 714-876-6200 to book a free consultation.

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Update: Relief Is On The Way: A CARES Act Overview

This is a follow up to our first piece https://warrenstreetwealth.com/relief-is-on-the-way-a-cares-act-overview/ so if you have not yet read this first blog, please do so as this is a follow up to it.

With frequent updates from Washington and elsewhere regarding the policy response to COVID-19, we will continue to provide you with summary updates.  Please reach out to us with any questions you might have.

CHECKS

Many of you have received your stimulus checks via direct deposit.  If not, here is some additional information.  

If you did not file a 2018 or 2019 tax return, but are still eligible for a stimulus check, you can enter your information into this IRS website to receive your check: 

Non-Filers: Enter Payment Info Here

If you did not request direct deposit on your 2018 or 2019 tax return, but you would like to receive your stimulus check via direct deposit, you can enter your direct deposit information on this IRS website:

Get My Payment

It has been reported that both of the websites above have experienced technical issues since being launched, so patience and perseverance may be required.

If you prefer to receive your stimulus payment by paper check, you may have to wait several weeks for the payment to arrive. 

TAXES

The Treasury Department and IRS have delayed the Federal tax filing deadline for 2019 taxes to July 15, 2020.

California, along with most states (though not all), has conformed to the Federal deadline.

2020 Q1 and Q2 Federal estimated taxes are also now due July 15th. 

SMALL BUSINESSES

There are several updates regarding small business relief offered in the CARES Act.

1. EIDL

Originally the CARES Act called for the SBA to offer one-time emergency grants of $10k per business through the EIDL (Economic Injury Disaster Loan) program. Many of our small business owner clients applied. Recently, the SBA released an email to EIDL grant applicants, announcing that due to high demand, they’ve limited the one-time EIDL grant to $1k per employee (with a maximum of $10k total).

2. PPP

The demand for PPP (Paycheck Protection Program) loans has been extremely high. So high, in fact, that just 14 days after the program opened, the SBA announced that it had committed all of the originally allotted $349 billion.  As of Friday, April 24th, Congress and the President approved an additional $310 billion in funds for the program which offers potentially forgivable loans for small businesses and non-profits.  We expect this second round of funding to go quickly, so please reach out to us for guidance if you have not yet applied.  $60 billion of the new funding was specifically set aside for loans made by smaller institutions like credit unions and community banks, so we recommend considering one of these options first.    

3. Main Street Lending Program

Another relief option for small to medium sized businesses (up to 10,000 employees) may be the Federal Reserve’s new Main Street Lending Program: 

Main Street Lending Program

Details of the program are still being clarified, but as of this writing, here are some highlights:

  • Borrowers who received SBA PPP loans are eligible to apply for the MSLP as well.
  • Unlike PPP loans that can be potentially forgiven, MSLP loans do not offer a forgiveness provision.
  • Current proposed terms are 4 year repayment, $1 million minimum loan size, principal and interest payments are deferred for one year, relatively low interest rates.
  • Several other restrictions apply.  If you are a small or medium size business owner in need of funding, please reach out to us for further discussion.

CHARITABLE GIVING AND WAYS TO HELP

Food banks around the country have seen increased demands over the last several weeks. If you are looking for a way to help, you might want to check with your local food bank.  

The Red Cross is also reporting a severe blood shortage as a result of donor cancellations across the country.

This concludes our quick update.  News is flowing rapidly and changes to some of this information are inevitable.  We will continue to provide updates, but please contact us with any questions, comments or concerns.  Wishing you health and safety during these unprecedented times.  

As such, before proceeding, please consult with us and other appropriate professionals, such as your accountant, and/or estate planning attorney on any details specific to you. Please don’t hesitate to reach out to us with your questions and comments. It’s what we are here for.

Emily Balmages, CFP®, CRTP

Director of Financial Planning, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

If you have questions about any of this or would like to schedule a complimentary review you can Contact Us or call 714-876-6200 to book a free consultation.

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Relief Is On The Way: A CARES Act Overview

Last Friday, in response to the COVID-19 pandemic, President Trump signed into law The CARES Act, a $2 trillion economic stimulus bill.

This bill, which appears to be the largest ever of its kind, will be studied and analyzed for months to come. 

Every Warren Street client will be impacted in some way.  Accordingly, we are reviewing every client situation to determine what proactive steps you can take to maximize the benefits available within this legislation.  We will provide some highlights here, and will be following up with each of you directly over the coming weeks.  As always, please reach out to us at any time with questions. 

In General

  • CHECKS!  : Most Americans can expect to receive rebates from Uncle Sam. Depending on your household income, expect up to $1,200 per adult and $500 per dependent child under age 17. To calculate your payment, the Federal government will look at your 2019 Adjusted Gross Income (AGI) if it is available, or your 2018 AGI if it is not. However, you will receive an extra 2020 tax credit if your 2020 AGI ends up lower than the figure used to calculate your rebate.
  • Taxpayers with Adjusted Gross Income (AGI) above certain thresholds start to lose benefits.  The phaseouts start at:

Married Joint:  $150,000

Head of Household:  $112,500

All Other Filers:  $75,000

From Michael Kitces at Nerd’s Eye View; reprinted with permission.

  • The reported plan is to send the rebates to direct deposit accounts linked to Social Security payments or the most recent tax return on file.  Paper checks will be sent to last known mailing addresses. 
  • ****TWO TIPS:
  •  If your 2019 income is lower than 2018 and moves you below the phaseout range, file your 2019 tax return ASAP.
  •  If you have recently moved, notify the IRS via this form:  Form 8822 (Rev. October 2015)
  • Retirement account distributions for coronavirus-related needs: You can tap into your retirement account prior to age 59.5 in 2020 for a coronavirus-related distribution of up to $100,000, without incurring the usual 10% penalty or mandatory 20% Federal withholding. You will still owe income tax on the distributions, but you can prorate the payment of these taxes across 3 years. You also can repay distributions to your account within 3 years to avoid paying income taxes, or to claim a refund on taxes paid.

***If cash flow is a problem right now, please reach out to us and we will help you strategize. 

  • Various healthcare-related incentives: For example, certain over-the-counter medical expenses previously disallowed under some healthcare plans now qualify for coverage. Also, Medicare restrictions have been relaxed for telehealth and other services (such as COVID-19 vaccinations, once they become available). Other details apply.

For Retirees (and Retirement Account Beneficiaries)

  • RMD relief: Required Minimum Distributions (RMDs) go on a holiday in 2020 for retirees, as well as beneficiaries with inherited retirement accounts. If you have not yet taken your 2020 RMD, don’t! If you have, please be in touch with us to explore potential remedies.

For Charitable Donors

  • “Above-the-line” charitable deductions: Deduct up to $300 in 2020 qualified charitable contributions (excluding Donor Advised Funds) if you are taking the standard deduction.
  • Donate all of your 2020 AGI: You can effectively eliminate 2020 taxes owed, and then some, by donating up to, or beyond your AGI. If you donate more than your AGI, you can carry forward the excess up to 5 years. Donor Advised Fund contributions are excluded.

For Business Owners (and Certain Not-for-Profits)

  • Paycheck Protection Program loans (potentially forgivable): The Small Business Administration (SBA) Paycheck Protection Program is making loans available for qualified businesses and not-for-profits (typically under 500 employees), sole proprietors, and independent contractors. Loans for up to 2.5x monthly payroll, up to $10 million, 2-year maturity, interest rate 1%. Payments are deferred and, if certain employment retention and other requirements are met, the loan may be forgiven.
  • Economic Injury Disaster Loans (with forgivable advance): In coordination with your state, SBA disaster assistance also offers Economic Injury Disaster Loans of up to $2 million to qualified small businesses and non-profits, “to help overcome the temporary loss of revenue they are experiencing.” Interest rates are under 4%, with potential repayment terms of up to 30 years. Applicants also are eligible for an advance on the loan of up to $10,000. The advance will not need to be repaid, even if the loan is denied.
  • Payroll tax credits and deferrals: For qualified businesses who are not taking a loan.
  • Employee retention credit: An additional employee retention credit (as a payroll tax credit), “equal to 50 percent of the qualified wages with respect to each employee of such employer for such calendar quarter.” Excludes businesses receiving PPP loans, and may exclude those who have taken the EIDL loans.
  • Net Operating Loss rules relaxed: Carry back 2018–2020 losses up to five years, on up to 100% of taxable income from these same years.
  • Immediate expensing for qualified improvements: Section 168 of the Internal Revenue Code of 1986 is amended to allow immediate expensing rather than multi-year depreciation.
  • Dollars set aside for industry-specific relief: Please be in touch for a more detailed discussion if your entity may be eligible for industry-specific relief (e.g., airlines, hospitals and state/local governments).

For Employees/Plan Participants

  • Retirement plan loans and distributions: Maximum amount increased to $100,000 on up to the entire vested amount for coronavirus-related loans. Delay repayment up to a year for loans taken from March 27–year-end 2020. Distributions described above in In General.
  • Paid sick leave: Paid sick leave benefits for COVID-19 victims are described in the separate, March 18 H.R. 6201 Families First Coronavirus Response Act, and are above and beyond any benefits received through the CARES Act. Whether in your role as an employer or an employee, we’re happy to discuss the details with you upon request.

For Employers/Plan Sponsors

  • Relief for funding defined benefit plans: Due date for 2020 funding is extended to Jan. 1, 2021. Also, the funding percentage (AFTAP) can be calculated based on your 2019 status.
  • Relief for facilitating pre-retirement plan distributions and expanded loans: As described above for Employees/Plan Participants, employers “may rely on an employee’s certification that the employee satisfies the conditions” to be eligible for relief. The participant is required to self-certify in writing that they or a direct dependent have been diagnosed, or they have been financially impacted by the pandemic. No additional evidence (such as a doctor’s release) is required.  
  • Potential extension for filing Form 5500: While the Dept. of Labor (DOL) has not yet granted an extension, the CARES Act permits the DOL to postpone this filing deadline.
  • Exclude student loan pay-down compensation: Through year-end, employers can help employees pay off current educational expenses and/or student loan balances, and exclude up to $5,250 of either kind of payment from their income.

For Unemployed/Laid Off Americans

  • Increased unemployment compensation: Federal funding increases standard unemployment compensation by $600/week, and coverage is extended 13 weeks.
  • Federal funding covers first week of unemployment: The one-week waiting period to start collecting benefits is waived.
  • Pandemic unemployment assistance: Unemployment coverage is extended to self-employed individuals for up to 39 weeks. Plus, the Act offers incentives for states to establish “short-time compensation programs” for semi-employed individuals.

For Students (or those with student loans)

  • Student loan payments deferred to Sept. 30, 2020:  No interest will accrue either. Important: Voluntary payments will continue unless you explicitly pause them. Plus, the deferral period will still count toward any loan forgiveness program you’re in. So, be sure to pause payments if this applies to you, lest you pay on debt that will ultimately be forgiven.
  • Delinquent debt collection suspended through Sept. 30, 2020: Including wage, tax refund, and other Federal benefit garnishments.
  • Employer-paid student loan repayments excluded from 2020 income: From the date of the CARES Act enactment through year-end, your employer can pay up to $5,250 toward your student debt or your current education without it counting as taxable income to you.
  • Pell Grant relief: There are several clauses that ease Pell Grant limits, while not eliminating them. It would be best if we go over these with you in person if they may apply to you.

For Estates/Beneficiaries

  • A break for “non-designated” beneficiaries: 2020 can be ignored when applying the 5-year rule for “non-designated” beneficiaries with inherited retirement accounts. The 5-Year Rule effectively ends up becoming a 6-Year Rule for current non-designated beneficiaries.

You’re now familiar with much of the critical content of the CARES Act! That said, given the complexities involved and unprecedented current conditions, there will undoubtedly be updates, clarifications, additions, system glitches, and other adjustments to these summary points. The results could leave a wide gap between intention and reality.

As such, before proceeding, please consult with us and other appropriate professionals, such as your accountant, and/or estate planning attorney on any details specific to you. Please don’t hesitate to reach out to us with your questions and comments. It’s what we are here for.

Emily Balmages, CFP®, CRTP

Director of Financial Planning, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

If you have questions about any of this or would like to schedule a complimentary review you can Contact Us or call 714-876-6200 to book a free consultation.

DISCLOSURES

Reference Materials:

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.