Business conditions in central Pennsylvania are getting a little tense. A budding number of “non-essential” small business owners are ignoring shelter-in-place decrees and are now re-opening.
Others are hopping mad about how arbitrary Pennsylvania’s “essential” business list was compiled back in March. How is it okay for Lowe’s to stay open but not a local boutique store practicing similar social distancing rules? It’s not fair and I smell lobbyists.
I just wish those four trillion test kits would hurry up and arrive.
I am getting increasingly anxious about the precarious state of the 2020 college football season. It appears the NFL is marching towards opening its 2020 season on time. It is a trickier proposition to allow college games to proceed if students are not allowed to attend live classes.
College football is now intramurally divisive about how to proceed with the 2020 season. Many southern universities with major college football programs have already announced they will open on time in the fall, whereas California universities are already saying no students will be allowed campus until 2021, thus no football. Both seem to be extreme positions as of mid-May.
This is not the first time that a global pandemic has caused college football headaches. It happened in 1918 during the Spanish flu outbreak.
As the outbreak worsened in mid-1918, many felt the 1918 college football season should canceled. However, President Woodrow Wilson believed college football was good for the country’s morale, especially as WWI drew to a close. In the end, some colleges played the 1918 football season, others did not.
Many schools started their season in October and only played a handful of games; even the Army-Navy game was canceled!
Georgia Tech was the reining national champions in 1918 and was poised to repeat until they ran into a formidable buzz saw – Pitt - in late November, who spanked them 32-0 in front of 30,000 at Forbes Field.
Check out the picture of the fans watching a Georgia Tech football game in fall 1918 wearing stylish face masks! Viral pandemic fighting technology hasn’t evolved much in one hundred years. Hell, I’d wear scuba gear to watch the Pitt - Notre Dame game live this fall.
I know many folks are feeling stress over to the pandemic, specifically over finances. The CARES Act passed in late March was loaded with financial relief measures to help citizens financially cope with the economic lockdown. If you too are feeling financial stress, it is vitally important to learn about your new options and opportunities under the new tax law.
The following are the key tax provisions of the CARES Act:
• All April 15th federal tax deadlines – tax return, estimated payments, IRA / Roth IRA contributions and others – were automatically pushed to July 15, 2020.
• Stimulus cash checks of $1,200 per individual and $500 per child under age 17 will be paid to eligible taxpayers in 2020 depending on your 2019 gross income. There is a lot of red tape; some folks have already received checks, others have not, often depending on whether you have filed your 2019 federal tax return or not.
• If you don’t receive a stimulus check in 2020 but deserved one, you can take an equivalent income tax credit against your 2020 tax liability when filing your federal 2020 tax return next year, so no worries.
• Those perks are nice, but the whopper perk is the fact in 2020 you can take $100,000 from either an employer retirement plan and/or IRA, not be taxed on the distribution nor be subjected to an early withdrawal penalty and with no withholding taxes.
• Another generous feature is that you can borrow against your retirement plan assets equal to 100% of the account balance, up to $100,000. The old loan rules were 50% and $50,000, respectively.
• There are other minor tax breaks, including a suspension of IRA RMDs and higher charitable tax deduction thresholds for 2020.
For withdrawals from an IRA and/or retirement plan, you must attest that you have been directly impacted by the COVID-19 virus, not a hard case to make. Also, for retirement plans, the plan trustee must permit a COVID hardship distribution and they can deny them at their discretion.
The same goes for retirement plan loans. The plan’s trustee must first allow plan loans and are not required to do so.
Regarding tax-free withdrawals, you have the option of repaying the distribution within three tax years (2020 is year 1) with no taxes due on the capital returned to your retirement account on time. Alternatively, you can pay the tax over the next three years or wait until the third year (2022).
If you are a business owner and trending toward an operating loss for 2020, you could choose to recognize the distribution as taxable income this year to offset business losses and thus pay reduced / no tax on the 2020 distribution.
Retirement plan loans are separate and above the IRA/plan distribution. Repayment on the loan is level over five years via payroll deduction, but the payment is deferred for one year into 2021, so it is really a six-year repayment term.
I like the fact that 100% of the plan loan interest is contributed directly to the participant’s retirement account, which helps offset the investment opportunity cost of the loan advance.
Note the deadline to take a CARES Act retirement plan loan is September 23rd, 2020.
Other reasons to tap your tax-deferred retirement accounts could be a first home purchase, to refinance a mortgage to eliminate private mortgage insurance and even to purchase a new cash value life insurance policy with long-term care benefits (and paying the future tax with low-cost policy loans).
The reality is that, for a limited time, your government has availed to you up to $200,000 of your retirement nest egg on a tax-advantaged basis to help stabilize your finances during the lockdown.
Please speak to your tax pro about all these tax matters before making any financial moves, promise?
Until next time, be well…Tim