The Paycheck Protection Program (PPP) was created in 2020 by the CARES Act to help small businesses withstand the economic fallout from the COVID-19 pandemic. The recently passed PPP Extension Act of 2021 extends the deadline for PPP applications from March 31 to May 31. This move also grants the Small Business Administration an additional 30 days beyond May 31 to process loans. Here’s what small businesses need to know.
New Deadline Provides Breathing Room
According to the National Federation of Independent Business (NFIB), nearly one in every six small business owners reported the likelihood of needing to close their doors forever if current economic conditions did not improve within six months. The extension to May 31 will benefit these businesses, as well as lenders and businesses that have experienced errors and delays from technical difficulties in the application process. The SBA has also increased security in order to detect fraud, which has delayed processing in some cases. It’s important to note that May 31 is Memorial Day, so borrowers should have their applications in by May 28, before the start of the long weekend.
Opportunities for New First Draw PPP Loan Borrowers
The additional time may also benefit small businesses that received their first PPP loan this year. Because typically eight weeks must pass between the loans in order to spend money on payroll, this may give businesses enough time to use up those funds and apply to a Second Draw PPP Loan. Keep in mind that in order for a small business to qualify for a second draw loan, additional criterion must be met, according to the SBA:
- no more than 300 employees
- must be able to show at least a 24% reduction in gross receipts between comparable quarters in 2019 and 2020
The PPP Extension Act does not provide for further funding of the PPP. At the time of signing, however, the SBA said there was about $80 billion in funding that had yet to be disbursed to small businesses.
Both a will and a living revocable trust are valuable estate tools that transfer wealth to heirs—and both can work together to establish a complete estate plan—but what’s the difference between each, and which do you really need? We’ll go over this in the article below.
What is a Will?
A will is a written document that expresses what should happen to your property and assets after you die. As such, it becomes active upon your death. You can also appoint guardians for your children, name an executor, forgive debts, and specify how to pay your taxes.
What is a Living Revocable Trust?
Unlike a will, which becomes active after your death, a living trust kicks in immediately, and you are fully in charge of your trust while you are living. After your death, the person you appoint as the successor trustee will handle your affairs as you’ve outlined them in the document. There are also irrevocable trusts, which are generally created for tax purposes. Unlike revocable trusts, which can be changed at any time by the grantor, an irrevocable trust cannot be amended after it is established.
The Main Difference Between a Will and a Living Revocable Trust
After your death, the appointed executor of your will must work with the probate court to sort the terms of your will. This is a highly-structured process that can be drawn-out and expensive. A living trust, however, appoints a trustee to manage and distribute trust property after your death. Because the trust owns the assets and the trust hasn’t died, there is no need for probate. A living trust is a private contract between you as the grantor and the trust entity. Generally, the grantor serves as the trustee of his own revocable living trust, thus managing it during his lifetime. A successor trustee can be appointed to step in and oversee handling of the trust when the grantor dies, settling it and allocating its property to the beneficiaries named in the trust documents.
Which is Better, a Will or a Trust?
A trust simplifies the procedure of transferring an estate after your death while preventing a lengthy and possibly costly course of probate. However, if you have minor children, creating a will that names a guardian is crucial in protecting both the minors and any inheritance. The decision between a will and a trust is a personal choice, though some experts advise to have both. While a trust is typically expensive and legally complex, a will is generally less expensive and easier to establish.
Which Do You Need?
Almost everyone should have a will, but not everyone will need a living trust. If you have minor children as well as property and assets for which you would feel more settled knowing they were in a trust, then having both a will and a living revocable trust may make sense. Keep in mind that they are two separate legal documents, so one does not override the other unless issues arise, in which case a living trust will likely trump a will because a trust is its own entity.
No matter which you choose, it’s important to get your affairs in order earlier rather later. If you have minor children, establishing a will that grants guardianship should be a priority. Beyond that, making an estate plan now can save money and time later, especially for the loved ones you would be leaving behind.
The American Rescue Plan Act of 2021 was signed into law by President Biden on March 11, 2021. Intended to facilitate the United States’ recovery from the devastating economic and health effects of the COVID-19 pandemic, this economic rescue legislation is one of the most expensive in U.S. history. Below is a broad overview of some of the larger components of the package.
Direct Financial Payments
Direct stimulus payments in the amount of $1,400 will be sent to individuals with an adjusted gross income (AGI) of $75,000 or less. This amount augments the $600 payments in the second stimulus package signed by former president Trump in December of 2020 in order to hit the $2,000 mark originally requested by Trump. Married couples with AGIs of $150,000 or less will receive $2,800 ($1,400 for each), and each qualified dependent regardless of age will receive $1,400. Payments are reduced for individuals who make over $75,000 and disappear completely for individuals who make $80,000 or more ($160,000 for married couples).
Extended Unemployment Benefits
Pandemic Unemployment Assistance (PUA) benefits of $300 a week are extended through September 6, 2021. These benefits were created for workers such as independent contractors, who do not typically qualify for unemployment insurance. The total number of eligibility weeks increases as well, from 50 to 79.
Federal Pandemic Unemployment Compensation (FPUC) benefits, which boost unemployment benefits by $300 per week, are also extended through September 6, 2021.
Pandemic Emergency Unemployment Compensation (PEUC), which provides added weeks of unemployment insurance benefits to workers who have depleted their state unemployment benefits, has been extended through September 6, 2021. The total number of eligibility weeks also increases from 24 to 53 weeks.
Additionally, the first $10,200 in 2020 benefits is tax free for families making $150,000 or less. Taxpayers who had taxes withheld from unemployment benefits in 2020 will be authorized to reclaim them when they file their 2020 taxes. If they’ve already filed taxes, they can file an amended tax return.
The Act also grants a 100% subsidy of COBRA health insurance premiums so unemployed and furloughed workers, as well as those who’ve had hours reduced, can continue their group health care plans through the end of September.
Expanded Child Tax Credit
For couples who make $150,00 or less in a year ($112,500 or less for single parents), the Act increases the Child Tax Credit maximum to $3,600 a year for each child under age 6, and $3,000 a year for each child ages 6 to 17. The law grants one year of credit payments, which will be sent by direct deposit on a monthly basis, possibly beginning this summer. The remaining amount can be claimed on 2021 tax returns.
Employer Tax Credits
The Act extends tax credits to employers who implement Families First Coronavirus Response Act (FFCRA) emergency paid sick leave or expanded family and medical leave to employees. In addition to previously acceptable FFCRA reasons for sick leave, from April 1, 2021 through September 30, 2021, credits are also available for sick leave wages paid when an “employee has been exposed to COVID-19 or the employee’s employer has requested such test or diagnosis, or the employee is obtaining immunization related to COVID-19 or recovering from injury, disability, illness, or condition related to such immunization.” Too, tax credits for emergency paid family leave are permissible for leave granted when an employee is incapable of working, either in person or remotely, due to the necessity of caring for a child whose school is closed at any point during the pandemic.
Help for Businesses
The “Restaurant Revitalization Fund” is a new program established under the American Rescue Plan Act that allocates $25 billion in pandemic assistance grants to eligible entities such as restaurants, bars, lounges, and caterers. The grants are able to administer up to $10 million per company with a limit of $5 million per physical location. The funds can be used to cover payroll, rent, utilities, and other expenses.
Two programs established under the CARES Act receive additional funding. The Economic Injury Disaster Loan (EIDL) program receives an added $15 billion, and the Paycheck Protection Program receives an added $7.25 billion. The PPP’s current application deadline of March 31, 2021, is not extended.
The COVID-19 pandemic has been more than a health crisis—it’s been a financial crisis as well. Business closures, job loss, reduced hours, and limited financial relief led to many savings accounts taking a major hit. As a result, more than 2 million Americans took advantage of the waived penalty for early withdrawal from a 401(k) or other qualifying account set forth in the CARES Act of 2020. This benefit may have been a financial life raft for some, but the move to tap into retirement funds isn’t without short- and long-term impact.
401(k) Early Withdrawal in 2020
Dipping into a retirement savings plan such as a 401(k) before age 59 ½ typically is not without penalty. However, in response to the ongoing COVID-19 crisis, the CARES Act of 2020 made it possible for retirement savers younger than 59 ½ to withdraw, for Covid-related reasons, up to $100,000 from qualified accounts without paying the usual 10% early-withdrawal penalty. For Americans who took a withdrawal, the money is yours and you don’t need to figure out a repayment plan. However, the flip side to this move is that retirement funds you’d planned to live on in the future are now diminished.
Taxes Upon Withdrawal Still Apply
The CARES Act temporarily eliminated the 10% early-withdrawal penalty, but the legislation didn’t pardon the taxes due. While you don’t generally pay taxes on contributions to traditional 401(k)s and IRAs, you do need to report income and pay taxes upon withdrawal. This holds true even though the CARES Act canceled the 10% early-withdrawal penalty for a short time. The temporary rules allow for the distribution to be spread across three years, but you need to account for a least one-third of the taxes due on that amount on your 2020 tax return.
Paying it Back is Recommended
Though you’re not required to pay back this type of withdrawal, experts agree that it’s generally in the saver’s best interest. Doing so allows you to avoid the taxes and to replenish your retirement account. If you pay back the full distribution amount within the three years, you can amend your tax returns and get all the money back paid in taxes.
For those who took a plan loan, you generally have five years to pay it back. You’ll need to be diligent in sticking to the plan’s repayment schedule. A loan that isn’t paid back could be counted as a distribution, therefore taxes (and possibly a penalty) will apply.
Savers who took a coronavirus-related distribution have more leeway in developing repayment strategies that best serve their personal situations. Those who took a plan loan have less flexibility, but some repayment strategies could be advantageous, including:
- A mortgage refinance. Given the current low interest rates, refinancing might save a few hundred dollars a month. That savings could then be redirected to repay the 401(k) funds.
- A home equity line of credit. Take advantage of low interest rates, with the ability to pay back the line of credit over at least 10 years.
- Student loans. For savers with college-age children, don’t count out the possibility of relying on federal student loans to help fund college costs while using the freed-up out-of-pocket cash to help pay back funds taken from a 401(k), perhaps in a lump sum. A federal undergraduate loan interest rate of 2.75% through June 30, 2021 combined with conventional thinking that you can borrow to pay for college make a potentially attractive avenue. Just be aware to not overborrow and dig yourself deeper into debt.
Some people may need to apply more than one strategy to return the money to their 401(k), relying on different options that will get them through the next few years. Work with a financial advisor to help determine the best path forward to getting back on track.
The pandemic lockdowns led to many professional service firms closing doors and, wherever possible, moving staff to home offices in anticipation of a temporary mode of operation. One year later, however, health safety concerns and economic uncertainty are still prevalent, prompting firms to think about a “new normal” post-COVID-19. This article covers some important points to consider as the economy begins to recover.
Cash Flow and Liquidity
If the past year has proven anything, it’s that fiscal resilience is imperative, and that likely isn’t changing anytime soon. Preserve cash, review capital investments, and cuts costs where possible.
Things to consider when thinking about cash flow:
- Assess works in progress and make any necessary changes or improvements in the areas of management and billing.
- Review and improve upon, if necessary, your accounts receivable system
- Analyze upcoming projects with a keen eye to scaling back on staffing, keeping in mind the risk of potentially losing key workers and talent.
- With social distancing guidelines in mind (and not knowing what the future looks like in regards to this), aim to reduce costs by reassessing real estate needs, existing office space, and places where you might be able to consolidate. This is especially important if some or all of your staff will be switching to permanent remote work model.
Things to consider when thinking about liquidity:
- Work out an agreement with leases. If your firm is in a financial position to remain in your current space, think about negotiating your lease renewal early and possibly extending it. Depending on circumstances and the current state of your space, you could approach discussions by offering free or reduced rent in exchange for tenant improvements.
- Review your lease for tenant improvements. If your lease provides an allowance for tenant improvements, it may be possible to negotiate the elimination of that allowance in exchange for the cash value or rent credit.
- Rent relief may be an option. Typically handled on a case-by-case basis, financial statements may be required to determine need.
New Opportunities and Growth
If your firm is in the position to be able to jump on new opportunities as they become available, don’t delay. Once your cash flow, liquidity, integrated technologies, and business processes are in good standing, develop a game plan for organic growth and expansion into new areas, including acquisition. Be mindful of how the increased demand that comes with growth can potentially burden each department, and have a plan in place to deal with the increased demand.
You’ve likely had to lay off or furlough valuable workers over the last year. If staffing shortage has prevented you from exploring new ideas and establishing new business practices, check the state of your cash flow and liquidity to see if now might be the time to expand your organization’s talent and expertise.
IT and Communication
With a year of pandemic life behind us, you probably have a good idea of how to move your firm forward in the future. If a remote working model has worked for all or part of your staff, you might decide to make it permanent. Be sure that your IT and cybersecurity infrastructure are up to date. Also evaluate methods of communication so that staff can easily and securely communicate with clients and each other.
Whether or not you foresee changes brought on by the pandemic as affecting lasting change to your business, one thing remains true: the key to success and growth is knowing the specifics and statistics of your organization in order to make wise decisions that will optimize business outcomes.
In late December of 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (the Act), which included the long-anticipated pandemic-related Tax Relief Act of 2020. It also included the Taxpayer Certainty and Disaster Relief Act of 2020, which extends or makes permanent numerous tax provisions, including tax breaks for individuals. The following is an overview of these key tax-related provisions for individuals.
Medical Expense Deduction
The Tax Cuts and Jobs Act (TCJA) set the threshold for itemized medical expense deductions at 7.5% of Adjusted Gross Income (AGI), but this threshold was scheduled to return to 10% of AGI as set in the Affordable Care Act. However, the expense deduction had been extended perpetually by Congress, allowing a taxpayer to continue to deduct their total qualified unreimbursed medical expenses that exceed only 7.5% of their AGI. The Taxpayer Certainty and Disaster Relief Act of 2020 made this threshold permanent.
Charitable Contribution Deduction
Generally, charitable donations are tax-deductible only if you itemize your taxes, but the Coronavirus Aid, Relief, and Economic Security (CARES) Act incorporated a provision that authorized individuals who don’t itemize to deduct up to $300 ($600 for married couples filing jointly) in cash donations in 2020. The Taxpayer Certainty and Disaster Relief Act of 2020 extended this provision into 2021 and makes it more valuable for married couples filing jointly.
Taxpayers who do itemize their deductions are typically limited to a 60% cap (i.e., the amount of charitable donations you could deduct generally could not exceed 60% of your AGI). As in 2020, that limit has been suspended in 2021.
Mortgage Insurance Premium Deduction
The Taxpayer Certainty and Disaster Relief Act of 2020 includes a one-year extension of the mortgage insurance premium deduction, so premiums paid or accrued through December 31, 2021 can be deducted on tax returns by those who itemized deductions and otherwise qualify for the mortgage insurance premium deduction.
Exclusion for Canceled Mortgage Debt
Cancelled or forgiven debt by a commercial lender can be counted as income for tax purposes. However, the Mortgage Forgiveness Debt Relief Act of 2007 generally allowed for taxpayers to exclude canceled mortgage debt from their taxable income, but only for a finite number of years. The Taxpayer Certainty and Disaster Relief Act of 2020 extended the Mortgage Forgiveness Debt Relief Act of 2007 through 2025.
Residential Energy-Efficient Property Credit
Individuals who have implemented certain energy-efficient upgrades to their homes (i.e., solar electricity, solar water heaters, geothermal heat pumps, and small wind turbines) are eligible for the residential energy-efficient property credit. The credit had been set to phase out after 2021, but the Taxpayer Certainty and Disaster Relief Act of 2020 extended it as follows:
- Continuing the rate applicable to 2020, eligible property that is put into service in 2022 will qualify for a credit worth up to 26% of the property cost
- Eligible property that is put into service in 2023 will qualify for a credit worth up to 22% of the property cost.