By Kirby Ott, MBA, Managing Director, & Ashley C. Martin, CFP ®, MBA, Associate Director, Matter Family Office
Over the last few weeks, we have all been processing a remarkable amount of change and information in our daily lives. One of these new sources of information has been our government’s assistance measures: there have been several meaningful pieces of legislation passed to support the country through the COVID-19 pandemic. On Friday, March 27th the third such piece of legislation, the CARES Act, was signed into law. The overall purpose of the CARES Act is to provide relief to individuals, corporations, small businesses, public health institutions, education institutions, state and local governments, and more.
We imagine you are familiar with some of what’s in the bill, but we wanted to take a moment to highlight several of the practical items that potentially relate to you and your family’s situation. Know that we are continuing to digest and process this $2 trillion stimulus package, as are the law firms and tax preparers that we closely collaborate with to identify the specific implementation opportunities for you.
Here are the items that we see as potential areas of opportunity or, if nothing else, worthy of your general awareness.
REQUIRED MINIMUM DISTRIBUTIONS
The Act waives the required minimum distribution rules (RMD) for IRAs and defined contribution plans for 2020, including the first RMD for individuals that reached age 70½ during 2019.
This provides flexibility for those required by the IRS to take RMDs. The consideration will be based on a number of factors, two of which are lifestyle spending needs and income taxes. Remember that RMDs are taxed to an individual at ordinary income tax rates opposed to the presently more favorable capital gains rates. If relevant to you, your Matter team will work with you to evaluate the tradeoffs and potential benefits of this provision.
Individuals who itemize their deductions (in 2020) may elect to deduct up to 100% of cash charitable contributions (rather than 60%) from their Adjusted Gross Income (AGI). However, contributions to supporting organizations or donor advised funds are not eligible for the increased deduction limit.
As with any other year, we recommend donors evaluate the multi-year benefits of making a donation of appreciated securities versus a cash donation. By donating appreciated securities (deductible up to 30% of AGI), donors will not pay long-term capital gains tax on appreciated securities. Also note that if a donor cannot fully deduct a donation in the current year, it can be carried forward for five years.
PAYCHECK PROTECTION PROGRAM – SMALL BUSINESS LOANS
The CARES Act allocates $350 billion to the Small Business Administration (SBA) for businesses of 500 or fewer employees to provide loans of up to $10 million per business. The provision expands the SBA’s loan program to support new Paycheck Protection Program loans that increase the maximum loan amount to $10 million. The Paycheck Protection Program loans also expand the allowable uses to include payroll support, mortgage, rent and utility payments, insurance premiums, and other debt obligations. Additionally, the provision includes loan forgiveness to certain borrowers for amounts spent during an eight-week period after the origination date of the loan, with specific requirements around employee retention applying.
The SBA’s Paycheck Protection Program loans are designed to provide quick injections of cash to small businesses with favorable terms. Borrowers work directly with lenders, not the government, to apply for and secure funding. We encourage all small business owners impacted by COVID-19 pandemic to evaluate the opportunity of securing a loan under the Paycheck Protection Program.
NET OPERATING LOSSES (NOL)
The Tax Cut and Jobs Act of 2017 eliminated NOL carrybacks starting in 2018. The CARES Act reinstates and expands the NOL carryback provision by allowing NOLs incurred in 2018, 2019 and 2020 to be carried back five years. The Act also temporarily removes the 80% of taxable income limitation on the use of NOLs incurred in those years, so they can once again fully offset income.
With the reinstatement and expansion of the NOL carryback provision, there are many considerations to be evaluated. If you reported NOLs in 2018 and 2019, your Matter team will be consulting with you and with your Tax Preparer to discuss the course of action that should be taken.
INDIVIDUAL CASH PAYMENTS
The CARES Act will provide cash payments to many individuals. Qualifying individuals can expect one-time cash payment of $1,200 per person and a $500 cash payment per child. Not all individuals will qualify, with income phase outs between $75,000 and $99,000 for individual filers and between $150,000 – $198,000 for those filing jointly.
While the phase outs will exclude many from receiving this benefit, many individuals and households negatively impacted by the COVID-19 pandemic will benefit from a quick injection of cash to support their lifestyle spending needs.
As these measures are rolled out, and the details become more clear, we will continue to share insights to help you plan for their impact on you and your family.
This report is the confidential work product of Matter Family Office. Unauthorized distribution of this material is strictly prohibited. The information in this report is deemed to be reliable but has not been independently verified. Some of the conclusions in this report are intended to be generalizations. The specific circumstances of an individual’s situation may require advice that is different from that reflected in this report. Furthermore, the advice reflected in this report is based on our opinion, and our opinion may change as new information becomes available. Nothing in this presentation should be construed as an offer to sell or a solicitation of an offer to buy any securities. You should read the prospectus or offering memo before making any investment. You are solely responsible for any decision to invest in a private offering. The investment recommendations contained in this document may not prove to be profitable, and the actual performance of any investment may not be as favorable as the expectations that are expressed in this document. There is no guarantee that the past performance of any investment will continue in the future.