In this webinar replay, John Hyre, a veteran attorney, accountant, and real estate investor walks us through the potential advantages and pitfalls of the CARES Act.
Slide 1: Overview
While the second wave of money from the government may hopefully be available for the PPP and EIDL as early as next week, there are still many questions, i.e. do businesses need to apply again? Some questions we have answers to while some are still left unanswered as the government continues to figure things out on the fly.
Slide 2: Disclaimer
This is not legal advice — this is education.
Slide 3: Payroll Protection Program (PPP)
- Small community banks were significantly faster and more flexible
- Banking relationships matter a lot
- A lot of people who did not “need” loan/grant signed that they did, under penalties of perjury
- Schedule C/1099 count but only to extent of 2019 net profit
- Contractors generally do not count as employees
Slide 4: Economic Injury Disaster Loan
- The $10K is not “free money”
- Advance on loan if bank chooses to grant it
- Only “free” if bank gives advance ND TURNS YOU DOWN FOR A LOAN
- “Need” & “Perjury” apply here as well as to PPP
- Landlords & AirBNBers have been getting it
Slide 5: Regular Unemployment
- Regular local benefits
- PUC: Add $600/week for 4 months from the Feds
- It applies to contractors, not just employees
- Still working from home? You do not qualify.
- Hours were cut? Depends on the state.
- Were working part-time? Looks like it qualifies in spite of regular state law.
- Benefits are taxable income & could qualify for some programs (i.e. utility bill assistance, childcare, etc.)
- States have to sign agreement with Feds, several have already (CA, NY, MI)
- State systems are presently overloaded — be persistent; try late at night when system isn’t overloaded
- State coverage rate is 12% to 50% of unemployed
Slide 6: Loans from Qualified Retirement Plans
- Only to “Qualified Individual”
- Within 180 days of Trump’s signature (3/27/20, so by 9/23/20)
- Not IRAs
- $100K (instead of $50K) or 100% (instead of 50%) of FMV of plan, whichever is less
- Likely need to amend plan doc; have until 2022 to do so
- 401k loan payments due before 12/31/20 (on existing new loans) may delay those payments for up to a year
- Still 5-year limit
- In addition to withdrawals
Slide 7: “Qualified Individual”
- (I) who is diagnosed with with the virus SARS-CoV-2 or with COVID-19 by a test approved by the CDC
- (II) whose spouse or dependent is diagnosed with such virus or disease by such a test, or
- (III) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.
Slide 8: Withdrawals from Retirement Plans
- Includes IRAs
- Up to $100K of virus-related distributions
- Waives early withdrawal penalty
- If money is put back into plan or “rollover-able” plan within 3 years, deemed to be an eligible rollover contribution via trustee-to-trustee transfer within 60 days of original distribution (no tax)
- No withholding
- File return as if gonna pay it back in e years?
- Income inclusion spread over 3 years
- Plan docs must allow it
Slide 9: Required Minimum Distributions (RMDs)
- None for 2020
- 60 days to put money back if already took RMD
- Or count towards $100K
Slide 10: IRA/HSA/CESA Contribution
- Have until 7/15 instead of 4/15 for 2019 contributions
- Does not apply to 401k or any other plan contributions
Slide 11: Various Deadlines
- 1040 and 1120 for calendar year C-corporations extended from 4/15 to 7/15
- Payment penalties & interest for payments due extended to 7/15
- Extended deadline still the same: 10/15
- 1031 45 & 180 day deadlines that fall on April 1 to July 14 are now July 15
- OZ Funds: Deadlines (i.e. date to invest cap gains) that fall on 4/1 to 7/14 are now 7/15
- No other deadlines have changed: S-corp return, extended deadlines, 401K contribution dates, etc.
Slide 12: Net Operating Losses
- Gist: Amend 2013 – 2019 returns for refunds if NOLs
- Context: New rules for 2018 limited NOLs to 80% of taxable income
- Example: You had a $100K NOL at the end of 2017. You had $80K of taxable income in 2018. 80% of $80,000 is $64K. So $64K of NOL drops 2018 taxable income to $16K and $36K NOL gets “carried forward” into 2019.
- New rules also said can only take losses forward
Slide 13: Qualified Improvement Property
- Qualified leasehold improvements, qualified restaurant property, qualified retail improvement property was 39 year depreciation and no bonus depreciation was permitted
- Such property is not depreciated over 15 years or 100% in year one (bonus depreciation)
- Retroactive to 2018 & 2019 tax returns
- May want to amend for refund
Slide 14: Example from Parker Tax Service
John owns a restaurant with several dining rooms and, in march of 2018, had a bar constructed in one of the dining rooms. The bar was place din service on July 1 2018. John paid $200K for the bar to be built. Because the construction of the bar constituted an improvement to nonresidential real property already placed in service, John had to depreciate the $200K improvement over a 39-year recovery period, based on the rules in effect at that time.
Thus his depreciation deduction for 2018 was $2,354 ($200K x 1.177%). As a result of the change in the CARES Act, John can file an amended return and, by using bonus depreciation, take a deduction for the entire $200K, rather than just the $2,354.
In Part 3, John continues to talk about under the CARES Act, including:
- Businesses owners must pay sick and family leave
- Payroll tax credit for paid sick leave wages
- Sick leave causes (quarantine, advise from health care provider, symptoms of Covid-19, and unable to work)
- Family sick leave causes: employee is caring for an individual who is subject to quarantine order, employee is caring for their child/ren if the child(ren)’s school or child care facility has been closed, employee is experiencing any other substantially similar condition specified by Health and Human Services
- Self-Employed: refundable credit against income and SE taxes for 2020 income taxes, credit equals 100% of “sick leave equivalent amount” + 67% sick leave equivalent amount for taking care of family
- Employee Retention Credit (only eligible if you didn’t take the PPP): $5K handout per employee for keeping employees if business was “hit hard” by the virus, not eligible if take SBA 7(a) loan
- ERC – Eligible Employer: Operation of T/B was fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to the coronavirus disease; and/or employers whose gross receipts declined by > 50% when compared to calendar quarter of the prior year
- No Doc Loan via Payroll Taxes: 50% of employer portion of social security taxes and/or SE taxes, pay half of that back by 12/31/21 and the other half by 12/31/22, cannot take this deferral at all if took PPP, even on “different” wages, DO NOT PAY LATE!
In Part 4 RealWealth members ask John questions.
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