[INTERVIEW]

[00:00:29] Andrew Rafal: Welcome back, listeners, to another episode of Your Wealth & Beyond. And today, I’ve got a good friend, somebody I’ve known for now over almost five years.

[00:00:10] Liz Mason: Yeah. Hard to believe, right?

[00:00:12] Andrew Rafal: Liz Mason, welcome to the show. How are you today?

[00:00:14] Liz Mason: Thank you so much. I’m doing well. How are you?

[00:00:17] Andrew Rafal: You know, I’m doing well. To just have you on the show with as busy as you are, with everything that’s going on, I thank you, my listeners thank you, and I think today whether you’re a business owner or an employee or an ex-employee, it’s going to be a lot of things that we’re going to be able to dig in on the constant updates with the CARES Act, some of the stimulus package, and the trillions of dollars that’s hopefully going to start flowing through to the businesses both large and small. So, Liz, I know as a serial entrepreneur, are you up to now five companies that you run?

[00:00:51] Liz Mason: Yeah, technically at the moment.

[00:00:54] Andrew Rafal: Wow. Well, you are I’m sure a lot of things out there, a lot of irons in the fire there so we appreciate taking the time.

[00:01:00] Liz Mason: Yeah. Absolutely. And I think it’s very important to get this information out to as many people as possible because the government is changing their minds every 12 seconds and putting out some good information and bad information. It’s best to clarify as quickly as possible for people.

[00:01:17] Andrew Rafal: And as a business owner, with all of these constant changes, if you’re going to give a tip to somebody who’s not a client of yours, how can somebody stay up to speed with everything that’s going on, and all these changes that are coming down the pike almost every day?

[00:01:31] Liz Mason: You know, there are a lot of good people putting out information and I’ve effectively been reloading the SBA page, the Treasury page, the IRS just to get the latest information and I can synthesize it myself luckily because I have that training. But there are a lot of people out there putting out webinars, putting out information to get free information to people and I’m sure you know we can put some links when you post the podcast so that people have resources to follow on the ones synthesizing the laws and putting out content. I know I’m the editor for a tax publication so we do that on behalf of tax accountants all over but we also try to write it in a way that any individual could go read it and understand what’s happening from a tax front as well.

[00:02:15] Andrew Rafal: And this is a good time as a business owner. If your firm, CPA firm, bookkeeping firm, if they’re not keeping in the updated in the loop on things, it may be time to start looking for a firm that is doing that. So, it’s just important that constant communication, especially in times like this of crisis and chaos.

[00:02:32] Liz Mason: It is and I would say have empathy on the CPAs right now because the law has changed more times in the last month than it’s ever changed from a tax perspective this quickly and the information that’s coming out sometimes is not good information from the government as well so they’re changing their minds. We had a bit of a battle between the SBA and the Treasury Department over this paycheck protection program as well. So, we’ve gotten crossed wires already. So, a lot of CPAs are doing their best to stay on top of it but it is hard on everyone.

[00:03:04] Andrew Rafal: Well, let’s jump in then to start with today because this is the one that I think I just read something in Washington Post. Over 70% of small businesses have applied for the Paycheck Protection Program. We’ll call it the PPP. So, let’s talk high level. I know a lot of this information, some of the listeners may already know, but there have been some changes and some tweaks. So, with your experience in working with not just yourself but the business owners that are clients of yours, let’s talk real high level of what the Paycheck Protection Program was aimed to do and then we can go through some of the tips and the strategies to ensure how to get it and then if you do get it, the proper ways to ensure that the loan is potentially forgiven.

[00:03:44] Liz Mason: Yeah, absolutely. So, President Trump enacted the Coronavirus Aid Relief and Economic Security Act, also known as the CARES Act on March 27. So, as part of that Act, they included this Paycheck Protection Program through the SBA. So, it allowed $350 billion to be allocated to SBA loans for small businesses. Now, the people that were eligible have under 500 employees typically, although, on the SBA website, there’s a calculator so you can figure out if you’re a small business or not but for most industries under 500 employees qualify for these loans. And what it is, is you can get a loan at 1% interest for two years on the SBA and the amount you qualify for is 2.5 times your average monthly payroll for the last 12 months. So, it’s not a super simple calculation, but it’s also not terribly complicated and banks are doing a good job of walking people through it. 

Now, the best part about the Paycheck Protection Program is after you get it funded, if you spend that money, 75% of it at least on payroll and 25% on other qualified expenses, which include rent, mortgage, utilities, you can get it forgiven and the is the first time that SBA or the federal government, in general, has put out SBA loans that could be just forgiven as grants back to businesses. 

[00:05:14] Liz Mason: It is. Absolutely. So, if you’re able to utilize that like I said, 75% for payroll, 25% for other qualified expenses, and you can prove it back to the SBA, you will qualify for that to be refunded and that’s written into the federal law.

[00:05:29] Andrew Rafal: Now, I know we’re a couple of weeks into April so the majority of listeners may already have applied but let’s first walk through if we’ve applied or we haven’t yet. Who are we going to? So, this is a loan that’s the money’s coming from the government but then it’s coming down to the private banks and then going through all businesses?

[00:05:51] Liz Mason: Exactly. And so, this loan is applied for through as a qualified SBA lenders, and there’s a bunch of qualified SBA lenders out there. So, if your current bank is not qualified, there are other people taking applications as well. There’s a few online. Gusto is the partner we have on the payroll side. They’ve done a great job of pulling a partnership with a bank where you can apply directly through their – got their payroll platform if you have that software. Otherwise, Divvy is a great one. Lendio is another great one that’s farming it out to other SBA lenders but they made the process online very smooth, smooth and simple. And so, those applications for small businesses that employ W2 wage employees on a regular basis opened on the 3rd of April, but on the 10th of April, they also opened for sole proprietors or people that have Schedule C businesses where you can apply for up to 100,000 of what was qualified for self-employment tax last year. So, if you file a Schedule C for your side business even, you might be able to qualify for this.

[00:06:56] Andrew Rafal: Now, if you have a business that employs individuals and W2 and let’s say you have 10 on the payroll, and then you do run in a sense a separate business with your spouse that deals with some type of consulting, would that individual be able to try to apply for both businesses?

[00:07:13] Liz Mason: Unfortunately, no. There’s some really complicated affiliation rules around it. So, they’re limiting it to payroll for one person per loan. So, you can’t qualify yourself under two different companies even if you own multiple.

[00:07:31] Andrew Rafal: And a friend of mine who’s a BofA, I think he had mentioned that they had over 200,000 maybe more now that have applied for it. So, these big banks are getting just crushed in the amount of applications. So, would you recommend that – was it almost better to go to a more local bank or a bank that’s a little bit smaller, they can give you more attention to getting things pushed through?

[00:07:56] Liz Mason: Yeah. I have been telling all my clients to go either to the ones I mentioned a few minutes ago or to a local bank if they have a relationship and that bank is accepting new clients and they don’t have a relationship. So, the local banks are doing a much better job of pushing these through quicker and basing it off of the needs of companies versus just first come first serve. All of the big banks are, you know, you sit in a queue, they have a big loan processing office somewhere who even knows where it is, and those people are reviewing it and pushing it through. The local banks are doing it in your communities, and they’re the ones actually processing the applications and getting approval from the SBA. So, it’s definitely a better route, if it’s open to you.

[00:08:39] Andrew Rafal: Yep. And I’m sure they’re open too to try to formulate deeper relationships with the local businesses as well. So, I see that as a win-win for both.

[00:08:47] Liz Mason: Yeah, absolutely. So, I’ve been following the paycheck protection stats. There’s a great website put together by a couple of friends of mine called PPPStats.info and what they’re doing is they’re pulling all publicly available knowledge about how many dollars have been approved through this loan process and what’s been funded already and the number of companies in here. So, the total reported loans as of April 9 was 550,000 and the total approved loan amounts, and these are the ones that have already been pushed through the SBA is $140 billion. So, of the $350 billion, we’re already sitting at $140 billion of being approved.

[00:09:31] Andrew Rafal: So, does that mean if I’m a procrastinator and late to the game, of my banks just taking their kind old time, do you think I could be left out of this as a business or that the government will just disseminate more money to this program?

[00:09:47] Liz Mason: Well, that’s a very loaded question. So, I’m going to start with the first question. In the current state of what’s enacted, we have $350 billion allocated. Now, if you do some quick math, we’re looking at 45% of the US GDP produced by small businesses. There is no way that $350 billion is enough to cover everyone that’s eligible for this loan. So, on the first tranche here, the answer is not everyone will be served. However, there was just announced they’re working through another bill in Congress currently, which I’m hoping will be signed into law shortly that releases more money for the Paycheck Protection Program. They haven’t settled on the exact amount, but the total dollar value of that stimulus bill is $2.3 trillion. So, if they’re able to allocate even $1 trillion to this program, every small business in America will get a piece of it.

[00:10:43] Andrew Rafal: Okay. And we talked a little earlier in regards to my situation and yours but let’s say that a small business does get this pay the loan through the PPP, but it’s through a different bank than they’re currently paying their payroll from. Your recommendation is that they should then switch their payroll, however they’re paying payroll, whether it’s Gusto or if it’s through paychecks, etcetera, but use the new bank account where you did get the loan, keep it there so you can track the accountability so that you can prove that it was used X amount to pay for payroll for those…

[00:11:16] Liz Mason: Exactly. And that’s the easiest way to ensure that there’s nothing else coming out of that because 75% of it to get it forgiven has to be used for payroll. So, if you switch your bank account to auto draw from the account that only holds the funds that came in from your paycheck protection loan, then you’re fine and you can transfer the dollars exact amounts into your other account for rent. And when you go to get it forgiven and they haven’t announced the full process but the speculation is that there’ll be another application that goes to your bank and that application will ask for the actual documents proving you spent this on payroll and then the supporting documents for the 25% of other qualified expenses. So, they’ll probably ask for your lease or for your mortgage so that they can see the payments are going straight to that, and then the utility bills that you used it for. So, if you’re utilizing a separate account to track it, just do exact dollar amount transfers into the bank account you normally pay rent from and you should be totally fine.

[00:12:13] Andrew Rafal: And then because also proceeds can be used for group health insurance, and I know a lot of you, listeners, that have employees, that’s a big piece of your expense puzzle. Would you then because like we’re with United personally here with Bayntree, would we then want to switch to pay our next couple of months from the existing bank to the one that will have the PPP loan added to it?

[00:12:36] Liz Mason: That’s probably the easiest or just like I said earlier, do an exact dollar amount transferred to the current account that it’s getting direct debited from. Yeah. So, the healthcare portion and that’s a great point, that qualifies as part of payroll expenses so that goes into the 75% bucket.

[00:12:53] Andrew Rafal: And then the amount if there is a portion that you can’t have, it’s not forgiven, then what happens? What happens? Let’s say we got a loan of 100,000 and we’re really only able to prove that 75,000 was used for the various items that are under the exemption. What happens to that other 25,000?

[00:13:12] Liz Mason: It turns into a two-year note at 1% interest. So, you just pay that back to the bank that lent it to you on a normal cadence, and the bank will tell you what your terms are and the timeline for payments. But, yeah, it’s a 1% note. So, there’s not a better interest-bearing loan in the country.

[00:13:32] Andrew Rafal: Yeah. Especially for small businesses. It’s probably right now looking at 6% to 7% is probably where most are.

[00:13:40] Liz Mason: Exactly. And the other caveat on that, the eight weeks of forgiven expenses where you have to make sure that you’re not cutting headcount significantly, so they will ask for the number of employees that you have, and that needs to maintain within a 25% margin as well as the salaries can’t drop more than 25% to the people that you currently have on your team.

[00:14:01] Andrew Rafal: So, this program is literally aimed to just keep the economy going over the next month or two. So, in this case, it’s better to keep your staff even if they’re not doing as much as they could do a month ago, keep them on board, be able to pay them, and that keeps those employees part of your company out of the unemployment system and then hopefully, we see the light at the end of the tunnel and we can start doing business again. So, I mean, impressive that they passed this as fast as they did. I know, I mean, in a sense, they had to but what are we talking in regards to all these programs as we’ll dig in a couple more, but how many trillions are going to be used to keep the economy afloat?

[00:14:40] Liz Mason: I think we’re getting close to 5 trillion in total in the stimulus packages that are either on the table or already passed.

[00:14:47] Andrew Rafal: Five trillion. So, I guess now I know why my daughter she’s 14 has not talked to me in a week. She’s like, “Dad, you’re going to really put this on my back? How am I going to pay for this in the future?” So, if you guys have kids and they’re not talking to you, that’s the reason why especially under this quarantine so it’s all coming together.

[00:15:05] Liz Mason: Yeah. Let’s blame the government.

[00:15:07] Andrew Rafal: That’s right, instead of mom and dad. Okay, so the PPP, unbelievable. That’s why 70% of businesses have applied for it and now today, today is April 10 so you’re going to start seeing an influx of those Schedule C, those independent contractors and it’s a little bit, you know, they won’t be able to get as much but at least helping them stay afloat as well. Now, I know this ship might have already sailed but the disaster loans, the Economic Injury Disaster Loans, the EDIL, we had some people applying for that right away and it was an infusion or an emergency infusion of 10,000. I’m not sure if that’s gotten paid out. But how does that coincide with the PPP? Are they interrelated?

[00:15:51] Liz Mason: Yeah. So, great question. So, that was passed first with the Families First Act that happened earlier. I think that was a week before the CARES Act and the EDIL loan, they only allocated $7 billion to this loan program and the traditional way that the disaster loan works through the SBA, and this does exist for other disasters, natural disasters. For example, right before this opened up to the country for coronavirus relief, it was open to the people in Tennessee for the tornado relief. So, that’s what this program was designed for and it’s a direct loan from the SBA. And so, the SBA traditionally goes through a bank to fund it but in this case, since it’s so many people, they’re going to fund them directly. And they’ve come back and said, they’re capping it at 15,000 per business. So, originally, the loans were supposed to go up to much higher than that, but now they’re capping it at 15,000 per business, and they’re doing $1,000 per employee for that grant that could be given to you tax-free. 

But effectively, that grant is not being paid out the way that they had initially said. So, initially that 10,000 they said in three days, within 72 hours, you’ll get this in your bank account. That’s unfortunately played out as completely incorrect and now it’s capped at 15,000 per business but if you do get a piece of that, you can roll it into your PPP loan. So, you just have to talk to your banker and explain that you already applied for the EDIL or you already got it, and then they’ll roll it into the PPP if you get accepted into that program as well. 

[00:17:30] Andrew Rafal: All these acronyms, PPP, EDIL but it sounds like those two are more interrelated in the scope than the next one, which we’ll talk.

[00:17:38] Liz Mason: They are but the EDIL is for other operating expenses. So, you can utilize that for any normal operating expense. It does not have to go to payroll and it does not have to go to rent or utilities either. 

[00:17:49] Andrew Rafal: Back to the PPP, we talked about healthcare costs. What about if a company has a 401(k) and they’re matching employee contributions? Can we use that as part of money that would be forgiven?

[00:18:01] Liz Mason: Yes, you can. So, the retirement contributions also count.

[00:18:05] Andrew Rafal: Okay, great. So, all of these things, if you’re an employee and you work for a business that’s helping you with healthcare, that’s giving a matching, that employer which I think is doing a fantastic thing to reward the loyal employees. Now they’re in a sense getting a little bit of giving back for that for these next few months, so that’s fantastic. Great news there. Okay, so PPP, EDIL is the one that the presses are really promoting and most people if you talk to business owners, as you do on a daily basis, and we do here at Bayntree, that’s the one that keeps coming up, up and up. But let’s talk about this other one and even if you qualify for the PPP, does the employee retention credit, which is a separate program, and you can’t do both. So, let’s talk about that one, and in some cases, it may make more sense for a business to focus on the Employee Retention Credit Program, which is not getting the press. It’s kind of like the redheaded stepchild here. So, let’s talk about it, but I think it’s got some really good points to it and it can be a really good value for businesses.

[00:19:13] Liz Mason: Yeah, absolutely. So, the Employee Retention Credit was enacted under the CARES Act as well and this is geared towards companies that were fully shut down or are significantly impacted by the coronavirus outbreak. So, what significantly impacted in the IRS eyes means is you’ve lost effectively 50% of your revenue quarter-over-quarter from last year or month-over-month if you want to look at it that way. So, if you’re wondering if you qualify and you are not fully shut down, so let’s say you’re like me, I’m a professional service and unfortunately, we are still considered vital and required to be working at this moment, which is interesting to me so they haven’t shut my business down. I mean, on the one hand, super happy about that, but I would not qualify for this Employee Retention Credit, but anyone that lost 50% of their revenue are officially shut down so we’re talking restaurants, bars, anybody that has public meeting spaces, dance studios, schools even, for the for-profit schools.

[00:20:21] Andrew Rafal: So, us as financial services we’re essential as well. What about a dentist, right? So, a client of mine, good friend, they had a thriving practice in Ohio and it’s just come to a standstill now because of the shelter at home and obviously having non-elective of a teeth cleaning isn’t something that people want to subject themselves to. Does that count? Like if I’m a dentist or a doctor, is that an essential?

[00:20:48] Liz Mason: Yep. If you lost 50% of your revenue compared to last year, then you absolutely do count. And the great thing about this is you get a credit per employee and so the credit is 50% of the qualified wages up to $10,000. So, the maximum credit you get per employee is $5,000 but that’s still really significant.

[00:21:09] Andrew Rafal: So, a lot of listeners like real numbers, right, so to break it down. So, let’s say we’ve got a company of six and besides the owner, let’s keep it simple and say all five employees are making $50,000 a year or let’s make it even easier. They’re making $60,000 a year, so they’re making $5,000 a month. So, this would give us then a 50% credit each month, if we can show that our business was reduced by that 50%. So, we’d get a credit for each employee of $2,500?

[00:21:40] Liz Mason: Yep, for the two months and so the max you can qualify for is that 5,000 but, yeah, you’re going to get that credit directly to you and that’s a pretty big deal. So, let’s say if we’re over the two months, we have six employees and we max out there 5,000 credits you’re looking at $30,000 from the government. And it’s a credit so it’s not that you have to pay that back. It’s not that you’re going to get taxed on that amount. It’s a full-on credit, but that’s your money.

[00:22:07] Andrew Rafal: So, when would a business look at the Employee Retention Credit versus the PPP? Let’s say again, they qualified or hopefully qualified for both. The PPP, they just in a sense, don’t know if they’re going to get it based on the bank and the timing but let’s just assume that they could get either one. How would a business determine what would be better for them?

[00:22:27] Liz Mason: So, effectively, you start looking at are you able to operate and keep your people busy? So, if you get the PPP and you’re paying your people to sit on their butts, I mean, that’s one thing, right? But if the dollar amount isn’t significantly more than the employee retention credit, I would apply for that because you’re able to take it immediately versus having to apply for forgiveness and then also potentially having a loan on your hands. So, if we’re talking like restaurants, for example, have people coming in, in and out but they’re not employing their full staff to do the basic prep and potentially pick up or delivery services. And so, mostly we’re talking high number of employees in companies that are unable to keep those people busy to justify really taking out a loan for them.

[00:23:17] Andrew Rafal: And what’s the process to qualify for the Employee Retention Credit?

[00:23:23] Liz Mason: Yeah. So, effectively you have to – sorry. Trying to get back into what the actual process for this is, but you can claim the credit when you report on your quarterly forms and so you don’t really have to report how you’re eligible. You sign off on it and then when that comes back on your quarterly, you should get that credit. So, effectively, the FICA taxes are less and you’re able to deposit fewer dollars on your quarterly payroll tax report.

[00:24:01] Andrew Rafal: Okay. So, this is where the business really has to work side-by-side with their CPA firm, and the payroll company to make sure that all pieces are working together in unison?

[00:24:11] Liz Mason: Yeah, exactly.

[00:24:12] Andrew Rafal: Okay. And then another provision that I was reading about is this net operating loss, the NOL rules were loosened. So, previously, we could carry back two years or four up to 20 and now the CARES Act is allowing it to be carried back up to five years. So, it applies for 18, 19, or 20. So, let’s walk through if we had a tough year or if we’re starting a business, what does a net operating loss mean? And then how can that be used now with the CARES Act to help reduce our taxable income, which would reduce how much outlays go into the government?

[00:24:46] Liz Mason: Yeah. So, this is a great income tax hole I think that was fixed so the TCJA so the Tax Cuts and Jobs Act a few years ago got rid of the NOL carrybacks, and a lot of companies were really upset about this because it was a great small business way to deal with a loss year. So, a carryback is you say, okay, I have losses in this year and net operating loss is your net income, except you lost money. So, it’s your net taxable loss, which means that on your tax return for the business, you’re reporting negative amounts in that part of it. And then you are able to carry this back to profits from prior years and get a refund of the taxes that you had previously paid. Now, it’s a little complicated considering most small businesses are flow-through entities. It’s not that it’s a one for $1 thing here. So, you have to flow it through to your individual return. 

And occasionally, your losses could be offset by other business income that you have on your individual return or other income in general. And so, you have to be careful to make sure you actually did have income eligible to be offset before carrying these back and this is a great time to talk closely with your tax preparer about it, but the great thing about the CARES Act is when they opened up this NOL is you can now actually go amend your ‘18 or ‘19 returns to take losses from those years as well. So, previously, you weren’t allowed to carry back those losses at all. Now, you’re able to carry them back again for five years. And so, you can go ahead and after 2020, I’m assuming we’ll see a ton of NOLs and this will give money in 2021 for companies but you can also go back and amend to take losses that you had maybe in 2019. If you haven’t filed that return yet, you can just file the return and carry back the losses. And if you have filed, you can amend it in 2018 as well. And so, it opened up more than just the 2020 losses which I think is lost on a lot of people.

[00:26:49] Andrew Rafal: So, listeners, business owners, this is the time, this is the year that you need to be strategic in your planning. It’s not let’s kick the can down the road and let’s not put our head in the sand and let’s not do strategic tax planning. You have to do it and you have to work closely with your CPA firm and if you have an advisor, this is the year that you can do a lot of good things and take advantage of a lot of what’s happening. So, even though things are tough, there’s a silver lining that the government’s building in here, but if you don’t know or if you’re not taking advantage of it, you’ll lose out on it and then we can’t go back a few years from now and saying, “Hey, I wish I would have done that. Now we’re in the new role.” So, just take that and make sure that you’re having those strategic meetings. And I’m sure CPAs, you guys are going to be working endless hours this year. I would assume 2020 is going to be the busiest time you ever had.

[00:27:37] Liz Mason: Yeah. No, it is. And it’s definitely a job security but also, I mean, we’re sitting in a really terrible moment in our economy. I am just trying to help as many businesses stay open as possible. So, we’re not going out there saying, “We’re going to charge you for these applications or for this advice.” No, that’s not what CPAs should be doing right now. They should be sitting here helping as much as possible and then I think goodwill always comes back around.

[00:28:07] Andrew Rafal: I think that’s great. It’s paying it forward and we’re seeing to a lot of CPAs and financial firms just doing some pro bono work and that’s something at Bayntree too is, as you guys know, you listeners, if there’s any questions you guys have on your situation, just shoot us over an email or reach out to us and we’ll be able to give you some time and give you some advice that can help make good decisions in the future for you. So, we’ve talked about the small businesses, so much going on there. Let’s finish the podcast and just talk high level on some of the things that are going to affect the individuals, the employees. The first one and I know there’s certain provisions in there, but the recovery rebates, the money that’s going to be paid out over these next few weeks, let’s talk through what that looks like and who would be receiving it and potentially who would be phased out of it. And then we can go into some of the things in regards to retirement accounts that we have, the ability to draw from if need be.

[00:29:02] Liz Mason: Yeah, absolutely. So, anyone making under $75,000 if they’re an individual or $150,000 for married filing joint on their tax return, so that’s your adjusted gross income if you’re looking for the line item will qualify for the total $1,200 and then that’s per person and then $500 for each child that’s claimed on their tax return. And then that amount will be directly deposited if the IRS has your information on file. So, if you’ve ever paid your taxes directly from your bank account and put it on your return or estimated taxes, or if you’ve ever gotten a refund directly deposited, they already have that bank account information and so they’re planning to use that. Now, the IRS has also come out and said for people they don’t have that information. They’ll either mail a check which will take much longer or they’re planning to open a portal to have people go in and be able to enter their information directly to get these deposited. 

And the cool part about it is it’s aimed at helping lower-income people that are typically the ones that have been laid off through this process and the goal is to get the money to them as quickly as possible. So, they’re basing the payments on 2018 and 2019 tax returns. So, if you haven’t filed 2019 and let’s say you did not qualify in 2018, but you would have based on your 2019 income, file that return and e-file it immediately because it’ll make a big difference in what you actually see. And then the amounts above that are just phased out until they’re gone. And quite frankly, I think that it’s going to take the IRS a lot longer than Trump made it sound like to get this money to the people because, at the current moment, everyone at the IRS is attempting to work from home on antiquated systems and a lot of times they’re just not capable of doing their job right now. 

[00:30:53] Andrew Rafal: And so, regarding this income threshold so if you have ‘18 or ‘19 and then how does that work with 2020? Let’s say that I had for I didn’t file ’19, ‘18, we’re at a couples at 200,000 so that income is higher than that threshold, but then this year because of losing a job, they’re down to 100,000. Would there be any reprieve from this in regards to the 2020 that would be used forward?

[00:31:18] Liz Mason: Yeah. So, the payments that are coming out now based on ‘18 or ‘19 returns are a prepayment of a refundable credit in technical terms, but all that means is that the credit is technically supposed to be based on your 2020 income. But since obviously, we can’t predict the future and the government wants to get this money out, they’re basing it on historical to try and get it quicker to the right people. So, if for 2020, you do qualify and you didn’t in 2019, when you file your 2020 return, you will get that refundable credit. And let’s say the opposite happened, based on 2018 or 2019 you did qualify and when you file your 2020 return, you don’t qualify and I hope that that happens to more people than not because that’s a great answer here. It means the economy doesn’t drop as much as we think it will. But if that does happen, then you’ve effectively been given a free loan for that amount of time and so it will be included in the tax that you have to pay for your 2020 return.

[00:32:20] Andrew Rafal: Okay. And a family of four or five, six, that’s a pretty big chunk of change that they’d be receiving to help them to maintain/sustain these next couple of months.

[00:32:29] Liz Mason: It is a big deal. And the other thing that CARES Act to help individuals was create a stay-on eviction so you can’t evict people for three months. So, hopefully, people aren’t going to be homeless through this coronavirus epidemic or pandemic I should say. And then it also gave more leeway to the banks to forgive mortgage payments or put a stay on mortgage payments and encourage them to do that. And so, if you’re sitting there as an individual and you’re not sure how you’re going to pay your bills, I encourage you to call the bank that holds your mortgage, call your landlord, call the credit card companies, ask for any kind of penalty or fees, forgiveness they can give you, any kind of stay that they can give you on your payments due and any flexibility that they’re willing to do because they also have some government incentives to do that.

[00:33:21] Andrew Rafal: Yeah. A lot of the bigger banks we’re hearing that you can actually go on to where you pay your mortgage and there’s a big tab that says, “Do you want to delay the payments?” And in some cases, it’s as easy as that. So, definitely great points there, mortgage, some car loans, credit cards, anything that you can get some help on in this tough time especially if you’re on furlough, if you’ve lost your job, or you’re a business owner, just trying to keep everything going, keep your employees employed, you might as well take advantage of everything that’s out there because the banks are really truly working to help keep the economy going and they’re not being an enemy. They’re actually on your team right now, in most cases, what we’re hearing. So, if you haven’t done that, definitely go to each of those different institutions and see what they offer and take advantage. 

[00:34:09] Liz Mason: Absolutely. And quite frankly, this stimulus package, the CARES Act, in particular, was a bank bailout and effectively, they’re hoping that money will trickle through to the small business because all of these loans, the banks, or all of the Paycheck Protection Loans, as well as the other incentives that we were just talking about, banks are getting a cut of all of those. And so, this is the way the government’s going to keep our banking system from collapsing as well as get money into our hands.

[00:34:38] Andrew Rafal: Yeah. So, it’s a win-win where never usually is there a win-win across the board there but in this case, the only loser appears, well, I guess us as the taxpayers, it’s a whole another episode. Speaking of taxes, so one of the areas they delayed the filing to July 15. So, all you CPAs that were going to take the summer vacations, even if there are vacations, we got to cancel those, right? So, July 15. 

[00:35:05] Liz Mason: Yeah. What’s a vacation?

[00:35:07] Andrew Rafal: That’s right. Sorry about that. But what does that look like? So, we basically have for 2019, we can file in all the way to July 15 with no penalty and if we owe for 2019, we do we have to pay up by April 15 or can we delay that all the way to July?

[00:35:25] Liz Mason: So, great question. You can delay both filing and payments to July 15. And actually, on April 9, they actually came out with another update on that change of date I guess you should say, change of due date. So, the IRS came down and said originally it was the 4/15 due date that they changed and then it took them like two weeks to get guidance out. And then they had to come back around to tell people the rest of the implications of the 4/15 change. So, when it was originally changed, people were saying, okay, so my first quarter estimated tax payments are now due July 15 but my second quarter are due June 15. And the IRS said, “Oh, yeah, that doesn’t make sense.” So, they came back and said, “Okay, everything’s due July 15.” So, IRA contributions that you’re doing for 2019, you now have until July 15. Your income tax returns for every kind of form that was due in April is pushed to July 15. All payments are deferred until July 15. So, we’re talking first and second quarter estimated tax payments as well. 

[00:36:30] Andrew Rafal: Wow. 

[00:36:31] Liz Mason: Yeah. And there’s nothing you have to do to apply for that. They just moved the due date. So, April 15 just doesn’t exist this year in terms of deadline.

[00:36:40] Andrew Rafal: So, take your vacation that next week.

[00:36:42] Liz Mason: Yeah. I’m going to go sit on my patio and play some mariachi band music and drink a margarita and pretend I’m in Mexico.

[00:36:51] Andrew Rafal: Love it. Love it. Just Zoom me in so we can do it together. So, you said IRA contributions, Roth contributions, and then also HSA contributions. All of those are pushed to July. So, if you haven’t done your 2019, you’ve got extra time to get that money in. I know for some of you that may be difficult, but for those that can do it, a little bit extra push to get fully invested in these longer-term retirement accounts and obviously, the HSA which is, as we’ve talked about on the show countless times, the Cadillac where we get the tax deduction, it grows tax-deferred and can be used for certain purposes, medical, etcetera, tax-free. So, truly try to fund those if you can. Those are great vehicles. And then the other area where they’re helping out in regards to people that are in a tough situation, and again, we’re not promoting this. Retirement accounts should be for retirement but situations like this where we have a crisis of all crises, if you’ve got retirement money and you don’t have any other money to fall back on, what has the CARES Act allowed for in regards to easing restrictions on getting money out of both IRAs and 401(k)s?

[00:38:05] Liz Mason: Yes. So, first off, I think it’s a terrible idea to borrow against your retirement accounts, especially right now when the market is really low but if you have to, to survive, you can withdraw $100,000 from your retirement accounts, that’s IRA, 401(k). It doesn’t matter what the form is. You can take that $100,000 and you can avoid the 10% penalty if you’re under 59 ½. And so, that’s a big deal. You don’t have to pay the 10% penalty, but you will have to pay ordinary income tax if it’s not a Roth account but they did let you delay the income tax so you can pay it over three years following the withdrawal, which is also a big deal. And then in addition to that, they increased the amount you can borrow from your retirement account to 100,000. So, at the end of the day, you can technically get $200,000. 100,000 you would have to pay back over the terms of the loan from your 401(k), which is the same as it would have been before, but they released the 50,000 limit or the 50% of your vested account balance limit that there was before for those loans as well.

[00:39:12] Andrew Rafal: And on those loans too you can wait a year before you start paying them so that gives you another deferral from that standpoint. So, again, not the best to take money from your retirement accounts but at least they’re making that process a little easier and then spreading out those taxes and how that works then. So, if we take out 100,000 from an IRA. We can do it over the three years but then can we play the game of if I have a higher income year versus a lower-income year and pay that tax in a year over these next three years, where I’m lower than a year where I’m higher?

[00:39:44] Liz Mason: You can play that game and, I mean, I’m assuming the first year is going to be when everyone’s in the lowest bracket but probably still need some cash. So, generally, I wouldn’t play with it and the amount, the differential isn’t going to be that high. 

[00:40:01] Andrew Rafal: Okay. And then the last item and one of our last podcast with that slot we dug into this, so we won’t go too deeply into it, a lot of you listeners are not at that required minimum distribution age. But one of the other provisions for retirees is they instituted a suspension for 2020 of taking out required minimum distributions from qualified IRA 401(k) accounts. So, listeners, what that means is if you have IRAs and you don’t need the money, you are not required to take out that minimum distribution. For most of you, that started at 70 ½. That law has changed now to 72 for those that had not hit that age yet. So, bottom line, what they did there is because RMDs are based on the value at the end of December, they allowed for somebody not to have it added insult to injury where they were going to have to take money out of my account that was worth a lot more, most likely, two, three months ago. 

So, this is a great vehicle for a number of reasons. One is it may allow you to do some Roth conversions but the main important component here is it allows you to not take out money while the markets at a low. So, just know that that you don’t have to take that out. And if you do have it set up, that it’s coming out automatically, get with your advisor, get with the custodian because they may just send that money out to you regardless. So, these are getting back to what Liz what you said about tax planning. This is a critical time too for financial planning and making sure your plan’s on track and that you’re being as efficient as possible with your dollars, have a tax strategy rather than no strategy at all.

[00:41:42] Liz Mason: Yeah. You should always have a strategy. We talked about that way too often. A couple other quick things. There was a payroll tax holiday for businesses, well, kind of holiday. So, there’s a deferral of payment of FICA for up to two years. And so, how that works is payroll companies will let you not actually contribute the employer portion of FICA, and you get to pay it back December 31, 2021 and December 31, 2022. So, it’ll be a two installment payback for the six-month period that you can defer that, which is a pretty big deal. And then, I mean, it just adds insult to injury on this 401(k) withdrawal because you’re looking at it going, okay, so we’re not going to have the funds to fund Social Security and if the business closes, it’s going to be pretty hard for the government to collect that money that wasn’t paid in. And then everyone’s draining their private retirement accounts. So, it’s going to be an interesting time in the future, that’s for sure.

[00:42:41] Andrew Rafal: And then the other item they added on here reading through on this, the itemized charitable deduction, so they increased that for and I think it’s just this year, but from 60% of AGI to 100% of AGI. So, I know again this is more geared to somebody who’s not having the financial struggles, but it does allow you to contribute up to 100% of your AGI to a charity. And then I do believe that you can roll that forward a couple of years if I’m not mistaken.

[00:43:10] Liz Mason: Yeah, yep. You can carry forward to that deduction.

[00:43:14] Andrew Rafal: And the thinking there, again, trying to get into the eyes of why they built this in is charities are probably in those type of organizations are going to take a hit this year like they did in ’07, ’08, ‘09. So, this is giving the onus to somebody who is financially well off to utilize some tax strategies. If they’re giving anyway, it just gives them the ability to pay less in taxes and more to the charities. So, although the government’s not going to receive as much to the Treasury, they’re going to be able to ensure that these charitable organizations are going to be hopefully not losing as much as they would if they didn’t add that in there.

[00:43:51] Liz Mason: Yeah. And where also, there’s more legislation in progress right now so there’s another $2.3 trillion of economic stimulus on the table right now where they’re trying to bolster that Paycheck Protection Program, which I mentioned earlier. They’re trying to put more funds to that. And then they’re also creating what they’re calling the Main Street Lending Program to enhance their support for small and mid-sized businesses. So, we’ll see what that looks like. The proposed legislation is still getting redlined and going through the proper government order before it gets passed but I’m hopeful that they’ll be able to get some other creative loans out there to small businesses. And right now, they’re proposing four-year loans and then capping the interest rate as well so that there’s some more help, in addition to what we’ve already seen for businesses. And then they’re also talking about opening up some loans to individuals as well. So, it’ll be interesting when that law comes out. Hopefully, we see that signed into law soon.

[00:44:55] Andrew Rafal: Yeah. So, the one area that you’re focusing on is continually updating your clients and those that follow you. So, let the listeners know with all of these changes happening on a daily basis, how can we keep track of things? What’s the way that we can follow Liz and High Rock so that we can get the best information possible as quickly as possible?

[00:45:15] Liz Mason: Yeah, absolutely. So, follow us on Twitter at High Rock CPAs and we’ve been doing a pretty good job of posting the articles as they come out, press releases from the government as we see them, and then synthesizing the information to keep everyone up to date. And then you can follow us on Facebook as well. We do a little bit more in-depth on Facebook. And then I’m also the editor of Tax Practice News and I’ve been working very hard to get the top tax accountants in the country writing for us to understand and synthesize these laws. And so, feel free to follow at Tax Practice News on Twitter or come to TaxPracticeNews.com and see that as well. And quite frankly, read everything you can and just stay on top of it personally because I’m telling you, have empathy for your CPAs. We are so synthesizing so much data in such a short amount of time, while also trying to keep every client in business and happy. And so, it’s just it’s a very stressful time and kindness goes very far when it comes to this.

[00:46:13] Andrew Rafal: Yeah. That’s the one thing I think we’re seeing as we’re all coming together, it’s kind of back to that 9/11 where we’re all in this together. Obviously, this is a little bit different type of an enemy, but the world is united and we’re starting to look at people differently. And some of the silver lining is just taking a step back from technology, from the hustle and bustle, and really focusing on family and what’s important. I mean, I know out here we have the weather right now, but I’ve never seen so many people out about just riding their bikes or walking their dog and spending time that way. So, we are physically disconnected but socially more connected than ever. I don’t know I’ve done more Zoom calls than I can write on a piece of paper there with family and so forth. So, great stuff. Well, Liz, this is always fantastic having you on the show. I expect the next time you’re on that you’re up to 10 companies instead of six.

[00:47:13] Liz Mason: Well, I promised my husband I wouldn’t start any new companies. 

[00:47:17] Andrew Rafal: What was the timeline on that?

[00:47:20] Liz Mason: That timeline supposedly expired end of 2019 but he asked for an extension through 2020. So, how I’m getting around it is just opening things inside of my current entities. So, launching new programs and new offices like we just opened an Australia entity so that’s exciting. 

[00:47:37] Andrew Rafal: Awesome. Well, globally, Liz is here so there we go. So, guys, there’ll be a lot of information in the show notes there and I appreciate everybody taking the time to listen. And, Liz, I appreciate all the wisdom today. And, listeners, stay tuned for another episode coming up later this month on Your Wealth & Beyond. Happy planning, everybody. Stay safe, stay healthy.

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