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An Overview of the CARES Act

Good news is in short supply these days, but today I’m happy to be able to write about something that will positively impact many of our clients and communities. To be sure, the Coronavirus Aid, Relief, and Economic Security Act (CARES) is not a cure for the economy. The only long-term cure for the economy is to stop the virus, but the CARES Act will provide some much-needed relief to those most in need. The direct cash payments, small business loans, increased unemployment benefits, and other tax breaks are estimated to cost over $2 trillion. If you include the $4 trillion that the federal reserve is injecting into the economy as well, the total financial cost of the coronavirus is $6 trillion. According to data from the Congressional Research Service, World War II cost $4.1 trillion in today’s dollars. In other words, this is a very big deal. Below I’m going to attempt to compress the over 800 pages of the CARES Act into something that will hopefully help you understand how this bill might impact you. 

Individual Stimulus Checks 

Each qualifying adult will receive $1,200 and an additional $500 for each dependent on their tax return. But not everyone will receive a check. The Treasury will be sending cash payments to those taxpayers with adjusted gross incomes of less than $75,000 ($150,000 if married). For those taxpayers who have higher incomes, the payments will be reduced as their income exceeds the above-mentioned thresholds. To determine the amount, the IRS will look first to your 2019 tax return. If you haven’t filed yet, it will look at your 2018 tax return to calculate the amount. If it has neither, it will base the amount eligibility on your social security benefit statement. The mechanics and implementation of this are a bit complicated because, well, anything having to do with taxes tends to be. 

Small Business Loans 

The impact of social distancing and “stay home” orders has been catastrophic to many small business owners and their employees. The CARES Act provides small businesses (less than 500 employees) access to almost $350 billion in government guaranteed loans that can be used for payroll expenses, mortgage payments, and other necessary expenses to keep small businesses afloat. There are several additional loan programs that business owners can qualify for as well as provisions for tax free forgiveness of those loans if certain stipulations, such as the business maintaining its workforce for a period. Baker Boyer is working hard to understand its role in the implementation of these new programs. 

Tax Breaks for Businesses 

If you’re a small business owner, not only should you look into the loan programs that are soon to be implemented, but also consult your tax advisor to understand if you can take advantage of some of the business related tax breaks in the CARES Act. Included are tax breaks related to net operating losses, payroll tax credits, charitable contributions, and a variety of other items that you may be able to take advantage of. 

Retirement Account Tax Breaks for Individuals 

There are significant changes to the tax provisions relating to retirement plans. Individuals may be eligible to avoid the 10% penalty on early distributions of up to $100,000 from retirement plans, with the income tax owed being spread over 3 years. Those distributions can be repaid into the account if the individual wishes. The maximum amount available to be taken as a loan against a retirement plan was increased from $50,000 to $100,000. Finally, individuals are not required to take their 2020 required minimum distribution. This creates some planning opportunities that we’ve already addressed with several of our clients. 

Charitable Contributions 

The charitable contribution rules for both businesses and individuals also were changed in the CARES Act. The income limitations for deductibility were increased and the treatment of different kinds of charitable donations were changed. As with anything financial planning or tax related, how this impacts you individually depends on your personal situation. I’ll spare you the calculations and specifics, but if you are able to give charitably during this time, Congress just gave you a larger tax incentive to do so.   

The CARES Act contains over 800 pages of information that financial institutions, government agencies, and advisors are all working hard to get their arms around as quickly as possible. In the sake of brevity, I tried to just briefly touch on some of the simpler components and concepts of the bill. If you’ve felt the impact of the coronavirus financially, I’d encourage you to reach out to your advisors and begin trying to understand what relief might be available to you. Everyone is in this together and Baker Boyer is doing everything it can to help our clients and communities weather this unprecedented storm. 

About the Author

Brian K Bruggeman, CFP®, CTFA

Brian K Bruggeman, CFP®, CTFA
Vice President
Financial Planning Manager
Walla Walla

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