In 2018, as part of the Tax Cuts & Jobs Act, the gift and estate tax exemption doubled to historic levels – from $5.6 million to $11.2 million. After indexing for inflation, this year the exemption is $11.58 million, $23.16 million for a married couple, and it is currently scheduled to remain at this level through 2025. Whether it’s due to the $4 trillion of COVID-19-fueled fiscal challenges, or a Blue Wave in November that will give Biden the power to pass sweeping tax reform, many high net worth individuals are cautious that a reduction in the exemption could be coming sooner than 2025 resulting in significant estate tax exposure for their family. Click here to read more and for a chart comparison of the major tax policy differences between the two candidates.
With the 2020 election around the corner, we thought it would be helpful to outline the presidential candidates’ tax proposals. While it is difficult to determine which policy initiatives either candidate will eventually pursue, we will continue to monitor and keep you informed of developments to both plans. Please click here to read more.
As a follow up to our overview of The CARES Act sent last week,
the third Federal stimulus bill in response to COVID-19, I wanted to provide
you with a quick update on additional guidance recently issued on the two key
SBA loan programs available to business owners: the Payroll Protection
Program (this is the program that will issue forgivable loans and
every business owner should know about) and Economic Injury Disaster Loans.
The Payroll Protection Program (“PPP”)
Signed into law on Friday, these are SBA loans administered by banks. $350 billion of loans will be issued.
Businesses with < 500 employees, as well as self-employed individuals, can apply for a loan of up to 2.5x their average monthly payroll costs. Payroll costs include wages, health insurance, and retirement plan contributions, capped at an annual salary of $100,000 per employee. For example, if your business average monthly payroll is $50,000 the maximum loan is $125,000.
If the loan is used for certain expenses (payroll costs, rent, utilities, etc.) during the 8 weeks following the origination of the loan, and as long as there is not a reduction in the number of employees or a greater than 25% reduction in wages paid, the borrower is eligible for complete loan forgiveness. This is a tax-free grant.
The application was just released yesterday, a copy is attached for your review, and we understand that banks will start processing most loans this Friday (April 3rd) and next Friday (April 10th) for any self-employed individuals or independent contractors.
There are two things that we recommend you do at this time:
Calculate your average monthly payroll costs for the 12 months from April 2019 through March 2020 (you will likely need to substantiate this with payroll returns filed over that time period, so you should have those ready as well), and
Contact your CURRENT business bank/banker. As mentioned, these forgivable loans will be administered by banks, and we have heard that bankers intend to take care of their existing customers first. Many lenders who have not done SBA loans in the past will start processing PPP loans. Each bank will have its own list of required documents that you will need to provide.
If we can help with the average monthly payroll calculations, or
working through the requirements of maintaining your pre-COVID-19 payroll
and/or reinstating terminated employees to meet this test, please let us know.
Businesses with < 500 employees, as well as self-employed individuals, can apply for loans of up to $2 million. Interest rates will be low, and terms will be 15 to 30 years.
Eligible businesses may receive an advance of up to $10,000 within 3 days of submitting a loan application.
Advances made prior to loan approval do not need to be repaid, even if the loan application is denied.
Businesses will likely be able to receive a much larger loan under the EIDL compared to the PPP, to be used for a variety of operating expenses over a longer time period, but these loans are not forgivable.
As additional
guidance is issued we will continue to keep you updated.
Yesterday evening, the
Senate passed an updated version of the Coronavirus Aid, Relief and Economic
Security (CARES) Act (Stimulus Phase III).
The bill is intended to be a third round of federal government support for
individuals and businesses and is the product of negotiations between Democrats
and Republicans for a bipartisan response to the crisis. Please note that at this time it has not
been enacted into law but is expected to be by Friday, March 27th.
We are fielding a
number of questions from our business owner clients, who have already been
significantly impacted by COVID-19, regarding their options for access to
short- and long-term liquidity to minimize business disruption. If this applies to you, please feel free to
read ahead to the “business” section of this letter.
In response to the COVID-19 pandemic, Treasury
Secretary Steven Mnuchin announced yesterday that individuals can defer April
15th tax payments up to $1 million, and Corporations can defer up to $10 million
of tax payments, for 90 days. Please
note that many details remain unclear with respect to this relief, and no
official written policy has been released yet, but we expect additional
guidance from the IRS in the coming days and will provide details once
available. For now, here is an overview
of what to expect:
Tax payments due April
15th can be deferred until July 15th without incurring any interest or penalties. This extension is available for all
individual taxpayers who owe < $1 million for 2019.
This 90-day extension of time to pay will likely also apply to 1st and 2nd quarter 2020 estimated tax payments due April 15th and June 15th respectively.
Mnuchin’s statement did
not extend the tax filing due date, so all taxpayers must still file their tax
returns or request extensions (Form 4868 automatically extends the filing
deadline to October 15th) by April 15th.
For anyone that
anticipates a refund for 2019 taxes, as usual we recommend you go ahead and
file by April 15th, if not sooner, to have that money refunded.
“We encourage those Americans who can file their
taxes to continue to file their taxes by April 15,” Mnuchin said,
especially encouraging people who will be getting tax refunds to do so.
“Just file your taxes,” he said, and “you will automatically not
get charged interest and penalties” on payments made within the 90-day
deferral period.
We are following the Families First Coronavirus
Response Act (FFCRA) closely, which will address relief in the form of tax
credits and/or cash payments to businesses and employees affected by COVID-19
and will send an update once there is an agreement.
For our business owners, we are also closely
monitoring federal and state incentives (including low interest loans, grants,
unemployment for employees, etc.) and will send details and guidelines once
available.
