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Happy New Year

By December 30, 2020No Comments

We are sending you a very brief summary of the recently passed Coronavirus Stimulus 2.0 along with a link to a well-done article in Business Week about how COVID-19 may be changing our lives going forward.

Six months after the expiration of the CARES Act, the Senate finally engaged in a serious process to extend badly needed benefits with a compromise bill that Congress overwhelmingly passed last week and was just signed by President Trump.  The $900 billion, 5,593-page legislation contains some well reported items as well omits some popular items from the House’s $2 trillion dollar bill that died in the Senate months ago.  Some highlights:

Emergency Payments

  • $600 non-taxable recovery rebate check (stimulus payment) which starts to phase out at $75,000 of taxable income for single filers and $150,000 for joint filers.  A family with 2 children under 17 would receive $2,400 if under the income limit.
  • $300 per week supplemental emergency unemployment was extended until March 14th as well as “regular” unemployment benefits that would have expired.

Business Support

  • PPP loan recipients can write off expenses paid by the loan.  In general, when a loan is forgiven it becomes taxable income.  The IRS issued guidelines which prohibited businesses from deducting expenses against forgiven loans.  Congress overruled the IRS and these loans will be treated as non-taxable grants for businesses qualifying for forgiveness.
  • New PPP program allows a second round of loan applications for businesses that had a least a 25% decline in any quarter in 2020 relative to 2019.  The list of allowable expenses for proceeds from the PPP loan was also expanded.
  • PPP loans, EIDLs (Economic Injury Disaster Loans) contain many other provisions and updates for those affected.

Personal Tax Changes

  • Medical expense deduction was permanently reduced to 7.5% of adjusted gross income from 10%.
  • Lifetime Learning Credit was expanded by increasing the incomes before the phaseout kicks in.  The Tuition and Related Expenses deduction was eliminated but more families are likely to benefit from the overall changes.
  • Charitable deductions for those who do not itemize will be allowed to deduct $600 ($300 for each spouse) if filing a joint return in 2021.  For 2020, the limit is $300 per return under the original CARES Act.
  • Those with unspent funds in the flex spending accounts (FSA) will be allowed extend the grace period to 12 months provided the employer adopts the change.  COVID-19 affected both planned medical expenses as well as childcare expenses.  If this affects you, reach out to your employer ASAP to encourage the change.

There is so much more in this bill and we will be able to help those who may benefit from any of these changes.

What is not contained this legislation:

  • No waiver of RMDs for 2021 so we will proceed to work with those affected to update the timing and amounts of your distributions.
  • No further student loan relief which expires on January 31, 2021.  For those individuals and family members carrying student loans, January is an important time to review your loan status.

The stimulus bill touches on so many areas that will end up having some impact on many of you.  Fortunately, none of this is particularly urgent before the end of the year.  We are here to help and answer any questions as they come up in the new year as well as provide guidance for better decision making if you or your family is affected in any way by the legislation.

Perhaps even more important at this point, we have included a well-done article from Bloomberg Businessweek entitled  “Ten Ways Covid-19 Has Changed the World Economy Forever” about what keeps us up at night.  We have an extremely bifurcated economy that is still suffering.  Substantial government spending with extraordinary increases in debt combined with aggressive Federal Reserve monetary policy are keeping the economy from collapsing.  Those with assets are doing well, but how and when will it end?  All asset prices are at high levels and may remain at elevated levels for some time.  We feel portfolios are well positioned at this point.  Growth should start to pick up substantially when the virus is under control which should help support stock prices.  However, the system is fragile and any number of events could derail the markets, including increasing interest rates.  We are prepared to adjust to changing conditions and are relatively optimistic about the near-term.
Ten Ways Covid-19 Has Changed the World Economy Forever

 

We end the year thankful for the opportunity to work with such great clients and are looking forward to continuing to partner with you to navigate whatever lies ahead.

 

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