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Klingman Insights

CARES Act - Key Provisions to Consider

April 2, 2020

Dear Valued Clients & Friends,

We hope that you and your loved ones are staying safe and healthy during these unusual times. While your health and well being remain our utmost concern, as we have discussed in our recent calls together, this COVID-19 pandemic has had and will continue to have significant impact on the US and global economies. In response, the government has recently take a number of steps to try to mitigate the impact of this pandemic. First, the Treasury department (along with many state governments) has delayed the tax filing and payment deadline from April 15, 2020 to July 15, 2020. If you think you are entitled to a tax refund, you may still want to file your returns in a timely manner.

Second, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2+ trillion relief package, was passed into law last week. With 880 pages in total, the CARES Act contains many different programs and provisions. Although we won’t attempt to summarize them all here, we did want to highlight some of the elements that might be more relevant to you or your family:

Direct Cash Payments to Households Meeting Earnings Requirements

· Individuals reporting adjusted gross incomeson 2018 or 2019 tax returns of $75,000 or less ($150,000 for joint filers) will receive one-time checks of $1,200 ($2,400 for joint filers) and $500 per dependent.

· Phase out above those income levels until they are fully phased out at AGI levels of $99,000 individually ($198,000 for joint filers)

· Checks/direct deposit should be received automatically in 2-3 weeks

No Required Minimum Distributions (RMDs) required in 2020

· Individuals already taking RMDs from retirement accounts or scheduled to begin taking RMDs in 2020 do not need to take these distributions in 2020

No Early Withdrawal Penalties for COVID-19 Related Retirement Plan Distributions (up to $100,000)

· The 10% early withdrawal penalty is eliminated for coronavirus-related distributions of up to $100,000 from retirement accounts.

· To qualify, individual, spouse or dependent must have tested positive or experience other negative economic pandemic-related consequences

· Withdrawn amounts can be repaid to the plan over the next 3 years.

Increased Charitable Deduction Opportunities

· For taxpayers claiming the standard deduction, a $300 above-the-line deduction for cash contributions made in 2020

· For 2020 tax returns, charitable contributions can be deducted in an amount up to 100% of adjusted gross income (AGI). Typically, charitable deductions are limited to 60% of AGI

In addition, the CARES Act includes numerous provisions to assist owners of small businesses. Some of the key elements of the law for small businesses are:

Paycheck Protection Program (PPP)

· Loans to businesses with < 500 employees in an amount up to $10 million

· Loan principal may be forgiven in its entirety based on employee retention (forgiven amount not included in AGI)

· Loan amount based on payroll costs up to $100,000 annual compensation, mortgage payments; rent; utilities; and interest on any other debt obligations incurred before the covered period

Economic Injury Disaster Loan (EIDL)

· Working capital loans to small businesses for payroll, accounts payable, and other bills that could have been paid had the disaster not occurred

· Businesses must have suffered working capital losses due to the coronavirus

Payroll Tax Payment Deferral

· Employers may defer employer-side Social Security taxes on wages paid between March 27, 2020, and December 31, 2020

· 50% of deferred taxes due on 12/31/2021; remaining 50% on 12/31/2022

· Deferral not available to taxpayers who receive loan forgiveness under the PPP

Payroll Tax Credit

· 50% refundable payroll tax credit on wages up to $10,000 of compensation (including health benefits) paid to an eligible employee during the crisi

· Available to employers whose business was disrupted due to shutdowns and kept paying workers

As we cannot provide formal tax advice, please reach out to your CPA to discuss whether/how you might be able to utilize these provisions. Should you have any other questions about your particular situation, please do not hesitate to let us know.