Episode 50: How You Can Benefit From The Cares Act

Announcer:

This is The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

Tom Wheelwright:

Welcome to the WealthAbility® Show, where we're always discovering how to make way more money, and pay way less taxes.

Tom Wheelwright:

A few days ago, Congress passed the largest relief bill in the history of the world. The President signed it immediately. It's called the Cares Act, and it provides roughly $2.2 trillion to certain people, and I want to emphasize certain people. So the question is, does it apply to you, and if it does, are there benefits to which you're entitled, and for which you should be applying. Today we're going to discover exactly how this bill works, who it's intended for, and what do you have to do over then next few days. This is not something you do over the next four months, this is something you do over the next few days. So that's why we're doing this podcast now, and releasing it not with our normal podcast, because it's urgent that you pay attention to what's available in this bill.

Tom Wheelwright:

First thing to understand, is that this is the third relief bill, and it is probably not the last relief bill. So if you're not included in this bill, understand that you may be included in the next bill. Also understand, that if you are included in this bill, you probably will not be included in the next bill. So this bill, $2.2 trillion, more likely in the neighborhood of $4 trillion when all is said and done, is primarily a bill for employers and employees, and a little bit of money for healthcare, that's pretty much the way it works. Now, we know that the big companies are going to get a lot of money out of this. The airlines, Boeing, MacDonald's, there are big companies that are going to get billions of dollars out of this.

Tom Wheelwright:

There also are provisions for small businesses under 500 employees, and even some that are specifically under 100 employees, and there are provisions for employees, both those who are working, and those who are not working. So what we're going to do over the next few minutes, is walk through the bill, we're not going to get through the whole thing, we're going to walk through the bill and highlight those things that you need to pay attention to, that you really need to take some action on in order to make sure that if you are covered, that you actually benefit from this bill. Because here's the thing, we're all tax payers, we're going to pay for this bill, and our children are going to pay for this bill, so don't be hesitant to apply for relief out of this bill just because you go, “Well, I'm kind of doing okay, so let's leave it for somebody else.” I know that's very noble. Understand that you're paying for that out of your taxes, today's taxes, tomorrow's taxes, and your children's and grandchildren's taxes.

Tom Wheelwright:

We will be paying for this bill for a very, very, very long time. So it's your choice. My job is to give you the choice. So we're going to do a little bit of an analysis of this bill right now, we're not going to get through everything, I'm going to highlight the three areas that you should be paying attention to. Those three areas are the loans, the grants, and the tax benefits, those are the three big areas.

Tom Wheelwright:

Let's start with the loans. There are four primary loans that are available, now two of them… actually, three of them were available before this bill was passed, they're just made better in this bill. The first one, is your standard SBA loan called the 7(a) Loan. This is a loan that now, it's up to $10 million, the qualifications for it are difficult, and you do have to pledge everything you have, including your firstborn, your house, your car, and everything your wife has, or your husband has. So it's a loan that you really need this kind of money, otherwise don't be applying for this loan. That's the 7(a) Loan.

Tom Wheelwright:

Then we have the SBA Express Loan. The SBA Express Loan now is $1 million. This does not require, as I understand it, a personal guarantee, and they will not require you to pledge your home. So the rules are a little bit relaxed, the banks are less likely to take this on because it doesn't have the same guarantees as the 7(a) Loan, and it doesn't have the same collateral, so you still… but it's up to $1 million. So if you're struggling and you're going, “Look, I'm not struggling for just a couple of weeks here, or a couple of months, I'm going to be struggling for a year,” then you ought to be looking at these two loans.

Tom Wheelwright:

Now the third loan, that is also a big loan, is called the EIDL Loan, E-I-D-L. I think it's called the Economic Injury Disaster Loan, something like that, all right? And that loan has been around for several months, it is up to $2 million. That one does require showing economic hardship. The other two don't require showing economic hardship, this one does, okay? And there's some immediate relief under it, there's a $10,000.00 grant under this that you can get fairly quickly, and if you only are applying for up to $200,000.00, then it's a much easier loan to get. All right. But if you need money for inventory, and you are looking for a loan that is going to sustain you for quite some time, the benefits from this loan are actually really good. For example, payroll for the rest of 2020 is forgiven under this loan, for the rest of 2020, under the EIDL Loan is forgiven. You can use it for inventory, it's not as restrictive as the next loan I'm going to talk about, which is the one that everybody is all hyped up about.

Tom Wheelwright:

So the fourth loan, which in the bill is the first loan, but it's really the fourth loan, is called the PPP Loan, Payroll Protection Program Loan. And this one is available to all small businesses under 500 employees, all franchises regardless of number of employees, and all restaurant chains basically, as long as the location employees aren't more than 500. So I don't know any restaurants that have location employees of more than 500, except maybe a casino, right, that would be one of those. Okay. But if you're under 500 employees per location as a franchise, or as a food service, then you qualify for this. So MacDonald's qualifies for this, right? I calculate roughly, $1.5 billion is going to go to MacDonald's out of this, because I'm sure they've already got their act together, they've got their bank together, I'm sure that they have applied for this loan.

Tom Wheelwright:

This is a loan that is equal to 2.5 times, two and a half times, your average monthly payroll. Now average monthly payroll is very specifically defined, and there are some things that are beyond just regular payroll like health insurance, like 401(k) contributions, and things like that. So you're going to want to sit down with your CPA, and you're going to want to sit down with your banker, and you're going to want to make sure that you apply for this loan. Now, here's the key, you need to apply for this loan immediately. And the reason is because, this loan, the amount of money set aside is $349 billion, of which MacDonald's is already going to get $1.5 to $2 billion of it. Taco Bell's going to get another chunk, all of the franchises are going to get huge amounts here, and they have a lot more power than you may have. So make sure that you get with your banker immediately, get with your CPA immediately and figure out how to apply for this loan and get that application in like yesterday. Okay?

Tom Wheelwright:

So here's the key to this loan, yeah okay, so it's 2.5 times average monthly payroll. Well, if your average monthly payroll is $40,000.00, that's $100,000.00. What am I going to do with $100,000.00 loan, that's not enough? Well the thing is, is that $100,000.00 loan, well, most of it, if not all of it, is going to be forgiven and it's non-taxable. So it's basically a $100,000.00 grant from the government if you have a $40,000.00 monthly payroll. Why would you not take that? Why would you not apply for that loan? So all of our clients throughout our WealthAbility® network, they're all applying. I think everybody needs to apply for this, because the qualification is simply under 500 employees, you don't have to show economic hardship here.

Tom Wheelwright:

And the reality is, you go, “Well, I don't have a lot of economic hardship now,” but what if two months down the road you will? The money's not going to be there. I laugh, they say, “Well, you can apply through June.” Well, the money's going to be out by the end of next week, it's going to be gone, okay? So apply right this minute, do not wait on this.

Tom Wheelwright:

So those are the four loans. Then, there are some grants. Now the one everybody's heard about, is the $1200.00 check that's going out for anybody, any single person who had taxable income of up to $75,000.00 in 2018 or '19, any head of household that made $122,500.00 or less, and any joint return, married filing jointly, that is $150,000.00 or less. Now some of you, you filed your 2018 return, you haven't filed your 2019 return, and your 2018 return you were over those limits, but 2019 you're under, you need to get your 2019 tax return done right now, because you want to be able to get this grant. And they're sending this money out in the next couple of weeks, so get that 2019 tax return done now.

Tom Wheelwright:

On the other hand, if your income went up in 2019 and you qualified in 2018, do not file your tax return for 2019, because they're going to base it on 2019 unless it's not filed, and then they'll go to 2018. Now it's technically a tax credit against your 2020, that's what it technically is, the reality is you're not going to get the advanced money… So you'll still get it, if it turns out that you qualify for it, right, you may get it as a credit on your tax return, but you're not going to get a check. So you want to get this check. You sit down with your CPA, sit down with your tax preparer, and make sure that you've got the right tax return filed at the right time.

Tom Wheelwright:

On top of that, there's another $500.00. So $1200.00 per taxpayer, that's husband-wife together get $2400.00, plus $500.00 per child under the age of 17. So for a family of four with children under 17, that's $3400.00. So nothing to sneeze at there, that's some serious money, okay? So make sure you take care of that.

Tom Wheelwright:

Another grant, which has been talked about a lot, is the unemployment insurance. So if you're unemployed, and by the way independent contractors qualify for this… By the way independent contractors and self-employed people also qualify for the PPP Program. So don't think that just because you're, “Yeah well, I don't have employees,” well if you're the only employee, if you're the only person working there, you still qualify for that PPP Loan, which in effect, is a grant. If you're unemployed, let's say that you are a consultant and your work all dried up as a consultant, and you're unemployed, guess what, you have a choice, you can apply for the PPP Loan, or you can get unemployment.

Tom Wheelwright:

Unemployment, and this is the first time ever that I know of, that unemployment has applied to independent contractors. Now, here's the thing, for unemployment, the way you calculate this is, you get your normal unemployment, so in Arizona that's $250.00 a week, I think in California it's like $600.00 or $800.00 a week. I know it's more in California. So it's whatever your regular State unemployment is, plus an additional $600.00 a week. So I calculated it, in Arizona that's approximately $3400.00 a month. That's not bad for being unemployed. In California, it's like $4200.00 a month. So let's say you have two earners in your family, and you're both unemployed because you're both in restaurants, or bars, or for whatever reason you're laid off, or surgery centers, or whatever, that could be anywhere from $6000.00 to $10,000.00 a month. So be sure to apply for that unemployment, and do it right away.

Tom Wheelwright:

That one I don't think will run out, but it lasts for four months that extra $600.00 a week, so be sure to take advantage of that one. Okay? I also mentioned that $10,000.00 EIDL grant, that's one to talk to your banker about, and I also mentioned that the PPP Loan is effectively a grant. So again, talk to your banker, talk to your CPA about those.

Tom Wheelwright:

The third area, that's a very big area in this bill, is the new tax laws in this bill, and they will affect many of you. They will affect many of you. So let's look at what they are. Very first, is if you have an economic hardship because of the COVID-19 crisis, then you're able to take $100,000.00 out of your IRA, or your 403(b), or your 457 Plan, and guess what, you get to spread that over three years. You can either pay it back in three years and not be taxed on it, or spread it over three years between 2020, 2021 and 2022, and guess what, you can do that and if you can pay it back within that three years, it's not taxable at all. But there's no penalties if you take this out, no penalties at all, all right?

Tom Wheelwright:

Second of all, if you're in a 401(k), so you're still employed, you've still got your 401(k), you're with your employer, then you can borrow up to $100,000.00. Now loans aren't taxable, so you can borrow that $100,000.00 and that would be tax-free as well. Now, you do have to pay that back. Now let's say that you have a 401(k) and you lost your job, because you're again, restaurant or whatever, a lot of people lost their jobs, well now you're separated from service so you can pull $100,000.00. So you could roll that 401(k) into an IRA, self-directed IRA, pull $100,000.00 out, and you can spread it over three years. If you have a loan already existing, that will just be treated as a distribution, so that will qualify also for that spread over three years.

Tom Wheelwright:

So there's lots of options here that are good options if you need some money out of your retirement account, so be sure to talk to your CPA about it, look at the tax consequences, be sure to talk to your employer about it if you're in that 401(k) situation.

Tom Wheelwright:

All right, that's one big tax provision. Another one, there are some fairly nice tax provisions for real estate, this is pretty much the only place real estate gets to benefit under this new law, because if you're in real estate you may not have any employees, so you don't qualify for one of the loans or the grants. And if you're in multi-family, or even commercial, you may have tenants who can't pay, or just won't pay, or you may have a hard time renting your building. So what kind of benefits do you get out of this? Well frankly, very little. I think that the next relief bill will be for real estate. We'll wait and see on that. In the meantime, let's take advantage of the tax benefits.

Tom Wheelwright:

So here's the big tax benefits for real estate. Number one, qualified improvement property, which is basically tenant improvements for the most part, leasehold improvements. Prior to 2018, they were considered 15-year property, which means you got to depreciate them over 15 years. In the 2017 Tax Act, the intention was to keep them at 15-year property, but there was a technical glitch because they did the bill so fast, and it did not get in there. So leasehold improvements, qualified improvement property, has been depreciated based on a 39-year life, and not subject to bonus depreciation. Well, the Cares Act corrects that. It's a technical correction that was long overdue, it has nothing to do with COVID-19, however, it is a huge benefit if you did a lot of tenant improvements, and particularly if you're in the commercial. Or let's say that you did your own tenant improvements for your own space sometime in 2018 or '19, or '20, then all of a sudden, this is now subject to 15-year depreciation and at least for '19 and '20, we know you'll be able to get bonus depreciation.

Tom Wheelwright:

I believe, I don't have any inside information, but it's my belief that we will get relief for 2018 when we get some regulations out, and we'll be able to get bonus depreciation for qualified improvement property. We'll be able to go back and file an amended return. So you want to be talking to your CPA about that. Maybe give them a week or two to talk to them about it, because they're slammed right now with these loans and tax returns, but definitely talk to your CPA about it.

Tom Wheelwright:

Another one is, Net Operating Losses. Now, under the 2017 Act, we lost the ability to carry back net operating losses. Under this act for 2018, '19 and '20, we can now carry back net operating losses five years. So if you had a net operating loss in '18 or '19, you would not have been able to carry that back, now you can. So that's a lot of money in your pocket, a lot, if you had a net operating loss. So sit down again, with your CPA, your tax advisor, and walk through this one. It's a big deal.

Tom Wheelwright:

Two other deals that effect real estate, but they also affect other businesses. One is the 30% interest disallowance rule. Not a lot of people know about this, but you only get to take interest expense up to 30% of your net income. Real estate has pretty much been exempted from that, if you have a good CPA and they file the forms properly, but there are some people who have definitely been hurt by that, and that has been increased from 30% to 50%. I think big companies will be the biggest beneficiaries of that, and not necessarily real estate companies, but big companies.

Tom Wheelwright:

The other one that we want to talk about for real estate, and it's not just real estate it's any business, business losses were limited to off-standing business income, which included wages, under the 2017 Act, plus $500,000.00 of non-business income, which was basically interest in dividends and retirement income. So this act eliminates that $500,000.00 rule. You may have seen an article in the New York Times saying this is a huge win for real estate developers. I don't have any real estate developers who actually have interest in dividends, so I'm not sure I understand what they're talking about. They were also talking about the 30 to 50%, again, my real estate developers all got their interest. So if you have a good CPA, you weren't too worried about these two things anyway, if you don't have a good CPA, or you had these limitations, be sure to go back to your CPA, or maybe find a new CPA.

Tom Wheelwright:

That's what The WealthAbility® Network is all about by the way. If you found that your CPA is not up to speed on the Cares Act, or that you're worried about, “Am I getting all of the tax benefits to which I'm entitled,” then please call us at WealthAbility®. Better yet, go to wealthability.com and there's a button on the front page that says, sign up for a free consultation, we will help you anyway we can. We will help you anyway we can. So please, take advantage of this free resource, okay? It doesn't cost you a dime. We can help you find a CPA, we can help you find… we can lead you in the right direction here. So we're here to serve, we're here to help during this crisis.

Tom Wheelwright:

CPAs are the frontline of the financial crisis, so we have a fairly significant network of 35 CPA firms around the country, and we can help you in your neighborhood. So you don't have to have somebody that's within walking distance, because guess what, you can't go see them anyway, right? Even though we're an essential service, really, you should be staying away. All of our members handle their clients remotely, and can handle them through phone, online, or otherwise. So don't worry about that, we will be there to take care of you.

Tom Wheelwright:

All right, one other very big tax issue, and I'm going to leave it with this, and that is that, you all know that under the second relief bill that… actually, not even in a bill, it was actually in an IRS Notice, your taxes for 2019, were postponed until July 15th. Not all the States have followed suit by the way, so you need to pay attention with your CPA for your State taxes, because not all States have followed Federal, and make sure that you get your extensions done for April 15th if the State didn't follow suit. And some States extended it a little bit. I think Hawaii extended it a month from April 20th to May 20th, and other's extended it a month, or two months or whatever, they didn't all follow Federal, so don't ignore the States, okay?

Tom Wheelwright:

Now the big change under this bill, is that as an entrepreneur or real estate investor, you would normally make… you don't have a lot of wages, so you're not taking all of your… you're not paying your taxes over the year through withholding, like employees do, rather you're paying it in estimated payments, and you make a payment on April 15th, June 15th, September 15th, and then the following January 15th. This law, extends the due date for the April, June, and September payments to October 15th of 2020. So that means that you have several extra months without any penalties or interest to make those estimated payments.

Tom Wheelwright:

Now here's my concern, because I've seen this before, you're just kicking the can down the road six months, what's going to happen let's say the economy doesn't magically recover in six months, which I don't think it's going to, I think we're in this for a number of years here. I don't think this is a snow storm, I think this is much worse than a snow storm. You don't have a whole lot of people dying in a snow storm, and it's not… snowstorms, the snow melts. This virus is here with us for a while. So don't just kick the can down the road six months, please. We now have a window of opportunity, you have a window of opportunity to do a tax strategy with a tax strategist, a CPA who understands tax strategy, who understands how to look forward, you can do a tax strategy between now and October so that you have a much lower payment in October. So basically, you can pay a little bit now, or a lot later. Now you can pay a little bit now to your CPA, you're going to pay a lot later to the government. It's all the same money to you, it's just a lot more if you pay the government.

Tom Wheelwright:

Now let me tell you one other thing that's going on, is that America, along with Italy and most other countries, is going to be on sale. Anytime we have a big disruption to the economy like this, we have foreclosures, we have… and not just in homes, of course those have been… they're not evicting you right now for the most part, but also in multi-family. You have even commercial. You're going to have a lot of people in real estate, you're going to have a lot of people in businesses, you're going to have a lot of upheaval here. That means that six to nine months from now, there's going to be some fairly significant opportunities, and I know you hate talking about opportunity during a crisis. I mean, that just makes you sound like a politician.

Tom Wheelwright:

At the same time, a lot of us remember 2008, and those of us who got hit hard in 2008, I was one of them, I made all the real estate mistakes that other people made, so I just had to dig out of that for several years. Well, while I was digging out, my buddy, Ken McElroy was making a killing in the real estate market. He wasn't a predator, he wasn't trying to get things at a lower price than market, he just market priced… it's just the market went way down. It went from a seller's market to a buyer's market. The same has already started to happen here right now. So you want a plan of action in order to be able to recover, and that's the way I look at it. Some people will recover really well from this crisis, and other people will just get deeper and deeper in debt, they'll continue to have a single customer called an employer, and they will continue to be at risk, because they won't have money set aside.

Tom Wheelwright:

I talked to somebody the other day who told me that they had no savings, and their business, because of the crisis, had dried up and they had no savings. I'm going, “Wow, I would hate to be in that situation.” Now, I'm very blessed to have a network around me that we learn about how to prepare, and we learn about how to be ready for any crisis, and that's called having a wealth strategy. So what I would suggest is, you get on the horn right now, you go on our website wealthability.com, and here we have a special offer for you that we're going to make just for April, and I'm going to announce this right this minute.

Tom Wheelwright:

Should you sign up for our wealth and tax strategy, which will save you thousands… likely save you thousands and thousands of dollars, and prepare you for the opportunities over the next couple of years, if you sign up in April on a strategy with one of our members, your new CPA, your new accountant, will prepare your individual tax return first year for free. They'll prepare your individual tax return for free. It will just be included in the cost of the strategy. The cost of the strategy is not going up, we're not changing our prices, okay? We're not increasing our prices to include tax returns. No, we're just doing more work because we think we need to get people to be thinking about this now. We don't want you to wait until July or August, because then it's going to be too late, you're not going to be able to do it by October, and you've got to do this now.

Tom Wheelwright:

So I strongly encourage you, go to wealthability.com, click on free consultation, and let them know that, by the way I heard on the website that I get a free tax return out of this. So take action now, because the offer truly won't last, it's an expensive offer to make frankly. At the same time, we really want to do everything we can to get people ready for not the next crisis, but the next opportunity, because when you're ready, when you understand what's available in the Cares Act, but beyond that what you can do for the next few years when those opportunities arise and pay a lot less tax… and take advantage of the tax law, you're always going to be making way more money, pay way less taxes, and you'll sleep very well every night.

Tom Wheelwright:

By the way, if you like the WealthAbility® Show, please go online, please, please give us a review, okay? Please go to iTunes, give us a review, wherever you listen to the podcast give us a review, give us five stars if you like this. If you have suggestions, please give us suggestions, we want to hear from you. We want to serve you any way we can, and I'll see you next time.

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You've been listening to The WealthAbility® Show, with Tom Wheelwright. Way more money, way less taxes. To learn more go to wealthability.com.