(Most recent updates on top – for older updates please scroll down)
CARES ACT HIGHLIGHTS MAILING 4/1/2020
On March 27th, 2020 the CARES Act (Coronavirus Aid, Relief, and Economic Security) was signed into law. This is the largest economic stimulus package in history, amounting to approximately $2 trillion of aid.
This 883-page act contains several provisions designed to provide Americans some relief during these challenging times. We’ve summarized a few of the key provisions below.
Relief for Individuals and Families
Recovery Rebates for Individuals:
To provide some short-term cash flow relief, many Americans that filed a 2018 or 2019 tax return can expect to receive a rebate from the Federal Government.
Individuals (married couples) with an Adjusted Gross Income (AGI) less than $75,000 ($150,000) will receive $1,200 ($2,400). Additionally, each child in a qualifying household under the age of 17 entitles the family to an additional $500 per child. If your AGI is higher than these limits, the rebate will be reduced then phased out entirely for AGIs above $100,000 ($200,000).
Retirement Accounts:
Temporary waiver of Required Minimum Distribution rules: Individuals that were expecting to take required minimum distributions (RMDs) from their retirement accounts this year were afforded some relief. RMDs from IRAs and defined contribution plans have been waived for 2020. For those that have already taken a portion or all of their 2020 RMD, you may be able to “un-do” this if completed in a timely manner.
Tax-favored withdrawals from retirement plans: If you have been impacted by COVID-19, you may be able to withdraw up to $100,000 from your retirement accounts penalty-free with the possibility of repayment of distribution over a three-year period.
Regarding qualified plan loans: If you need to take a loan from your employer-sponsored retirement account, you may be able to withdraw the lesser of $100,000 or 100% of your vested account balance from your employer plan.
Expanded Unemployment & Reduced Work Benefits:
The federal definition of unemployment was expanded to increase the number of individuals eligible for these benefits, including self-employed workers. In addition to state benefits, unemployed individuals will receive Federal support in the amount of $600 each week for up to four months.
Unemployment benefits in many states (including California) are typically limited to 26 weeks. The CARES Act provides for 13 extra weeks of unemployment, meaning unemployment benefits can cover 39 weeks (26 regular + 13 extra).
Incentives to Create Short-Time Compensation Programs:
If your work hours have been materially reduced due to COVID-19, the Federal government program may help fill the gap by paying a pro rata portion of the unemployment compensation you would have received if you were unemployed.
Charitable Giving:
For individuals that do NOT itemize deductions (file Schedule A), you’re allowed to deduct up to $300 of any charitable contributions you make this year. If you DO itemize deductions, the current year charitable tax-deduction limit for cash contributions has been increased to 100% of your 2020 adjusted gross income (AGI).
Definition of Medical Expenses Expanded:
Individuals that have HSAs, MSAs, & FSAs will now be able to include over-the-counter (OTC) medications as eligible medical expenses. Additionally, Telehealth services will be temporarily covered by HSA-eligible High Deductible Health Plans (HDHP).
A small, but notable change for individuals who have Medicare Part D plans: you can now request up to 90-day supply of medication.
Student Loans:
Federal Student loan payments have been deferred through September 30th, 2020. Additionally, no interest will accrue during this time.
Relief for Businesses
The CARES Act includes a number of packages designed to alleviate the hardships that businesses are facing. Some of the more notable provisions are:
Forgivable loans:
These loans may be equal to the lesser of 2.5 months of payroll or $10 million for a period of up to 10 years. To be eligible for forgiveness, businesses must use these proceeds on specified expenses, such as payroll, rents, utilities, and healthcare. Additionally, businesses must maintain the same number of employees from 2/15/2020 through 6/30/2020 that matches the same number they had during a predefined period.
2020 Payroll tax deferral Option:
50% will be due on 12/31/2021. The remaining 50% will be due on 12/31/2022.
Other Notable Provisions for Businesses:
- Employee Retention Credit: The bill grants to certain employers a refundable credit against the employer portion of Social Security taxes.
- Expansion and revisions for corporations to deduct Net Operating Losses (NOL’s)
- Acceleration of recovery of AMT tax credits
- Relaxation of limits on business interest deductions
There are a number of additional provisions, but ultimately the goal is to help small businesses keep their workers employed.
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These are unprecedented times we’re facing, individually and as a nation. While much uncertainty remains, we’ll get through this together. Please know you can reach out if we can be of service to you in any way.
The information presented herein is a very high-level summary of the CARES Act, a very lengthy and detailed piece of legislation. We are sharing it for educational purposes only; nothing herein should be interpreted as tax advice. Please consult your CPA or tax preparer before making any decisions regarding your tax situation.
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Business & Investment Update: 03/24/2020
From, Mark Delfino & Your HoyleCohen Team
The health and financial well-being of our clients and staff remain of paramount importance. This communication offers a short update on our business operations and core investment messages. We have also included a more in-depth update to our perspective that supports these messages.
Health First
We have been working remotely and honoring social distancing protocols since Monday, March 16th. Our HR team is in touch with staff daily to check in and see how everyone is physically and mentally. In short, we are fine.
Business Operations
Our goal is to maintain the level of service and responsiveness to which our clients are accustomed regardless of our work circumstances as best we can. We knew this would be tested when we decided to go entirely remote on March 13th. We are happy to report that our technology is working as expected, our staff is rising to the occasion and we have been able to work productively and collaboratively from home.
This is our internal perspective, of course. It’s more important that you – our clients – feel well-supported. While we greatly appreciate your patience and support during this accelerated adjustment to our ‘new normal’, we also hope you will tell us if you have issues or if we are not rising to our mutually high standards. It’s best to communicate directly with your Advisory and Client Service team members, but you can also email or call me, Peter Mueller or Heather England if there are issues you feel we should address.
Our Core Messages
Financial markets have fallen in anticipation of worsening economic conditions. The situation feels very real to each of us. In fact, each of us is a player in it as we do our part to stay healthy and slow the virus. When we are successful, our current circumstances will have been temporary. There’s emerging evidence in Asia that this is doable. Our core messages remain:
- This is not a time to take unusual actions related to your portfolio. It is a storm that should be ridden out by an investor with a long-term perspective. History has rewarded the long-term investor repeatedly. Investors who exit markets out of fear could easily miss much of the subsequent advances. We don’t know what the future will bring, but we’ve seen and studied many crises and the broader economic challenges they created. While each circumstance is unique, the outcomes look surprisingly similar. Financial markets fall (often sharply) then eventually rebound (often quicker and sooner than anticipated). We do not expect this long-term outcome to be much different.
- If you need to raise cash due to an unexpected business or personal financial situation that you haven’t already talked through with your advisor, please reach out to him or her. We can help you think through options to address your circumstances.
A more in-depth summary of the thinking of our Investment Committee and Advisory Board that supports these messages follows.
Framework for Thinking about the Pandemic
We are not health experts and will not offer a perspective on the virus or its spread. However, we believe that it will be contained. Thus, our focus has been on: 1) when, 2) at what cost, 3) life on the other side of containment, and 4) how and when financial markets might react.
The virus is new, and forecasting has been difficult. Yet, more is known every day about it and its containment. The news is not all negative. The worst of this storm appears to have passed in much of Asia. The global spread may have been rapid, but global containment efforts, information sharing and human ingenuity are combining to address it at an accelerating pace as well.
The immediate focus remains: stay healthy and limit its spread.
Current Perspective on the Economic Situation
The prescription for the global economy and the virus is similar: contain it then return to sustained health. Unlike the virus, we have treatments for the economy readily available and a lot of recent experience deploying them on a large scale. In addition, explicit containment actions and real time reporting should make damage and risk assessment easier to identify and address than in past crises.
While the health response may have been slow, central bankers and legislators have been much quicker to react with monetary and fiscal policy than in the past. This is crucial since the impact of containment actions are immediate and acute. Policy makers learned during the 2008 financial crisis that it is important to hit a major economic disruption head on with immediate and aggressive actions.
Recently announced monetary policies and anticipated fiscal actions are already larger in total than actions taken by the U.S. in 2008-09. It’s too early to know how this will play out, but these and subsequent actions should go a long way toward backstopping much of short-term damage and liquidity needs. They can also set the stage for a sustained recovery.
Some analysts and economists believe the U.S. economy and most businesses could rebound to levels slightly below their pre-virus levels as early as Q4 of this year if we can trail Asian containment by a few months while simultaneously launching major policy responses. The result might be a record short-term drop in GDP, but that should be followed by one of the largest and fastest rebounds ever. Even if efforts slowed noticeably, most anticipate conditions should normalize sometime in 2021.
We’ll learn a lot more in the coming weeks. In the meantime, we know there will be a lot of short-term disruption but we also know that the policy cannons to help mitigate it are quickly being loaded.
Our Perspective on the Financial Markets
Financial markets are forward-looking. They react in advance of actual news. As we’ve just witnessed, equity markets didn’t need bad economic news to register a bear market in record time. They anticipated it. Similarly, they typically don’t wait for things to get much better before rebounding and recapturing most of their declines.
When this will happen is unknowable. We believe, however, that it will start to happen as soon as the market believes the U.S. economy is on a growth path that is more than a temporary blip. If the U.S. can follow the current Asian trajectory, this could happen before the end of this year. Even if the recovery progresses more slowly and continues into 2021, financial markets should anticipate this and improve much sooner.
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These considerations largely shape our ‘stay the course’ view. We believe an acceptable level of containment of this virus is attainable and eventually sustainable without fundamentally altering the economic landscape in ways that would make conditions unattractive to the long-term investor.
This is not to say that there won’t be permanent economic damage. Any disruption of this magnitude will shake viable businesses to their cores and yield permanent losers. Yet, there will also be many permanent winners: online services, health care being among the more likely. And, this could be the catalyst for new innovations in drug development, logistics and areas that we currently can’t envision.
Such is the path of human progress. It is rarely a straight line but it has proven remarkably resilient. We expect this to happen again here, even when current conditions feel negative and we cannot currently see or predict the exact ways forward.
Sincerely,
The HoyleCohen Investment Committee and Advisory Board
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Important changes to the 2019 tax filing deadlines (Updated 3/20/2020):
- In CA you have until 6/15/20 to file and pay CA state taxes
- At the Federal level the filing date is now 7/15/20
- Click here for other state-specific tax filing guidelines updated 3/17/20 due to coronavirus pandamic.
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HoyleCohen Business Operations Update Sent to Clients: 3/13/2020
The health and safety of our clients and staff are of paramount importance to us, and as a firm we have invested time and resources into ensuring that we can maintain business operations and serve you as we always have in a variety of conditions. This includes being able to conduct all operations and activities remotely and in isolation during a pandemic.
We want to make you aware of the proactive steps we have taken and will be taking at HoyleCohen to help contain the Coronavirus and ensure the safety of our clients and staff while continuing to serve you.
We can all work remotely. Every employee has a company laptop with access to our systems and data. Everything looks and works exactly as it does when in the office. Our applications are web-based, and our data are securely stored and monitored remotely in the ‘cloud’ with redundancy. Everything is secure and nothing requires human presence in the office. Every staff member has a cell phone and our phone system can forward calls to that number or send voice mail messages to the staff member’s work email box. In short, we are equipped to maintain our normal business operations 100% outside of our office, even on very short notice.
We will begin working remotely in all offices starting Monday, March 16th, 2020. Our focus is on your health and the health of our staff. We want to do our part to keep our staff, clients and communities healthy. As such, we are requiring all but a small skeleton crew to work remotely starting Monday, March 16th, 2020.
We are also suspending all in-office client meetings as of Monday, March 16th. Client meetings during this time will be conducted by phone call or Zoom (video) or will be postponed if a client prefers. If you already have a scheduled in-office meeting and we haven’t reached out to you regarding alternative arrangements, we will do so shortly.
We have practiced and prepared for business disruptions. Our firm maintains a rigorous Business Continuity Plan with real-life scenarios and test procedures as part of our normal business activities. This includes anticipating emergency situations, assessing their potential impact and preparing for them. As a firm with offices and clients in fire-prone areas, we have built a technology and work environment that would allow us to be effective while working remotely. While one never hopes for such an occurrence, it has made us better prepared for situations like the present.
We are confident that this coronavirus will be contained eventually. But, until more is known about the virus and more testing is available, we believe it is prudent and responsible to take these actions now since they will result in minimal business disruption and will help ensure our staff remains healthy and able to serve.
We remain, as always, in your service,
Mark Delfino and your HoyleCohen Team
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Market Update: 03/09/2020
Financial markets are reacting dramatically to news today that has added to coronavirus-induced economic fears. Before providing our view of what’s happening and why, we want to reemphasize:
This is not a time to take unusual actions related to your portfolio. Rather, it’s a storm that should be weathered by the long-term investor. If you are concerned that you have an unusual short-term situation or need that we are not aware of, please reach out to us.
What’s Happening and Why
An oil price war added to coronavirus-induced economic response over the weekend with oil prices dropping 20-30%. While lower energy prices offer many long-term benefits, the immediate effect of such a precipitous drop is usually viewed negatively. The bond market was first to react. Yields on long-term US Treasuries continued to drop as money flowed to what are called ‘safe haven’ assets.
Equity markets quickly followed, dropping rapidly as stock market participants quickly internalized the new information and attempted to handicap its impact. Computerized trading and forced ETF/option selling accelerated the decline which resulted in the market closing for 15 minutes soon after it opened when a protective circuit breaker was tripped. The circuit breakers are designed to halt computerized trading so humans can intervene and adjust their actions before markets reopen. The S&P 500 Index ended the day roughly where it was when the market was closed four minutes into the trading day.
What Should You Do
We continue to remind clients not to take reactive actions related to their investments. The current market risks present unique economic uncertainties that are unfamiliar to even the most seasoned traders. And, the news may get worse before it gets better. At times like these, it’s important to remember that panic is not an investment strategy and that it’s usually best not to go out into an intense storm. When this storm will abate is unknown. When markets will bottom and recover is also unknown. Financial markets are forward-looking so rather than try to predict this, it’s better to remain invested, consistent with your long-term plan. On the other hand, the continued drop in interest rates provides even more reason to consider refinancing a mortgage, even if you’ve done so recently.
What Are We Doing
We continue to closely monitor the situation. Most client portfolios are diversified in ways that have helped buffer them from much of the volatility that is showing up in headlines. In addition, our equity portfolios consist largely of higher quality companies that are chosen for, among other things, how they respond in times of duress. We continue to recommend that clients maintain their long-term asset allocations during this downturn and stay the course. And, we continue to be on the lookout for opportunities that may present themselves.
Putting It in Perspective
The S&P 500 Index hit its nadir 11 years ago today on March 9, 2009. Since then, it has a made a momentous climb without experiencing an offsetting “bear market” (signified by a 20% drop). Only 13 months ago, the S&P 500 sat below where it closed today. These times remind us of the nature of equity markets and why they have outpaced both bonds and inflation over the years. They also remind us of the importance of diversification.
As wealth managers, we endeavor to plan and invest with a long-term view that can also accommodate short-term needs. As a result, we focus more on how each client’s total wealth advances over the long-term rather than in short term intervals. We also measure volatility and risk along the way to ensure it is suitable for each client. We encourage any clients who are concerned about recent market volatility and risk to reach out to us. Let’s talk it through together.
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Market & Coronavirus Update: 2/28/2020
From: The HoyleCohen Investment Committee & Advisory Board
Global stock markets are responding to uncertainty around the spread and impact of the coronavirus. This communication summarizes our perspective and anticipated implications for your investments.
Health versus Financial Risks
Coronavirus became more real this week as it spread outside of China, but it’s important to separate the health and financial risks of this issue. The virus is a global health concern that should be taken seriously, particularly if it starts showing up in our communities. From an investment perspective, it is not a reason to panic or take unusual actions related to your investment portfolio. Rather, it’s a storm that the long-term investor should ride out. We continue to monitor the situation closely, and our advisors have already assessed the impact of the situation with respect to clients who have unusual short-term needs. If you are concerned that you have a unique short-term situation that your advisor is not aware of, we suggest you reach out.
Lessons from the Past
History may not repeat itself, but it can be instructive. While the news may get worse before it gets better, the impact on financial markets should be relatively short-lived; measured in weeks or months, not years. In fact, an analysis of eleven prior pandemics revealed that the S&P 500 Index was higher 12 months after the initial outbreak in all but two, and the pandemic itself was not the reason for lackluster performance in the other two circumstances.
Short-Term Disruption, Long-Term Containment
This does not imply that the coming weeks and months will be easy to stomach. This virus has an incubation period of up to 14 days with no symptoms, which has made it challenging to detect. The result has been a spread to 48 countries followed by relatively draconian actions by many to prevent further spread. In the short-term, this is very disruptive. Longer-term, this is vital for containment. The financial markets realized that they underestimated the disruption the virus could cause, taking most global stock markets down more than 10% from recent highs.
Old Normal versus New Normal
The key question for a long-term investor is: “what happens when the virus is contained?” Unlike major economic events, health-related events – even when pervasive – tend not to alter consumer or business behavior over the long-term. If prior outbreaks are a roadmap, we should anticipate one or more “V-shaped” recoveries in financial markets once data confirms its containment and life starts to return to normal for the large majority of people and businesses.
Volatility & Diversification
This outbreak comes in the later innings of a bull market and on the heels of a strong year for stocks. This increases the potential for a significant decline, which we are experiencing now. Such drops can rarely be predicted in advance but are not unexpected. Many investors may have forgotten that the S&P 500 dropped nearly 20% over a 3-month period in late 2018 over trade war fears only to recover its lost ground by April 2019. Periods like these remind us that financial markets (and stocks specifically) can be volatile and risky. Disruptions – be they from competition, trade wars or pandemics – are among the risks. These risks also highlight the value of a diversified portfolio. Many bonds have increased in value during this outbreak.
A Silver Lining?
Interest rates have declined along with stocks. In addition to supporting bond values in diversified portfolios, this has also resulted in lower mortgage rates. Anyone with a mortgage rate above 4% may consider if it makes sense to refinance. Feel free to reach out to your advisor if you feel we can help you think through this.
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We do not intend to understate the potential risks of the coronavirus. At present, it is exceedingly rare in the United States, but its spread outside of China is only starting to emerge. And, while its current mortality rate of 2-3% is less than other epidemics, it is highly contagious and a higher risk to certain segments of the population. In many ways, this makes it feel more real and unnerving than something like a tariff or trade spat.
We will continue to monitor the situation closely. While we are recommending that clients who were appropriately allocated prior to the outbreak stay the course, we are also exploring opportunities that may arise. In the meantime, we ask you to stay aware and stay healthy.
We are grateful for the continued trust and confidence you have in us.
Sincerely,
The HoyleCohen Investment Committee & Advisory Board
