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COVID-19 Tax and Financial Updates 03-27-2020

There have been a lot of tax and financial announcements due to the COVID-19 pandemic. Here are some highlights of updates as of this writing:

Tax Updates

  • Tax deadlines: The Treasury Secretary announce that the tax deadline for all businesses and individuals is delayed from April 15th to July 15th. Additionally, they will be able to make payments without interest or penalties. This also applies to the first quarter 2020 estimated income tax payment that is due on 4/15/20, however it does not postpone the second quarter estimated tax payment due on 6/15/20. Yes, that is strange, but we are living in unique times. IRA contributions for the year 2019 can be made until 7/15/20. So far, there isn’t any news from the State of NJ.
  • Existing Installment Agreements: For taxpayers under an existing IRS installment agreement, payments due between April 1 and July 15, 2020 are suspended. Taxpayers who are currently unable to comply with the terms of an Installment Payment Agreement, including a Direct Deposit Installment Agreement, may suspend payments during this period if they prefer. Furthermore, the IRS will not default any Installment Agreements during this period. By law, interest will continue to accrue on any unpaid balances.

Families First Coronavirus Response Act: Employee Paid Leave Rights

Generally, the Act provides that employees of covered employers are eligible for:

  • Two weeks (up to 80 hours) of paid sick leave at the employee’s regular rate of pay where the employee is unable to work because the employee is quarantined (pursuant to Federal, State, or local government order or advice of a health care provider), and/or experiencing COVID-19 symptoms and seeking a medical diagnosis; or
  • Two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s regular rate of pay because the employee is unable to work because of a bona fide need to care for an individual subject to quarantine (pursuant to Federal, State, or local government order or advice of a health care provider), or to care for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of the Treasury and Labor; and
  • Up to an additional 10 weeks of paid expanded family and medical leave at two thirds the employee’s regular rate of pay where an employee, who has been employed for at least 30 calendar days, is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.

Covered Employers: The paid sick leave and expanded family and medical leave provisions of the FFCRA apply to certain public employers, and private employers with fewer than 500 employees.

Eligible Employees: All employees of covered employers are eligible for two weeks of paid sick time for specified reasons related to COVID-19. Employees employed for at least 30 days are eligible for up to an additional 10 weeks of paid family leave to care for a child under certain circumstances related to COVID-19.

Qualifying Reasons for Leave: Under the FFCRA, an employee qualifies for paid sick time if the employee is unable to work (or unable to telework) due to a need for leave because the employee:

  1. is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
  2. has been advised by a health care provider to self-quarantine related to COVID-19;
  3. is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
  4. is caring for an individual subject to an order described in (1) or self-quarantine as described in (2);
  5. is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19; or
  6. is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and

Important points for employers:

  • The effective date of the Families First Coronavirus Response Act is April 1, 2020 through December 31, 2020.
  • The law is intended to be neutral for employers. Employer pays benefits and recovers the cost of such leave through a refundable, dollar-for-dollar payroll tax credit (up to certain dollar limits)
  • Employer receives 100% reimbursement for paid leave and certain health insurance costs, but
  • the amount is includible in income
  • Paid leave itself is exempt from employment taxes, and if the employer continues the employee’s health insurance coverage while he/she is out on leave, then the credit is grossed up to cover this additional expense

SBA Loans

The SBA is offering low-interest loans of up to $2 million with a low interest rate of 3.75% and long repayment terms. The SBA is waiving the “credit elsewhere” clause. The process should take 2 to 3 weeks and the website to go to is:

https://disasterloan.sba.gov/ela

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Tax and Financial Updates

There have been a lot of tax and financial announcements due to the COVID-19 pandemic. Here are some tax, unemployment and loan updates.

Tax Filing and Payment Due Dates Extended

The Treasury Secretary announce that the tax deadline for all businesses and individuals is delayed from April 15th to July 15th. Additionally, they will be able to make payments without interest or penalties. Initially, the extension was only for paying your taxes, but now it is for both filing and paying. So far, there isn’t any news from the State of NJ

Unemployment

If you were laid off, then do not hesitate to collect unemployment through your state’s Department of Labor website, even if it is temporary. Be aware that some of the websites have crashed due to the high volume of claimants. Also, for business owners, such as officers who own 5% or more of a corporation, you generally cannot collect unemployment.

SBA Loans

The SBA will offer low-interest loans of up to $2 million with low interest rates and long repayment terms. To qualify, you must show: a lack of working capital and loss of revenue related to COVID-19, financing is not available elsewhere (i.e., a rejection from your bank that you are currently using), your state’s governor will need to request that the Disaster Assistance Loans be open to their state, and meet the lending requirements.

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Wanna Be More Comfortable Financially?

Isn’t this what everyone says, that they want to be more comfortable financially? There are two ironies that are common with this thought, but you can do something about it.

Scenario #1

In this scenario you are making a good living, saving plenty, built up a good portfolio of assets, and have little to no debts. You should feel secure and comfortable, but yet you do not. Due to the fact that finances are very, very emotions based would be the reason for this, but I’ll let the psychologists figure out the exact reason. Whatever the reason may be, there may be two solutions to help change your perspective in this case: be thankful for your strong finances and be more generous with your giving. Remember, you can’t take it with you at the end, and there are others that can use some help right now.

Scenario #2

This is probably a more common scenario, but also relates to everything else in life. You need to make more money, save more, pay off your debts, and make your finances more secure and comfortable. Ironically, every action you take is in direct contradiction to obtaining healthier finances, from impulsive spending, failing to save, purchasing on credit, and a lack of serious actions to make more money. Maybe the reason is because you’re getting by, although not in a financially healthy manner, or maybe you feel like you are being restricted if you save a purchase for another day. Either way, it’s not working out well and you need to make changes. Even if the changes are very, very small changes, such as saving just 1% of your income, you will be surprised by how effective this can be to get the momentum going.

Last Thought

I’m not sure which scenario is better or which one is easier to fix. Would you rather think you are not financially comfortable, but really are, or not be comfortable, but prevent yourself from getting there?

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Should Married Couples Keep Their Money in Separate Accounts?

It’s not uncommon for married couples to keep their money in separate accounts, specifically checking accounts. With retirement accounts, each spouse must have their money in a separate account, including IRA’s and 401k’s, but is it ideal for a married couple to have separate checking accounts vs. a joint account, and why is this important?

Exceptions

There are some situations where funds must be kept separate, such as the case of a spouse with some sort of addiction (spending, gambling, substance) or mental issue, but this must be done to protect the family. I’m not referring to this situation.

Business Analogy

Can you imagine starting a business with a partner and then telling them that there needs to be separate accounts for the business that they bring in vs. the business that you bring in? In some cases, you may be able to know this information, but it can start to get grey very quickly. If everything was separate, then how are you partners? Who pays which bills and when? Should each partner know what the other is doing financially? I have never heard of a business that has done this and if they have, then I would like to know how it worked out. On a practical level, it is no longer a partnership. If a husband and wife have separate accounts then how can they behave like partners, financially speaking?

Unity

Having a joint checking account forces both spouses to work together and communicate about finances. Finances permeate through all aspects of a family from simple matters to more complex matters. A joint checking account keeps both spouses on the same page, and helps to keep them accountable to each other. It also helps to minimize selfishness and sets a focus on the family. With separate accounts, you can easily spend money on your own needs instead of putting the needs of your spouse and family first.

Asset protection

Do you want to know how to protect your assets in a marriage? Protect the health of the marriage so you do not have to worry about divorce. Practically speaking, what are you really protecting if you have separate checking accounts? The point of a checking account is not to save money, but it is used to pay for the operating expenses of the family.

Interdependence vs. Independence

It’s great to be independent, but interdependence is a more mature, evolved, and higher level of thinking. Independence states that “I” am important while interdependence shows that “we” are important. Which would you rather be?

Give it a Test Drive

If you are currently keeping your checking accounts separate, then why not give a joint checking account a chance? Try it out for 3 – 6 months and see if it changes the nature of your relationship. If they get better then let me know, but if things get worse, then don’t tell your spouse that you got the idea from this article.

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Do You Make a Good Living and are Actually Poor? You Probably Need to Stop Doing These 3 Things.

We spend so much of our time working, working, and then working some more to make a good living, but do you have anything to show for it? I don’t mean showing off, but rather having a strong financial foundation with minimal debts, savings, investments, and other valuable assets. If not, then keep reading . . .

#1: Stop Justifying Every Expense

Expenses can always be justified and rationalized even when they aren’t. It’s okay to spend money, but it should be in line with your economic situation. The funny thing is that as your income increases, your spending almost always increases in tandem, and sometimes even more than the increase of income. Relax, and spend a little slower while saving more. Remember, the goal of savings is to support yourself and your family for emergencies, large expenses such as college, and when you eventually stop working and retire.

Step #2: Caring What Others Think

Guess what? No one cares about your material possessions except on a superficial level. Sometimes people will briefly talk about you because you drive an older car (even though it may be a luxury car that is fully paid for), live in an older house, have crabgrass growing on your lawn (unfortunately it dies in the winter, otherwise it is nice and thick in my opinion), take non-Disney vacations (aren’t you exhausted afterwards anyway?), and don’t wear Uggs or brand names on your shirts and jeans (I like that only those rare individuals with fine taste in men’s shoes appreciate the awfully expensive shoes I wear though). The bottom line is not to stretch yourself to seek status or to impress others, but to spend according to your state in life.

Step #3: Saving Last

This is one of those times that math doesn’t make sense. You need to save first otherwise there will be no savings left over. You would think that the order doesn’t matter, but is does matter in the real world. Also, save up on a percentage basis, so that when your income grows, your savings grow also.

Summing it Up

These bad habits are prevalent among those that earn $50k, $500k, or more. Bad habits will follow you through your life regardless of where you are economically. Once you recognize this, hopefully you will be able to change course instead of feeling like you are always running and getting nowhere.

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How to Destroy Your Business Success in 6 Steps

Sometimes to be successful means to avoid doing the things that will destroy your success. It’s easy to go down the wrong path and it’s important to be aware of this.

Step #1: Saddling Your Business with Debt

Conventional wisdom states that there is smart debt vs. dumb debt or a similar description of two kinds of debt. Although there is some truth to this, the bottom line is that large amounts of debt will cause a huge handicap to your business, especially a start-up. Even if you are doing well it will not feel like it when you have massive debt payments each month or sometimes on a daily or weekly basis if you took out a predatory lender loan. When you have easy access to large amounts of debt it numbs your sense of being financially cautious, prudence, and allows you to spend your money on things that can easily be justified but are not necessary.

Step #2: Poor People Management

See what happens if you constantly treat your employees, vendors, and customers disrespectfully. The end result will be high turnover, sabotage, lack of a sense of shared purpose, losing customers, and everything else negative. It is amazing to see how little attention is paid to the management of people in a poor performing business.

Step #3: Over Working Yourself

There are times when you need to work more or work more rigorously, but if done for too long, then your productivity will decline, decision making becomes worse, and you may find yourself in the hospital for stress induced health reasons.

Step #4: Not Listening to the Right Advisors

Unemployed Uncle Jimmy with a string of failed businesses will not provide you with the advice you need, and if he does provide you with advice, then do the opposite. Or, which is also very commonplace, is to seek the advice of the wrong professional. Make sure the professional that you confide in is an expert with the advice you are looking for.

Step #5: Personal Issues

This is somewhat related to step #2, but more on a personal level. If you are going through difficult times on a personal level, then this will ultimately translate into poor business performance.  A common example is taking care of a sick family member that needs you. If you need to focus more fully on your family situation, then delay starting a business, or for an existing business try to delegate more of your business responsibilities to trusted employees.

Step #6: Ignore Marketing and Sales

Many years ago, I met with a brand new business owner to discuss his business and try to help him out. During our discussion, I asked what he was doing for marketing, and he said that he did very little because he didn’t want to spend money on marketing because marketing costs money. I’m not sure of my exact reply, but he was no longer in business within a few months’ time.

Summing it Up

Some of these steps may seem obvious, but they are common due to the fact that it is hard to take a step back, access a situation, swallow your pride, and say to yourself, “Hey, I need some help because I am not always right.” We should probably all say that more often.

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Do These 6 Things Differently than Others if You Want to Get Ahead Financially

Do you ever wonder what the difference is between those who get ahead and those who are constantly struggling? There is a pattern of actions that are taken repeatedly by those who get ahead, while the opposite is true of those who struggle.

Action #1: Delayed Gratification

The financial impact of delaying gratification for future success is astounding. The best example is an expensive car or high-end home. These things are great, but if you know that you will be stretched to purchase them, then give it some time before doing so. Once your finances enable you to comfortably purchase these items then go for it if it fits into your overall financial goals.

Action #2: Seek Advice from the Right People and Listen to Them

It is always a good idea to seek the advice of those we trust, but they must also have competence to provide you with the proper advice. Do not ask your brother in law that has declared bankruptcy twice and is reckless with money for financial advice. On second thought, you may want to ask for his advice and do the exact opposite! Also, seek the advice of a qualified professional or successful mentor who has relevant experience.

Another, related aspect of seeking advice knowing who is trying to work with you and who is working against you. Don’t beat up the people that are on your side and don’t let the bad fruits in the gate.

Action #3: Save and Invest Constantly

Even a small amount of saving/investing can add up over time. Also, investing does not have to only be in the stock market, but can consist of growing your business to make it more valuable, purchasing rental properties, investing in or purchasing other businesses, etc.

Action #4: Be Cautious When Incurring Debt

Debt has its proper place, but it is misused quite often. Many of us are lured into large, unnecessary purchases or poor investments because we can finance them over. Even if the debt is helpful for the production of income, it still may not be the best course of action. Debt also makes us lazy, meaning that it is easy for us to make decisions without really thinking them through fully.

Action #5: Have Endurance

Don’t give up too easily. It may take several tries to get where you want to go, but you need to keep on getting back up when you falter. Yes, it hurts when you get derailed, financially or otherwise, as life happens, but keep on moving forward.

Action #6: Don’t Make Decisions Based Solely on Emotions

Just because someone made you angry doesn’t mean that you need to let them go. Can you imagine telling off your boss (very bad move), or firing a key employee or vendor because you overreacted to a non-fatal mistake that they made? Trust me, you will suffer financially for this.

To Sum it Up

Did you notice that most of the above are based upon emotions and relationships? Healthy emotions and relationships will help you to be get ahead and make the journey more pleasant, while knee-jerk reactions, seeking instant gratification, and unhealthy relationships will create a roadblock to getting ahead.

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Why You Shouldn’t Sell Your First Home

The common scenario is this: purchase a small, starter home and then move after 5 to 10 years into another, much larger home. But is this a prudent move or are there other options?

There is one, largely overlooked option, that can have a great financial impact on your finances. The option is to move and then rent out your existing home. There are times when this makes sense, and other times when it doesn’t.

Makes sense: It makes sense to rent our your first home if the following are true:

  1. You have the funds for a down payment on a new home or you can access the equity of your home without getting too deep into debt. A combination of the two may be used also.
  2. The expected rent is greater than the expected expenses
  3. It will be easy to find a renter
  4. There is a strong possibility of continued appreciation of your first home
  5. You do not mind being a landlord
  6. You have a small cushion for times of vacancy, and are in a strong position financially

Doesn’t make sense: It doesn’t make sense to rent out your first home if the following are true:

  1. You do not have the funds for a down payment on a new home
  2. There is not much equity in your old home
  3. The expected rent is less than the expected expenses
  4. It will be difficult to find a renter
  5. The expected appreciation is either very low or the first home may depreciate
  6. You do not want to be a landlord. However, I challenge this assumption, because there are always things that you do not want to do but should do them anyway.
  7. Your financial situation is in turmoil

What’s interesting to note is that most people who sell their homes do not think of how much the transaction costs can be, especially as a percentage of the selling price or equity, until they are in the sales process. I do not mean that costs are hidden, but the costs are not factored into the equation when wanting to sell a house. Additionally, when you sell your first home, you most likely have to repair several items that can costs thousands of dollars that you do not realize the benefit of.

If you want to get ahead financially, you usually have to not do what everyone else is doing and take prudent chances. Part of prudence is to look at the worst case scenario. If the worst case scenario is that renting your first home has become a nightmare, then just sell it and move on.

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Which Type of Business is the Best One to Own?

Which type of business is the best one to own? The short answer is one that makes money, but the long answer is that it should have all or some of the following characteristics:

Simple product or service: The more complex the product or service you are offering, the harder it is to operate your business. For example, it is much more difficult to train someone to be a management consultant than a server at a restaurant, although some restaurateurs might think otherwise.

Recurring and/or predictable revenue: Subscription-based services receive recurring payments on a monthly, quarterly, or annual basis, which tend to be highly predictable. A project-based business performs a service, gets paid, and has to find another customer, whereas, a subscription-based business may have no known end date or automatic renewals. A perfect example is a software company, but another example is a landscaper. A landscaper may not be thought of as a subscription-based business, but it actually is.

Cash in before cash out: Selling a product or service and then waiting to get paid can drain your cash resources, especially if you are growing. Ideally, you want to operate a business that receives cash up front and then pays expenses.

Low capital investment: If you need to invest large amounts of cash upfront for improvements and equipment then it creates a hurdle to overcome. This is especially true if you do not have a lot of cash and are using debt because the debt payments act as a handicap to your success. On the other hand, if you just need to rent a small office to start your therapy practice, then the risk is much lower.

Economic profits: Did you know that many small businesses do not produce much of an economic profit? For example, if you start your own medical practice and then make as much as you did as an employee then there is no economic profit. Although, you do have to give it a few years to determine this.

Easily scalable: This means that you can easily duplicate your success by either opening more locations or growing your operations easily without relying on the owner exclusively. A perfect example is a franchise, which has a blueprint to run the business smoothly. A bad example is a niche-consultant who works one on one with clients.

The interesting fact to note is that almost any business can modify its strategy to have the desirable traits above. The complex can simplify their offerings, services or products can be made recurring, and profits can be grown to more desirable levels.

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5 Practical, Passive Money Making Ideas

There are many ways to make money that do not involve a lot of ongoing effort, and they are actually practical. Some are easier to implement than others, but all virtually require work up front to get your activity off the ground. Here are five:

Rental investments: Thousands of books have been written on this subject, but I’ll summarize the secret to making money on this one in one paragraph. The work comes before purchasing the property. First, estimate the lowest expected amount of rental income per month, less at least one month to two months of vacancies per year. Next, calculate all of the costs of owning the property, including mortgage payments, property taxes, insurance, repairs, etc. If your cash expenses are greater than the expected rent then do not buy the property. If the opposite is true then consider purchasing the property as long as the income and appreciation potential are profitable. One paragraph books about real estate investing do not sell too well.

Lending to a business: If you have extra cash, then consider lending to a small business. Just make sure to think somewhat like a banker and understand the risks and rewards. Make sure you have an attorney draft the agreements, prepare all of the filings, etc., to reduce your risk in the case of disputes or default.

Invest in a business: Invest in a business to eventually receive dividends, distributions, or a payout upon sale. Just as in lending to a business, make sure to understand what you are getting into, ie, perform your due diligence, and see your accountant and attorney.

Sell a digital product/course/e-book: Unless you are tech savvy, it may be easier to hire a consultant to set up a website for you to sell a digital product. The product can be about virtually anything, but a good place to start is to offer a digital product based upon your specific expertise and knowledge.

Referral commissions: Usually this one applies to an existing business owner, but the idea is to refer your customers to another vendor for either a product or service, and then receive a commission for it. The amount of effort expended is very minimal, but the commissions can be a good source of profits for your business. The caveat is to always make sure that you abide by all legal requirements for receiving commissions.

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