This week’s radio show and video guests are Amanda Han and Matthew MacFarland of Keystone CPA alongside Bruce and Aaron Norris. Today, they will discuss tax impacts, SBA loans, California resources, and much more. Matt and Amanda answered questions regarding the stimulus package, what is in it for the real estate community, SBA loan process, and other impacts in our industry related to the coronavirus. The YouTube video is below.
Known Updates We Missed (4/3/20 @ Noon)
- PPP definition of “payroll” now no longer includes 1099 payments to contractors (this is not favorable for landlords who typically do not have W2 employees)
- Required Minimum Distributions (RMDs) already taken in 2020 can be undone within 60 days. Does not need to be “coronavirus related”
- $100k distribution may be also allowed from Defined Benefit/Pension plans, if allowed by the plan and if coronavirus related
- Plan documents do need to be amended for the new retirement change rules for RMD, $100k distribution, and $100k loan
- We’ve updated the SLIDES that you can download that have the updated information. Changes on slide 11,22,23, and 32
- IRS took away the previous 180-day rule on the $100k distributions from the IRA so now the distribution can be taken all the way through 12/31/20 if coronavirus related
- IRS has now indicated on their FAQ page that self-employed people cannot get the Employee Retention Credit
- What are some things everyone should be aware of happening at the city and county levels?
Links Mentioned During Show
- PowerPoint Slides (Updated with changes 4/15/2020 3:45PM)
- State Tax Filing Guidance by State (AICPA)
- John Hyre Covid-19 presentation on SBA Programs
- The Norris Group Covid-19 Resource page for small business and tenants
- SBA Funding Options
- Form 8822 (change of address), Form 3115 (change of accounting method)
- Economic Injury Disaster Loan (EIDL Application online)
- Paycheck Protection Program Borrower Application Form
- What are some big things going on at the county and city level that everyone should be aware of?
- What are the new tax deadlines?
- How will 401K loans work under the coronavirus guidelines?
- What general tax changes have been made?
- What programs are available with SBA loans?
- How is debt and loan forgiveness being handled?
- What is the PPP program, and what is covered under it?
- What is the Family First Corona Response Act?
The show that you’re about to hear was recorded starting at 8:00 a.m. and went to for almost two hours. By the time this was recorded, there’s already been several important updates. Please understand, we need you to talk to your CPA on how a lot of this applies to your specific information, because it may change what you can apply for and what you can’t. Also, always reference the government Web sites. Over the next month, we should experience a ton of updates when it comes to this.
Here are a few changes. First of all, PPV definition of payroll now no longer includes 1099 payments to contractors. This is not favorable for landlords who typically do not have W-2 employees. It is expected that your 1099 contractors apply themselves. The requirement of minimum distributions already taken in 2020 can be undone within 60 days. It does not need to be coronavirus related. $100,000 distribution may also be allowed from defined benefit or pension plans if allowed by the plan and if coronavirus related. So you’ll have to talk to your pension plan and see if that’s even possible. Finally, plan documents do not need to be amended for the new retirement change rules for minimum distribution requirements of one hundred thousand dollar distribution and one hundred thousand dollar loan. For today’s show and continual updates, go to www.thenorrisgroup.com, click Radio at the top, and click the very first option Archive.
Aaron Norris Good morning, everybody. It’s Aaron and Bruce Norris here. Thank you for joining us at 8:00 in the morning. We sort of sent this out last minute to our entire network, knowing that we’d have a lot of people interested in this. And still we have quite a few of you online today. So I know this is really important. We are recording this. We’re recording this at 8:00 in the morning on April 3rd. Please understand that you really do need to do your homework because this is changing quickly. We’re doing our best job today to give you the most up to date accurate information. Today, we’re gonna talk about tax impacts, SBA loans and even some California resources. Surprise, Amanda. I added that for you.
So with us is Matt MacFarland and Amanda Han with Keystone CPA. We’ve been working with them a long time. If you’re bored under quarantine, you can check them out. Our brunch is on Amazon Prime if you need something to do and you want to nerd out on some taxes. But thank you so much for – I know you guys must be really busy, so I really appreciate your time today.
Amanda Han Hey, thanks for having us. But I wanted to tell people, even if you’re not bored, check out the brunch recordings. They’re actually really fun.
Matthew MacFarland A funny story about that. I was watching Prime video last night trying to find something to watch. And lo and behold, one of the suggested items was the 2017 brunch.
Aaron Norris That means you’re an official nerd. I love it. So I’m still working on last year’s too. Amazon is very difficult to publish in.
Aaron Norris Well, Amanda, I guess I’ll follow you. Just so everybody knows that this is visual. We are producing this. There is a visual component where we have slides. You can find that on our YouTube or on our website under radio archives. This will live. So with that, Matt and Amanda, I’m going to hand it over to you.
Aaron Norris Oh, wait, I lied.
Aaron Norris I’ve got a few little updates. Let me give you some updates really quick. Dad, you want to talk about the unemployment numbers quickly?
Bruce Norris Yeah. It’s staggering numbers. This is one week from March 21st, 3.3 million, to March 27, 6.6 million. To put it in context, I only know the national numbers. The all-time record prior to that was six hundred and ninety-five thousand. And in two weeks, we’ve done 10 million. That’s the worst chart I’ve ever seen, honestly. I looked at that chart because I had the two weeks sort of stacked over. and I have about a 60-year chart. And there’s nothing like this. That was a little humbling looking that going “Wow.” And it brings up a point that will probably overflow into the other things we’re going to talk about.
Bruce Norris Unemployment’s been around for a long time, but not 20 times the normal volume. So logistically, the same thing’s gonna happen to banks that are dealing with these programs we’re about to talk to.
Bruce Norris Is it your opinion that they’ve made this a very simple process, or you think it’s going to be very cumbersome to try to get through? Just in general.
Aaron Norris Amanda, I do have the forms, the updated forms for the economic injury program. It’s a one-page form. It’s about as simple as you can get. Now, the local banks are already saying that they’re not ready for these. This is gonna be messy.
Bruce Norris I talked to Rick Dalton this morning. He’s been on top of it because it’s like there’s a limited amount. He’s already in the bank going, “Yeah, we don’t know what to do with it.”
Aaron Norris Just because you apply doesn’t mean that you have to accept it if you are approved.
Aaron Norris A few of the things I’d like to make everybody aware of at the county and city level. You really have to watch the eviction process. So Gavin Newsom on March 27th came out and basically had some really great guidelines on limiting the expectation of no evictions, foreclosure moratoriums. But he also gave permission to the counties and cities to adjust those as needed. So as an example, the city of Riverside on Tuesday, March 31st basically said it’s a six month, no late fees and eviction on moratorium for both residential and commercial. So you really have to dig into the local level and monitor what’s happening.
At the county level, the county of Riverside banned short term rentals, effective immediately. That was, I believe, is as of the 30th of March. Meaning if you got caught, what was happening is that hot spots like L.A., with the Coronavirus, people were exiting into the beach, the mountains, Palm Springs, and they’re like, “Absolutely not.” So effective, immediately, you can face a thousand dollar fine per day or jail time if you get caught. So if you have a neighbor who has never liked your vacation rental, now would be the time to really stay on top of that.
Some transaction issues you need to be aware of. There were some rumors going around that title won’t insure because hard money is part of the mix. That is true and false. It depends on who your hard money lender is. There is a lot of large and medium-size that basically are just bailing the market the way that they were structured. They’re not going to be around for the foreseeable future. Our local title company we’ve worked with for over a decade said that we are going to be fine and there won’t be an issue. But you just don’t want to get caught by surprise.
Also, recording issues. A lot of government employees are off. They’re working from home. So if you’re not working in a county that allows for electronic recordings, you might be in trouble. Or if you’re working with a title company that doesn’t have the ability to record electronically, you might be in trouble. So just be aware.
Notary issues: the American Land Title Association posted an update on their Web site this week that said that California is going to allow you to do the teleconference notary. If it’s allowable in another state, you can use that as part of your transaction if you need it. So hopefully that helps. And then fraud and working remotely. All of us in the real estate space, I can’t tell you how many fraudulent emails I’ve gotten in the last week. You have to be very careful. The DRE posted some information. If you are dealing with people’s Social Security numbers or sensitive information, you can not have employees have that at their homes. You need to have them logging it remotely. There’s no way you as an employer can protect yourself if they’re not doing that. So yeah, just be very, very careful on the fraud.
Matthew MacFarland We’ve had three huge changes come out in two weeks just in the tax and accounting arena. Never seen that before. But like anything you mentioned earlier, and this is only, you know, accurate as of right now. I mean, they’re going to change this probably a hundred times in the next month, just as things pop up, as people are applying. People are asking questions. You know, the IRS has got to frequently ask questions on the Web site. I mean, imagine the number of versions there’s going to be of that.
Amanda Han And just for all our listeners, just so you know, Aaron and I are chatting during this live webinar to update slides as information comes in. A little bit.
Bruce Norris The interest rate doubled with one comment.
Amanda Han During our show. So, anyway, thank you so much for having us. This is an unprecedented but somewhat exciting time, I guess, for us and CPAs. We’ve never seen so many changes simultaneously.
Bruce Norris I can’t believe you just said that. Amanda. You’re so nerdy. You’re reading all these documents going, “Oh, my God, how cool is this?” I’m reading them, too.
Amanda Han Yeah. Yeah. We have a lot of information to cover. Matt and I really hate reading from the slides, but we’ve taken a lot of time to kind of pick out the most relevant information. So to a certain extent, we will be going directly through the slides. And I guess, you know, for Bruce, Aaron and those who have any questions, you know, happy to answer it as we go along or towards the end. We split out the tax changes in three different components. The first component we want to talk about are changes that we think will be impactful to many people, orf the majority of listeners. So things with respect to individuals, the stimulus check, retirement distributions and just general tax changes real estate investors might want to know about. And then next, we’re going to talk about the different loan programs under the SBA, which a lot of people are wanting to get their hands on and trying to figure out what the differences are. And then lastly, the third section, we’re going to talk about more employment tax credits. Those deal mainly with people who have employees, but also some self-employed individuals as well. So that’s kind of how the breakdown is going to be. So I’ll let Matt take over and talk about the stimulus check that’s on the top of the mind for many people right now.
Matthew MacFarland Yeah. We’re getting a lot of questions about this, obviously. Basically, you’re kind of breaking it down to essentially $1200 a person, if you’re single, if you’re married, that’s $2400. And then if you have children, they’re adding five hundred dollars on top of that per child. Now, it’s going to be based on your most recently filed tax returns. So we’re getting questions about that, too. So if you haven’t filed 2019 yet, it’s going to be based on your AGI and your 2018 return. But the kind of thing to be aware of is that this is all going to be what we call reconciled when you file your 2020 return. So they’re basing it on ’18 and ’19. But at the end of it, it’s going be based on ’20. So if you should have gotten a larger check than you did, you’ll get that extra money when you file your returns.
Amanda Han Yeah. So an example might be, you know, if you filed your 2019 return and you have very high income because ’19 was still a good year, but in 2020 your actual income ended up being smaller where you’re under the phase-out threshold. That means you still could get the tax credit when the 2020 return is actually filed. What we’re reading is that, let’s say you did file for the credit, your 2020 actually ends up being higher because you’re more profitable, but there is no clawback rule. So what you get is yours. You don’t have to pay the government back. On here, I’m on this little chart we’ve put together. You know, if you’re single, you get twelve hundred and there’s a phase-out period. So if you make under seventy five thousand you’ll get the whole twelve hundred. If you make between seventy five thousand and ninety nine thousand, you’ll get part of a credit. If you make over ninety nine thousand in adjusted gross income then you don’t get any credit. The calculation will phase out as roughly a 5 percent. So meaning, you know, if you’re at seventy-five thousand five hundred, you’re over that threshold by five hundred. Multiply it by five percent. That’s the amount of reduction.
And so there was some confusion yesterday that the Treasury was saying, you know, if you only had Social Security income. For a lot of retirees that only had Social Security and they didn’t need to file tax returns for 2018, 2019, something came out yesterday that said, well you know, you really need to file, otherwise you’re not going to get the stimulus checks. This morning they came out and clarified that no, if all you had was Social Security, they already have the information. So even if you didn’t file your returns, you will still get the rebate.
Matthew MacFarland And it’s our understanding that if based on your tax return, if you had a direct deposit listed on your last tax transfer, direct deposit of your refund, that’s how they’re going to deposit the money. If you didn’t, then they’re going to mail the check to you. And that’s also important too. We got this question a few times. What if my address is changed? Well, then you definitely want to make sure you file that 8822 with the IRS in order to change your address as soon as possible.
Bruce Norris Quick question. Is there an application for this or is it all somehow automated on the information they already have?
Amanda Han Yeah, good question. So no application needed. This is the easiest part of all of the tax changes. You will either get it or you will not.
Matthew MacFarland So we can just stop there. That’s the easy stuff. We’re good.
Amanda Han So when are we expected to get this? So as of this morning, they came out and said if the IRS has your banking information, you can expect direct deposit as early as April 13th. So very, very soon. If you didn’t have direct deposit information with IRS already, you should receive it sometime within a month of today. So, you know, end of April, early May is what we’re looking at.
A question I get a lot from clients is, you know, I haven’t filed my ’19 return. I think ’19 will allow me to get a credit, whereas ’18 my income was too high. Should I quickly file? The answer is kind of unknown, the reason being that we can prepare the returns and file them today. But, you know, with a reduced workload at IRS, how quickly are they going to be processing it? Are they going to process that before, you know, they actually start sending out the check? So doesn’t hurt to try. But it’s unknown. You know, if there’s a cutoff date in terms of, what return they’re going to be looking at.
Matthew MacFarland Right. So the point being, if your return’s kind of in-process and it’s close to being done, yeah, probably, you know, do what you can to get through with it. But it doesn’t mean all a sudden drop all your stuff and try and do it the next week and miss some things on your tax return.
Amanda Han All right, so let’s switch over to deadlines and tax deadlines for filing and payment.
Matthew MacFarland Yeah. So this came out about two weeks ago. They made a few tweaks to it. But in general, I think the easiest way to look at it is if you had a tax return due on April 15th, so individuals trust and see corporations that had a county or C Corps with a 415 deadline, the deadline for those returns have automatically being pushed back to July 15th. There’s nothing that anybody needs to do. There’s no extension form that needs to be filed. The thing that was not extended was partnerships and S corps that were due on March 15th because this all came down right around that time period. So those returns were not extended. So if you didn’t file by March 15th, hopefully you did the proper thing and filed your extension form like you’re supposed to every year anyway.
Amanda Han And if you didn’t because, again, that kind of came out right around the time the stay at home order started coming out. So if you haven’t filed extensions and you have a partnership, S Corp, or a fiscal year end C Corp, we do recommend you try to get those returns filed as soon as possible because you cannot file late extensions. So technically, those returns are late. A lot of investors hold rental Properties and LLCs. So whether your LLC was automatically extended or not depends on how your LLC is taxed. OK. So if you own an LLC with other partners, other investors, generally you’re probably a partnership. That means it had to have been filed or extended by April. If you only LLC just by yourself, through your trust, or, you know, just with a spouse generally those are disregarded entities, which likely means you get an automatic extension from April to July.
Matthew MacFarland And so the other good thing about this is with the deadline being pushed back, the deadline to actually make your payments by April 15th has also been pushed back. So if you were going to owe taxes for the 2019 year, you do not need to make those payments until July 15th. Now, that doesn’t mean you can’t file your return before July 15th. So we’ve got clients, like you said, who are probably 90, 95 percent done with their returns. If they owe money, you can electronically file now and wait till July 15th to pay. So there’s no downside other than, you know, if there’s some reason why you don’t want to file your return right now, obviously. But generally speaking, the payments are not due until July 15th.
Amanda Han So something really funny if you look on the next bullet point for those who need to file quarterly estimated payments…..
Matthew MacFarland This is not a typo.
Amanda Han The 2020 first-quarter estimated payments that what generally is due April 15th has been pushed to July 15th. OK. So that’s part of the benefit. However, the second quarter payment that are generally due June 15th is still due June 15th. So if you think about it, we have clients saying “so you’re telling me I have to pay my second quarter estimated payments in June, but I pay my first quarter payment in July?” And the answer is yes. Unfortunately, that’s how the law is written currently.
Matthew MacFarland Currently, we’re not telling you that’s what you need to do. The IRS is telling you that’s what you need to do.
Amanda Han So we’ll see if this ends up being the case. But yes, for now, plan to pay second quarter by June, 1st quarter by July.
Aaron Norris We are getting some feedback. People can ask questions. You just have to bear with me. This is gonna be intense because there are so many people online. We’ll get to as many as possible. One of the reasons that we’re covering this is not just for you online, but you have to realize in the next month things are going to get scary. You’re not always going to be dealing with rational people because it’s just scary and they’re in financial distress. So the hope is that we record this and you can send this to tenants and they can understand what you’re going through, but they can also get resources. A lot of times, there’s an education problem. So like here in Riverside, we don’t have a local media that’s very strong. We’re listening to L.A., and what’s happening in L.A. isn’t necessarily happening in our region. So, yes, we’re gonna cover a lot today. But yeah, we’re trying to cover both the real estate investor realtor space. But also, keep in mind, this is hopefully going to be good for some of your tenants as well.
Matthew MacFarland For sure. What we just talked about is all kinds of federal tax rules. So all the states have their own tax rules now. There is a good chart that the AICPA came out with, and if the link is not in here, we can make sure it gets shared. But the AICPA has done a good job of summarizing what each of the states is doing in response to what the federal is doing. Now, a lot of them are following what the federal’s doing, but not all of them, obviously. Now, here in California, they have basically extended everything to July 15th, so anything that was due March, April, essentially. You know, again, this can change tomorrow. But as of right now, kind of payments and filing deadlines have been pushed back to July 15th and that includes 2019 year and that includes the 2020 year.
So a lot of us in California know we’ve got to pay $800 our minimum tax every year for each LLC or entity doing business in California. That’s usually due on April 15th. That’s been pushed back to July 15th. You’ve got other prepayments, too.
So a lot of the states have their own rules. Just check with your own state. We’ve got a good link that we can provide everybody of the different states.
Amanda Han Yeah. And this is important, you know, for a landlord who owns properties out of state. The odds are you’ve been filing out of state returns. So do check on those or at least have your CPA check on those. You know, because New Mexico, you know, New York, they may all have different extension deadlines and things like that. So the last I heard, IRA, a Roth IRA, a health savings account, contributions also extended. So if you haven’t made contributions, you can wait. The kind of not as good news was something, with respect to real estate investors, ytwo of the biggest tax deferral opportunities that we have currently, the 1031 Exchange and Opportunity Zones, we get a lot of questions from our investor clients. You know, there are no additional time exceptions allowed. So as far as it currently stands, 180 day rule to reinvest money in ozone or reinvest money in the 1031 exchange replacement property, we haven’t seen any relief coming out from the government regarding those deadlines.
Bruce Norris With your experience. Amanda, let’s say you’re building a new construction and there’s evidence that you can prove that literally there was a shut down. No one was allowed on the job site for 60 days. Will the IRS consider that then?
Amanda Han Yeah, I think it will be possible. If we take a look at, one of the opportunity zone things that they say, “okay, well, there’s certain parts of the transaction that could be allowed for additional time if it was due to a government issue.” So, yeah, it’s highly possible that that ends up being the case. I think reasonably speaking, that makes sense. But I just haven’t seen anything from the IRS in terms of, you know, broad statements saying, “hey, you’re going to have additional time or time is frozen right now.” So we get to do that. So that’s kind of the unknown with a lot of things in the tax world.
So on the next slide we talk about retirement distributions, and I think, Aaron, you make up a great point. A lot of these not only apply to us as taxpayers, as investors, but also with respect to how we deal with our tenants. So the IRS is giving most people a great opportunity that if you needed cash and you need it fast, you can tap into retirement accounts without penalties and potentially, you know, without taxes. So, again, talking to tenants, if your tenants have, you know, significant money in their retirement accounts, that is a possibility for them to access to be able to pay rent.
Matthew MacFarland And keep in mind, this is for covered related distributions. So, have you been adversely financially impacted by what’s going on? Have you had to take care of somebody? Have you been laid off or reduced to work hours? Those are all reasons why that can qualify for taking the distribution. It is a self-certification process. So, you know, kind of to your point earlier and know hopefully everyone’s gonna be honest in these processes. But I can imagine the fraud that may be coming out of some of these things. You know, people are trying to realize, hey, I can send e-mails and access people’s retirement accounts. you know, things like that.
So, yeah, it’s it’s a self-certification. So there’s no application. You go to your retirement and request your distribution like you normally would. And then, you know, again, it’s free from the early distribution penalties and the taxes can be delayed over three years or you can repay it over three years depending on your financial situation.
Amanda Han It’s almost like a loan, if you will. You know, from I.R.A.s, because in the past, we could never have taken loans from I.R.A.s. So this is sort of an opportunity to say, “okay, my money is in the IRA, it’s in the stock market. Maybe I wasn’t doing well. Maybe I’ll take it out for, you know, a year to three years and invest in something else.” And, you know, and I always have the opportunity to pay it back and avoid any taxes and any penalties.
If we move to the next slide, so coronavirus related 401K loans. Now you can take a loan up to 100 percent of what’s in the account and max it at a hundred thousand. So if you have one hundred thousand dollars in a 401K, you can take out one hundred thousand dollar loan. This is per 401K, that’s not part of what they consider a controlled group. So for example, if you work at Google and you have a 401K there, you can take out a loan. You also flip real estate on the side. You have your own solo 401K. You can take out another loan on your solo 401K, so it’s not an aggregate of all retirement accounts. There is a deadline for this current lease. The eligible loans have to be taken out by September 23rd. Kind of a random date, but they just said around 180 days after. So no 401K loan requirements at all. This is for new and existing 401K loans. So if you had a 401K loan before, you don’t have to pay it back in between March and end of the year.
Aaron Norris A really good question. If you take that loan and you were able to make money on it, you’re paying interest into the I.R.A., but you can keep the profits from the loan that you’ve made to yourself. Correct?
Matthew MacFarland Correct. Yes.
And then the other thing with their retirement accounts that’s important to know is the required minimum distributions, if you were of the age where you’re starting to take those or had been taking those, they put a moratorium on those. You’re not required to take them in 2020 if you do not need them. Questions have come up a lot about, well, what if I’ve already taken RMDs for 2020 year? Well, the IRS is going to allow you to roll those back into your retirement account as if the RMDs never happened. Now, technically speaking, you’re supposed to roll it over within 60 days. Now, obviously, if you take RMsD once a month or once a quarter or a couple of times a quarter, that may be hard to do, obviously, but I think the reasonable expectation is that the IRS is going to put an extension on that 60 day or waive that 60 day thing for 2020. But as of now, that hasn’t happened. But that’s what we’re kind of expecting them to do.
Aaron Norris Question on the logistics of this. When you’re taking a loan, there does need to be an interest rate. Correct? Can there be a negative interest rate? What interest rate are we looking to set that?
Amanda Han What a good question. So generally it’s the applicable federal rate at the time of the loan. So we’ll see. You know, it’s supposed to be whatever the current reasonable rate is. And so, yes, if the US goes to negative interest rate, I guess that becomes the norm. But yeah, I leave it up to Aaron to come up with these questions.
Aaron Norris Believe me, I’m getting a lot of interesting questions, so I’m not going to take credit for all of that. It’s like you’re creating a standard loan. So you talk to your 401K, your self-directed IRA provider, you’re gonna have to fill out some paperwork and they’ll help you with setting the interest and stuff. But there is a question about catching up on interest. I’m like, well, when you’re taking out a loan, you’re setting up the interest going in. I guess if you made profits and you put it in, I don’t know what that looks like.
Let’s say you took out money from your 401K or I.R.A., you would only repay what you take out. So the profits you would just keep as your own. Two quick things on this. So the loan is for the 401K. The I.R.A. is technically a distribution. So you can take that one hundred thousand distribution from I.R.A.s and 401ks and you can repay those. But on those, you don’t have to have interest because those are just distributions. It just so happens under the new rules, you can pay them back. The 401K and solo 401, those are the ones that you can take a loan that you pay yourself interest. So a little slight difference. The really important thing I want to make for our listeners is we’re no way recommending taking money out of retirement account. Unless there is a, you know, an urgent need for that money or you have an investment that you can make with cash that you cannot otherwise do using retirement like a self-directed account. OK, so it’s a benefit to those who need it but not, you know, not really any particular reason to say, let’s go ahead and liquidate their retirement account into cash unless you have a, you know, specific investment that makes sense to do so.
Aaron Norris So I think it would be helpful to when we get further on down the line and we talk about the loan, the one page form to me would be perfect documentation showing that you’ve been proactive, you’ve applied for that. But that also will, you know, sort of timestamp when you’ve sent that in and it’s got some numbers that you can just document. So there’s not always clarity on, you know, what constitutes need and how to document that. But if we can use something else that the government is looking at, that would be good. Yeah.
Amanda Han Yeah. All right. On the next slide, we’re going to move over to some more general tax changes, whether it impacts you or not. I think a lot of people will just need to talk to their CPA because more analysis needs to be done.
Matthew MacFarland Yeah. So they’ve brought back the annual carryback. So an annual net operating loss. If you have an overall loss on your individual churn or maybe a corporate return or something like that. Now your overall losses can be carried back up to five years. And this is applicable for losses in 2018, 19 or 20. And then they also remove – there was a rule where you can only offset 8 percent of your income when you’re using an NOL, whether it was carrying it forward or back. They’ve taken that away. So theoretically, if your loss is as much as your income if you carry it back to 2013, you could eliminate all of your tax back in 2013 through this. And it will carry back.
Amanda Han Yeah, we don’t have a ton of fines that it will be impacted by this just because there’s I mean, 18, 19 have been generally pretty good years for real estate. But we do have a handful that had large write offs that were going to be looking at the possibility of doing amended return. Essentially the goal is to get an immediate cash rather than having it sit with the IRS.
Matthew MacFarland You can take bonus depreciation on this. And this is essentially stuff that you’re doing to an interior portion of a non residential building, so commercial property can’t be brand new construction. And then it’s got to be made by you versus the difference, I guess being made by a tenant where you’re the landlord giving a tenant improvement. That wouldn’t qualify. The benefit of this is that you can now take immediate first year bonus depreciation versus spreading it out over thirty nine years. So that’s a huge change.
Amanda Han And then two ways to change. You can either file amended 18 or you can catch it up. If you haven’t filed your 19 yet or if you already filed 19, you can do an amended 19. And that’s something likely that your CPA will be talking to you about.
Matthew MacFarland Couple other things is going to be aware of. Again, some of this may not be applicable to everyone’s situation, but it’s good to know it or just know it’s out there in case you come across it. There is a loss overall loss limitation put in place by the Tax Cut and Jobs Act. That’s now been eliminated. So what it was is that you could essentially aggregate all of your business losses, and the most you could take in one year would have been 250 as a single or five hundred as a married couple. They’ve now taken away that limit. So effectively, if you happen to have a, you know, a really hard year and you lose, between your rental properties if your real estate professional and other businesses, you lose a million dollars. You can now deduct a million dollars theoretically on your tax return without those limitations that are in place.
Amanda Han Yeah, and this does impact quite a few of our clients. The people we filed returns for in 18 and parts of 2019. So common example would be know we had a client that maybe bought one or a couple apartments, did a cost segregation, created a loss using that loss to offset income from their medical practice or their flip business. So you know, the old new rule, the old tax reform rules, it was limited. We can only use 250 or 500 thousand. And now for those people, you can go back and amend those returns and use the losses to offset all those income without these limitations. So that’s probably a pretty big one for people who, you know, again, had large write offs in 18 or 19 that were previously limited.
There was an interest limitation. I don’t know if a lot of people were impacted by this. Mostly this related to people who were investing in syndications. So apartments syndications, commercial real estate syndications. For those types of pooled investments, there was a limitation that the IRS came out with, which says if you’re a syndication, that’s termed it to be a tax shelter. Sounds like such a dirty, bad word, but that’s what they were calling syndications. And if you were invested in a syndication to the extent that you had the interest expenses, which, you know, most apartments syndications do. Right. No one’s paying for those all cash. That the interest was limited to 30 percent of taxable income. And again, for most of those types of investments, we didn’t have taxable income. In fact, we had tax losses because we took a bunch of deductions and cost segregation. So the interest was limited to 30 percent of taxable income. Now they’ve increased it to 50 percent. And also, there’s different ways that we can calculate to essentially get the most interest deduction possible. So if you’ve invested in syndications or if you’ve syndicated your own deals, it is possible that this might be an opportunity to go back and claim some refunds.
Matthew MacFarland And another thing to be aware of is that the IRS has come out and said they’re not going to be starting any new audits or collection process or installment payment programs for now. Now, this doesn’t mean that they’re not continuing with want with existing ones. They’ve actually come out and clarified that. So if you have an audit in process, theoretically that is going to continue. But again, that’s going to be dependent on people’s work schedules and availability. Right. So, you know.
Amanda Han Yeah. And then the last thing is other tax changes. Property tax is the question we’re getting a lot. Do I have to pay my April property taxes? So I haven’t seen anything that’s postponed. But, you know, since it’s at the county level, I think it makes sense just to check with the county and see, you know, what the rules are, because counties, you know, county offices might be closed. I guess there’s an argument that they might say, well, you can always mail it in. You know, you never really wanted it anyway. So that, I think, is going to be a county by county.
Aaron Norris Yeah, I was gonna say that everybody on the line, we are recording this. We know that today is going to be a little bit longer than usual and we’re gonna post it complete online. We’re not going to throttle it out twenty five minutes at a time. We’re gonna do it all in one chunk. So, yeah, let’s do a few questions about this because I am getting some good ones. When is the penalty free loan taken from the IRA due again? Oh sorry, due back. It’s a distribution, it’s not a loan they said. But when do they have to put it back? Is there a timeframe?
Amanda Han Three years. So on the I.R.A and the 401K distributions, you can be repaid within three years to avoid the tax. If you don’t repay it, then the money that came out becomes taxable. You can delay the taxes over a three year period as well.
Aaron Norris And that might work out well because there’s a similar question regarding the 401K loans. If you cash out and you get laid off and you end up needing it, is it fully taxable? And I think the answer is yes. It stands as a distribution. But if you’ve had a bad tax year, talk to your CPA and see how you’re going to throttle that tax payment over three years.
Amanda Han Matt and I are brainstorming. We’re gonna put together maybe kind of a list or even a webinar on, you know, strategies to consider in the downturn. So one of the things we’re thinking about is, you know, Roth conversions. Like, stock values are low. Maybe real estate values will become low. Bruce will tell us if that’s the case or not, but might look at converting some money to Roth because low values and also maybe where you happen to be in a low tax bracket this year because of lost income and things like that.
Aaron Norris Can required minimum distribution for a corporate pension plan for 2020 be undone?
Matthew MacFarland Required minimum distribution for a corporate pension plan.
Amanda Han That’s I think they said wasn’t unknown, at least in the AICPA webinar I just attended because the pension plan….
Matthew MacFarland Yeah, it was almost like this RMD thing was specific for I.R.A.s and employee retirement, 401K plans specifically.
Amanda Han I think they just haven’t really clarified whether pension plans fall within that definition because for the pension, it’s part of a pooled fund. So I’ve not see any clarity on whether you can take money out of a defined benefit or a pension plan. But yeah, we’ll take a look and keep you updated if anything comes out about that.
Aaron Norris If we owe federal taxes on our 2019 return, are they due April or July 15th?
Matthew MacFarland They are due July 15th.
Aaron Norris Is there any tax on the profit resulted from the I.R.A. money if they pulled it out? The answer was if you make a profit after doing a loan or pulling it out, you’re paying whatever taxes on profits you make.
Matthew MacFarland Yeah. Just like you normally would with any other deal.
Amanda Han So, yeah, a good example. We take out one hundred thousand dollars from our IRA, right, and we don’t pay taxes on it yet. And one hundred thousand dollars from that we make ten thousand dollars of interest income. You pay taxes on the ten thousand of interest income just like you would for any other interest that you’re making individually. And then if you put the one hundred thousand back in to the I.R.A. within three years, then you don’t pay any taxes or penalties on, you know, having use of that money for that period.
Aaron Norris If you have stock losses in 2020, can you use it for your 2019 taxes?
If you have stock losses in 2020, use it for 19? No, I do not see anything that allows you to do any capital loss carrybacks. Capital losses are still the same rules where you can deduct capital losses against capital gains. And then if you have an excess capital loss, you can deduct $3000 that year against your other sources of income.
Amanda Han I will say we have clients who have already sold stock for huge gains in the first quarter or the very beginning of 2020. And so if you already have large capital gains, consider harvesting some stock losses because they do offset each other within the same year. So that is something to consider.
Aaron Norris I have several seller-financed homes. Owners are calling, asking for relief due to job loss viruses. They have balloon payment. How do I handle their nonpayment of mortgage and interest due?.
Bruce Norris I guess I would really try to deal with an individual and make sure if what they’re saying is accurate. You know, we’ve got the same thing. We have trust deed payments. The whole business surrounds that. Rent payments. All of those people are probably relying on an income. And so I think that’s one of those times where we just might have to push the pause button if we have an individual that’s really in a spot. So if you have a business that literally is closed because you have a restaurant and you can’t open it for 90 days, but he’s paid you for two years. I guess I’d be really patient with that type of person. If you’re getting lied to, which could be too, then I guess I would get to the bottom of that and put that person in a different category and I’d have a different reaction to it.
Aaron Norris Well, this is where the sooner, you know, Gavin Newsom’s rule was that they have to give you a seven-day notice when rent is due. They have to be current, number one. Number two, they have to give you notice and eventually they have to give you proof that they indeed needed help. I would try to get that as upfront as soon as possible, because you can be proactive and submit for the SBA loans that we’ll talk about and then you’ll have, you know, some proof that this is what you were told. This also answers another question. What if you apply and you don’t need it? You can always turn down the loan or you could take the loan and just end up paying it back if you don’t need it. But the idea is get in line. Just be very organized. Document, document, document. Unfortunately, what I’m worried about is that investors stopped the foreclosure and the eviction process per California law as it states. Yes. You’re not going to be able to perform an eviction and that’s going to be dependent on the local municipalities code. However, you don’t want to wait, you know, in Riverside six months to start the process. If they haven’t given you proof, you need to process it. So, you know, six months from now they come back and they’re like “I’m just kidding. I was just scared.” That starts your day 1. You don’t get to retroactively go back and start the eviction process. So follow California laws when it comes to eviction. Yes, you won’t be able to do it, but just stay organized.
Bruce Norris What we’re about to get to is revenue that’s going to be very generous on the unemployment side. So there might be a lot less excuses for people to skip rent if, in fact, they’re eligible for some of these checks. And we’ll get to that in a few minutes.
Amanda Han So on the next section we want to talk about are the SBA loans that came out as part of the CARES Act. And if we go to the next slide, there’s actually two major two programs. One is the economic injury disasters and advance loan, frequently referred to as the disaster loan or EIDL. Sorry, there’s a typo. And then the other one, the second program is the Paycheck Protection Program. Also commonly referred to as the PPP. Ok, so two types of loans. You can apply for both. So the question we’re getting a lot of should I get this one? Should I get that one? What we tell most people is if you think you qualify, you can apply for both. There are no costs associated with the applications and you can always decide later whether you want to take one of them or both of them or neither of them. So this is not being forced down your throat. If you apply, it doesn’t need to have to take it. But if you think you qualify, do apply. So we have down below just very high-level general observations from us. And these could be completely wrong, but it’s based on our observation of the rules and requirements. It looks like PPP program, the Paycheck Protection Program, will probably be more impactful with active businesses, with payroll or self-employed individuals. So when we talk about, you know, what are those kinds of businesses, you know, if you are a physician with your own practice, you’re a lawyer, you’re a CPA with your own practice, or in the real estate sense, you know, real estate brokers, realtors, fix and flippers, wholesalers, developers. That’s what we consider active income. The second loan, the disaster loan, the EIDL, that’s also going to be good for the active investors, but also that one might be good for rental investors. So landlords will probably fit nicer within that EIDL category.
Matthew MacFarland The difference being that usually when there’s a landlord, your income is not subject to self-employment taxes. There’s not self-employment income and/or you don’t typically have any employees.
Amanda Han And it is possible to have a loan for what the IRS considers e-trade or business. And an example that will be Bruce Norris, right? Let’s say Bruce had an active business where he’s the editor in the lending business. Right. So that’s our active income. That one you guys have employees and things like that. So maybe you apply for a loan under the PPP program, but as a landlord, maybe suffering losses and things like that. So you can also apply for the real estate business, maybe apply for the EIDL program. They don’t have to be exclusive of each other. Very common for someone to have, you know, a Schedule C business where they’re flipping and then also have a rental business where they hold their rental properties.
Aaron Norris OK, I’m a W2 employee and all my rentals are in my own name. W2 is not impacted, but all my rental income is. When I’m filling out these forms, am I putting, you know, everything on my taxes to gross, or am I just including what’s on one of my schedules for rent?
Amanda Han Yes. And that’s a really good question. I think because it’s each trade or business, I would make the argument that as an employee, that’s a different trade or business than your rental real estate. So if we’re talking about what is the gross income for your trade or business, that seems to be that would just be my rental income. Right. And then if you apply for a different one for your fix and flip, you know, what’s the gross income? That’s last year’s gross income for the fix and flip business. It’s a little bit difficult on kind of how they’re going to treat the legal entities. And looking at some other forms, you know, it asks for a tax I.D. number, entity name. And I imagine eventually they’ll want copies of the tax returns. I think that is one of the factors that, you know, if you have an LLC owned by, you know, more than one person, it falls as a return. Maybe that ultimately ends up being a loan application. And then everything, you know, disregarded LLCs maybe as part of the personal return ends up being one loan package. But too early to tell. That’s, you know, how we read it.
Aaron Norris I think everybody should approach this as they’re going to get audited. If you’ve ever been through an audit, I’m sorry, you just really have to know your stuff.
Amanda Han I don’t know. I think for the IRS it’ll take a long time for them to catch up. You know, just kind of based on we don’t have a lot of audits go through our office, fortunately, and we’d like to keep it that way. But it’s so funny. A lot of times when we talk to auditors, I think even we had a colleague talk to an auditor that said, Hey, what do you think about the new 199A for real estate investors. And the auditors response was, Oh yeah, we have an internal training coming up to learn all about that coming out. So I’m really excited to learn about it. It’s something that, you know, we’ve been sweating over for the last year and a half. What’s the eligibility? What do we need to deal with documentation. So, yeah, I think it’ll be a while if it ever gets audited. But, you know, nonetheless, we do want to be honest. You know, you don’t want to falsify anything because this is a loan with the government and you don’t want to go to jail.
Matthew MacFarland Talking about the disaster loan, in terms of eligibility, one of the big kind of lines they are drawing in the sand is businesses with less than 500 employees. It’s the majority, and you are doing this for obviously small businesses and stuff. So it’s going to be sole proprietors, self-employed individuals and businesses of less than 500 employees. And the underlying assumption here is that you’re losing revenue and that you need this money to help kind of overcome that loss of revenue. Now, keep in mind, there’s a few ineligible industries, so gambling, adult movies. There’s a couple other things the IRS mentions on their frequently asked questions. But assuming you don’t fall into one of those, then you should be OK. And then, you know, how much is the available loan amount? You can get up to 2 million dollars for working capital, about ten thousand of this is going to be an advance in upfront. So when you apply for the loan, the ten thousand is an advance in upfront and supposed to be available within three days of application. You know, it will kind of remain to be seen whether that actually happens. And then ten thousand is actually forgivable even if you get denied.
Amanda Han All right, so what’s the loan used for? The loan proceed and the ten thousand advancement has to be used for payroll payments as well as payments to independent contractors, rent interest. Interest, not principal. A holding cost. So for rental activities, holding cost, you know, utilities, property taxes, things like that, and just general business expenses. The eligible expenses that you can use the loan money for is from January. So it goes retroactive for what you’ve already paid for. That doesn’t make sense to me, but that’s what it is. So it can be used for expenses from January through December of 2020. So no personal guarantee or collateral if the loan is under two hundred thousand. Three point seven five percent interest. Thirty years. And this is a very important one. Only ten thousand of the advancement is forgivable. The rest is not. So they give you a loan. You use it to pay interest in holding costs. Only the first ten thousand could be forgiven. The rest you still have to pay the government back. So it’s just a true loan in the general sense.
Aaron Norris So I think one of the questions I’m getting right now is what if they don’t have employees?
Amanda Han So this is the one that does not require employees. Right. So if we go back to a couple of slides, who’s eligible? So proprietors, self-employed, and businesses. So anyone right. If you’re sole proprietor, you don’t have employees. That’s fine. Temporary loss of revenue. A lot of people are like, Hey, well, my tenants are still paying. They told me they might not pay, but I don’t have loss of revenue yet. And if you do the form, so I did the form myself just to kind of see what it was about so we can help our clients with that. One of the questions is expected loss of revenue for rentals. And so, yeah, it doesn’t have to be actual rental loss. But of course, you know, ultimately in the end, when it’s reconciled, it probably means that you have to have some sort of a loss in the very end.
Aaron Norris While we’re doing a few questions, I have up on the screen the new form. This is literally a one page form for the specific. So you can sort of see the questions ahead of time. One of the good questions that just came up is does your credit matter? Are they looking at credit worthiness on this?
Amanda Han My understanding is they’re not looking at credit worthiness at all, it’s just kind of a need-based for the eligibility. So you know, who is it eligible for based on that slide that we had previously.
Bruce Norris I’ve got a question as far as limitations. So the very first chart we looked at was unemployment just soared. So, how many people would be able to maximize what they’re saying is available compared to the whole that might have a problem? If you have 10 million businesses apply per week or whatever the outrageous number is, is there an unlimited check writing ability or is this capped at a certain number of dollars total?
Amanda Han No. So there is an allocated amount of funding for these programs. The recommendation is if you anticipate a need for loans that you do it sooner rather than later.Because there is a cap on the dollar amount that’s going to be allocated to these loans. So, yeah, we do expect them to go fairly quickly. So the early bird gets the worm. Right. If you are not looking at this for a while, it might be gone.
Aaron Norris I took a three hour course by John Heyer. He did an almost three hour course on all these different kind of loans. Highly recommended. It’s on his Web site. He had a really good suggestion. Definitely opening a new bank account, putting the money in there and writing checks against the allowable expenses that you can do. So independent contractors, rent, interest holding costs, general business expenses. So just be careful. And that’s a good way to keep track of it. And you’ll know that you’re documenting against that so you don’t run into problems.
Amanda Han Yeah, that’s a great recommendation for all loans. In the past, you know, we’ve seen people that refinance on their primary and use that money to buy to rehab their rentals. We always recommend if you have an LLC, once the refi money comes out, the loan proceeds come out, put in the different bank account. From that bank account, money only leaves for investment purposes. Right. So that’s a really great tip for, you know, how do document this money being used to pay these people instead of just me going to Costco and stocking up on pallets and pallets of toilet paper.
…a check could be received or direct deposited to your bank account as soon as three days. I applied two days ago, so I am expecting my money tomorrow. And if I do, I’ll let you guys know how this all works out. Apply soon. There are caps available funding for this and the other loan program we’ll talk about next as well. So, you know, time is of the essence. One thing that I thought was interesting when I went through the process, it asks you if you want the ten thousand dollar advancement, check a box to say yes. But it doesn’t really ask you how much loan you actually need. So how much loan you actually get, I think that’s where all of the additional paperwork will come in. I don’t know if it will be a bait and switch where they said, you know, Hey, this is only a one page loan app. And then later on, we get 30 pages of, you know, supplemental information. So we’ll see.
Aaron Norris Yeah, I think my strategy would be to go to a local bank that you preferrably have a depository relationship with. The community all of a sudden is tackling them. I mean, I don’t know if priority is going to be given to clients with existing relationships, but I’m going to say it’s a possibility. So if you’ve got a bank that can do this that you have a depository relationship with, I would lean towards that. SBA.gov is where you’re going to find links to all the COVID-19 stuff. The links are changing and the forms are changing. So just go there and click on the fresh links that they’re providing. I think that’s probably the simplest way to make sure you’re looking at the latest and greatest.
Matthew MacFarland Yeah. So the next program that’s a part of the SBA rollout is this paycheck protection program. And this is for business owners and self-employed people that don’t have any employees. But you’re still as a self-employed person, a sole provider, you’re considered an employee for this purpose. Now, one of the underlying eligibilities here, requirements, is that you need to retain your employee headcount and your wages. The program is put in place to incentivize businesses to maintain their payroll, maintain their employee workforce.
Amanda Han Now, one of the things that’s kind of gray for me is whether this applies to landlords. So they do broadly define payroll to include payments to independent contractors. So I think there’s a position to be taken that if I have a landlord and I have 1099 contractors that work for me, my cleaning crew, my handyman, the property management, these people that I pay 1099 for that are not really employees, but they work for me on a recurring basis. I think there’s an argument to be made with those types. We talk about headcount and things like that, that landlords might be eligible for this program as well. Now, how much is available in the loan amount? So the loan amount is 2.5 percent of the average monthly payroll for the trailing twelve months.
Bruce Norris Okay. Now you say two and a half percent, but it’s two and a half times, right?
Amanda Han Two and a half times. Yeah. And so it. So there’s a couple different ways to calculate. But this is, you know, looking at the last 12 months, divided by twelve, you get to a monthly average. That number times 2.5 percent generally is going to be the way people do it. Now there is a cap of one hundred thousand dollars per employee, which just means, you know, if Matt pays himself one hundred and fifty thousand, the maximum that we use in the calculation would be one hundred thousand dollars from that. So one hundred thousand divided by twelve times 2.5 percent. So you go through this exercise with all of the employees. Okay.
Bruce Norris You keep on saying 2.5 percent. You mean two and a half times. Is that correct?
Amanda Han Yes, I keep saying 2.5 percent.
Bruce Norris Okay. The other thing I want to clarify on that is if an employee is paid more than one hundred thousand dollars, you could still be eligible for this credit, but only up to one hundred thousand, not whatever they actually make. Is that accurate?
Matthew MacFarland Yeah. So for purposes of the credit, you assume their wages were only $100,000 and not $150,000. Our example.
Bruce Norris OK, so that doesn’t eliminate that employee?
Matthew MacFarland: It doesn’t eliminate them and it doesn’t change how you calculate the wages for somebody who makes less than one hundred thousand. So if you have a couple employees making $50,000, theirs is still $50,000 as part of this calculation.
Amanda Han: And so the definition of payroll actually includes all types of benefits. So health insurance, sick time, vacation time pay, retirement contributions from the employer. It also includes payments to independent contractors. Just a little note below, it does not include payments that we are going to take a tax credit for under the Family First Corona Act, which we’ll talk about next. But essentially just kind of a caveat that, yes, you can calculate all those in the payroll, but you can’t double-dip. So if you are already getting a credit from the government, you don’t also get to count that as part of this PPP program.
The maximum loan amount is $10 million. Similar to what we talked about before. What can this loan be used for? It could be used to do payroll, employee benefits, independent contractors, rent, utilities and mortgage interest, not principal, and interest on other debt obligations. Now, the key here is February 15th. So these have to be debt incurred before February 15th. So we can’t take out a new loan and then use this money to pay for new debt that you have for some of the more creative real estate investors on the call.
Bruce Norris: Okay. I don’t understand what you just said on that. Now, when we’re talking about payroll, does that have something to do with the February 15th?
Matthew MacFarland: No, February 5th is just on other debt that the business may have. So if you have debt that was on your books before February 15th and you have to pay interest on that, then you can use this money for that. But if you take out a new loan after February 15th, you can’t use this money to pay that interest.
Now, repayment information, this is a big question, obviously. So part of this program can be set up to be forgiven. And the amount to be forgiven is going to be equal to what you spend during the eight week period essentially after you get the loan. So what are you spending for these things? We mentioned the payroll, the rent, the mortgages, and utilities. Now, keep in mind, at least 75 percent of this loan must be used to pay for payroll. So now, you know, what you can use it for, we just talked about. But the underlying assumption that you need to use 75 percent of this for payroll in order for it to be forgiven.
Amanda Han: That was something new the IRS came out with yesterday. They said, “OK, well, you can do all those, but I do want the majority of this to be for payroll.” And you can see that’s their intent. It’s called the Paycheck Protection Program. So they’re saying, “Yeah, we really want you to keep paying the employees or the contractors that you have been paying.”
What we really like about this is, you know, again, part of that could be forgiven. Right, if used for the right amounts in the right timeframe. The forgiven loan is tax free. And that’s really great. You don’t have to pay taxes on that money.
Bruce Norris: Let’s just clarify one other thing, because there’s time frame differences. We’re talking about two and a half months times your payroll and then the credit. The loan forgiveness part is eight weeks instead of 10. Is that accurate?
Matthew MacFarland: Yes. And so I think that the reason for the difference is that they’re assuming you’re using it for other things besides payroll. So, yes, you need to use at least 75 percent of it for payroll to be forgiven.
But I think that the difference in the eight-week versus the two and a half times your payroll is that maybe you’re adding in the employer benefits, the retirement contributions or other things.
Aaron Norris: If I hire somebody new, can I use the assistance to pay for new people or does it only reflect current?
Amanda Han: So that does apply to new employees as well. And in fact, so you know, one of the requirements is loan forgiveness will be reduced if the number of employees are reduced. Right. So they don’t differentiate between, you know, I used to have Aaron working with me. I got rid of Aaron. Now I’ve hired Bruce. That’s fine. They’re looking at employee headcount.
So it’s reduced if the number headcount of our employees is reduced or if there’s a more than 25 percent reduction in wages through June 30. And so, again, the intent of the government is they want you to keep the number of people on payroll and they don’t want you to cut their pay drastically. So those are the two things
Bruce Norris: I’m just curious, has there ever been a program ever like this?
Amanda Han: Not that I’m aware of.
Bruce Norris: Yeah. Not in our lifetime. And the fact that it came up inside of a week, I’m just astonished, actually, that the speed that somebody got this together, honestly.
Essentially, it’s kind of like you get a loan from the government so that they’re paying you so you can continue to pay your employees. And this actually was credited by the American Institute of CPAs. They said, you know, instead of everyone going through unemployment and trying to bottleneck the system, why don’t we have business owners pay the employees. They’re already on payroll. There is a method to distributing the money to them. Keep them on payroll. Keep them on the job. And the government just reimburses the business owners for doing that.
Matthew MacFarland: So again, the plan of the program is set up to be forgivable if you follow these rules, but if it’s not forgiven, then the repayments can be deferred for six months. The interest you’ve got to pay back is currently set at a 1 percent rate on a two-year term. And the other thing, kind of like the other program, is there’s no collateral, there’s no personal guarantee. The loan is non-recourse. That’s some of the other information that people have questions about.
Amanda Han: How to apply.
Aaron Norris: Question: is this going to show up on people’s credit?
Matthew MacFarland: I haven’t heard anything about that.
Amanda Han: How to apply. So this one you apply with your local bank, where hopefully you have a personal relationship with them. The form just came out this morning. Yesterday we saw a draft. Today the official version came out. So I read through it briefly. Again, very, very simple. Some basic information about your payroll, number of headcounts. You go through and answer these questions that basically say, I’m not a felon and I’m not a bad person, not a criminal. Things like that. Make some certifications based on need, what I’m going to use it for. That’s pretty much it. You do have to certify the loan as needed. Like with all these, you want to be accurate and truthful in the application, whether you need it, how you’re going to correctly.use it to make sure that the loan proceeds are being utilized correctly.
Aaron Norris: I’m pulling up on the screens where people can find and navigate. Obviously, this can change, but the SBA.gov has these funding options here and you’ll see the different buckets that you can apply. I’m so hesitant to link the forms because they keep changing. So I just want to show people where to go. So for the PPP program, you would go there and then on this page, they’re going to probably keep updating what’s here. And then to apply, this is new, I just saw this today. So I’m at 92501, and then it’s going to pull up a list of banks in my area. There’s over 3,000 close to me. As somebody in the comments did say, their bank said that they were giving priority to clients. So if you have a depository relationship with a bank, I would call them first.
Amanda Han: We have clients whose banks have already started sending them the application, so I think, yeah, you’re right there.
Amanda Han: We have clients whose banks have already started sending them the applications. The banks are being proactive about these too. Probably inundated with phone calls. All right. So the last section we want to talk about today, we’ve gone a little bit overtime already. We’ll try to be brief on this one. Family First Corona Response Act. We just call it FFCRA because it’s too long to keep saying over and over. So FFCRA, basically, these are a set of new rules that came out with respect to the Coronavirus that require certain employers to provide employees with an emergency sick leave and expanded family medical leave. So this is a requirement if you have under five hundred employees and continue to pay your employees for these types of activities.
The benefit is the government will reimburse you as the employer for the costs of this compensation. So basically similar to that PPP program. But in this format, you pay the employees and then the government will pay you what you pay the employees. So there’s no net cost to you.
Now, who’s eligible? Self-employed individuals as well as owners of S-Corps, C Corp’s, partnerships. So this is a big one. You don’t have to be a large corporation to benefit from this. You could be a self-employed person. The government pays you to pay yourself, or if you own an S corporation where you and your spouse are the only owners, you can again pay yourself and have the government reimburse you for what you’ve paid.
There is an exemption. Employers with under 50 employees may apply for exemption if it’s detrimental to the business. So it doesn’t mean you have to apply for the exemption. It just means if you have less than 50 and you don’t want to participate in this program, you can apply. I don’t know why anyone would not want to participate because it’s essentially the government giving you money.
So let’s go over real quick kind of the two-part. So the first part of this is the emergency paid sick leave. So it means that you have to pay sick leave for all full time and part time employees and owners who are currently on payroll. Self-employed individuals with active income. There’s no waiting period for new hires.
If Aaron just got hired today and he had to go on sick leave tomorrow, you have to pay him. Bad news: You have to pay him. Good news: government will pay you for paying him. The benefit: up to 80 hours of pay subject to the cap. So if your employee or you cannot work due to quarantine orders or because of COVID-19 symptoms or you’re a high-risk individual, then 100 percent of your regular pay can be reimbursed by the government. So it’s up to $511 per day or $5,110 per employee.
Aaron Norris: What’s interesting is that the bottom bullet, it says, to care for kids under 18 years of age from school closures, but a lot of people are being able to work remotely. But does the rule specify that needs to come into play? If somebody can work from home and have kids at home at the same time, they can’t qualify for this?
Amanda Han: That’s a good question. So the other part of this if someone else is under quarantine and kids are at home. If it pays a little bit less, it’s not up to five hundred, it’s only up to two hundred per day. So currently the way that they have defined it is to say, if you can work from home and you are working from home, then you are not technically on leave. The employer does not get a reimbursement for what they’re paying to the employees. This is for if they’re at home caring for the kids and unable to work remotely. Unfortunately, that’s kind of in our instance. For Keystone CPA, we can all work remotely. Kids are home, and I can take care of them. But I can and am working remotely. So government does not reimburse me for what I pay myself.
Matthew MacFarland: So, yeah, how how to apply for the credit. The easiest way to kind of look at this is that if you run payroll already, you have a payroll person that runs payroll for your business, then contact your payroll processor because they will help you take care of the refundable credit. Usually it’s gonna show up on your next quarter’s payroll tax return. If you’re self-employed personally and not running payroll, then there really shouldn’t be any action needed right now because your credit will show up when you file your income tax returns for the 2020 year.
If you’re expecting the credit, obviously, you may want to reduce your quarterly estimated taxes that you would otherwise be paying so that you’re taking account that you’re gonna get this credit in the future. So we’re not giving the government more money sooner than they need it.
Amanda Han: And as of yesterday, the IRS came out with a brand new form, it’s the form 7200. So the form 7200 is another way to apply for this tax credit. Again, pretty simple. I imagine most payroll providers will be able to fill this out. If you didn’t want to wait till the next quarterly payroll tax to get the credit, you really needed it right now, this is a way to apply for that credit. So it’s an advanced payment. Basically, you get that back right now for paying your employees.
What’s so interesting about this, again, is that we’re not just talking about large companies. This is for smaller companies, too. If the company is just Bruce, Bruce pays himself. Because he can’t work, the government pays him. Bruce has his son Aaron on payroll working. But Aaron can’t work for one of those above reasons we talked about. But Bruce continues to pay Aaron. The government can pay as well. So it is a pretty big opportunity for a lot of our smaller business tax return clients. I will say, though, you want to be very careful because I already have clients asking me, “Hey, I was not on payroll. Can I go on payroll now? Can I add my wife and my kids and my cousins and my grandma?” No, I think that would be considered fraud. If they’re not really working for you, they never have, I wouldn’t do this just for the tax credit.
Bruce Norris: I did listen to three hours of this stuff yesterday, and I’m so glad you’re explaining it again because it’s new and it’s not easy to comprehend it. There’s so many different programs that are so helpful to our industry. So people that are renting might have a way to get compensated in a very different way than we’ve ever had before. So, no, it’s amazing.
Aaron Norris: Well, across the board, you can see how confusing this is. So if you’re on the line right now and you’ve got a tenant, you might have to help educate them on where to get these resources. And it’s not just at the federal level. It’s also at the state and local. Locally, we have a nonprofit creating a fund for a five hundred dollar grant, just a $500 grant for people in the Inland Empire if they need it. So just getting down into the weeds is gonna be very helpful. So anyway, let’s go to part two: expanded FMLA.
Amanda Han: So this is the other thing that businesses are required to provide to employees as of April 1st. This is the Expanded Family Leave Act. This applies to all full time and part time workers. There is a 30-day eligibility. So if someone just was hired today, they’re not eligible for this until 30 days later. OK, so this is for people who, again, cannot work due to school closure and/or as a result of state quarantine orders. You have to pay the employees up to 80 hours of pay. They are caps. So that’s up to 10. So the first 10 days, you don’t have to pay them. But of course, then they can go on the sick leave that we just talked about before. Then the next 10 weeks, you pay them. The pay must be at least two-thirds of regular pay. It’s capped at $2 per day and a maximum of ten thousand total per employee for those 10 weeks. You pay the employee because they can’t work. The government then reimburses you via a tax credit up to $10,000 of what you paid per employee. Generally no net cost to you as the employer. So similar to the last one. How do you apply? Contact your payroll processor because it’s part of the payroll filing. If you don’t have payroll and you are a self-employed on a sole proprietor or schedule C, that’s something that’ll be claimed when you’re 2020 return is filed.
Amanda Han: So the next slide is the last credit, which is the employee retention credit. So this is different. We talked about sick leave. We talked about federal family medical leave. This is another credit that employers can get. And basically, the government is saying that you get a credit if you continue to keep employees on payroll, although your business is fully or partially suspended as a result of quarantine orders or your income went less than 50 percent of last year in the same quarter. Then you could be eligible for this particular tax credit. So similar. It’s based on wages and it’s also a ten thousand dollar maximum credit per employee per quarter for the rest of the 2020 year.
Aaron Norris: Will this apply if you’re a one-person landlord?
Amanda Han: So, yeah, that’s a good question. That was what Matt and I were trying to look up yesterday, and it doesn’t mention anything that has a different requirement than all the other credits. So I think our current reading of this is going to be that it does apply to sole proprietors as well.
Aaron Norris: And probably if you have multiple entities. I know some people on the line are very creative and have multiple-member LLCs. You almost have to go through each of these options and see if you can apply for using different ones. I don’t know.
Amanda Han: Yeah, I think it’s gonna be different. And you know, we’re getting all types of different questions. I was talking to Aaron yesterday about a client who has an IRA LLC that’s suffering losses. So the question was my IRA LLC, does it get any benefit? Can it apply for loans? You know, the IRS hasn’t really talked about that specifically, but I mean, I would say it doesn’t hurt to apply. Worst case scenario is that you get denied or you get the loan, but then, you know, you don’t really get any of it forgiven, in which case you just pay the government back. Right. You haven’t lost much in terms of money. Just a little bit of your time in applying for these applications.
Aaron Norris: But then you’re introducing leverage into an I.R.A., which is its own little beast.
Amanda Han: The tradeoff is potentially free money. Maybe I pay some Ubitt taxes. Not the end of the world.
Bruce Norris: Did you see how much she perked up about that sentence? Free money.
That’s it for the tax credits and things like that. But I’m going to talk about unemployment. The government added another six hundred dollars per week to unemployment. For someone on unemployment between federal and state benefits, you might be looking at almost 40 or a little over forty thousand dollars per year of income. This is not a whole lot, but that’s enough to pay for normal living expenses. More money than probably some people we’re making before the new program.
Bruce Norris: How long is the government side of that, the national $600 part?
Amanda Han: Oh, you know what? I don’t have that off the top of my head. I can look it up and get that to you. Let me look it up now.
Matthew MacFarland: One of the takeaways should be if anyone feels a need to go get a cocktail right now in the morning, no one’s going to judge you.
Aaron Norris: Somebody says they think six to eight weeks for the six hundred dollars a week. I’ve heard different things as well. But it’s just good to know. You’ll know what your tenants are about to face, and documenting all this stuff and helping them understand this.
Amanda Han: So there is a Web site that was really helpful. So it’s labor.ca.gov/coronavirus2019chart. Essentially, this is a chart of all the various benefits that you can apply for as an employee if you’re unemployed. Disability, pay leave, unemployment insurance. So, a really great resource. I actually just sent that to a family member of mine recently who was laid off.
Aaron Norris: Unfortunately, the way it’s done, if you need to translate it you can hit Translate at the top but you can’t forward them the link if it’s in Spanish, unfortunately. You’re going to have to explain to the tenant or have somebody explain that it’s there. Send them the link and just point out the translate, and then you actually have to go back to the page, which is annoying. But anyway, it’s a possibility. That’s awesome.
Amanda Han: All right, should we take questions?
Aaron Norris: Sure. Actually, let’s make sure we cover the rest. Did you cover the benefits of this particular retention credit?
Amanda Han: Yes. Very similar to the previous one.
Aaron Norris: OK. Contact your payroll. This is the one I just added this morning, about a half hour before, because California is sort of layering on its own stuff. So the California Disaster Relief Guarantee program is run by the Small Business Finance Center. It’s like iBank or something. So it’s for small businesses located in California with less than 750 employees that have been negatively impacted. The way that I would look at this is just look at the state essential business list to pull that if you’re not sure. And then, of course, if your income has dropped, the benefits are guaranteed up to seven-year. The term can be longer. Guarantees up to eighty-five to ninety-five percent of loan interest rates negotiated between the lender and borrower. And the qualifications are based on lender criteria. This sounds messy to me. Here’s the link right now. The ibank.ca.gov. The proceeds can be used for rent, payroll, etc. But this is on top of anything that the federal is doing. So I have no idea. There wasn’t a ton of information at this point. It’s relatively new, and on there they even point out a lot of the stuff is coming soon. So I just wanted to point that out.
Aaron Norris: Let’s get to some questions. On the family leave, if somebody is pregnant and they’re in a high-risk category, whether a senior, and they leave early, do you think that will count?
Amanda Han: Yes. One of the things is high risk category. So you don’t have to be diagnosed with the disease. It could be a high risk now. Whether a pregnant person is a high risk, I don’t really know the answer to that. But yes, if you are considered in the high-risk category, then that is part of that definition.
Aaron Norris: Self-employed doing wholesaling. Would it be better to incorporate to apply for a biz loan?
Amanda Han: I don’t believe so, because they look at each trade or business. I think whether you are flipping or wholesaling as a sole proprietor or through an entity, that’s still its own separate trade or business either way, for purposes of loan application. Now, you know, just from a normal tax planning perspective, it could make sense to have a legal entity to try to redo self-employment taxes. But specifically for the loan, I don’t feel like there is a difference either way.
Aaron Norris: I realize the 500k long term capital loss in 2019 on a project. Does this qualify under the NOL rule to apply against ordinary income or against long term capital gain?
Amanda Han: Yes. So what we are saying is if you are no longer limited, your loss was no longer limited to 2018, you follow amended return, you create an NOL. That NOL can then also be carried back to a previous year to then claim a refund.
Aaron Norris: Are you able to borrow against a corporate pension?
Amanda Han: That was what we talked about earlier. I’m unsure whether you can borrow from the pension or not.
Aaron Norris: Yeah, that’s really dictated by the pension itself. Like if I have CalPERS, I don’t think that’s allowed.
Amanda Han: Yeah. And another question we’ve gotten, I don’t know the actual answer to this, but the IRS came out and said you can borrow up to one hundred thousand. You can take a distribution for these purposes whether that overrides the plan documents or not. I think the consensus is that the plans do not have to be updated. And that’s an automatic allowance because the treasurers provided that. But I also just got an email from a custodian this morning that said, Hey, you do need to amend the plan documents. So if you don’t take the planned documents and you still can’t do it. So I heard both sides. To be safe, if you have a plan of your own to be safe, maybe just amend it if you want to allow for that. Now, if you work for someone else, I think ultimately the decision will be based on your employer if the IRS doesn’t give us any guidance. So if you work for Google, the IRS says you can take it out. But maybe the Google plan, 401K plan says you can’t yet. I think it’ll be up to them to decipher the code and say, Okay, what do we feel? Do we have to amend, or do we give everybody that wants a loan a loan?
Aaron Norris: This is a good question. I think the answer is built into it. Elderly sister developmentally disabled. Does she count as a dependent? She does not file taxes. Will she get the five hundred dollars?
Amanda Han: Yes, it does include siblings.
Aaron Norris: OK. But there’s a threshold with how much she makes, correct? If the sister is considered a dependent and you as the older sister are taking care of your disabled sibling, would that count? Do you still get it, or are you over the threshold of the ninety-nine thousand?
Matthew MacFarland: So I think the question is if it’s a disabled sister happens to make money, do you have to include her income in your AGI calculation for determining this phase-out
Amanda Han: The answer is a definite I don’t know.
Aaron Norris: I applied for the EIDL loan but need to lay off employees until we get that loan. Do you know if this will qualify my business for the loan?
Amanda Han: I believe you still qualify. There was a period where they want you to hire back the employees as quickly as possible, and definitely before June. So I believe that works. And we have clients who’ve already laid off employees. But once they get the loan, they intend to hire them back. So I think that is the intention for you to hire them back as soon as possible.
Bruce Norris: I think that’s why it’s backdated.
Aaron Norris: I’m a sole proprietor who is a realtor, a loan originator, and a rental landlord all in my own name. Can I get three SBA loans?
Amanda Han: I think that will depend on how you file tax returns. I would say the rental is definitely a separate trade or business. If you follow your realtor as one schedule C, that’s another trader business. The loan originator a separate schedule C. That would be a different trade or business.
Aaron Norris: If you’re a rental investor and hold properties under your personal trust, yeah, trusts are gonna be big for this audience. Is this just considered a pass-through?
Matthew MacFarland: Yeah, I would think so. It depends on how the trust is taxed, whether it’s a disregarded entity like a land trust or revocable living trusts. I think it’s just gonna be treated as if you’re doing it individually anyway.
Bruce Norris: It will default to your Social Security.
Aaron Norris: My business borrowed money to buy notes to flip the notes. Now we pay interest payments to those investors. Can we apply for help covering the interest on the loans our business owes?
Amanda Han: I believe so as long as the notes existed prior to February 15th, 2020, because that’s one of the eligible expenses that you can use the loan for.
Aaron Norris: When do I get the money? I think that’s the big question right now. We don’t know. I’m just getting the sense that the small banks are a little unhappy. They don’t have what they need. That’s what I’m hearing today. Look how quickly they rolled out all these programs. It is impressive. So there’s gonna be some fits and starts. So I think we just have to be patient.
Aaron Norris: We have different properties in LLCs in several states. Do we apply for all under our own names or separately under each LLC?
Amanda Han: I think that will depend on how your LLCs are taxed potentially. So if the policies are all disregarded and they’re all rentals, I would err on the side of saying that’s going to be just one loan because eventually they’re going to ask for a tax return. And if it’s all on the personal return, that’s one loan. But now if you do have LLCs that file as partnership returns, then maybe those each are going to be separate loan applications because then you can hand in a loan app with LLC number one, another one with LLC number 2’s tax return separately.
Aaron Norris: I own multi-family and I am applying for the PPP for my W-2 employees. Can I also use the money I paid to individual vendors and gave them a 1099 as part of the payroll I report?
Amanda Han: Yes, my understanding is that you can do that for those vendors that provide you recurring services and things like that.
Aaron Norris: Can this loan be used on renovations and capital improvement for projects?
Amanda Han: That’s such a gray area. I had just talked to someone about if we can start paying independent contractors, let me just pay someone to do a fix and flip and then apply for the PPP and have the government pay for my rehab.
Currently, there’s nothing that prohibits it, but I just find it hard to swallow that that is the government’s intent that they want to help reimburse for, major rehab or building a home. I think that my answer would be I don’t know if they would allow you to do that. It doesn’t say you can’t right now, but I don’t feel like that was their intention in the program.
Aaron Norris: This is so early in the process, too. I think right now we’re just finding out who people are and where they’re at financially. It’s April 1st. So the question that keeps coming up is, you know, I’m independently wealthy. Can I go ahead and apply for some of these? It doesn’t mean that your situation won’t change as far as income and whatnot in a couple of months. It certainly could. In the worst-case scenarios, you would just need to end up paying it back.
Amanda Han: I agree. Maybe you don’t need the money today or your tenants are paying, but is it possible they’ll stop paying? If so, would it financially impact your real estate, your business? If you wait until then to find out, maybe the loan is gone. I think they’ve allocated about three hundred three hundred forty nine billion to the PPP program. If that’s gone, and by then you feel like you need it, you apply and there’s no more money, than you are potentially are going to be in a bind.
Aaron Norris: So this is a really interesting question because what is the definition of date of disaster for a lot of these rules? Because I know here in Riverside, the county, the city, the state and federally are four layers deep in disaster zones. So does it specify at the federal level? Is it just at the federal state of emergency that’s been declared that it matters?
Amanda Han: I’ve not seen any definition of that at all. I think they will define that later on. But, at a minimum, I would say it’s when the quarantine is announced. At the earliest point, whether it’s at the city or the county or the state level or federally, if they ever have a major announcement. But no, they haven’t. I haven’t seen a definition of date of disaster.
Aaron Norris: What is the cost of goods sold for a service business or say, rentals?
Matthew MacFarland: It’s a good question. It begs the question of why it’s on there, I guess. I can only speak from experience from our business and the way we do our financial statements. We consider internally our cost of goods sold as our payroll for our employees because they’re providing the service. These are the costs that I’m incurring because of providing that particular service. So it doesn’t include rent to the building. I don’t include liability insurance, things like that. But that’s how I think of it. But I don’t know.
Amanda Han: I’m sure the best thing to do is to refer to last year’s tax return. I think that’s the point of reference that the lenders and the IRS will be looking at. So when you filed your tax return at that time, whether it’s 2019 return or 2019 financial statements, what did you consider to be cost of goods sold? It’s clear cut for businesses that sell stuff. If I’m selling stuff on Amazon, my cost of whatever I sold is cost of it sold. So for those types of businesses, it’s pretty straightforward. For landlords, we don’t have cost of goods sold. So I think you would just put zero for the application. For flippers, cost of goods sold is purchase price, improvement cost, holding costs with respect to the property itself. That’s generally what we report as cost of goods sold.
Aaron Norris: I am looking to refi a property with a 5 percent loan. Could I use these funds to get the three point seventy five percent and pay off the other loan with it? Just curious.
Amanda Han: So getting the EIDL loan and then having the PPP pay off the EIDL loan?.
Aaron Norris: No. They have a five percent loan. Can the funds from the help be used to pay for the expenses of getting a lower interest rate doing a refinance?
Matthew MacFarland: I don’t think the money from the EIDL loan can be used to repay the principal on the existing loan. I think it can be used to pay interest.
Amanda Han: That’s a little bit tricky because they’re very specific in indicating that it can not be used to pay off principal.
Aaron Norris: Yeah, I really like the idea of opening a separate bank account and really sticking to that. It doesn’t mean that you can’t pay for those other expenses that are allowable by the rules. And then behind the scenes and the other account, yeah, you can use the money that you’ve freed up to take over that loan.
But yeah, I would document this really carefully and not operate in the gray area if at all possible. I know our business likes to do that, but don’t do it.
Aaron Norris: Is the $19,500 single 401K deferred comp considered retirement contribution under PPP?
Amanda Han: The PPP contribution refers to the employer 401K contribution. The nineteen thousand five hundred is the employee portion. So the employer portion, generally, if you’re an S corp on payroll, the employer can fund up to 25 percent of the W2 wages. If you’re paying yourself ten thousand then twenty-five hundred is what the employer 401K would be.
Matthew MacFarland: And the answer doesn’t change. If you’re the employer and the employee and you’re putting in nineteen five from your paycheck, even though you’re the employer that’s still considered the employee portion. So that wouldn’t count for this.
Aaron Norris: 1099 contractors don’t fall under the payroll umbrella, correct?
Amanda Han: They do fall under the definition of payroll, so currently under the definition, the 1099 pay to contractors does fall within the definition for the loans.
Aaron Norris: What if all the money in the loan is not used? Is it paid back?
Amanda Han: Yeah. You just pay it back. There’s no prepayment penalties. So you get a loan, you don’t use it, you just pay the government back.
Aaron Norris: Can you post the link to the three-hour seminar you mentioned earlier? Yes, Danniella, we’re gonna transcribe this today, the entire sum. This will live on our blog. And that’s where I’ll post all the links and the John Heyer seminar I mentioned. I can’t find it on his regular website, but I have the direct link because I emailed them yesterday. Apparently, you want three more hours of this.
Amanda Han: I mean, you just can’t get enough. We’ve been reading up on all this. Matt and I have been attending webinars from the AICPA, from California State Board, from other CPAs in the industry that we respect, and there’s just so much information, you know. And I was joking with one of my friends the other day. As soon as I’m done with the webinar, I write down my notes, listen to another one, and things have changed, or someone else’s interpretation hads change. So there’s so much going on and different interpretations of these things. So you can never get enough. Listen to three more hours if you can.
Aaron Norris: If you have several properties and you don’t have your business name, what do I put on the form? I’m typing back to use your name that appears on your tax return.
Aaron Norris: I read that if you get a PPP and you are on the furlough, that you have time to bring back your team by June 30th. Have you read that?
Amanda Han: Yeah, that’s what we were just talking about earlier where you said, OK, I already laid off people. I’m waiting for the money to come in so I can rehire them. You want to hire them as soon as possible, but definitely before the end of June.
Matthew MacFarland: And I think this is happening a lot, actually. I have a friend who works at a local golf course. Then we’re gonna years. Because of some of these requirements to pay the sick leave and things like that, they put most or all their employees on furlough starting April 1st, but with a plan to bring them back when they can open the golf course again. So, yeah, it’s probably more common than we realize.
Aaron Norris: There is a question about if you are a franchise, can you still apply for the PPP or the EIDL program?
Amanda Han: If your franchise operator, I don’t see why not.
Matthew MacFarland: I think it has to do with the five hundred employees, right. Because it’s a franchise. If you own a Subway franchise, you have five employees in your store. But Subway obviously has more than 500 players nationwide. I think they have a carve-out for that. Don’t quote me on it. I think they have a carve-out that says you still qualify as a franchise if the ones you control are under five players.
Amanda Han: Three subways and the total of all your employees are under five hundred, then you should be able to be eligible for these.
Bruce Norris: When you file your tax return you’re not using Subway’s tax I.D. number.
Aaron Norris: If you file a new entity or a corporation in the next month, will they be able to apply for assistance?
Amanda Han: They do have a carve-out for new businesses in 2020. You do have to show that’s a legitimate business and that you’re actually operating it, not just going to form something and do a car wash for one person and stop doing that. But yes, there’s a carve-out for new businesses that started in 2020. Now, I know that applies to a business that’s formed in 2020, like January, February. I don’t know if from this point on if you form a new business, whether that’s eligible or not.
Aaron Norris: Up on thenorrisgroup.com/resources is where I’m tracking national, state and local resources for the real estate community. I break things down into general resources, tenant-related resources and then small business just to try to make it fast and easy. Who knows? You might be helping some of your tenants help their employers who are just in the weeds and don’t know where to start.
Val brings up a good point. There are several SBA “brokers” popping up, charging $2,500 to help you apply. Yes, this is absolutely a rip-off. They don’t need to pay twenty-five hundred dollars a lot for these. I would just go directly to the government Web sites where you need to apply or go directly to your depository bank if they’re approved under the SBA program. They will help you. And they’re making money because they’re making the loan from the government on the other side. So, no, that’s embarrassing. So you need help filling out a one-page form. That’s not good. So, yeah, help people not lose money doing that. That’s terrible. That’s already popping up.
Amanda Han: I got an email from Kaaren Hall at uDirect earlier. I was joking about how our client called and asked about whether they’re IRA LLC could take out a loan. So she said any loan to the IRA and the IRA LLC must be non-recourse. You cannot receive personal benefits. So the loan would be made to the IRA or the IRA LLC directly. So yeah, that’s a good reminder. If this is allowed, it would be a loan to the retirement account and not to the account holder.
Aaron Norris: Well, is there anything else we need to cover? A lot of the question I’m seeing, it’s just getting hard to track because a lot of it’s repeat and some people came in late. So we’re gonna put this all up. And I think it answers the vast majority of these questions.
Matt and Amanda, are you guys around to take questions. Do you want them to call or e-mail. You’re probably pretty busy with clients right now. I know we’re pretty busy with ours, too. But if people are looking to get a hold of you, how can they reach you?
Amanda Han: We have a ton of information on our Web site. I actually just posted some information regarding the COVID-19 tax changes. Right now, it’s only available to clients, but I will make that public before the end of the day. So check out our Web site www.keystonecpacom. If you have questions, our e-mail’s firstname.lastname@example.org. But yeah, we do have a lot of client questions that we do attend to first. So, you know, it is possible that we may not get to respond to all the questions we get. We’ll try to get to as many as we can. But at the end of it, a lot of these questions really should be directed to your tax adviser. It deals with how you filed your tax return. So they would be the person best positioned to answer those questions for you. And Matt and I were planning on putting together a webinar kind of on the planning side of things. So today we went over all the rules. You know, what the benefits are. We want to try to strategize and put together some proactive things that we could be considering in the downturn and in light of the new tax changes. So once that’s available, I’ll definitely share it with you guys as well.
Bruce Norris: Are you taking on new clients?
Amanda Han: We are taking on new clients, although there’s a little bit of a wait time. I think we’re currently scheduled for about three weeks out from today, but we are taking on new clients.
Aaron Norris: Do yourself a favor. Check her book out. Is it on Amazon? You wrote a book for BiggerPockets on advanced tax strategies. You’ve got two books. Is that where they find it?
Amanda Han: Yes, you can check it on Amazon or it’s also on BiggerPockets. We have both the physical and the audiobooks available. So check those out.
Aaron Norris: Excellent. All right. I really appreciate your guys’ this time.
Bruce Norris: Yeah. Thank you very, very much.
Aaron Norris: And thank you, everybody. Hope everybody enjoyed this. We’ll put it online so everybody can share, and hopefully we can help everybody out a little bit. So thank you for joining us on a Friday for a while what ended up being two hours. So just really grateful for your time, guys. So everybody, be healthy and safe, and we’ll see you next week.
Matthew MacFarland: Thanks, guys. Bye-bye.
The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669. For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.
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