New Unemployment Benefits for Gig Workers and those with Schedules with Reduced hours---Wait a bit....
The government announced new and improved unemployment benefit for those in the gig economy and those whose hours were reduced. However, the details between the states taking the unemployment requests and the federal government have not quite been worked out. Additionally, the programming it takes to input the new criteria into the online software will take a bit of time. If you have been denied or rejected try again in a few days or a week. Advice from an article in today's LA Times was to wait a week or two and then to apply. Keep yourself informed. Go to the EDD website daily for updates.
For those of you fortunate to not need relief funds, here's an idea. Give it away. Where? Many local community churches have food pantries that will be in desperate need. Other types of food banks could also use the cash. These places often have deals with suppliers where every dollar they buy can get more than a dollar of food you might drop off. I've just learned about Feeding America an organization that represents several hundred food banks nationally. Organizations like Project Self Sufficiency as well as your community churches are also good as they evaluate needs and may offer payments to subsidize rent.
Can't give money? Consider giving blood. The American Red Cross has blood donation stations open 7 days a week. A quick google search will find you the closest one near you and its hours of operation.
'Keep your cash close during this time. Put as many things as you can on credit. You can always negotiate with creditors, it is difficult to negotiate with landlords and lenders. One thing you can do is try to negotiate for student loan relief. According to Liz Weston of Nerd Wallet, if your loans are held by the Federal government, relief should be automatic. You won't have to make a payment and interest will be waived through September 30th, 2020. If you have loans that don't qualify, you may be able to consolidate those loan into a direct consolidation loan which would qualify. In addition, federal collection efforts on defaulted student loans have been paused. Visit studentaid.gov to see if your loan qualifies.
Up to $1200 per tax payer and an additional $500 more per child will be distributed to tax payers upon President Trumps approval of the Senate Stimulus Package.....It looks like for those lucky enough to have filed already with direct deposit, these funds could be directly deposited into your bank account, so keep a eye open. I'm disappointed about the wage ceiling. No matter your income, if you've been work furloughed in this crisis, you are hurting financially. More affluent folks have bigger mortgages and car loans....and they pay more taxes into the system. More importantly, and yes stupidly, more affluent folks, are just as bad as saving as regular folks. Please, I beseech you, conscientiously change your spending patterns so you are not living on "max". Create financial margin in your life. Pay yourself (direct deposit an amount into your savings account every pay period) first. Get to a point where you have 3 - 6 months of emergency funds in an account that you do not see often and are not tempted to spend--no this is not vacation money or down payment money (if you buy a house you'll need an emergency fund even more)....There is always a 9/11, sub prime melt down and Coronavirus lurking around the next corner.
The IRS has extended the Federal tax dealing to July 15th for both filing (without an extension) as well as paying without interest or penalties accumulated. This is good for persons up to $1,000,000 and corporations for up to $10,000,000.
Why file NOW anyway...Get your refund as soon as possible. Consider it in your strategy to get through these tough times. Have the funds in hand when you need them.
Why file NOW if you owe...Find out what you owe. Consider the amount you owe in your long terms strategy to get back on your feet when this is over. Don't wait to July to develop your "get out alive" strategy for Covid-19 interruptions.
I just completed an analysis for one of our clients. They had just moved to the southeast and were currently renting. They had converted their west coast home in to a investment rental. They wanted to know the best way to fund their new home in their new area while keeping both their personal and rental mortgage over head low. After analyzing their new situation within the new tax code, I was able to demonstrate how a personal mortgage would not benefit their personal tax situation as they would barely exceed the new higher standard deductions. Taking the most mortgage on their business property made the most sense as it would be fully deductible. Even though their rental mortgage was higher than they thought they wanted, their total mortgage costs, particularly on an after tax basis were much lower.
We also discussed taking out a Home Equity Line of Credit simultaneous with them buying their new home. This would let them access their equity in the new home to take advantage of great real estate deals in the future. Of course, this isn't right for everyone. This young couple had very high credit scores and showed a remarkable amount of discipline in their budgeting and saving.
Analyze before you refi, buy or take money out of your retirement accounts!
I do not believe people appreciate what they get for free. I have first hand experience in that regard, but there is not enough space to tell that tale here. I do, however, believe in incentives.
Right now, the various tax adjustments and credits for college expenses all have income caps (that are actually relatively very low). It would be great to change that so there are no income caps at all. Whether rich or poor, higher education costs are investment expenses you are choosing to make-- whether for yourself or a dependent. In the business world, investment expenses don't have a cap. We should apply that same thinking in the tax code with regard to higher education expenses.
Also, how about making Graduate tuition expenses have a refundable credit? If you are a starving student, there is a huge chance that you will not have enough income to generate a tax liability to fully take advantage of the Life Time Learning Credit. The American Opportunity credit for undergrads is a refundable credit. Ideally, we should take that credit and also apply it to Graduate students as well. Grants and scholarships are far more rare in the the world of the Graduate level degree. The other alternative would be to have the unused portion of the Lifetime Learning Credit be able to roll over to future years until fully utilize (similar to the approach we take to tracking capital gains losses). Once again, investment expenses should be fully deductible.
And one final idea, how about giving a Bonus Refundable Credit to those that graduate within 6 years as an incentive to finish quickly and to start being employed in that next better position.
Under the Affordable Care Act, tax payers without health insurance were penalized up to 2.5% of the household's taxable income. That penalty is now reduced to zero under the new tax act of 2017. So this year if you are uninsured you won't face a Federal penalty on your IRS Form 1040. HOWEVER, California, which jumped on board early to fully support the new healthcare initiative, has implemented its own penalty system which basically results in the same financial hit. So get insured if you can. A broken arm runs about $20,000 if you don't have an insurance company negotiating down the payment rates. Which one of us is not at risk of tripping on a crack in the sidewalk and cracking our scull on the curb while texting on our phones?
The SECURE ACT, passed by Congress, kicked in Jan 1, 2020. One of the great things it does is it pushes back the age at which retirement plan participants need to take required minimum distributions (RMDs), from 70 1/2 years of age to 72 for those who are NOT 70 1/2 years of age by the end of 2019 and who have the wherewithal to wait. Why is this good? It means your retirement investments have two more years to grow before you have to start bringing the base down. It gives you just a smidgen more control of how you choose to utilize your retirement savings. Keep in mind we are well into this bull market. All things must come to an end. So those retirement savings, if they are in the market whether through individual stocks or mutual funds, can come down quickly as we've seen it happen before after the internet bubble crash, white collar crime of Enron/ World Com, 9/11, sub-prime melt-down, blah-blah.
AB5 passed in California and became effective January 1. This law laid down new rules for who and what can be a subcontractor or independent contractor. For Uber and Lyft drivers, the new law is being litigated in court. If it applies to you, it means you'll be an employee subject to all rights of an employee. BUT NOTE, employees can not deduct expenses and they are paid weekly/biweely. So some of the benefits you enjoy as an independent contractor like getting paid immediately will be gone and deducting gas--unless at the end of the day the law has carve outs.
Truckers that become employees, sure you'll get vacations, and unemployment and retirement benefits (those of you working for good firms), but you will also need to figure out if you own your own truck how your firm will reimburse you for repairs, tows and such since you currently can not deduct expenses as an employee given the new tax code. Lots of things have changed. Buyer beware.
Note that with this law, 35 "gig's are exempted from this. But if you are driving daily this could end in a month (or if you are a blogger, writer, etc.) ALSO EXEMPTED from this are the license medical professionals.
If you are operating within a corporation or LLC you might be exempt. However, employers are worried and are even asking individuals operating within a corporation or LLC to go W2.
We have a lot of time to go before we know how this new law will ultimately play out--particularly within the confines of the new tax code.