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With the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act by Congress last month, Americans were provided with a more-than-$2 trillion emergency fiscal relief package that included benefits for many individuals, small business owners, healthcare providers, and government entities. For financial advisors with clients who have retirement accounts or who are beneficiaries of retirement accounts, one particular provision of interest established by Section 2203 of the CARES Act is the suspension of Required Minimum Distributions (RMDs) during 2020.
The suspension of RMDs applies to all IRA accounts (including SEP and SIMPLE IRAs) and defined contribution plan accounts, such as those under 403(a), 403(b), 401(a), and 401(k) plans, as well as the Federal Thrift Savings Plan (TSP). RMDs from 457(b) plans are also suspended, but only from plans offered by government employers.
In fact, not only can individuals who have RMDs for 2020 suspend their distributions, but individuals who either turned 70 ½ in 2019 or who were older but had retired in 2019 (taking advantage of the provision offered by IRC Section 401(a)(9)(C)(i)(II), the “Still-Working Exception”) can avoid any 2019 RMDs that were delayed to 2020.
Beneficiaries of retirement accounts are also eligible to suspend their 2020 RMDs. Specifically, these include individuals who are Designated Beneficiaries that can ‘stretch’ their RMDs with the life expectancy method and Non-Designated Beneficiaries (e.g., charities, estates, and certain non-See-Through trusts) who inherited the account from a decedent who died on or after their RBD.
On the other hand, accounts that are not eligible for suspended RMDs include defined benefit plans, non-governmental 457(b) plans, annuitized annuities held in an otherwise eligible plan, and 72(t) Distributions. Qualified Charitable Distributions (QCDs) are also not impacted by the CARES Act’s suspension of RMDs (and can still be made normally in 2020 for those who were otherwise QCD eligible).
For financial advisors with clients who have already taken RMDs for 2020 from their retirement accounts (or who have postponed RMDs for 2019 in 2020, as noted above) but who could have benefitted from suspending the distributions, there are a few ways to address the unwanted now-no-longer-necessary RMDs. Individuals can return the funds to the original account or rollover the funds to another retirement account (either through the 60-day-rollover window, or the extended rollover deadline offered through IRS Notice 2020-23), or for individuals directly affected by the COVID-19 virus (e.g., they or their family member has been diagnosed with the illness or has been experiencing financial hardship caused by the pandemic) by using the Coronavirus-Related Distribution Provision outlined in Section 2202(a) of the CARES Act.
However, in the case of IRA owners, it’s important to be mindful of the once-per-year IRA-rollover rule. Effectively, the rule prevents an unwanted RMD (or any other IRA distribution) from being rolled back into another IRA via a 60-day rollover (or using the relief provided by Notice 2020-23) if another IRA-to-IRA or Roth IRA-to-Roth IRA 60-day rollover has been completed during the past 365 days. Though IRA owners ‘stuck’ with multiple distributions may be able to fix them while steering clear of the once-per-year rollover rule by rolling the second, third, fourth, etc. distributions to a non-IRA-based employer-sponsored retirement plan that accepts roll-ins. If no such plan account is available, they may, at least, be able to salvage some tax benefits by timely completing a Roth conversion (which is also not subject to the once-per-year rollover rule).
For non-spouse beneficiaries of inherited retirement accounts, there is, unfortunately, no option to fix an unwanted RMD, as they are not permitted to do rollovers in any case. Spousal beneficiaries, on the other hand, do at least have the option to make spousal rollovers to move distributions to their own retirement accounts (but such rollovers are subject to the once-per-year rollover rule).
Ultimately, the key point is that financial advisors whose clients are retirement account owners can use relief offered through the CARES Act by suspending 2020 RMDs that aren’t immediately needed. For retirees who may already have taken their RMDs for 2020 (or for certain individuals who took 2019 RMDs timely in 2020), there are strategies for them to return these unwanted distributions using the 60-day-rollover rule, the relief provided by IRS Notice 2020-23 (which pushes back the deadline to rollover distributions taken on or after February 1, 2020, to July 15, 2020), or a Coronavirus-Related Distribution (for individuals directly affected by the COVID-19 virus).
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Welcome back to the 173rd episode of Financial Advisor Success Podcast!
My guest on today's podcast is Andrew Leonard. Andrew is the founder of Geometric Wealth Advisors, an independent RIA based in the Washington, D.C. area that oversees nearly $250 million of assets under management for 110 client households.
What's unique about Andrew, though, is his decision to focus into a unique niche serving the partners of the big three strategy consulting firms, Bain, McKinsey, and BCG, propelling his firm to organically add almost $200 million of net new assets in just 5 years almost entirely from a single white paper he wrote for his niche, and the ongoing one-meeting-close referrals he's been able to generate as a now recognized expert in that niche.
In this episode, we talk in-depth about what it really means to customize the financial planning process and experience to a particular type of niche clientele. The unique opportunities and challenges in working with management consultants who may make more than $1 million a year and save $250,000 annually into their portfolios but have been trained to analyze and scrutinize financial models and projections, how Andrew evolved his financial planning process to focus almost entirely on live interactive presentations of financial planning models using eMoney's Decision Center and eschewing the written plan altogether, and how Andrew combines in-person and virtual delivery to a clientele who are largely distance-based and spread across the country, and why Andrew ultimately decided to stick with the traditional assets under management model for a somewhat non-traditional niche clientele.
We also talk about why and how Andrew decided to pursue this type of clientele in the first place. Why he ultimately found it easier and more personally rewarding to work with high-income management consultants than the traditional retiree with significant retirement assets to manage, how he selected and narrowed down the type of niche clientele he wanted to pursue, the white paper marketing strategy he used to accelerate his growth after his first 10 niche clients, and why he finds that when focused on a niche, the biggest challenge is no longer how to market and attract high-quality clients, but the difficulties in finding the right kind of financial advisor talent to service that rapidly growing base of clientele instead.
And be certain to listen to the end, where Andrew shares why he found it so emotionally draining to work with retired clients, the real-world challenges of deciding to pivot from what had been a more generalist practice for his first seven years into this deep niche focus, and the unique cost-benefit analysis tool that he created on his website specifically to demonstrate the value of a financial advisor to his hyper-analytical clientele.
![Social Image NoteTaking The Forgetting Curve](https://www.kitces.com/wp-content/uploads/2020/04/Social-Image-NoteTaking-The-Forgetting-Curve-150x150.png)
Financial advisors don’t always take their best notes when meeting with clients, as maintaining the flow of a good meeting and the rapport established through personal conversation is difficult when the advisor interrupts the rhythm of the dialogue by pausing to jot down some notes. Consequently, advisors often end out relying on hastily written fragments taken during meetings to capture (at least some of) the most important details. After the meeting, they may spend more time to reflect and expand their notes into a comprehensive account of the discussion… with the caveat that the longer they wait to complete their notes, the more they will inevitably forget (as much as 50% after a day!).
In this guest post, Michael Lecours – Co-Founder of fpPathfinder (which creates flowchart and checklist resources specifically for financial advisors), and a Financial Advisor with Ohanesian/Lecours – explores the importance of good note-taking and offers tools and suggestions that advisors can use to help them take better notes during (and after) client meetings.
Good notes documenting client meetings are important for several reasons. Most obviously, notes are reminders for both advisors and clients of the conversations and strategies discussed, as well as records of action items that need follow-up attention. Additionally, good notes help advisors and their teams stay updated with a client’s situation, allowing support staff to proactively service the client with account issues and other administrative tasks. Finally, meeting notes are essential should the advisor be accused of wrongdoing or brought to suit; a good, detailed note can be the key to a quick and easy resolution of the issue under investigation.
The best method for an advisor to use to take effective notes is highly personal and will depend on the nature of the meeting. Whether to handwrite or type notes is one consideration. As while studies have found students tend to remember lecture material better with handwritten notes (forcing them to think about material quickly as it is delivered and to summarize key points to simply keep up with the lecture) and that typing tends to be less thoughtful (as much of the information is simply transcribed verbatim), it may sometimes make more sense for advisors to type their meeting notes just to ensure the information is captured at all. Especially since comprehensive notes are generally only created after meetings anyway, when advisors can thoughtfully process what transpired with the client (though taking brief handwritten notes during the meeting still may be most appropriate). Typing notes is also more conducive for advisors to enter such notes, details, and follow-up action items directly into an advisor CRM system.
Regardless of the medium, there are several traditional frameworks for organized note-taking. Two examples include the “Cornell Method”, which divides the page into functional areas for notes during and after a meeting, with space to create an overall summary, and the “Charting Method”, which organizes main points in a columnar format (useful for discussions bouncing back and forth between a few main topics). For advisors specifically, “Guided Notes” are customized templates useful for conducting meetings in a consistent, organized fashion.
Tech tools are also available to help make note-taking easier and more efficient. Redtail has introduced note templates customized for individual clients and that prompt advisors with reminders; MobileAssistant and Copytalk are apps that transcribe recorded notes; in addition to financial planning checklists and flowhcarts, fpPathfinder now offers interactive checklists with pre-populated questions to be used as a discussion guide with clients.
Ultimately, the key point is that, even though it may be difficult for advisors to take detailed notes during meetings, they should still make time to create complete and accurate notes afterward. There are many resources available for advisors to find out what works best for them to capture important details and to transfer these notes into their CRM systems. By developing excellent note-taking skills and habits, not only will advisors reduce the possibility that important details will ever be lost, they also empower their teams to proactively provide the best client service experience with access to well-organized, detailed client information.
While the current Coronavirus pandemic has resulted in strict social distancing measures around the world, financial advisors who are restricted to working from their home offices are finding ways to stay in touch with their clients to continue providing the same level of service, even without the capacity to hold in-person meetings. One way advisors have continued to meet with clients is through videoconferencing – using computer technology and conducting virtual, face-to-face meetings over the internet – with readily available equipment already installed in most modern computer systems, or in some cases purchasing new equipment to create or improve their home office videoconferencing setup. With the caveat that many advisors aren’t necessarily familiar with what the “best” videoconferencing equipment is for conducting professional-looking virtual client meetings!
In this guest post, Bill Winterberg – financial technology consultant and founder of the tech blog FPPad.com – provides a practical overview of some of the technology choices financial advisors need to consider to up their videoconferencing game, from the best cameras and microphones to use, to the ideal lighting and “green screen” background options to ensure that advisors maintain a professional appearance for their clients.
Notably, while most laptop computers have built-in webcams that will prove sufficient for videoconferencing needs, financial advisors can upgrade their equipment by investing in an external USB webcam, such as the Logitech C920 or C922, which allow for more flexible positioning on top of their computer displays or mounted on an external tripod for even more flexibility. Microphones are also often built into laptops and computer monitors, but aren’t often situated for optimal sound quality. As an alternative, headsets (e.g., the inexpensive Logitech H390, or the more sophisticated HyperX Cloud II, or Plantronics Voyager Focus UC) can be used for enhanced audio quality, and available options include both wired USB and Bluetooth-enabled systems. For a less conspicuous headset option, the Bluetooth Plantronics Voyager 5200 headset offers a wireless, compact design and fits around one ear with a small microphone arm for voice detection. Lighting equipment, such as the Fotodiox Pro Flapjack or the Elgato Key lights, can also be used to provide consistent image quality, which can be especially important in low-light settings (or where available light sources may be inconsistent and unpredictable).
Finally, advisors can follow a few simple guidelines to make themselves look their best on-camera and to create a camera-ready workspace. By looking at the camera (instead of the image of the client’s face on the computer screen) and standing instead of sitting during the videoconference meeting, advisors will look more engaged and energetic during the meeting. Also, keeping the area captured by the camera clear of clutter and other distractions will provide for a more professional appearance, making it easier for videoconference participants to focus on the meeting itself. If the nature of the physical space doesn’t allow for convenient modifications (e.g., if the area is in a tight space at home or perhaps in a high-traffic area shared with family members), a room divider or green screen (like the Fotodiox Collapsible Portable Backdrop or the Elgato Collapsible Green Screen) can be helpful to reduce distracting backgrounds. And ideally, be certain the advisor can orient themselves so their back isn’t to an open window (which can result in too much background light that distorts the video image and/or leaves the advisor’s face in shadow).
Ultimately, the main point is that financial advisors can continue to meet with their clients remotely during these turbulent times especially when their clients need their support the most. By setting up some simple, affordable, and easy-to-acquire equipment, advisors can use videoconferencing to maintain their connection with clients in a personal manner, all while working from home.
From February 20th through February 22nd, the CFP Board’s Center for Financial Planning hosted its third annual Academic Research Colloquium (ARC) for Financial Planning and Related Disciplines in Arlington, VA, to share and discuss research relevant to the financial planning profession.
This year’s event saw a sharp decline in attendance, down about 35% from 2019 (150 attendees in 2020, of which about 20 were practitioners), likely attributable to the fact that this year’s ARC was held separately from the CFP Board’s Registered Programs Conference (RPC), which is required to be attended by program directors of CFP-registered financial planning education programs. While this decline was unfortunate and definitely impacted the overall atmosphere (fewer practitioners, students, and academics who emphasize teaching were in attendance), the quality of the research remained high, and there were a number of papers presented that had strong implications for financial planners.
In this guest post, Dr. Derek Tharp – lead researcher at Kitces.com and an assistant professor of finance at the University of Southern Maine – provides a recap of the 2020 CFP Academic Research Colloquium, and highlights a few particular research studies with relevant takeaways for financial planning practitioners.
The 2020 CFP Academic Research Colloquium again had a strong showing from CFP Board Registered Ph.D. programs, with scholars from Missouri, Texas Tech, Georgia, and Kansas State producing nearly 37% of all research (when weighted by type of presentation and authorship rank). Additionally, Ohio State, Alabama, and Morningstar contributed another combined 15% of total research. Despite the concentration among top institutions, the ARC event remains academically diverse, drawing in scholars to present research from a total of 44 different institutions, including Princeton, Carnegie Mellon, and NYU.
This year’s colloquium featured a wide breadth of topics. Some particularly relevant topics for practitioners included:
- Re-examination of the conventional wisdom that small defined-contribution-plan investment menus are better than large menus (instead, research has suggested that bigger menus actually can be better for participants);
- An analysis of U.S. consumers’ willingness to pay for hourly financial planning services (which found that most consumers aren’t willing to pay anywhere near the rates that advisors charge);
- An investigation of whether fintech-mobile-application nudges can help individuals reduce their spending (yes, they can, but not by very much, and those nudges may drive consumers away from the apps in the future);
- A study examining whether the use of a financial advisor among high-investable-asset households is associated with a reduction in financial anxiety or an increase in investment confidence (no to reducing anxiety; yes to increasing confidence); and
- A study exploring whether different types of advisors (broker-dealers vs. RIAs, CFP professionals vs. non-CFP professionals, etc.) perceive the new “Best Interest” standard differently than a fiduciary standard (yes, they do; advisors at RIAs are more likely to be mistaken or confused about whether Reg BI applies to them, although brokers are more likely to mistakenly equivocate the “Best Interest” and fiduciary standard).
Overall, the fourth Academic Research Colloquium delivered on bringing together scholars to share high-quality financial planning research. However, this year’s low attendance felt like a step backward for the Center for Financial Planning’s goal to make the ARC the 'academic home' of financial planning. Nonetheless, the ARC continues to be a conference worthy of attending for both academics and practitioners who wish to engage in academic research.
![#FAS 172: Minoti Rajput](https://www.kitces.com/wp-content/uploads/2020/04/Episode-172-Featured-Minoti-Rajput-150x150.png)
Welcome back to the 172nd episode of Financial Advisor Success Podcast!
My guest on today's podcast is Minoti Rajput. Minoti is the Founder and President of Secure Planning Strategies, a hybrid advisory firm based near Detroit, Michigan, that oversees nearly $300 million of assets under management for 350 client households.
What's unique about Minoti, though, is that she's built her advisory firm by crafting a deep specialization in working with families with special needs children, and creating a truly multi-generational clientele in serving both the parents of those children and supporting the special needs trusts for those children long after their parents may pass away.
In this episode, we talk in-depth about what it really means to work with a niche of special needs families. The way Minoti structures her fees with the combination of an upfront complexity-based planning fee that may be the entirety of the relationship for some clients, the ongoing AUM fee she charges to work with more affluent families for ongoing special needs clients, the limitations of doing niche-based financial planning in traditional planning software, the need to use Word and Excel to create more custom plans, and how Minoti has been able to systematize and create repeatable expertise to keep even her custom-written financial plans very efficient to create and deliver.
We also talk about how Minoti built her niche in the special needs community itself. How she gathered the requisite expertise, it takes to understand the myriad of Federal, state, and local programs available to support special needs families, the unique marketing opportunity she's been able to create working with school systems where as many as 10% of students have some kind of special education needs, where Minoti draws the line between giving advice to special needs families but not serving as their special needs attorney, and how Minoti handles the real-world compliance challenges in providing this kind of specialized advice while being supervised by a broker-dealer compliance department.
And be certain to listen to the end, where Minoti shares why even though she's gone deep into the specialization of serving special needs families successfully, she still keeps a client base where almost 50% of her clients are generalist and not niche clients, the most misunderstood aspects of what it takes to be profitable and grow scalably when serving a niche clientele like special needs families, and the resources she recommends, including books to read, organizations to join, and designations to pursue for other advisors who want to pursue such a rewarding and fulfilling niche as well.
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In the wake of the Coronavirus pandemic, many financial advisory firm owners are facing tremendous uncertainty about the future of their businesses. And even those business owners who have planned ahead for cyclical downturns may still have to make hard choices about how best to navigate the current turmoil and ensure the long-term survival of the business.
In this guest post, Angie Herbers – Chief Executive and Senior Consultant at Herbers & Company, an independent management and growth consultancy for financial advisory firms – walks advisors through six steps of crisis management that they can use to cope with the unique crisis we are facing today. Because the truth is that even for experienced advisors who have been through market turmoil in the past, each crisis is different (posing unique challenges to firms at different stages in their growth), and in practice, the biggest risk to an effective crisis management response is one of “false equivalencies”, in which an advisory firm owner makes the assumption that the current crisis can be dealt with in the same manner as the last. In fact, while financial advisors may plan for aspirational growth, few businesses actually do the planning necessary to ensure they can maintain the stability of their business in the event a severe crisis turns into a protracted one.
Accordingly, there are certain steps an advisor can take to ensure their crisis management strategy is specifically tailored to the current situation at hand, and the risks that loom in the event that it does not recover quickly. The first step is an assessment of the specific crisis that needs to be addressed right now (which, in today’s environment, is the health pandemic crisis more so than it is the financial crisis) so that the advisor can focus their efforts on the right problem. This is followed by step #2, consisting of a SWOT analysis to identify the specific threats to their firm and its culture (without which, employees will leave after the pandemic passes, and just plunge the business into another crisis!) and how those threats might best be addressed. The third step is about continuity planning, and why flexible compensation and partnership pay structures are critical to maintaining resilience in times of extreme uncertainty. Next, engage in financial stress tests for the business, recognizing that stress tests that examine stability, focusing on capital allocation and cash flow instead of growth rates and profit margin, are more relevant than aspirational or functional stress tests during times of crisis. From there, it’s time to engage in strategic planning about what firms will do to fix (and prevent) the specific problems many firms are probably facing in today’s tumultuous environment. And the last step is implementation, in which strategies are implemented with a focus on the firm’s culture, clients, and long-term organizational stability.
Ultimately, the key point is that financial advisors, like many other business owners facing hard choices in light of the current crisis situation, can take a course of action to respond to their situation, and if the right choices are made with the intent to protect the culture of the business (as well as the employees entrenched in that culture) over everything else, chances are that the business will survive this crisis, and will be positioned to grow even stronger and better equipped to face the next crisis. But the starting point is to be ready and willing to make the hard choices necessary to ensure the business survives and has the opportunity to thrive in the long run!
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Now that the initial shockwaves of the coronavirus pandemic have passed, and individuals around the globe are adjusting to the current state of affairs, financial advisors are immersed in the process of updating clients’ financial plans to understand whether or how the recent market volatility has actually impacted them. As while the perpetual message for clients inclined to panic-sell has always been to ‘stay the course’, the reality is that, at some point, the market decline is still severe enough that at least some course correction in spending may be justified to appropriately address how to proceed in the aftermath of the down market we’ve experienced. Which in turn raises the question of how to ‘break the news’ that a spending adjustment might be necessary… and whether the discussion of focusing on spending (that can actually be controlled) may actually help further alleviate client fears.
In our 32nd episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about how financial advisors can introduce discussions about sometimes-necessary spending changes, and why strength, empathy, and confidence are so important throughout the process. As importantly, even though some advisors who have stood by and defended the plans they have created for their clients may experience feelings of guilt for needing to tell their clients that some course correction is now appropriate, it is vital to remember that their clients’ financial plans have probably already accounted for the possibility of disastrous events and that these course corrections are to be expected (and may in fact be less severe than what clients fear).
Accordingly, it is not necessary for advisors to assume a defensive position out of guilt that the original plan actually does need to be adjusted; instead, they can position themselves as supportive guides for their clients, acknowledging that the turbulence has been scary, painful, and difficult, but that ultimately, they are available to work together to help the client identify if (and how) their plan needs to be adjusted. In other words, market turmoil presents an opportunity to reinforce that the financial plan is not necessarily intended as a rigid solution set in stone; rather, it is designed as a roadmap to reach a destination, and that course corrections along the way are to be expected, as ‘unpredictable’ obstacles do inevitably arise.
For clients who need to reduce their expenditures, it can be useful to point out that small, permanent cuts are generally more effective than drastic (albeit temporary) cutbacks, which can help the client maintain a better sense of control over their situation. Illustrating various ‘what-if’ scenarios (simplified by many financial planning software tools) can also have several advantages, as the process can help clients understand not only all of the different variables that can be leveraged to adjust the current projections made in their plans but also the tremendous impact that small-but-permanent long-term changes can have on their plan.
Additionally, what-if planning scenarios can be used to establish the triggers that would justify a(nother) plan adjustment (e.g., a 5% spending cut will be implemented if the portfolio falls below one threshold, or a 10% cut if a lower threshold is breached), which in practice can be helpful to alleviate clients’ anxiety (to know it’s 'only' a 5% or 10% spending cut), and to give them a sense of when it actually is important for them to check in with their advisor (and in the meantime reducing fearful phone calls and emails).
Ultimately, the key point is that financial advisors can best support their clients by proactively guiding them through the adjustments needed to keep their financial plans successful, and clarifying that these adjustments are not only normal, but also that they are not an indication that the plan has ‘failed’ and instead simply that course-corrections are a part of the process in the first place. And by practicing rational overconfidence to reassure clients, advisors can communicate that the financial plan is a tool to help them figure out what adjustments to make to stay on course, navigating the unexpected-yet-inevitable roadblocks and obstacles that arise from time to time.
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Last month, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress, introducing a $2 trillion emergency fiscal stimulus package to provide relief to individuals, businesses, healthcare providers, and government entities from the economic damage resulting from the Coronavirus pandemic. While many advisors have become intimately familiar with the $349 billion Paycheck Protection Program (PPP) relief package provided for by the CARES Act in the past few weeks, the Economic Injury Disaster Loan (EIDL) program is another potential solution for small businesses and offers loans up to $2 million for business owners whose businesses suffered economic injury as a result of the Coronavirus. Eligibility is open to many small businesses (with 500 or fewer employees), including sole proprietors and independent contractors.
EIDL loan amounts will be based on the size and type of the business, and loan proceeds can be used to pay fixed debts, payroll, accounts payable, and other bills that the business owner would have been able to pay had the disaster not occurred. Borrowers may be granted a repayment period of up to 30 years, though repayment terms will be determined based on each individual borrower’s ability to repay the loan. Interest rates will be 3.75% for small businesses and the deadline to submit applications using the expanded rules as provided by the CARES Act, is December 31, 2020.
Additionally, borrowers will be allowed to request up to $1,000 per employee (with a total maximum cap of $10,000) as an “Emergency EIDL Grant”, which is estimated to be distributed within no more than three days of the borrower’s request. The amount received as an Emergency EIDL Grant does not have to be paid back and will be fully forgiven, even if the borrower is denied an EIDL loan. While small business owners have the option to supplement PPP Loans with EIDL loans, any amounts received as Emergency EIDL Grants will reduce the amount of forgiveness of any PPP loan balances.
Further, business owners (regardless of size) whose operations have been fully or partially suspended by government order, or who have seen a significant drop in income of more than 50% compared to the same quarter in the previous year, may be eligible for the Employee Retention Credit. The credit consists of “50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.” Qualifying wages include those paid between March 12, 2020, and January 1, 2021. Notably, though, accepting a loan from the SBA via the PPP will negate an employer’s ability to claim this credit. This can be particularly problematic for some business owners who actually stand to benefit more from this credit than they would by taking a loan via the PPP!
The CARES Act provides further relief for employers (including self-employed individuals) by deferring 2020 payroll tax payments due between March 27, 2020, and December 31, 2020. However, business owners who have debt forgiven under the PPP are ineligible for this benefit. Essentially, employers must pay 50% of the deferred payroll taxes by December 31, 2021, and the remaining 50% by December 31, 2022. Self-employed individuals will have 50% of the ‘employer equivalent’ of their self-employment taxes deferred as well, with 25% due by December 31, 2021, and the remaining 25% due by December 31, 2022.
Ultimately, the key point is that many business owners across the country (including self-employed individuals and independent contractors) who have suffered economic injury due to the Coronavirus crisis have several options of emergency relief available to them provided by the CARES Act. From the Payroll Protection Program to the Economic Injury Disaster Loan Program and the deferral of current-year Payroll Taxes, financial advisors with clients who own businesses (and even financial advisors themselves) have some tools to help their clients cope with the ongoing crisis.