CARES Act and Opportunities for Clients

President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES”). CARES is a stimulus bill to provide emergency assistance for individuals, families and businesses affected by the Coronavirus pandemic.

The bill is quite long, so we will not pretend to have read the entirety. However, there are several significant provisions and strategies that will benefit our clients and we are providing you with high-level information.

Recovery Rebates for Individuals

Individuals filing a joint return may receive up to $2,400 and $1,200 for all other filers. In addition, individuals will receive $500 for each child under the age of 17. The recovery rebates will NOT be taxable income. However, there are Adjust Gross Income Limitations for eligibility: Married filing joint – $150,000; Head of Household – $112,5000; Single – $75,000. The phaseout is a $50 reduction for every $1,000 a taxpayer’s AGI exceeds threshold.

The Recovery Rebate is automatic and does not require an application.

Retirement Plans and IRA Distributions Before Age 59 ½

Under the CARES Act, taxpayers can take a distribution of up to $100,000 in 2020 if they have been impacted by the Coronavirus. They are exempt from the 10% penalty tax that normally applies when taking a distribution prior to age 59 ½. The income tax due on the distribution can be spread over 3 years and the distribution can be paid back to the retirement plan over the 3 years.

Capital Directions believes this provision should only be used as a last resort.

Required Minimum Distributions from Retirement Accounts (RMD)

All RMDs due in 2020 have been waived. Assuming you have other sources to fund your retirement expenses, foregoing your 2020 RMD will reduce your tax liability. If you have already taken your 2020 RMD, you may be able to “undo” the RMD and put the funds back into your IRA or retirement plan. This can be accomplished through the 60-day rollover provision or through certification that you have been impacted by Coronavirus.

This decision is highly dependent on your personal circumstances and you should consult with your advisers.

Small Business – Paycheck Protection Program (PPP) Loans

The purpose of the Paycheck Protection Program is to provide the means and incentive to keep employees on the payroll without reducing compensation. PPP allows for forgivable loans up to the lesser of $10 million or 2.5 times average monthly payroll costs – excluding compensation above $100,000 for any single employee.

Monthly payroll costs include insurance premiums and retirement benefits for eligible small businesses. Without getting into nuances of eligibility, it is generally businesses with less than 500 employees and includes 501(c)(3)s, sole proprietorships, independent contractors and self-employed individuals.

The loan proceeds are to be used for payroll costs, group health care expense, mortgage interest or lease payments and interest on debt that existed as of February 15, 2020. The loan terms are a maximum rate of 4% and a maturity no later than 10 years. Loan repayments can be deferred up to one year after the loan origination date. There is no collateral or personal-guarantee requirements. As long as the loan proceeds are use for authorized purposes, there will be no recourse for non-payment.

PPP loans can be forgiven if the loan proceeds were used for eligible expenses during the eight-week period after the loan origination date. Furthermore, the loan forgiveness will not be treated as taxable income! The amount of debt forgiveness will be reduced if the borrower does not maintain the average number of employees or reduces compensation by more than 25% on any individual who makes less than $100,000.

PPP loans do not impose restrictions on stock buybacks, dividends or distributions during the term of the loan. For an FAQ on the topic, we direct you to the US Senate Committee on Small Business & Entrepreneurship PPP FAQ .


There are many details in the CARES Act that benefit you and your business. Capital Directions is ready to work with you and your team of professionals. If we can be of assistance, please do not hesitate to contact us.