Tips on Small Business Planning in Times of Partisanship and Pandemic

The American College of Financial Services
July 14, 2020

With a financial and regulatory landscape that’s constantly in flux, it can be extremely difficult for advisors and clients to get in sync with each other in these difficult times and get a sense of what needs to be done to protect their assets and well-being.

In a May 14, 2020 webcast from The American College of Financial Services discussing COVID-19’s effect on tax and retirement planning, Steve Parrish, co-director of The College’s New York Life Center for Retirement Income, posed the question of how financial advisors can give their clients responsible guidance in a time of constant change and uncertain futures, especially in the areas of Paycheck Protection Program (PPP) loans—which are no longer being issued by the federal government—and tax planning.

Robert Keebler, a renowned tax expert and public speaker, led off the discussion on a positive note—but also said at some point, national leaders will have to take steps to sort out the current confusion.

“My biggest message is all this will right itself, but what you have right now is the Small Business Administration (SBA) handling issues that Congress should be handling,” he said. “We all learned at some time in school that the legislative branch writes the law, and the executive branch enforces the law. Right now, the executive branch is mostly writing the law, which it was never intended to do. There's fault on Congress' side, too, because they had to tell a number of companies to return their loaned money when they rewrote the law, and that's clearly an executive branch responsibility. So, all these things, either through the courts or otherwise, will right themselves with time, but it's very hard to do planning.”

Financial educator Jeffrey Levine agreed, saying there’s no easy answer to staying current on a subject that’s shifting so quickly.

“We need to figure out how to drink from the firehose,” he said. “The original CARES Act was drafted in a week or two. They had to get money into the economy to stabilize things to the extent possible, and about a month later, they followed up with a second bill that added more money to this program. That gave Congress a month to fix these things to put more into the legislative text at that point, and they chose not to do it, which leaves the law very vague as it stands. For instance, at one point the Treasury took the position that the PPP loans were not deductible. Well, the CARES Act says the forgivable amount of the loan is non-taxable. If you eliminate the deduction, you're essentially making the forgivable amount taxable. So it's really in direct conflict with what's in the statute.”

Levine says there are a few things financial advisors can and should do to stay informed of the latest changes in statutes and guidance.

“You have to figure out where your sources are,” he said. “For one thing, every day now I make sure I'm checking the Paycheck Protection Program FAQs to see the latest updates. Also, make sure you're subscribing to the IRS and Small Business Administration updates that are available through those services. Finally, make use of the resources that are available in many cases for free, like The College’s COVID-19 Resource Center.”

Examining the latest developments, Parrish pointed out a revision in the PPP code describing the so-called “good faith” certification that could have a tremendous impact on small business owners. Those who took a loan from the program of $2 million or less were now automatically satisfying the good faith certification meant to keep larger companies from abusing the system and applying for loans. However, Keebler pointed out it may not have had the desired effect, and that business owners and their advisors need to be careful.

“I think it creates a moral hazard,” he said. “It does create some certainty for small business owners on the good side, but we're also basically giving people a license to go get a loan and saying you can certify yourself. For less than $2 million, fraud is still on the table. And I have people I've worked with thinking of returning the money, even though they desperately needed it, because of the strings attached. If the government does an audit on one of your clients, and that client already spent the money on payroll or rent or utilities, they’ve done what they were supposed to do, but now they don’t have the money. How are they supposed to simultaneously pay that back?”

Keebler and Levine both agreed another factor advisors need to consider is potential tax increases in the near future, which they believe are likely and could make life even more difficult for many Americans.

“We're getting everyone ready to make very large gifts in November and December, depending how the elections go,” said Keebler. “If the Senate swings and Former Vice President Joe Biden is elected President of the United States, we probably should react to that in a way to protect our wealthier clients. There's going to be big tax increases coming and we can get ahead of that.”

“Many people aren’t working right now, which really hurts Social Security,” said Levine. “That means we could also see Social Security payroll taxes increase in the future. If I tend to stockpile as much money in Roth IRAs or Roth accounts as I can, that won't help me if payroll taxes rise. Right now, the country is so divided that we have to keep our ears to the ground and be ready to react at a moment’s notice. One of the things I'm encouraging a lot of people to do is create your game plan for either scenario.”


Giving You the Confidence Knowledge Provides


At The American College of Financial Services, we’re working to bring you the latest information from the foremost experts in the field as we all face this once-in-a-generation crisis together. For more of this conversation featuring Michael Finke, Steve Parrish, Robert Keebler, and Jeffrey Levine, watch the full webcast below from May 14, 2020.

In addition, you can download our free e-book, “Financial Planning During COVID-19,” for total access to all transcripts and on-demand webcast links.