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Congress Adds $310B for PPP Small Business Loans

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Congress has approved $310 billion in additional funding for an emergency small business loan program aimed at helping employers such as law firms avoid layoffs during the downturn in the economy caused by the COVID-19 crisis.

On April 23, the House voted 388-5 to approve the Paycheck Protection Program and Health Care Enhancement Act. The Senate had approved the measure April 21. President Donald J. Trump is expected to sign the bill into law quickly.

U.S. Treasury Secretary Steven T. Mnuchin welcomed the new funding.

“The PPP, implemented by our partners at the Small Business Administration, has provided assistance to more than 1 million small businesses with fewer than 10 workers,” Mnuchin said in a statement. “The Program is already helping more than 30 million Americans, and with this additional funding, we expect tens of millions more will be able to receive critical relief.”

The PPP program has become the target of increasing criticism after the U.S. Small Business Administration on April 16 announced that the $349 billion originally authorized by Congress had been exhausted and the agency would no longer be accepting PPP loan applications.

Critics contend that many cash-strapped small businesses were denied loans as well-heeled businesses acted quickly to apply for loans in the “first come, first serve” program. Others claim that certain lenders favored wealthier clients in processing PPP loan applications in the rush to obtain loans before funding dried up.

Experts have been recommending that law firms, like other small businesses, should seriously consider applying for the relief under the program in light of its historically favorable loan terms.

However, banking industry groups are warning that much, if not all, of the new money authorized by Congress will be eaten up by PPP loan applications already in process.

The Paycheck Protection Program was created under the federal Coronavirus Aid, Relief, and Economic Security Act signed into law on March 27. Launched on April 3, the SBA program provides small business job-retention loans to pay for eight weeks of payroll expenses and certain overhead to keep workers employed.

Section 1102 of the CARES Act permits the SBA to guarantee 100 percent of loans under the program. Section 1106 of the act provides for forgiveness of up to the full principal amount of those loans.

Generally, small businesses with fewer than 500 employees are eligible for PPP loans. Qualifying nonprofits, sole proprietorships, self-employed individuals, and independent contractors can apply for loans.

The maximum loan amount is $10 million, with a fixed 1 percent interest rate and maturity of two years. The loans do not require collateral or personal guarantees, and the first payment is deferred for six months during which no interest accrues.

Under an interim SBA rule, the loan amount is generally calculated by multiplying the applicant’s average monthly payroll for 2019 by 2.5. The average monthly payroll calculation excludes an employee’s annual salary in excess of $100,000 and includes commissions, tips and benefits such as sick leave and health insurance.

The SBA forgives that portion of a loan used for payroll costs and other designated operating expenses for up to eight weeks from the date the loan is disbursed but only if at least 75 percent of loan proceeds are used for payroll costs. Other expenses eligible for forgiveness include mortgage interest, rent payments and utilities, but payment of those non-payroll costs may constitute no more than 25 percent of the eligible loan forgiveness amount.

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© Copyright, 2020, Rhode Island Lawyers Weekly (RI)

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4 Ways To Lower Your Taxes In Retirement

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4 Ways To Lower Your Taxes In Retirement

With the likelihood of higher taxes in the future, it’s important to do as much planning as you can today to minimize your taxes during retirement. While nobody knows what the future holds, taxes generally go up over time, meaning even in retirement you could be faced with significant tax bills.

Fortunately, there are steps you can take today to help minimize your taxes in the future. Here are four ways you can help lower your taxes in retirement.

1. Know the Difference Between Each Retirement Account

401(k)s are tax-deferred. You contribute pre-tax income, and your employer may match your contributions up to a certain percent. When the time comes to start withdrawals, the money will be taxed as ordinary income. You can invest up to $19,500 in a 401(k) for 2020, plus an additional $6,500 catch-up contribution if you’re over 50 by the end of the tax year.

Roth 401(k)s are tax-free. Unlike a traditional 401(k), you fund a Roth 401(k) with after-tax dollars. This means your withdrawals are tax-free and penalty-free, as long as you’ve had the account for five years and are at least 59½. As an added benefit, there are no income limits on Roth 401(k)s. It makes this type of retirement account an attractive option for high-earners.

IRAs, or individual retirement accounts, are tax-deferred. Your withdrawals in retirement will be taxed as ordinary income. You can contribute up to $6,000 in 2020, plus a catch-up contribution of $1,000 if you are 50 and older.

Roth IRAs are tax-free. Because you contribute after-tax income now, you get tax-free withdrawals in retirement.

2. Know What Type of Investments Should Go Into Different Accounts

Investments That Should Go In Taxable Accounts: Index funds, ETFs, buy-and-hold stocks and tax-exempt municipal bonds should be held in taxable accounts.

Investments That Should Go In Tax-Free Accounts: Fixed income, REITS, commodities, liquid alternatives and other actively managed investments should be held in tax-deferred or tax-free accounts so you can grow the account without paying taxes along the way.

3. Prepare Now For Required Minimum Distributions

Under the CARES Act, all RMDs have been suspended for 2020. But you should plan for them to be reinstated at any time. If you have a 401(k) or a traditional IRA, you’ll have to start taking required minimum distributions (RMDs) every year.

If you turned 70½ in 2019 or earlier, you may have already started to take your first RMD by April 1 of the year after you reached 70½. For the rest of us, if you turn 70½ in 2020 or later, you can now wait to take your first RMD by April 1 of the year after you reach 72. To make sure you comply with the complex rules, our advice is to consult with your financial professional.

4. Consider a Roth Conversion

If you have a year with a particularly low-income level compared to normal, consider doing a Roth conversion. The conversion is a taxable event, so you’ll face a higher tax bill the year you convert, or you can slowly convert your accounts over a few years to help break up the tax implications. Critically, by converting to a Roth, any future withdrawals will be tax-free. Additionally, Roth IRA’s have no RMDs, so you aren’t forced to withdraw money every year.

All of these tips involve your retirement account, so consult with a financial or tax professional to make sure any of these changes are best for your individual situation.

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Wall Street Insider: The Smart Money Is In Cash, Ready To Buy During A Correction

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Wall Street Insider: The Smart Money Is In Cash, Ready To Buy During A Correction

49% of Americans said they expect to live paycheck to paycheck each month. Additionally, 53% said they don’t have money worth at least three months of expenses saved in an emergency fund.

Those figures are from earlier this year before the pandemic began. Also, as you can imagine, these would be much worse today as the economic fallout from the coronavirus spreads into its fifth month.

Michelle Connell, the founder and president of Portia Capital Management, says the numbers show how weak the US consumer was even before the pandemic, so the prospects of a “v-shaped” recovery are “grim.”

“When the U.S. economic shutdown began in March, we were told to expect a “V- shaped” recovery. The consumer and the economy were originally expected to be fully recovered by the end of 2020 at the latest. Now the grim realities are starting to show,” says Connell.

The Rally and Tech Stocks

She points out that the stock market rally has been concentrated in just a few tech stocks. She also says that essentially every other stock that isn’t a tech stock hasn’t participated in the rally.

Since the S&P 500’s March drawdown of almost 35%, the index has almost retraced the year’s high and is currently 4% up for the year to date. But further analysis finds that only a handful of technology stocks have led this rally,” says Connell. She added that “Investors have focused on the companies that support “shut-in” consumers and workers.

The result has been that the top 10 names in the S&P 500 now comprise more than 27% of the index’s market weight and large-cap growth stocks have returned 20% year-to-date. To a large degree, the other 490 names and other investment styles have not participated. For instance, large to small “value” names are still down between 10%-to-16%% year-to-date.”

She says retail investors overtaken with “boredom” have piled into the markets. She also mentions that they “poured fuel on the government’s fiscal and monetary fire.”

Smart Money in Cash

So what should smart investors be doing right now?

The best idea, according to Connell, is to watch what professional money managers do in their own accounts, not what they are doing in their managed accounts.

And right now, they are in cash.

“You can always determine an institutional money manager’s real opinion on valuations when you ask them what they’re doing with their own money. Currently, many institutions are sitting on cash positions as large as 20% to 25% in their personal accounts.”

She adds, “If you’re sitting in cash, don’t feel dumb. History is on your side — and you are also in good company. Interestingly, over the past 30 years there has been a strong inverse relationship between the unemployment rate and the performance of the S&P 500. This relationship has been upended only over the past five months. Obviously, the $2.44 trillion of fiscal stimulus that has been pumped into the U.S. economy has created an artificial market environment. At some point, this inverse relationship will represent itself and the stock market will correct.”

She says to prepare for the correction by putting together a list of stocks to pick up at bargain prices.

“Be ready for pullbacks in the stock market and dislocations in private markets. And make a shopping list.”

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Gold And Silver Plunge On Vaccine Hopes, Slowdown In New Cases

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Gold And Silver Plunge On Vaccine Hopes, Slowdown In New Cases

Gold prices fell more than $118 per ounce yesterday. It’s the largest one-day dollar loss in more than seven years as hope for a coronavirus vaccine. Additionally, a slowdown in new cases pushed stocks and Treasury yields higher.

Edward Moya, senior market analyst at Oanda, said a report that Russia has developed a coronavirus vaccine had an effect. It served as everything traders needed to lock-in their profits from the recent surge in prices.

The Vaccine and Precious Metals

“Traders who were looking for an excuse to lock-in profits with their bullish gold bets jumped all over Russia’s vaccine news. It didn’t matter that this was somewhat telegraphed,” said Moya. He also said that Russians only starting Phase 3 didn’t matter.

Silver also fell $4.38 per ounce, it’s largest dollar loss on a daily basis since Sept. 23, 2011.

Brien Lundin, editor of Gold Newsletter, went on an interview with MarketWatch. There, he said many investors were actually hoping for a small correction. They wanted one so that they could get into gold and silver before the next leg higher.

“Gold and silver’s run over the past couple of weeks was dizzying in its trajectory and just about everyone marveling at that rise was expecting, and even hoping for, a correction. Well, it’s here, and the metals are simply releasing a bit of the air that had overinflated the market,” said Lundin.

“There was tremendous anecdotal evidence that a great swath of investors had bought into the long-term story for gold and silver and were simply waiting for a pull-back to get in,” he added. “I would expect there’s some reality to this view, and that we’ll see a big influx of investment once it appears that gold has bottomed.”

Reasons for the Climb

Bart Melek, head of global strategy at TD Securities said the recent climb was due to a number of reasons. This includes a falling dollar, lower interest rates, and higher inflation. When the US dollar went against expectations and actually showed strength, precious metals investors quickly headed for the exit.

“The precious metals complex, which posted a spectacular performance over the summer, was driven by a drop in rates, a steady increase in inflation expectations and a falling USD,” said Melek. “The rally is now giving up some of these gains as these drivers lose momentum. Real rates are now rising along with nominal yields due to stimulus optimism and risk appetite, with the USD also off its lows.”

Melek also believes that gold and silver dropped as some investors booked profits. Also, what he says are expectations of an economic recovery due to more stimulus money.

“Specs and CTAs are reducing their gold and silver exposure,” Melek said. This happened “as volatility trends higher and as they take profits out of a crowded trade. The rapid rate of ETF gold and silver purchases, which have been a key driver for the summer rally, are also losing momentum,” he added. The “U.S. economy will continue to positively respond to an additional trillion dollars worth of fiscal stimulus and continued Fed measures,” Melek also mentioned. Given this, “it is quite likely that rates and the dollar may see some better days into 2020.”

Melek adds that the dip in prices is a buying opportunity.

“Correction represents a second chance to get on the gold, silver bandwagon.”

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