The Trump administration has announced that individuals and businesses will be allowed to delay filing and paying their federal tax bills for 90 days as part of an emergency relief plan amid the coronavirus pandemic.
Some questions and answers about the delay and its potential impact on the U.S. economy.
DO I STILL NEED TO FILE?
Initially, only the payment due date was delayed past the traditional April 15 deadline. The Treasury later announced that it would also grant a 90-day extension for filing federal taxes as well. That means both the delayed filings and payments are due July 15.
Taxpayers who are facing difficulty filing by the new deadline still have the option to request an extension. Visit the IRS website for more details.
WHO GETS TO WAIT?
The IRS said that the deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.
WILL I BE PENALIZED FOR WAITING TO MAKE PAYMENTS?
No. During this unprecedented delay, taxpayers will not be subject to interest or penalty payments, regardless of how much they owe.
WHAT IF I AM EXPECTING A REFUND?
If you are expecting a refund, file as usual. The IRS is still processing returns and issuing refunds; most refunds are issued within 21 days.
DOES THIS APPLY TO MY STATE TAXES TOO?
Not necessarily. Check with your state tax authority to see about any changes to due dates. Some are following the federal model, but some are not extending their deadline and others are setting up exceptions only for certain groups impacted by the virus.
HOW WILL THIS HELP THE ECONOMY?
Treasury Secretary Steven Mnuchin estimates that taxpayers will be able to keep $300 billion in the economy for now. And some tax and economic experts say any extra cash in the hands of Americans is helpful because many will be struggling to get by.
However, some say the tax delay will not provide widespread financial relief.
Howard Gleckman, a senior fellow at the nonpartisan Tax Policy Center, says he thinks it will have a limited impact. That is in part because about three-quarters of Americans get refunds in any year and won’t benefit from a delayed tax bill.
The IRS expected about 150 million individual tax returns, as of the most recent count, about 76 million taxpayers have already filed.
Those who file early tend to be low- and middle-income individuals who are getting a refund. Higher-income individuals, or those with complex taxes who owe money to the government, tend to file later, Gleckman said. This move will provide some relief for them, but Gleckman warns that higher income individuals have extra cash, and they tend to save it not spend it. That leaves lower income individuals, who need it most and are more likely to go out and spend it, without relief from this move.
You May Be Able to Get Mortgage Relief, But Do This Before Filing
With the coronavirus pandemic devastating the US economy, many homeowners are unable to work and unable to meet their financial obligations. Fortunately, Congress passed The Coronavirus Aid, Relief, and Economic Security Act – or CARES Act – which offers mortgage help to those affected by the outbreak.
Specifically, section 4022 of the act requires servicers of federally backed mortgages to postpone mortgage payments at the request of the borrower, provided the borrower affirms financial hardship either directly or indirectly due to COVID-19. The postponement must be granted for up to 180 days. It must also be extended for an additional period of up to 180 days at the request of the borrower.
No fees, penalties, or interest beyond interest already scheduled can accrue during the forbearance period.
Additionally, servicers must grant forbearance without requiring any documentation except one. They must only require a borrower’s “attestation to a financial hardship caused by the COVID-19 emergency.”
The act also forbids the servicer of a federally backed mortgage loan to initiate any foreclosure process for at least 60 days beginning on March 18, 2020.
The process seems straightforward – simply calling your servicer and asking for relief. However, cases where servicers added extra hoops to jump through also exist. Some also made their own rules for how the skipped payments would be recouped.
Jim and Julia Hansen lost their incomes when the tourism industry shut down in their home state of Hawaii.
They reached out to their lender to ask about deferring their mortgage payment. While they were told they could delay their payment for three months, there was one massive catch: at the end of those three months, they would need to come up with a lump-sum amount totalling four-months of mortgage payments to bring the loan current.
That’s not what guidelines indicate, and the Hansen’s are currently weighing their options to seek appropriate relief.
Servicers making their own rules is a major concern for Richard Cordray, former director of the Consumer Financial Protection Bureau. He recently co-authored a letter to the current CFPB board. In it, he implored them to do everything they can to make the servicers follow the rules.
“We saw in the last crisis how their indifference and ineptitude led many mortgage servicers to push homeowners into needless foreclosures that undermined our communities. Already, there are worrying signs that people are getting the runaround as they seek forbearance or other relief. New rules were put in place several years ago to address these problems, and the mortgage servicers cannot now be excused from complying with these rules when consumers need them the most. Servicers also must live up to the letter and spirit of the CARES Act by helping consumers avoid foreclosures wherever possible, rather than using the money made available by Treasury and the Fed simply to pad their bottom lines.”
Follow These Steps When Seeking Mortgage Relief
Are you looking for mortgage relief due to the coronavirus pandemic? Follow these steps to give yourself the best chance at a successful outcome:
- Determine who your service provider is. This may or may not be the bank or lender who holds the actual mortgage on your home. They will be the ones you need to contact to start the discussion.
- Find out if your loan qualifies for relief. Your lender should be able to tell you if either Fannie Mae or Freddie Mac backs your loan. If one of the government-sponsored enterprises backs your loan, you are eligible. If they don’t, you may still have options.
- Find out how the servicers will handle the skipped payments. Will you see them included at the end of your loan term? Can they be spread out over future payments? Get a clear answer, ideally in writing, before moving forward. You don’t want any misunderstandings down the road.
- Determine how real estate taxes and insurance will be paid. Do you have an escrow account that pays your taxes and insurance? Those two accounts likely won’t continue to be funded by your monthly payments, since they are being skipped. Find out from the lender how the taxes and insurance will be paid if the balances are short.
“If your lender pays it, find out what’s going to happen during the time you’re not making payments and what happens if they pay,” says Barry Zigas, senior fellow at the Consumer Federation of America. “How does it all get figured out at the end?”
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The Next Generation of Sin Stocks to Ride Out a Bear Market
While the recent stock market rally has technically pushed the Dow Jones Industrial Average out of a bear market, many investors aren’t convinced it will last.
They expect that once the euphoria surrounding the $2 trillion stimulus plan wears off, the market will resume its slide downward as the economic impact of the coronavirus takes hold in the next few quarters.
Sin stocks, so named because they are things that we should go without but can’t seem to part ways with, are historically a great investment during downturns.
The added stress and uncertainty means an uptick in business for the companies producing these sinful indulgences.
Things like alcohol, cigarettes, weapons and gambling all fall under the umbrella of sin stocks, so companies like Altria (NYSE:MO), Diageo (NYSE:DEO), Sturm Ruger (NYSE:RGR) and MGM Resorts (NYSE:MGM) are all widely considered to be sin stocks.
And while they can make great investments during times of uncertainty, there’s a new breed of sin stocks that could generate even larger returns over the coming months as Americans turn to their (new) favorite vices.
Here’s a short list of “next gen” sin stocks that we expect to do very well.
While this is by no means a “new” vice, it is only in the last few years that it’s been possible to directly invest in companies that produce and sell marijuana. That wasn’t possible during the 2008 financial crisis, so it will be interesting to see how the major players do during their first economic downturn.
Just like smoking, we expect demand to hold up very well, if not increase, during times of turmoil.
Consider the larger companies like Canopy Growth (NYSE:CGC), GW Pharmaceuticals (Nasdaq:GWPH) and Cronos Group (Nasdaq:CRON).
Being a “gamer” is a lifestyle now, with livestreaming on YouTube and Twitch and professional Esports leagues formed around the most popular titles like Call of Duty and Overwatch.
Video games are big money now, and the larger production studios will continue to generate massive revenues as the culture grows in the years ahead.
Look at the big studios with strong franchises like Activision Blizzard (Nasdaq:ATVI) which has the Call of Duty and Overwatch franchises and Electronic Arts (Nasdaq:EA) which has the Madden, Battlefield and FIFA franchises.
Social Media Platforms
If you have a child or grandchild under the age of 30, you are probably very aware of the effort it takes to get their attention away from their phones and all the social media apps or platforms that they are using.
Tik-Tok, Twitter, Facebook, and Instagram are all designed to keep users engaged and spending as much time as possible on their platforms. The publicly traded ones are Twitter (NYSE:TWTR) and Facebook, which also owns Instagram (Nasdaq:FB)
While there are no guarantees when it comes to investing, as the coronavirus causes more people to spend time at home, they’ll be spending more time using the products and services of these next generation sin stocks, and that should translate to more revenues and higher profits for the companies.
Dow and S&P Post First Back-to-Back Gains Since February
While it may be a small victory, the Dow Jones Industrial Average and the S&P 500 managed to post their first back-to-back positive days since February.
The Dow closed 2.39% higher, gaining 495 points to close at 21,200. The S&P was up 1.15%, closing 28 points higher at 2,475.
The Dow was helped by a massive 24% rally in Boeing shares and a 9.2% gain for Nike stock.
The Nasdaq slid 0.5% yesterday as the tech-heavy index saw Facebook, Amazon, Apple, Netflix and Alphabet all close in negative territory.
Stock gave back part of their gains right before the market closed when Presidential hopeful Bernie Sanders said he was ready to “put a hold” on the $2 trillion stimulus bill currently working its way through the Senate.
Sanders is looking for tighter restrictions on companies receiving aid from a taxpayer pool of $500 billion.
While the market has used the likely passage of the stimulus bill as a catalyst for the massive rally over the last two days, at least one investor says the stimulus is reassuring Wall Street, not Main Street.
“What the fiscal and monetary stimulus has done is to allow the market to recover,” said Justin Hoogendoorn, head of fixed income strategy at Piper Jaffray in Chicago. “It’s not because the main street community is coming back. It’s the institutional crowd being able to say, ‘the world isn’t falling apart’.”
Others are worried that the euphoria over the stimulus bill is driving the market higher in the same way it originally drove the market down.
Adam Crisafulli, founder of Vital Knowledge, said in a note:
“The stimulus measures will continue acting as equity tailwinds as they seep into corners of the credit market presently locked.”
But he added that the market “is clearly moving much faster than underlying fundamentals and just as sharp declines on prior sessions exaggerated economic conditions, the rebounds will too.”
On Wednesday, former Federal Reserve Chairman Ben Bernanke said that he expects the U.S. economy will have a quick rebound after a “very sharp” recession.
“If there’s not too much damage done to the workforce, to the businesses during the shutdown period, however long that may be, then we could see a fairly quick rebound,” Bernanke said while appearing on CNBC’s Squawk Box.
He added “This is a very different animal from the Great Depression” which he said “came from human problems, monetary and financial shocks. This has some of the same feel, some of the feel of panic, some of the feel of volatility that you’re talking about. It’s much closer to a major snowstorm or a natural disaster than a classic 1930′s-style depression.”
In order for the markets to avoid a “snowstorm” turning into a recession, Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said there are four “components” needed for stabilization:
″(i) A sign that the policy intervention is sufficient to prevent severe second- and third-round economic shocks; (ii) A sign that the infection rate is reaching a peak; (iii) A sign that the economic downturn may be slowing; and (iv) Cheap valuations,” Oppenheimer wrote in a note to clients. “In reality, we believe it will be a combination of these, and in some cases there are already signs these are in place.”
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