It has been a little over seven months since the initial state lockdowns, and the focus on our Women Money and Mindset column this month is where we are now financially with the COVID-19 pandemic.
Most of the financial news right now seems extreme and unrelatable for most of us. For example, the wealth of U.S. billionaires increased by a massive $845 billion during the pandemic. At the same time, the number of those living in poverty has grown by 8 million since May.
So, how is COVID-19 affecting those of us who are not billionaires but who are also not destitute? Most Americans (58%) still consider ourselves to be part of the shrinking middle or upper-middle-class.
Those of us in the middle understand that the economy is not just about the stock market, although we most likely have an IRA or 401(k) and may own some stocks. We probably are not at risk of being evicted or losing work permanently, but we may be concerned about our ability to collect rents or might be worried if our businesses will fully recover. We may have suffered some losses this year and wonder if there are any tax breaks available, and we may have cut back on spending because we are nervous about future cash flow.
Here are some economic indicators and rates to focus on now for those of us in the middle.
The eviction rate
Some 12% percent of California renters have no confidence they can pay October’s rent, and an estimated 30-40 million Americans may be at risk for eviction once the CDC moratorium is lifted in January. Why is this a concern if we are not renters? Individual investors own forty percent of residential rental properties. These “mom and pop” landlords will struggle to pay their mortgages, utility bills, property taxes, maintenance costs, and other property-related expenses if their tenants cannot pay rent. Their inability to pay affects the overall economy and our property values.
If you are a landlord
With property taxes due in December, now is the time to determine what to do if your tenants cannot pay the rent.
Make sure to review eviction law changes. In California, the governor recently signed the “Tenant, Homeowner, and Small Landlord Relief and Stabilization Act of 2020” that prevents evictions until after Jan. 31, 2021, and includes several new provisions that impact landlords. The law also provides new accountability and transparency provisions to protect “small landlord” borrowers who request CARES-compliant forbearance.
If you own commercial rental property, the new law does not apply to you but understand that many counties and cities also place restrictions on commercial evictions, with such protections often limited to small businesses and nonprofits. Many California sheriff’s departments have also adopted policies declaring that they will not serve writs of possession during the COVID-19 emergency.
Your choices of what to do with a non-paying tenant are limited. You can forgive or lower rent payments even as your personal bills pile up, or hold firm, proceed with the eviction and risk the prospect of losing a tenant who may not be replaced for months or even years. The best solution might make you the hero and not the evil landlord: Work with tenants to see if you can help them apply for renter’s assistance so you can get paid. There are several local and state programs available.
Moving forward, review your property insurance policy with your agent or attorney to discuss lost rent coverage and business interruption insurance, especially if you own commercial rental property.
Interest rates
With interest rates being so low, now might be the time to refinance your rental or business property if it looks like cash flow might be tight. In fact, now is an excellent time to borrow in general, especially if your income was reduced in 2020. Most borrowing would be based on your 2019 tax returns. If there is a further economic downturn, or if the fed tightens credit, the ability to borrow later may not be as easy or inexpensive.
The unemployment rate
If you are a business owner and an employer, the unemployment rate should be of interest to you because it expresses the pool of employees available for you to hire. When unemployment was only 3.9 percent in September 2019, the number of candidates available, particularly as a small employer offering limited benefits, was restricted.
Now that the unemployment rate is 11% or more, the potential pool of employees available for you to hire just tripled, and the quality of the candidates has probably improved. It might be a good time to consider increasing staff if your company is recovering or if you want to grow.
If you did not take advantage of the Paycheck Protection Program, PPP, then you may be eligible for payroll tax credits when you hire or re-hire employees. You can even request payment now for employer payroll taxes you have already paid since March. For more information, visit IRS.gov/coronavirus.
Tax rates
If you sustained losses in 2020, it might make sense to file your 2020 taxes early in 2021 to carry back the losses to 2018 and 2019 to claim a refund of taxes paid.
If your income was reduced during 2020, it might also make sense to reduce or eliminate the payment of your fourth quarter estimated tax payments in January.
If you still need cash this year, consider taking out an early distribution on your retirement plan to cover expenses (or pay off high-interest credit cards you may have charged), avoid the 10% penalty with the Coronavirus exception, and possibly pay tax at a lower rate this year, if your income was reduced sufficiently. Talk with your financial advisor.
Make sure to book an appointment with your CPA or tax attorney before the end of the year to discuss tax and estate/gift planning opportunities if your taxable income and value of your business were reduced this year.
While we have received good news over the past few months that the stock market is recovering, companies are re-hiring, and the very rich are doing well, we also see unsettling news about lines at food pantries and businesses shuttering. The truth is we do not know what tax laws, economic policies (or federal relief efforts) are in store for us until well after the election. Until that time, pay attention to small steps you can take to secure your overall financial health.
Michelle C. Herting specializes in estate, trust and gift taxes, and business valuations. She has three offices in Southern California and is president of the Charitable Gift Planners of Inland Southern California.
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