Five Ways Coronavirus Impacts Your 2020 Personal Taxes

Five Ways Coronavirus Impacts Your 2020 Personal Taxes

 

LUTZ BUSINESS INSIGHTS

 

FIVE WAYS CORONAVIRUS IMPACTS YOUR 2020 PERSONAL TAXES

five ways coronavirus impacts your 2020 personal taxes

daniel sweeney, tax manager

 

Congress passed a variety of tax-relief measures throughout 2020 because of the Coronavirus pandemic. Even income taxes did not escape the impact of COVID-19. Here are five ways that the Coronavirus will affect your 2020 taxes.

 

1. Net Operating Losses for 2020. 

If 2020 was not the year for your business, there is a silver lining. 2020 is the last year to take advantage of preferential rules for net operating losses. The “normal” rules would force taxpayers to take their business’s net operating loss to a future year and potentially subject the loss carryforward to an 80% of taxable income limitation. As of right now, 2021 will reimpose the normal rules. For 2020, the net operating loss can be carried back 5-years with no 80% of taxable income limitation. The carryback of the loss would hopefully result in a tax refund when carried back to a year that had taxable income.

The $250,000 (single) or $500,000 (married) limitation on excess business losses has also been removed.  Like the changes to net operating losses, the “normal” limitations are set to reapply for the 2021 tax year.  If business in 2020 was not great, there is the possibility for some relief that would not normally be available.

 

2. Estimated Tax Payments and IRS backlog

In a normal year, estimated tax payments would have been due April 15th, June 15th, September 15th, and January 15th (of the following year). IRS Notice 2020-23 postponed the due date for 2020 estimated tax payments for the first quarter and the second quarter of 2020 until July 15th, 2020. The IRS has not been great about keeping track of payments they received in 2020. Taxpayers may receive more notices than usual about their 2020 estimated tax payments, even if the payments were made on time.

 

3. Charitable Deduction for Non-Itemizers

After 2017’s tax reform (the beloved Tax Cuts and Jobs Act), the vast majority of taxpayers no longer itemize their deductions. Itemized deductions include the deduction for contributions made to a qualifying charity. As such, most taxpayers no longer receive a tax benefit for their charitable contributions. The story slightly changes for 2020.

Now taxpayers can take a charitable deduction for up to $300 (single) or $600 (married) even if they do not itemize their deductions. The contributions must be cash/check, and a receipt still needs to be received. While not a huge tax-break, it is an additional deduction available for 2020 and 2021.

 

4. No Required Minimum Distributions from your IRA.

For those over age 70½ or are the beneficiaries of an inherited IRA, the requisite to make your required minimum distribution for 2020 was waived. If required minimum distributions were made out from the account, you had until August 31st, 2020, to put the distribution back into the account.

However, even if the funds were placed back into the account, taxes may still have been withheld. The portion related to the taxes withheld would normally not be placed back into the account. Fortunately, those withheld taxes can still be claimed on your 2020 tax return.

For 2021, required minimum distributions are set to resume. It is worth following up on what happened to your required minimum distribution, even if it was placed back into your account.

 

5. Stimulus Payments (Economic Impact Payments)

Throughout the summer of 2020, the Treasury Department made direct payments of up to $1,200 per taxpayer and $500 qualifying child. The Treasury made additional $600 payments at the end of December 2020 and beginning of January 2021. Unfortunately, College students claimed as a dependent lost out. A qualifying child needs to be under age 17 for the parent to receive a payment.

These payments were really structured as an advance payment of a tax credit calculated on your 2020 tax return. The tax credit will be calculated based on your 2020 income. However, the payment you received was likely based off your 2019 or 2018 income.

The good news is that if the stimulus payment you received is higher than the tax credit on your 2020 tax return, you do not have to pay anything back. The better news is that if the calculated tax credit on your tax return is higher than your stimulus payment, then you will get an additional tax credit on your 2020 tax return.

The stimulus payment was partially reduced for taxpayers with adjusted gross income (AGI) over $75,000 (single) or $150,000 (married) for 2018 or 2019. If 2020’s AGI is lower, you may receive an additional tax credit if you did not receive the full stimulus payment amounts.

 

No Change –The Due Date

At the moment, the IRS is not planning to change any of the due dates for the 2020 tax filing season. For 2019 tax returns, the due date was pushed back to July 15th. For 2020 tax returns, the due date is still April 15, 2021, for personal income tax returns, along with an April 15th deadline for first quarter estimated tax payments. The IRS is still multiple months behind on processing 2019 tax returns but has said that they expect to be ready to go for 2020 returns. We will keep up-to-date and inform you if there are any changes. If you have any questions, please contact us.

ABOUT THE AUTHOR

402.463.8988

dsweeney@lutz.us

747 N BURLINGTON AVE

SUITE 401

PO BOX 1317

HASTINGS, NE 68902

DANIEL SWEENEY + TAX MANAGER

Daniel Sweeney is a Tax Manager at Lutz that focuses on a number of areas including tax preparation and planning for individuals, partnerships, and corporations. His experience also includes international tax and tax research.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • Nebraska State Bar Association, Member
  • Hastings Young Professionals, Member
  • Nebraska State Bar
EDUCATIONAL BACKGROUND
  • BA in Political Science, American University, Washington, D.C.
  • JD, University of Nebraska Lincoln College of Law, Lincoln, NE
  • LLM Tax, Northwestern Pritzker School of Law, Chicago, IL
COMMUNITY SERVICE
  • Hastings College Adjunct Professor of Federal Income Tax

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Paycheck Protection Program Updates

Paycheck Protection Program Updates

 

LUTZ BUSINESS INSIGHTS

 

PAYCHECK PROTECTION PROGRAM UPDATES

paycheck protection program updates

The Consolidated Appropriations Act (CAA) passed at the end of December 2020 contained language reopening the Paycheck Protection Program (PPP) for First Draw Loans and creating the PPP for Second Draw Loans. The below listing presents a summary of the major points of each program.

PPP First Draw (PPP1):

  • Opened back up for first-time borrowers
  • Flexible covered period allowed (time period between 8 and 24 weeks)
  • One page forgiveness application for PPP loans <$150K (has not been released)
  • Payroll expanded to include company paid disability, vision and dental
  • EIDL Advance/Grant not deducted from forgiveness amount
  • Additional eligible uses of loan proceeds include worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations

PPP Second Draw (PPP2):

General Information

  • Available until March 31, 2021
  • 5-year forgivable loan @ 1%
  • Flexible covered period allowed (time period between 8 and 24 weeks)

Eligibility Criteria

  • PPP1 funds must be spent by PPP2 disbursement date
  • For NAICS #72 businesses (such as hotels and restaurants) with multiple locations, the borrower must have less than 300 employees per physical location
    • affiliation rules still apply, but it appears that the alternative size standards and net income/book value test no longer apply)
    • For businesses with multiple locations, not more than 300 employees per physical location
  • Borrower must show a 25% “gross receipts” reduction in any 2020 calendar quarter, compared to the same quarter in 2019
    • Borrower can also compare full year 2020 vs. 2019 for 25% “gross receipts” reduction
    • Comparison periods will differ for borrowers who were not in operation for entire 2019 year
    • “Gross receipts” include all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances
      • PPP1 forgiveness amount and EIDL is excluded from the “gross receipts” reduction test
      • No guidance has been released on Provider Relief Funds being includable as “gross receipts” during 2020
    • Method of accounting (cash or accrual) for “gross receipts” reduction test should follow method used on tax returns

Loan Amount

  • Maximum loan amount of $2 million
  • Loan amount equal to 2019 or 2020 average monthly payroll x 2.5 (or x 3.5 for NAICS code 72 such as restaurants and hotels)
  • Schedule F: Loan based on 2.5x average monthly gross income (max of $100K gross income)
    • If a borrower has employees: sum of (i) the difference between gross income and employee payroll costs of the borrower in 2019 or 2020, that is not more than $100,000 divided by 12, and (ii) the average total monthly payroll costs for the employees incurred or paid during the same year elected by the borrower x 2.5 (max loan amount of $2 million)
  • Schedule C: Based on 2.5x average monthly net self-employment income (not to exceed $100K)
  • Loan to a single corporate group cannot exceed $4 million
    • Majority owned, directly or indirectly, by a common parent

 PPP2 Documentation

  • No additional documentation to substantiate payroll costs will be required if:
    • Used calendar year 2019 payroll figures to determine PPP1 and PPP2 loans amounts, and
    • The lender is the same
  • For loans over $150,000, submit documentation on “gross receipts” decline such as:
    • Relevant tax forms, including annual tax forms, or if relevant tax forms are not available, quarterly financial statements or bank statements
  • For loans of $150,000 or less, documentation is not required to be submitted with the loan application but must be submitted on or before the date the borrower applies for loan forgiveness. However, we assume most lenders will require “gross receipts” documentation when applying for PP2 since the “gross receipts” comparison will need to be completed to determine eligibility

If you have any questions on your eligibility for PPP1, PPP2, or the forgiveness of either program, please reach out to:

Michael Greteman

mgreteman@lutz.us

(402) 514-0015

Justin Korth

jkorth@lutz.us

(402) 514-0007

Mark Otte

motte@lutz.us

(402) 827-2032

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13616 California Street, Suite 300

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P: 402.496.8800

HASTINGS

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Hastings, NE 68901

P: 402.462.4154

LINCOLN 

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Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

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Grand Island, NE 68803

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SBA Updates to the Paycheck Protection Program Loan Guidance

SBA Updates to the Paycheck Protection Program Loan Guidance

 

LUTZ BUSINESS INSIGHTS

 

SBA Updates to the Paycheck Protection Program Loan Guidance

SBA Updates to the Paycheck Protection Program Loan Guidance

On June 22nd, 2020, the SBA provided updated guidance to the Loan Forgiveness Interim Final Rule. This new PPP guidance contains the following key updates:

Flexible Covered Period Option

A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan – including before the end of the covered period – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. If the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages in excess of 25%, the borrower must account for the excess salary reduction for the full 8-week or 24-week covered period.

S-Corp Owner Retirement Contributions Allowable

S-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement contributions made on their behalf. However, employer health insurance contributions made on their behalf cannot be separately added because those payments are already included in their employee cash compensation.

FTE Reduction Safe Harbor Date

The date on which borrowers need to have eliminated any reduction in salary/hourly wage greater than 25% or reduction in FTEs (Reduction Safe Harbor dates) has been updated to “anytime on or before December 31st, 2020.”

C-Corp Owner Compensation Clarified

C-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health insurance contributions made on their behalf.

If you have any questions, please contact your Lutz representative or email us at ppploan@lutz.us.

Updated 6/25/2020

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OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Paycheck Protection Program + FLEXIBILITY ACT OF 2020 – H.R.7010

Paycheck Protection Program + FLEXIBILITY ACT OF 2020 – H.R.7010

 

LUTZ BUSINESS INSIGHTS

 

Paycheck Protection Program + FLEXIBILITY ACT OF 2020 – H.R.7010

Paycheck Protection Program + FLEXIBILITY ACT OF 2020 – H.R.7010

This bill was passed in the House on Thursday, May 28, 2020, and the Senate on Wednesday, June 3, 2020. Once the President signs the bill, it will become law; it is anticipated the President will sign the bill. The below commentary contains Lutz’s interpretation of the updates. Note, the below may change upon the SBA’s implementation of the bill.

CHANGES TO THE PPP IN H.R.7010 

  • PPP Loan Maturity: Updated to 5-year term from a 2year term (needs to be mutually agreed upon with the lender). 
  • Extension of the covered period. The borrower may select: 
    • Earlier of 24 weeks after PPP loan proceeds received or December 31, 2020, OR
    • Currently defined 8week covered period 
  • FTE Reduction and Salary/Hourly Wage Reduction Safe Harbor Date: Updated to December 31, 2020 from June 30, 2020.
  • FTE Reduction Test – Exemption based on employee availability: 
    • For employee reductions made between 2/15/20 – 12/31/20, these reductions will not be considered so long as the Borrower makes a good faith certification and documents that:
      • Borrower is unable to rehire the employees who were employed as of 2/15/20 AND unable to hire similarly qualified employees for those positions by 12/31/20, OR
      • Borrower is unable to return to same level of business activity that such business was operating at before 2/15/20 due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, Director of the Centers for Disease Control and Prevention, or Occupational Safety and Health Administration during the period from 3/1/20 – 12/31/20, related to the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement related to COVID-19
  • Payroll Requirement: reduced to 60% from 75% (amount of forgiveness that must have been spent on payroll). 
  • Deferral of Principal, Interest and Fees: Any payments are now deferred until forgiveness application is remitted to the lender from the SBA. 
  • If the borrower does not apply for forgiveness before ten months from the last day of the Covered Period, payments of principal, interest and fee will start on the date that is ten months after the last day of the Covered Period. 
  • Deferral of Payroll Taxes: PPP borrowers can delay payroll taxes per Section 2302(a) of the CARES Act.

 

FORGIVENESS CALCULATION UNCERTAINTIES AS A RESULT OF H.R.7010 

As can be expected, changes in the bill resulted in confusion as it relates to existing PPP provisions. Below is a list of the questions that will need to be clarified by the SBA. 

  • For the Salary Reduction Test: Is the average salary still determined based on the average over the entire covered period? Issues could arise for borrowers who temporarily laid employees off but now must average those salaries over the entire 24-week period. 
  • Will more clarity be provided on the FTE exception based on the compliance requirements established by the three named government entities? 
  • Does the 60% payroll requirement rule act as a cliff, in that if 60% of total forgiveness is not made up of payroll, the entire portion is non-forgivable? This would go against prior guidance in the forgiveness application. We do not believe it was intended for this 60% rule to act as a cliff. 
  • Does the Alternative Payroll Covered Period now extend 24 weeks? 
  • If a borrower chooses to maintain an 8-week covered period, will they be subject to the same 12/31/2020 Reduction Safe Harbor date? It would likely be more beneficial for these borrowers to measure at 6/30/2020. 

The next step in this process will be implementation guidance provided by the SBA. The application for forgiveness will likely change considering this new bill, and other key provisions could materially change. 

 

ADDITIONAL LUTZ GUIDANCE AS IT RELATES TO FTE REDUCTION TESTS 

The FTE reduction test was intended to reduce the amount of loan forgiveness afforded to recipients of PPP funds who still furloughed or laid off employees due to COVID-19. The FTE Reduction Safe Harbor test was implemented to relieve borrowers of this reduction in forgiveness if they increase headcount as of 6/30/20 (now 12/31/20) to 2/15/20 levels. 

The FTE Reduction and safe harbor test were well-intended and reasonable on paper. However, issues arose given reductions in employees (FTEs) for nonCOVID-19 reasons. To account for these nonCOVID-19 reductions in FTEs, the SBA added two exceptions when the application for forgiveness was released: 

FTE Reduction Exception #1: 

Any positions for which the borrower made a good-faith, written offer to rehire an employee during the covered period (or APCP), which was rejected by the employee. 

FTE Reduction Exception #2: 

Any employees who during the covered period (or APCP): 

  • Were fired for cause, 
  • Voluntarily resigned, or 
  • Voluntarily requested and received a reduction of their hours. 

Exceptions #1 and #2 apply only if the position in question was not filled by a new employee 

Similarly, bill H.R.7010 passed in both the House and the Senate provided two further “exceptions” for a reduction in FTEs. During the period beginning on 2/15/20 and ending on 12/31/20, the amount of loan forgiveness shall be determined without regard to a proportional reduction in the number of FTEs if a Borrower in good faith is able to document:  

FTE Reduction Exception #3: 

An inability to rehire individuals who were employees of the borrower on 2/15/20; and an inability to hire similarly qualified employees for unfilled positions on or before 12/31/20. 

FTE Reduction Exception #4: 

An inability to return to the same level of business activity as such business was operating at before 2/15/20, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on 3/1/20, and ending 12/31/20, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19. 

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OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

4 Tips for a Successful Transition Back to the Office

4 Tips for a Successful Transition Back to the Office

 

LUTZ BUSINESS INSIGHTS

 

4 Tips for a Successful Transition Back to the Office

4 TIPS FOR A SUCCESSFUL TRANSITION BACK TO THE OFFICE

ROBERT KEENAN, CHIEF INFORMATION & RISK OFFICER

 

As the economy slowly reopens, remote workers are beginning to return to the office. Howeverbefore your staff return to the workplace, it’s imperative that companies develop and document a detailed plan and list of procedures to ensure everyone remains safe and healthy. 

This guideline has been prepared using information gathered from federal, state and local governments and medical authorities. While this may not cover every situation that could arise, it does require companies to think about and preparfor instances that may not have been considered in the past. Here are four areas that you should have already been and/or should start doing immediately: 

1. COVID-19 TEAM ASSESSMENT  

If your business has not already created a COVID-19 team, you should do so immediately. This group should be comprised of key members needed to make decisions to ensure concerns from every angle are considered. These key members should serve as the spokesperson/messenger for the company/office. This team likely has already notified vendors, developed a plan for postal services, and documenting COVID-19 related messages from employeesSome items the COVID-19 taskforce should review before allowing employees to return include: 

  • Risk: Engage with risk management personnel to gauge the company’s readiness to return to the office. 
  • Insurance: Work with insurers to identify potential risks for returning to work.  
  • Legal: Work with legal counsel to ensure that the actions that are being taken by the COVID-19 return-to-work team are sound and do not violate any employee rights. 
  • Employee Guide: Develop an overview of what to expect when returning employees arrive back in the office. This guide should include:    
    • New entrance protocols for employees and visitors, 
    • A list of supplies that will and will not be available/provided (i.e., food, drinks, utensils, glassware, cups, etc.), 
    • Instructions on bringing equipment (laptops, chairs, etc.) back into the workplace and sanitization requirements, 
    • Changes to the work environment including room availability, relocation of desks, etc., 
    • Modifications to internal and external meeting protocols, hosting of client events, and visitor access. 

Having a team in place to assess and communicate on topics specific to COVID-19 will help your company filter and sort information and requests more efficiently. 

2. PREPARE YOUR OFFICE 

Naturally, you will need to prepare your office for the return of staff members. To ensure everything is ready and in working order, the following tips can be useful: 

OBTAIN A DETAILED FLOOR PLAN/LAYOUT OF YOUR OFFICE 

  • Highlight high traffic areas & exits. 
  • Designate traffic directions to ensure low interaction between staff. 
  • Map out desk/cubes, offices, conference rooms, etc. that adhere to the social distancing guidelines (6 feet apart). 

DESIGN A PHASED EMPLOYEE RETURN PLAN 

Based on the different regulations for each state, and due to the universal social distancing regulations, not all employees will be able to return to the office at the same time. It is recommended that you use a phased approach – taking into account the employee’s desire to return to the office as well as the ability (physically) to bring employees back into the officeIt is recommended that at least a threephase plan is used. The time between phases will depend on the success of the previous phase and adjusting/correcting for any unforeseen problems. Phases could be spaced out with 2-4 weeks in between. 

  • Work with your HR team to determine who will return in which phase. Each company will need to determine the best way to coordinate who/how many people can come back in each phase.  
  • Coordinate with your IT department to get returners set back up in the office so the process goes as smooth as possible. 
  • Know that there may be some people who will be comfortable and productive working remotely going forward.  
  • Plan to have shared/routing office space for those who will not need to return full-time.  

ENFORCE DISTANCING RULES, LIMIT CONTACT, AND INCREASE SANITARY MEASURES 

The current regulations to reduce the risk of spread for COVID-19 is geared heavily toward distancing, cleanliness, and reduced personal contact.  To continue these practices in a professional office environment, the following measures should be applied: 

  • Continue to use virtual forms of communication when possible such as Skype, Zoom, Microsoft Teams, Slack, etc. If employees do need to meet, and their desktop does not have video or sound capabilities, have them try downloading one of the mentioned apps to their phone and use that to communicate. (NOTE: any of these suggestions should be cleared with the Risk and IT department to ensure they are secure and safe tools to use.)  
  • During the 1st and 2nd phase consider disallowing non-employees or clients in the office. 
  • Limit access to restrooms, kitchens, and copy rooms to a new socially distant norm.  
  • Temporarily close areas where employees congregate (lounges, break rooms) if possible. 
  • Limit the elevator usage. 
  • Increase nightly/weekend cleaning routines. 
  • Make sure cleaners are properly trained on the disinfecting guidelines. 
  • Determine areas that require thorough cleaning due to heavy usage, such as training rooms, conference rooms, break areas and restrooms. 
  • Although your company may not require them, offer face-masks for anyone who would like one or encourage them to use their own. 
  • Have hand sanitizers all throughout the building(s). 
  • Provide sterile wipes for people to wipe down their own surfaces. 
  • Place signage around the office to encourage and promote clean habits. 

3. PREPARE YOUR EMPLOYEES 

It is now time to prepare your employees for their return to work. Some will be eager and others potentially nervous, so remember to give clear and nonnegotiable direction to help ease any tensions or stress that the transition may cause 

COMMUNICATE TIMELINESS AND EXPECTATIONS 

It’s important to keep your employees updated.  Here are a few items that should be conveyed to your staff: 

  • Provide an estimated timeline on the phased approach back into the office, and detail as best as possible what that process will look like. 
  • We suggest that the COVID team, in conjunction with the HR team, prepare a confidential questionnaire for each employee to complete for the sole purpose of ensuring that the employee is ready to return to work, identifying the appropriate phase the employee should return, and to address any individual concerns an employee might have about returning to work. Questions you could ask include: 
  • To the best of your knowledge, have you been exposed and/or been around another person who has tested positive for COVID-19 in the last month? 
  • Are you experiencing any symptoms associated with COVID – 19? If yes, please describe.  
  • Have you recently traveled outside the State of ___? If yes, describe. 
  • Are there any unique circumstances the COVID Team needs to be aware of related to you returning to work in the office? If yes, please describe.  
  • Is it your desire to return to working at the office building as soon as possible versus continuing to temporarily work remotely? If so, why?  
  • Please list any company equipment you took home with you to work remotely. 

CHANGE  

While the workplace design, policies, and safety protocols are critical pieces of the puzzle, they do not touch on perhaps the most important aspect of the return to work—the readiness of the workforce physically, emotionally, and psychologically. Developing a plan to mitigate employee fears and concerns should be a top priority. 

To help employees, organizations must work to ensure their employees understand what to expect upon their return. Some employees may expect nothing to change, while others will assume everything will be different. Preparing employees and reminding them that these changes are designed to help keep them safe will ease their anxiety. 

4. CREATE A PLAN TO TRANSITION TECHNOLOGY 

As we migrate back to the office, we face many new challenges from an IT standpoint. From reconnecting office equipment to more changes in server functionality, having a technology plan in place to alleviate the stress of getting set back up upon their return to the office is imminent. 

FOR EMPLOYEES 

  • STOP USING VPN: Were you using a VPN connection while working from home? It is no longer needed when you are back in the office. You are now plugged in. There is no longer a need to connect this way, as a VPN connects from the outside-in. 
  • REASSEMBLE YOUR WORKSTATIONReassembling your workstation and plugging in the equipment that you took home can be a daunting process. However, the toughest part will be plugging in your data/ethernet cable to the right port on your desktop. This is required so that you can receive remote support, connect to the network, Internet, etc. So, be patient and do your best. Here are a few tips on how to properly connect your cables: 
  • Generally speaking, for data cables, most cubicles/offices have 2 data ports, marked with a # and either a “V” for voice or “D” for data. The # is not important to you, for now. The letters are. Plug your phone ethernet cable in the V, and plug your desktop ethernet cable into the D.  
  • If none of the above is marked, your MSP/IT staff will need to advise.  
  • If you only have one port, check your phone’s underside to see if there are ports to connect both phone and desktop together. Somewhat like this: Data Port > ethernet cable > phone > ethernet cable out of phone > desktop.   

FOR MANAGEMENT 

  • TAKE INVENTORYBuy more laptops, period. Also, budget for extra hardware that was originally needed when this happened, i.e., webcams, monitors, power strips, etc. that were all depleted during this time. It might seem expensive, but having equipment on the shelf, ready for IT or your Managed Service Provider to remotely manage, is a good thing. It will also save your staff hours in lost productivity.  
  • ANALYZE SOFTWARE: Inspect your firewall’s overall performance with your Managed Service Provider or IT staff. Did it suit your needs? Do you need more VPN licenses? Is the firewall licensing, as well as the firmware, up to date?  
  • REINFORCE SAFE ONLINE PRACTICES: Now is a great time to give your staff a reminder on the cybersecurity landscape, i.e., phishing attacks, malicious threats, malware, and online best practices. Do you have a plan in place should your business ever be comprised? It is more important than ever, as hackers recognize the vulnerability with the current state of business. 
  • FULLY TRANSITION TO THE CLOUD: If your business has not already fully transitioned over to the cloud, it may be time to do so. Cloud-based communication and file-sharing applications are making it easier than ever to stay connected. While the recent pandemic forced many small businesses to shift to some cloud-based applications, we have seen a lot of companies fully integrating cloud services going forward. 

IMPLEMENT YOUR PLAN 

Before re-entering the office, there are multiple items that should be reviewed to ensure the safety and readiness of your staff and the company. These items include designating a COVID team to handle all pandemic related matters, preparing your office and employees for the changes ahead, and working with your IT team to properly reconnect all technology systems and equipment.  

Navigating through these uncertain times will be challenging for everyone, as there are many moving parts. So, it’s important to be patient and proactive to ease the transition back into the office. If you have any questions, or you are interested in having our team helping you transition back to the office, contact your Lutz representative or email us at info@lutz.us 

Important Disclosure Information

Please remember that due to various factors, including changing guidance and regulations that are continually being amended and/or applicable laws, the content may no longer be the most to up to date. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized risk or compliance advice from Lutz. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to their firm’s individual situation, he/she is encouraged to consult with a professional at Lutz. Lutz is not a law firm, and no portion of the newsletter content should be construed as legal or accounting advice. 

ABOUT THE AUTHOR

402.763.2973

rkeenan@lutz.us

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ROBERT KEENAN + CHIEF INFORMATION & RISK OFFICER

Robert Keenan is the Chief Information & Risk Officer at Lutz with over 20 years of compliance and operational risk experience. He focuses on risk management, compliance, and security for the firm, and will partner with the operations team to drive process improvement and operational efficiencies for Lutz.

AREAS OF FOCUS
  • Risk Management & Compliance
  • Operations
AFFILIATIONS AND CREDENTIALS
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  • National Society of Compliance Professionals
  • Certified Fraud Examiner
  • Certified Compliance and Ethics Professional
EDUCATIONAL BACKGROUND
  • BA in Finance, University of Oklahoma, Norman, OK
  • MPA, Drake University, Des Moines, IA
COMMUNITY SERVICE
  • Association of Certified Fraud Examiners - Heartland Chapter, Past Board Member

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Getting Out is the Easy Part + Financial Market Update + 6.2.2020

Getting Out is the Easy Part + Financial Market Update + 6.2.2020

FINANCIAL MARKET UPDATE 6.2.2020

STORY OF THE WEEK

GETTING OUT IS THE EASY PART

Famous studies conducted by Daniel Kahneman and Amos Tversky in the late 1970s described how individuals assess potential gains relative to losses. From that research, they developed what is known as Prospect Theory, which challenged existing views on how people make decisions. Daniel Kahneman would later receive the Nobel Prize in Economics in 2002 for the work.

Among the conclusions from the research was the fact that people feel the pain of a loss twice as intensely as the pleasure they feel from a gain. While we may not need a Nobel Prize winner to tell us people disdain losing money, the asymmetry in how people experience gains versus losses helps to explain why they go to great lengths to avoid the latter. This has been on full display in 2020. As the stock market decline deepened during the 1st quarter, many investors wanted out of their investments to avoid further losses.

I have written in the past about how impactful missing a few of the best days in a year can be on investment performance. An unfortunate reality is that many of the best days in the market seem to follow many of the worst days. So, if you liquidate your portfolio during a volatile period, you are likely to miss some strong rallies. The table below illustrates the average annual return on the S&P 500 going back thirty years (11.45%). It also shows what happens to the average annual return if the best days each year are stripped out.

  • If the best day of each year is missed, the average return declines by a third to 7.72%.
  • If the two best days are missed, the return is more than cut in half.
  • If an investor were to miss the four best days each year, the average annual return over the thirty-year period becomes negative!

Despite the high cost of being out of the market, the decision to get back in is very challenging. Some people will try to time the market on reentry, which is another (impossible) challenge. The recovery begins only after the market reaches its lowest point, presumably when expectations about the future are the grimmest. It requires a lot of courage to invest at that moment, and there is always the risk that things deteriorate further.

Others want the dust to settle and for things to calm down before they are ready to dip their toes back in. The problem with this approach is that by the time things are “calm,” the market has already rallied substantially. This appears to be the situation we find ourselves in currently.

The day after the S&P 500 hit the low, the market jumped more than 9%. Within three days, the market was up nearly 17%. As of June 1st, the S&P 500 has gained 36%. Even after this blistering rally, many are still not convinced we are out of the woods. It’s easy to see how people end up waiting so long that they are forced with the prospect of buying back in at a higher price than where they sold. That is a tough pill to swallow and can result in an investor remaining out of the market indefinitely.

There is no way to know if the rally will continue, or if we will end up retesting the low from March. What we DO know is that it is critical to be invested during those “best days,” because they ultimately drive a substantial part of a portfolio’s performance. Our instinct is to try to avoid losses, but getting out is the easy part. Investors must also consider the challenge of getting back in.

WEEK IN REVIEW

  • There were a handful of key data releases over the last week. 1st quarter GDP was revised lower from -4.8% to -5.0%. Personal consumption expenditures excluding food and energy (the Fed’s preferred inflation gauge) fell from 1.7% in the previous month to 1.0%. Business investment fell roughly 6% in April, which is bad, but much better than the forecast 15% decline. Finally, data published yesterday from the Institute for Supply Management (ISM) showed that the U.S. manufacturing sector continues to decline, but at a slower pace than the previous month.
  • Since 1997, when the United Kingdom returned control of Hong Kong to China, Hong Kong has enjoyed a favorable trading relationship with the United States under the “One Country, Two Systems” framework. This special relationship looks to be in jeopardy following a new Security Law that has been imposed on Hong Kong from China. It has led the U.S. to conclude that Hong Kong no longer has enough autonomy to continue the special relationship. This will have many consequences, potentially including more restrictive measures applied to about $66bn in goods traded between the two nations.  
  • Later this week, we will get an update on the labor market, with the ADP payroll report on Wednesday, initial jobless claims on Thursday, and the Nonfarm payrolls report on Friday.

HOT READS

Markets

  • Why the Stock Market is Up Amid Chaos in the Streets (CNBC)
  • What It Means For Investors if Hong Kong Loses its Special Status with the U.S. (CNBC)
  • All of the World’s Money and Markets in One Visualization (Visual Capitalist)

Investing

  • Latest Memo from Howard Marks: Uncertainty II (Howard Marks)
  • This is the Thing the Bears Hate the Most (Josh Brown) There is no good or bad, its better or worse
  • Why We’re Blind to Probability (Collaborative Fund)

Other

  • Hong Kong’s Security Law: What China is Planning, and Why Now (WSJ)
  • How Sleep Has Changed in the Pandemic: Insomnia, Late Bedtimes, Weird Dreams (WSJ)
  • Coronavirus Pandemic Claims Another Victim: Robocalls (AP)

ECONOMIC CALENDAR

Source: MarketWatch

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

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ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

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JOSH JENKINS, CFA + SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over nine years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

AREAS OF FOCUS
  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

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