Monthly Archives: June 2020

Improving Cash Flow Post-COVID 19 With the R&D Tax Credit

As businesses attempt to get back on their feet post Covid-19, understanding programs that you may qualify for, such as the R&D tax credit, can help reestablish robust cash flow. This article outlines the ins and outs of the tax credit program, what the many benefits are, and what documents are needed in order to claim the credit. 

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How IT Spending Will Change When Business Resumes

Most states are starting to relax stay-at-home restrictions. As such, businesses are developing plans for bringing employees back to work. Many businesses are already affected by the pandemic and their future looks grim. Specifically, we are going to look at the IT sector and examine what spending might look like in a post-lockdown economy.

Disruption

The COVID-19 pandemic has resulted in an unprecedented disruption in businesses. As a result, management has tried to reduce costs to survive or risk shutting down. IT departments have suffered the most with major budget cuts due to a reduction in revenue. As a result, non-urgent purchases have been eliminated; initiatives have been suspended; employees have been terminated.

Of course, technology also has been playing a great role in supporting businesses during the pandemic, especially by enabling work at home and maintenance of communication with clients. But there are expectations for major challenges when businesses get back to normal. For instance, the post-coronavirus business world expects travel restrictions, office distancing, trouble with business continuity, and pandemic regulations. As for onsite work in the office, challenges will include distributed collaboration, endpoint data protection, scalable administration, and secure access to corporate data.

It also appears that the impact will vary from industry to industry. Companies that depend on face-to-face contact are in danger of lost income and bankruptcy. At the same time, other businesses are thriving.

Consider digital marketing industries. With more businesses moving online, there will be a rise in the purchase of IT-related expenditures such as software. The entertainment sector has found solace in digital platforms, while there is an increase in the work-at-home trend.

The Future

Despite the uncertainties, some predictions can be made.

One certain thing is that the impact on IT spending will vary depending on the IT stack. While the infrastructure, branch networking, middleware, and enterprise apps might see a drop, areas such as communication/collaboration, cloud storage, security, and compliance will likely see an increase in spending as more people work remotely.

While the impact on the IT industry will vary, we could see a lot of new innovations. Such innovations might include customer-facing and worker productivity apps. Some companies may increase spending on innovations to help outperform their competition.

Another factor affecting IT spending is the size of a business. While big businesses may get back to normal after a few months, small businesses will need to tread carefully. As such, IT spending for different-sized businesses will not be similar.

A decision to have employees continue working at home means that IT expenditures will take a different shape. While there will be less need for office equipment, there will be an increase in spending to enable offsite work.

There could also be more spending by businesses investing in continuity strategies such as more remote locations, new training in information and communications technology (ICT), and automation of processes.

This also will depend on business operations. Consider a business that had already migrated to the cloud before the COVID-19 pandemic. Such businesses did not suffer much disruption compared to those still using on-premise applications and proprietary data centers. Thus, IT spending for both types of businesses will vary in the future.

Lastly, businesses will want to invest in projects that are likely to provide a return on investment faster.

Conclusion

The disruption to businesses by the COVID-19 pandemic is like none previously encountered. One thing is certain: Things will not bounce back to the known normal. Rather, we should expect a new normal. And, as we have seen through the examination of certain IT expenditures, the success of each industry is dependent on various factors.

Initially, everyone will be focused on survival, and not so much on growth. Cost optimization, investing in and prioritizing operations that keep the business running will win the day.

Why Sequence of Returns Risk Matters Now

That year or two when you are closing in on your retirement date, followed by a year or two after you retire, are the worst times for a sustained market decline. Market analysts call this scenario the sequence of returns (SOR) risk – because once your principal has been significantly reduced, there is not enough time in the market left for you to recover those losses. 

Two things will likely happen. First, the amount of retirement income you can withdraw each year is irrevocably reduced. For example, if you were planning to withdraw 4 percent a year from a $350,000 portfolio, you would have received a supplementary income of $14,000 a year. But if your principal drops to $280,000 a year, your 4 percent draw will generate only $11,200 a year. If you need that additional money, you will have to increase your draw to about 5 percent of the principal each year. 

This leads us to the second consequence of a market decline: your principal will diminish faster. The longer you live, the greater your chances of running out of money. 

How Big Is This Problem?

Because the coronavirus pandemic has sent stock markets reeling over the past few months, SOR risk has become a widespread concern. According to research by Spectrem Group, at the end of 2019, there were 11 million millionaires in the United States. By the end of March this year, at least half a million of those people were no longer millionaires.  

While losses among millionaires may be disconcerting, the situation is far more dire for middle class investors, who might not have several hundred thousand dollars to spare in their retirement portfolio. 

Strategies for Offsetting SOR Risk

If the last recession is any indicator, the economic recovery going forward could take several years. That is not good news for people who were looking forward to retiring soon. This group may want to seriously consider the merits of delaying retirement and continuing to work longer, such as: 

• Allowing their portfolio time to recover
• Continuing to contribute to tax-advantaged retirement accounts
• Enabling their Social Security benefits to accrue higher¬†

Another strategy to help protect your portfolio against future SOR risk is to position a larger allocation to fixed-income assets and/or an annuity. While this might limit your potential for income growth in the future, these assets are backed by more reliable payors and less subject to the vagaries of the stock market. By diversifying your current assets, you can build multiple streams of reliable income to protect you from the future threat of market losses, a global pandemic, or changes in Social Security benefits. 

It is worth considering that once we emerge from this current crisis, legislators will have to find a way to deal with the federal deficit and growing debt. The Social Security program was already projected to cut benefits by 2035 without any new funding solutions. Now, that threat is even further exacerbated by the enormous jump in unemployment numbers. This situation leaves even fewer people paying into the Social Security and Medicare programs. 

For these reasons, it is very important to address today’s challenges presented by the sequence of returns risk. Explore ways to develop multiple income streams to protect your current assets and ensure they last throughout your lifetime.

Congress at Work: In the Wake of the Coronavirus Pandemic, Congress Passes the Most Expensive Single Spending Bill in American History

The Congress at Work series of articles is designed to give you a glimpse of various types of legislation currently under consideration. While either the Senate or the House of Representatives may initiate a bill proposal, be aware that many bills never become law. They may never make it out of committee, be blocked by a Senate filibuster, be delayed, lack sufficient votes, never be agreed upon by the two houses or be vetoed by the president. 

Paycheck Protection Program and Health Care Enhancement Act (HR 266) – This is a multilayered legislative bill divided into four distinct sections. Phase 1 authorized funding for coronavirus preparedness and response; specifically, for measures such as vaccine development and public health funding. Most of the money was allocated to the Department of Health and Human Services. Approximately 81 percent of funds were allocated domestically, with the other 19 percent allocated internationally. 

Phase 2 allocated $104 billion for three specific objectives: 1) Require private health insurance plans and Medicare to cover COVID-19 testing; 2) Expand unemployment insurance by $1 billion and loosen up eligibility requirements; 3) Provide for paid sick leave at an employee’s full salary, up to $511 per day, and paid family leave at two-thirds of a worker’s usual salary. 

Phase 3 provided stimulus checks to individuals and “grants” to small businesses meeting specific criteria, such as keeping employees on the payroll for two months. This phase of the bill represents by far the most expensive single spending bill ever enacted in American history, at about $2.2 trillion. 

And finally, the last phase of the bill provided funding to replenish the Paycheck Protection Program (PPP) for small businesses and shore up public health measures, such as virus testing and hospital funding. The bill was signed into law by the president on April 24. 

VA Tele-Hearing Modernization Act (HR 4771) – This bill amended previous guidelines to allow appellants to appear in cases before the Board of Veterans’ Appeals by picture and voice transmission from locations outside the Department of Veterans Affairs. The bill was introduced by Rep. Joe Cunningham (D-SC) on Oct. 21, 2019 and signed into law by the president on April 10. 

Safeguarding America’s First Responders Act of 2020 (S 3607) – Sponsored by Sen. Chuck Grassley (R-IA), this bill was introduced on May 5 and passed in the Senate on May 14. The legislation is designed to extend death benefits to public safety officers whose deaths are caused by COVID-19, and for other purposes. The bill is currently under consideration in the House. 

Law Enforcement Suicide Data Collection Act (S 2746) – Sen. Catherine Cortez Masto (D-NV) introduced this legislation on Oct. 30, 2019. The act would require the director of the FBI to provide information on suicide rates in law enforcement, among other purposes. It was passed in the Senate on May 14 and is currently being considered by the House. 

HEROES Act (HR 6800) – The HEROES Act was introduced on May 12 by Rep. Nita Lowey (D-NY). In response to the COVID-19 outbreak, this bill is designed to provide emergency supplemental appropriations for a variety of applications, including assistance to state, local, tribal and territorial governments; further expansion of paid sick days and family and medical leave; unemployment compensation; nutrition and food assistance programs; housing assistance; payments to farmers; and the Paycheck Protection Program. It also outlines several potential tax credits and deductions and requires employers to develop and implement infectious disease exposure control plans. The House passed this bill on May 15; it is currently in the Senate for consideration.