Don’t let social distancing get in the way of your personal and professional relationships
Keeping up with your friends and maintaining professional relationships is a challenge as most in-person activities have come screeching to a halt. Drive-by birthday parties, video happy hours and pre-recorded commencement speeches are the new normal.
Despite social distancing guidelines, here are some tips to stay connected.
Embrace digital communication. Whether you were ready for it or not, face-to-face contact has been replaced with video screens, headphones and microphones. For many, this introduces a whole host of new variables. To hold a simple conversation, you need a solid internet connection and reliable equipment just to hear and see each other. Take time to learn best practices for the different communication apps like Zoom, Skype and Teams. In addition, give yourself some time before a scheduled meeting or digital hangout to work out all the kinks before others join.
Up your social media game. For all its faults, social media is very good at connecting people. With more time and less entertainment options, people are spending a lot of time scrolling through their feeds. Don’t just be an observer, figure out a way that works for you to get connected. Even if you aren’t interested in posting a bunch of pictures, try to find an old friend and check in to see how they are doing. On the professional side, use this time to create or update your profile on professional networking sites. Being more visible can help create future professional and business connections.
Make a habit of checking in. This is good advice for any time, but it’s especially important now. Uncertain times bring out different emotions for people that can be unexpected. Checking in on friends and loved ones can provide a positive boost for you and them. Whether you want an opinion from someone you trust or just wish to touch base, a simple conversation can go a long way. Create an appointment on your calendar to have a check-in time with your key friends, family and cohorts at least quarterly.
Practice engaged listening. With everyone being affected by COVID-19 in one way or another, small talk may seem trivial. However, don’t be afraid to engage in a conversation, be authentic and ask purposeful questions. Spend more time listening than talking and use your contact time to nurture and strengthen your relationships. In other words, don’t just connect when you need something.
Even though the mediums of connecting have changed, the importance of human relationships remains. Take the time to develop your listening skills in this new environment so you can continue to invest in and grow your network.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
Numerous new laws provide economic relief to individuals and businesses hardest hit by this year’s pandemic. This much-needed financial assistance, however, comes with a few strings attached.
Here are three potential surprises if you use the available economic relief packages:
- Getting a tax bill for unemployment benefits. While the $1,200 economic impact payments most Americans received does not have to be reported as taxable income on your 2020 tax return, there is currently no such luck with unemployment benefits. In addition to paying federal taxes on your unemployment compensation, more than half of states also impose a tax on unemployment benefits.
- What you need to do: See if your unemployment compensation check withholds a portion of your pay for taxes. Even if your check does have withholding for income tax purposes, the withholding amount may not be enough. If possible, talk to your state unemployment office and try to get withholding amounts revised.
- Paying estimated tax payments. If you normally receive a paycheck from your employer, you may have never needed to write a check to the IRS to pay estimated future taxes. Your employer withholds your taxes from your paychecks and sends it to the IRS for you. If you’re collecting unemployment benefits, however, you may be required to pay tax on the unemployment benefits received during the first six months of 2020 by July 15, 2020.
- What you need to do: Estimate the amount of tax you owe for all sources of income, then compare that number with the amount of money withheld from your income to pay these taxes. If necessary, send in quarterly estimated tax payments to the U.S. Treasury and, in some cases, state revenue departments. This must be done each quarter with the next payment due July 15. You may need to send money in on September 15, 2020 and January 15, 2021 as well.
- Reporting emergency distributions from retirement accounts: You may withdraw up to $100,000 in 2020 from various retirement accounts to help cover pandemic-related emergency expenses without incurring penalties. While you will not be required to pay an early withdrawal penalty, you will still be subject to income tax when filing your 2020 tax return.
- What you need to do: If you plan to withdraw funds from your retirement account, reserve enough of the money to pay the tax! The amount you reserve depends on your potential tax situation so call for a tax review before taking money out of the account.
Do you need a quick infusion of cash?
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, you may be able to take money out of a qualified plan, like a 401(k), or an IRA, with favorable tax consequences. But should you do it? You might view withdrawing money from a retirement account as a last resort.
Among other changes in the CARES Act relating to qualified plans and IRAs, a participant can withdraw up to $100,000 of funds without paying the usual 10% tax penalty on distributions before age 59½. Plus, you can take as long as three years to pay the resulting tax bill, spread out evenly over the three years. If you repay the full amount within three years, you owe no tax.
To qualify for this program, you or your spouse must be diagnosed with COVID-19 or experience adverse financial consequences due to the virus such as being laid off, having work hours reduced or being quarantined or furloughed.
What are the pitfalls?
There are several reasons why you may want to avoid taking money out of your retirement accounts unless it’s an absolute emergency:
You’re diluting your retirement savings. Although the money comes in handy now, you’re chipping away at your nest egg and forfeiting growth. For example, if you withdraw the maximum amount of $100,000 that would have earned 6% annually tax-deferred for ten years, the value would have been $179,000.
It may be bad timing. Experts say it is difficult to time the markets in the current volatile environment. If you sell some holdings right now, you may be locking in losses that would miss the recovery in the next few months or years.
You still owe income tax. Income tax is due unless you replace the full amount within three years. Also, depending on your situation, you could end up paying tax at higher rates than you would in your retirement years.
Better options might exist. Arranging a hardship loan from your 401(k) might be a better alternative for your situation. You avoid the taxable event of the withdrawal and you pay back yourself with interest. Other options include refinancing a mortgage with lower interest rates, taking advantage of payment relief from mortgage, rent or student loan payments or deferred credit card billing.
While it is an option, retirement plan withdrawals are not always the best choice. Think through all scenarios before withdrawing from retirement funds to cover emergency expenses.