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For many Americans, saving for retirement means participating in the 401(k) or 403(b) retirement plans offered by their companies. This leaves the self-employed and small business owners out in the cold when it comes to saving for retirement. Luckily for them, there are several options they can utilize.

Every American not covered by a company plan, can contribute to an IRA to save for retirement. The $6,000 contribution limit for these plans however, just won’t cut it for many. SEP IRAs were established as a way to help small-business owners establish retirement accounts for their businesses without the headaches that come with ERISA-sponsored plans. Later legislation introduced the solo 401(k), which also offers a simplified way for business owners to save for retirement and enjoy some of the benefits of a 401(k) plan that are not available with SEPs.

Here are the highlights of these two plans, and their key differences:

SEP IRA

A Simplified Employee Pension (SEP) IRA is a plan that can be established by employers, including the self-employed. SEP plans benefit both employers and their employees. Employers may make tax-deductible contributions on behalf of eligible employees to their SEP IRAs. SEPs are advantageous because they have low administrative costs, are easy to set up and allow an employer to determine how much to contribute each year, without annual requirements. The contribution limit for 2021 is the lesser of $58,000 per person and 25% of adjusted net earnings. (For self-employed income, the percentage is a little lower.)

One major benefit of a SEP IRA from the employee’s perspective is that an employer’s contributions are vested immediately. No loans are permitted from a SEP IRA. The deadline for SEP IRAs is the filing date, including extensions, which make it a good option if any discussion arises after year’s end. A drawback from the employer’s perspective is that the employer must contribute on behalf of all employees who earn a total annual compensation of more than $600 if they reach the age of eligibility, even if they are only part-time workers.

Solo 401(k)

Solo 401(k) plans are for sole proprietors, small business owners without employees (though spouses can contribute if they work for the business), independent contractors and freelancers.

With these plans, both the employer and the employee can make contributions. Like a regular 401(k), there is a Roth option to have after-tax funds contributed to these accounts. The contribution limit for 401(k)s for 2021, as an employee, is $19,500. If you are 50 or older, you can make an additional catch-up contribution of $6,500.

Wearing the employer hat, you can contribute up to 25% of your compensation. The total contribution limit (employee and employer contributions) for a solo 401(k) is $58,000 for 2021. This does not include the employee’s $6,500 catch-up amount for those over the age of 50. The calculation usually breaks down to the sum of $19,500 as an employee and $38,500 as an employer.

So, which one is a better option – a SEP IRA or a Solo 401(k)? The answer depends on your situation.

If you’re unsure which plan may work for you, please reach out to us at info@equinum.com. We’ll help you review your options and come to a decision tailor-made for your needs.

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For most of us, having a job, a boss and a workplace where we have a genuine sense of purpose is very important. Steve Jobs famously said, “Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.”

As a business leader, motivating your employees and ensuring that they are engaged in their work is one of the most important things you do for your company. Research has shown time and again, that employee engagement is vital to a business’s success and profitability. According to the analytics and advisory company Gallup, engaged employees display higher levels of enthusiasm, energy and motivation, which translates into higher levels of job performance, creativity and productivity. This correlates to greater revenues and profits for your organization, as well as higher levels of well-being for employees and less turnover.

Despite the importance of employee engagement, just 35 percent of employees in the United States are considered “engaged” in their jobs. So, what is employee engagement and how do you improve it at your company?

Gallup, an industry leader in employee engagement, defines ‘engaged’ employees as those who are involved in, enthusiastic about and committed to their work and workplace. For engaged employees, it is about more than just a paycheck – they work harder and are more dedicated towards their employers, which is then reflected in their individual productivity. Disengaged employees are more likely to only do the bare minimum or even actively damage your company’s work output and reputation.

As a business leader, what can you do to improve the engagement of your employees? Well, it turns out that leaders and managers have a significant amount of input on employee engagement. According to Gallup, 70% of the variance in team engagement is determined solely by the manager. A study by the American Psychological Association found that 75% of Americans say their “boss is the most stressful part of their workday.” So here are a few ways that business leaders can increase employee engagement:

Include Me: Assuring your employees that their work and opinions are important is a simple yet important step to increase engagement. According to cloud-based software company Salesforce, professionals who believe their voice is heard are over four times more likely to feel empowered to do their best work. When you are considering solutions to business problems, encourage your employees to participate in the decision-making process, and give equal consideration to each employee’s suggestions, so they feel valued. Following the success of an important project or initiative, offer praise and emphasize how much you appreciate your employee’s contributions.

Inspire Me: Trust and autonomy are core ingredients that inspire engagement amongst employees. Be sure to delegate important tasks and projects to your team because it demonstrates trust and empowers your employees. To delegate effectively, ensure you are assigning tasks to employees who are equipped with the knowledge, skills and resources to handle them. Take time to clearly define the expectations and the required results, but leave your employees to accomplish the assigned task and don’t micromanage.

Grow Me: Many business leaders and managers are so focused on their own careers or success that they often forget about the careers of their employees. It is important for leaders to recognize that most employees are looking to be a part of an organization that offers a visible path for career progression. People want to feel that they have partners in developing their careers – and that goes beyond timely promotions. They want personal and professional development, such as the opportunity to cultivate new skills and experiences or by pursuing valuable certifications or degrees. As your employees’ careers develop and grow, your organization will be poised to reap the rewards.

Now more than ever, good pay and benefits are not enough to fully engage employees. You need to give your employees challenging work, truly value their contributions and show that you care about them and their careers. If you follow these steps, you will find that you have happier employees who are willing to work harder for you and your business.

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The New York State Tax Department has just issued a technical memorandum TSB-M-21(1)C, (1)I, and has put up an accompanying webpage that provides information on the new, optional Pass-Through Entity Tax (PTET).

The PTET, under new Tax Law Article 24-A1, is an optional tax that partnerships or New York S corporations can choose to pay. The tax allows eligible pass-through entities to pay state income taxes at the entity level, and it is deductible for federal tax purposes. A partner or shareholder of a pass-through entity that elects to pay PTET is entitled to a credit against his New York personal income tax equal to his “direct share” of the PTET tax. This allows the taxpayer to bypass the $10,000 limitation on deduction of state and local taxes imposed in 2017 by The Tax Cuts and Jobs Act.

The option applies to tax years beginning on or after January 1, 2021, and the election must be made annually. For 2021, the deadline to make the election is October 15, 2021. For future tax years, the annual election may be made on or after January 1, but no later than March 15.

For 2021, an electing entity is not required to make any estimated tax payments for PTET. Starting 2022, quarterly estimates will need to be made in March, June, September and December.

The PTET Annual Election application can be accessed online, and if you are an authorized person representing your business, you can opt in to PTET through its Online Services account.

To learn more about the PTET and the election process, visit Pass-through entity tax (PTET) periodically, or subscribe here to receive email updates about the pass-through entity tax.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

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What if you decide to, or are asked to, guarantee a loan to your corporation? Before agreeing to act as a guarantor, endorser or indemnitor of a debt obligation of your closely held corporation, be aware of the possible tax consequences. If your corporation defaults on the loan and you’re required to pay principal or interest under the guarantee agreement, you don’t want to be blindsided.

Business vs. nonbusiness

If you’re compelled to make good on the obligation, the payment of principal or interest in discharge of the obligation generally results in a bad debt deduction. This may be either a business or a nonbusiness bad debt deduction. If it’s a business bad debt, it’s deductible against ordinary income. A business bad debt can be either totally or partly worthless. If it’s a nonbusiness bad debt, it’s deductible as a short-term capital loss, which is subject to certain limitations on deductions of capital losses. A nonbusiness bad debt is deductible only if it’s totally worthless.

In order to be treated as a business bad debt, the guarantee must be closely related to your trade or business. If the reason for guaranteeing the corporation loan is to protect your job, the guarantee is considered closely related to your trade or business as an employee. But employment must be the dominant motive. If your annual salary exceeds your investment in the corporation, this tends to show that the dominant motive for the guarantee was to protect your job. On the other hand, if your investment in the corporation substantially exceeds your annual salary, that’s evidence that the guarantee was primarily to protect your investment rather than your job.

Except in the case of job guarantees, it may be difficult to show the guarantee was closely related to your trade or business. You’d have to show that the guarantee was related to your business as a promoter, or that the guarantee was related to some other trade or business separately carried on by you.

If the reason for guaranteeing your corporation’s loan isn’t closely related to your trade or business and you’re required to pay off the loan, you can take a nonbusiness bad debt deduction if you show that your reason for the guarantee was to protect your investment, or you entered the guarantee transaction with a profit motive.

In addition to satisfying the above requirements, a business or nonbusiness bad debt is deductible only if:

You have a legal duty to make the guaranty payment, although there’s no requirement that a legal action be brought against you;
The guaranty agreement was entered into before the debt becomes worthless; and
You received reasonable consideration (not necessarily cash or property) for entering into the guaranty agreement.

Any payment you make on a loan you guaranteed is deductible as a bad debt in the year you make it, unless the agreement (or local law) provides for a right of subrogation against the corporation. If you have this right, or some other right to demand payment from the corporation, you can’t take a bad debt deduction until the rights become partly or totally worthless.

These are only a few of the possible tax consequences of guaranteeing a loan to your closely held corporation. Contact us to learn all the implications in your situation.

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Someone might have once told you that human beings use only 10% of our brains. The implication is that we have vast, untapped stores of cerebral power waiting to be discovered. In truth, this is a myth widely debunked by neurologists.

What you may be underusing, as a business owner, is your accounting software. Much like the operating systems on our smartphones and computers, today’s accounting solutions contain a multitude of functions that are easy to overlook once someone gets used to doing things a certain way.

By taking a closer look at your accounting software, or perhaps upgrading to a new solution, you may be able to improve the efficiency of your accounting function and discover ways to better manage your company’s finances.

Revisit training

The seeds of accounting software underuse are often planted during the training process, assuming there’s any training at all. Sometimes, particularly in a small business, the owner buys accounting software, hands it over to the bookkeeper or office manager, and assumes the problem will take care of itself.

Consider engaging a consultant to review your accounting software’s basic functions with staff and teach them time-saving tricks and advanced features. This is even more important to do if you’re making major upgrades or implementing a new solution.

When accounting personnel are up to speed on the software, they can more easily and readily generate useful reports and provide accurate financial information to you and your management team at any time — not just monthly or quarterly.

Commit to continuous improvement

Accounting solutions that aren’t monitored can gradually become vulnerable to inefficiency and even manipulation. Encourage employees to be on the lookout for labor-intensive steps that could be automated and steps that don’t add value or are redundant. Ask your users to also note any unusual transactions or procedures; you never know how or when you might uncover fraud.

At the same time, ensure managers responsible for your company’s financial oversight are reviewing critical documents for inefficiencies, anomalies and errors. These include monthly bank statements, financial statements and accounting schedules.

The ultimate goal should be continuous improvement to not only your accounting software use, but also your financial reporting.

Don’t wait until it’s too late

Many business owners don’t realize they have accounting issues until they lose a big customer over errant billing or suddenly run into a cash flow crisis. Pay your software the attention it deserves, and it will likely repay you many times over in useful, actionable data. We can help you assess the efficacy of your accounting software use and suggest ideas for improvement.

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Roth&Co’s latest video series: Real Estate Right Now. Presented by Alan Botwinick and Ben Spielman, co-chairs of the Roth&Co Real Estate Department, will cover the latest real estate trends and opportunities and how you can make the most of them. This episode covers Cost Segregation.

Watch our quick 1.5 minute video:

COST SEGREGATION IN DETAIL:

What is cost segregation?

From a tax perspective, there are two types of property that depreciate differently:

Real Property: Actual buildings or structures that can be depreciated over 27.5 or 39 years.

Personal property: Furniture and fixtures, equipment and machinery, carpeting, electrical wiring and window treatments that can be depreciated over 5, 7, or 15 years.

As assets depreciate, their value decreases, reducing federal and state income taxes on their rental income.

Cost-segregation is an IRS-approved federal tax planning tool that allows companies and individuals who have purchased, constructed, expanded or renovated any kind of real estate to accelerate depreciation by reclassifying specific assets from real property to personal property reducing the federal and state income taxes owed.

How does it work?

A cost segregation study is required to breakdown commercial buildings into assets that could be reclassified as personal property. The cost segregation study provides real estate owners with information required to calculate the accelerated depreciation deductions for income tax purposes. The cost segregation study will also serve as the supporting documentation during any IRS audit.

On average, 20% to 40% of components fall into the personal property categories that can be written off much quicker than the building structure.

How much does a cost segregation study cost?

Cost segregation studies generally run between $5,000 – $20,000.

What properties are eligible?

Any commercial property placed into service after 1986, including any new acquisition, real estate construction, building, or improvements may qualify for a cost segregation study. Examples of eligible buildings include retail centers, office and industrial buildings, car dealerships, medical offices, multi-family unit buildings, restaurants, manufacturing facilities, and hotels.

When is the best time to conduct a cost segregation study?

Cost segregation studies may be conducted after a building has been purchased, built, or remodeled. However, the ideal time to perform a study is generally within the first year after the building is placed into service to maximize depreciation deductions as soon as possible.

Can I utilize cost segregation if my property is already in use?

Yes! A cost segregation study performed on a property in use and a tax return has been filed, is known as a look-back study.

You can then apply a “catch-up” deduction, which is equal to the difference between what was depreciated and what could have been depreciated if a cost segregation study was performed on day one.

The IRS allows taxpayers to use a cost segregation study to adjust depreciation on properties placed in service as far back as January 1, 1987.

Properties already in service are often overlooked when it comes to cost segregation, however the benefits of a look-back study can be quite significant.

What changed?

The Tax Cuts & Jobs Act passed in 2017 introduced the “100% additional first year depreciation deduction” otherwise known as “bonus depreciation” that allows businesses to write off the cost of most personal property in the year they are placed in service by the business. The bonus deduction is eligible until 2023.

What are other factors do I need to consider before claiming a depreciation deduction or bonus depreciation?

Active vs Passive Partners: Active partners can use the deduction to offset ordinary income. Passive partners can only use the deduction to offset passive income.

State Tax: The bonus depreciation deduction may only apply to federal income tax. Check with your state to see if they apply to state taxes as well.

President Joe Biden promised the end of many tax cuts. Could this be one of them?

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A complete set of financial statements for your business contains three reports. Each serves a different purpose, but ultimately helps stakeholders — including managers, employees, investors and lenders — evaluate a company’s performance. Here’s an overview of each report and a critical question it answers.

1. Income statement: Is the company growing and profitable?

The income statement (also known as the profit and loss statement) shows revenue, expenses and earnings over a given period. A common term used when discussing income statements is “gross profit,” or the income earned after subtracting the cost of goods sold from revenue. Cost of goods sold includes the cost of labor, materials and overhead required to make a product.

Another important term is “net income.” This is the income remaining after all expenses (including taxes) have been paid.

It’s important to note that growth and profitability aren’t the only metrics that matter. For example, high-growth companies that report healthy top and bottom lines may not have enough cash on hand to pay their bills. Though it may be tempting to just review revenue and profit trends, thorough due diligence looks beyond the income statement.

2. Balance sheet: What does the company own (and owe)?

This report provides a snapshot of the company’s financial health. It tallies assets, liabilities and “net worth.”

Under U.S. Generally Accepted Accounting Principles (GAAP), assets are reported at the lower of cost or market value. Current assets (such as accounts receivable or inventory) are reasonably expected to be converted to cash within a year, while long-term assets (such as plant and equipment) have longer lives. Similarly, current liabilities (such as accounts payable) come due within a year, while long-term liabilities are payment obligations that extend beyond the current year or operating cycle.

Intangible assets (such as patents, customer lists and goodwill) can provide significant value to a business. But internally developed intangibles aren’t reported on the balance sheet. Intangible assets are only reported when they’ve been acquired externally.

Net worth (or owners’ equity) is the extent to which the value of assets exceeds liabilities. If the book value of liabilities exceeds the book value of the assets, net worth will be negative. However, book value may not necessarily reflect market value. Some companies may provide the details of owners’ equity in a separate statement called the statement of retained earnings. It details sales or repurchases of stock, dividend payments and changes caused by reported profits or losses.

3. Cash flow statement: Where is cash coming from and going to?

This statement shows all the cash flowing in and out of your company. For example, your company may have cash inflows from selling products or services, borrowing money and selling stock. Outflows may result from paying expenses, investing in capital equipment and repaying debt.

Typically, cash flows are organized in three categories: operating, investing and financing activities. The bottom of the statement shows the net change in cash during the period. Watch your statement of cash flows closely. To remain in business, companies must continually generate cash to pay creditors, vendors and employees.

Read the fine print

Disclosures at the end of a company’s financial statements provide additional details. Together with the three quantitative reports, these qualitative descriptions can help financial statement users make well-informed business decisions. Contact us for assistance conducting due diligence and benchmarking financial performance.

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When not-for-profits first start up, fundraising can be an ad hoc process, with intense campaigns followed by fallow periods. As organizations grow and acquire staff and support, they generally decide that fundraising needs to be ongoing. But it can be hard to maintain focus and momentum without a strategic fundraising plan. Here’s how to create one.

Building on past experience

The first step to a solid fundraising plan is to form a fundraising committee. This should consist of board members, your executive director and other key staffers. You may also want to include major donors and active community members.

Committee members need to start by reviewing past sources of funding and past fundraising approaches and weighing the advantages and disadvantages of each. Even if your overall fundraising efforts have been less than successful, some sources and approaches may still be worth keeping. Next, brainstorm new donation sources and methods and select those with the greatest fundraising potential.

As part of your plan, outline the roles you expect board members to play in fundraising efforts. For example, in addition to making their own donations, they can be crucial links to corporate and individual supporters.

Developing an action plan

Once the committee has developed a plan for where to seek funds and how to ask for them, it’s time to create a fundraising budget that includes operating expenses, staff costs and volunteer projections. After the plan and budget have board approval, develop an action plan for achieving each objective and assign tasks to specific individuals.

Most important, once you’ve set your plan in motion, don’t let it sit on the shelf. Regularly evaluate the plan and be ready to adapt it to organizational changes and unexpected situations. Although you want to give new fundraising initiatives time to succeed, don’t be afraid to cut your losses if it’s obvious an approach isn’t working.

Maintaining strong cash flow

Don’t wait until your nonprofit’s coffers are nearly dry before firing up a fundraising campaign. Fundraising should be ongoing and constantly evolving. Contact us for advice on maintaining strong cash flow.

Retirement Planning for Small Business Owners

Improving Employee Engagement

New Guidance and Election Application for the Optional PTET

Possible Tax Consequences of Guaranteeing a Loan to Your Corporation

Is Your Business Underusing Its Accounting Software?

Video: Real Estate Right Now | Cost Segregation

Financial Statements: Take the Time to Read the Entire Story

Nonprofit Fundraising: From Ad Hoc to Ongoing