Conducting Effective Employee Performance Reviews
July 27, 2022 | BY Simcha Felder, CPA, MBA
Discussing an employee’s performance with them can be very stressful. It’s tough for managers to give feedback, and even harder for employees to receive it. While employee performance reviews are an incredibly powerful tool for driving employee success, their effectiveness depends on how they are conducted. Performance reviews have the ability to empower your employees to reach new heights – or – they can waste time, frustrate and even drive employees away from your company.
An employee performance review, also known as a performance evaluation, is a formal assessment of an employee’s work in a given time period. In an employee performance review, managers evaluate the individual’s overall performance, identify their strengths and weaknesses, offer feedback and help them set goals.
Although employee performance reviews can be extremely useful, they can also be one of the most uncomfortable parts of being a manager – and being an employee. Dissatisfaction with performance reviews is pervasive and has received a lot of criticism in recent years. A recent Gallup poll found that just 1 in 5 employees felt that their company’s performance practices motivated them.
Organizations such as Netflix, Microsoft and General Electric have recently begun to re-think their performance management systems. Many organizations and employees see performance reviews as time-consuming, demotivating, inaccurate, biased and unfair.
The problem is that these attitudes become self-fulfilling. Busy managers do cursory reviews without providing insightful feedback. Employees feel the review is unfair and approach the next review with that attitude. Managers then try to avoid the unpleasantness and will do an even more cursory, drive-by review, and the downward spiral continues.
Despite these concerns, there is immense value in developing an open, honest avenue for managers to discuss an employee’s performance and opportunities for growth. Employee reviews are also an important key to effective leadership. The higher you rise in any organization, the more dependent you are on your subordinates’ performance. How organizations handle these conversations plays a huge role in your employees’ engagement and growth. Here are some useful and effective tips for conducting performance reviews:
- Set Expectations and Goals – At the beginning of the year, have a meeting with your employees to share your goals and expectations for the team. Then, take the time to meet with employees individually to set their own performance goals. This ensures that everyone is clear about expectations, and gives employees a defined outline to follow each time you discuss performance going forward.
- Start Positive – Start with a compliment or a positive piece of feedback. Don’t put the employee on the defensive by highlighting problems at the start of the review. Consider first asking the employee how they think they’re doing, rather than starting the review off with your assessment.
- Two-Way Conversation – Even if you know that performance reviews should be a two-way conversation, it can be easy to end up talking for most of the review. Effective performance management can only be reached if you’re open to listening and obtaining feedback from the employee. The goal of a good performance review should be to help people gain insight into how they can get even better. Consider asking your employees how they might be able to improve. By being ready to listen and having an open conversation, the review process will give great insights into both sides of the table.
- Specific Examples/Data – When you’re giving feedback, don’t be vague. Vague or generic criticism given during a performance review is only going to frustrate and disenchant an employee. Don’t say things like “you need to be more proactive.” Give specific examples of behaviors you want your employee to stop, start or continue. The more concrete examples you can give to back up your constructive criticism, the better.
- Multiple Source – Use data and feedback from multiple sources. Solicit feedback from colleagues who have worked closely with the employee to give a more well-rounded and balanced review. Be sure to gather both quantitative measures of employee performance, like sales reports and project deadlines, as well as qualitative measures, such as feedback from clients, customers or other employees.
- Evaluate Results, Not Traits – One of the most common mistakes is trying to evaluate personality traits such as leadership, motivation, attitude and so on. The problem is that traits are subjective and are therefore impossible to evaluate fairly. Instead, focus on results that are observable, such as meeting sales quotas or completing projects on time.
- Consider Conducting Reviews More Often – Want to make each performance review less of an ordeal? Conduct them more often. Of course, that’s easier said than done. Obviously, employees, supervisors and managers are all busy. It’s not easy to find the time to spend writing up fair, engaged and humanizing evaluations for every employee. But an entire year can be a long time for things to build up, and notable areas of performance can be forgotten or overlooked if they have to wait until the annual performance review.
A performance conversation is the perfect opportunity to make or break trust. Open, honest, regular dialogue builds trust among employees, managers and the organization as a whole. From an employee’s standpoint, performance reviews provide an opportunity for self-evaluation to discuss what’s been going right, and analyze areas for improvement. From a management standpoint, a well-crafted performance review allows business leaders to provide constructive feedback and coaching, while also building rapport and trust.
We want what’s best for you and your employees, and we are committed to helping your company grow together.
The Kiddie Tax: Does It Affect Your Family?
July 26, 2022 | BY ADMIN
Many people wonder how they can save on taxes by transferring assets into their children’s names. This tax strategy, known as ‘income shifting,’ seeks to take income out of your higher tax bracket and place it in the lower tax brackets of your children.
While some tax savings are available through this approach, the “kiddie tax” rules impose substantial limitations if:
- The child hasn’t reached age 18 before the close of the tax year, or
- The child’s earned income doesn’t exceed half of his or her support and the child is age 18 or is a full-time student age 19 to 23.
The kiddie tax rules apply to your children who are under the cutoff age(s) described above, and who have more than a certain amount of unearned (investment) income for the tax year — $2,300 for 2022. While some tax savings on up to this amount can still be achieved by shifting income to children under the cutoff age, the savings aren’t substantial.
If the kiddie tax rules apply to your children and they have over the prescribed amount of unearned income for the tax year ($2,300 for 2022), they’ll be taxed on that excess amount at your (the parents’) tax rates if your rates are higher than the children’s tax rates. This kiddie tax is calculated by computing the “allocable parental tax” and special allocation rules apply if the parents have more than one child subject to the kiddie tax.
Note: Different rules applied for the 2018 and 2019 tax years, when the kiddie tax was computed based on the estates’ and trusts’ ordinary and capital gain rates, instead of the parents’ tax rates.
Be aware that, to transfer income to a child, you must transfer ownership of the asset producing the income. You can’t merely transfer the income itself. Property can be transferred to minor children using custodial accounts under state law.
Possible saving vehicles
The portion of investment income of a child that’s taxed under the kiddie tax rules may be reduced or eliminated if the child invests in vehicles that produce little or no current taxable income. These include:
- Securities and mutual funds oriented toward capital growth;
- Vacant land expected to appreciate in value;
- Stock in a closely held family business, expected to become more valuable as the business expands, but pays little or no cash dividends;
- Tax-exempt municipal bonds and bond funds;
- U.S. Series EE bonds, for which recognition of income can be deferred until the bonds mature, the bonds are cashed in or an election to recognize income annually is made.
Investments that produce no taxable income — and which therefore aren’t subject to the kiddie tax — also include tax-advantaged savings vehicles such as:
- Traditional and Roth IRAs, which can be established or contributed to if the child has earned income;
- Qualified tuition programs (also known as “529 plans”); and
- Coverdell education savings accounts.
A child’s earned income (as opposed to investment income) is taxed at the child’s regular tax rates, regardless of the amount. Therefore, to save taxes within the family, consider employing the child at your own business and paying reasonable compensation.
If the kiddie tax applies, it’s computed and reported on Form 8615, which is attached to the child’s tax return.
Two reporting options
Parents can elect to include the child’s income on their own return if certain requirements are satisfied. This is done on Form 8814 and avoids the need for a separate return for the child.
Checking In On Your Accounts Payable Processes
July 26, 2022 | BY ADMIN
Accounts payable is a critical area of concern for every business, but as a back-office function, it doesn’t always get the attention it deserves. Once in place, accounts payable processes tend to get taken for granted. Following are some tips and best practices for improving your company’s approach.
Too often, businesses take a reactive approach to payables, simply delaying payments as long as possible to improve short-term cash flow. But this approach can backfire if it puts you on bad terms with vendors.
Poor vendor relationships can affect delivery times, service quality and payment terms. A proactive, strategic approach to payables can help you strike a balance between optimizing short-term cash flow and getting along well with vendors.
It’s also critical to explore the potential benefits of early payment discounts, volume discounts or other incentives that can eventually improve cash flow. That doesn’t mean you should accept every available discount. Obviously, the decision hinges on whether the long-term benefits of the discount outweigh the immediate cost of, for example, paying early or buying in bulk.
Strengthen selection and review
Implement policies, procedures and systems to ensure that you properly vet vendors and negotiate the best possible prices and payment terms. Create preferred vendor lists so staff members follow established procedures and don’t engage in “maverick” buying — that is, purchasing from unauthorized vendors.
Review vendor contracts regularly, too. Create and maintain a database of key contractual terms that’s readily accessible to everyone. With an understanding of payment terms and other important contractual provisions, employees can use it to double-check vendor compliance and avoid errors that can result in overpayments or duplicate payments.
Automating accounts payable with the right software offers many benefits. For one thing, an automated, paperless system can increase efficiency, reduce costs and speed up invoice processing. And of course, the ability to pay invoices electronically makes it easier to take advantage of available discounts.
Automation can also provide greater visibility of payables and better control over payments. For instance, cloud-based systems provide immediate access to account information, allowing you to review and approve invoices from anywhere at any time. The best automated systems also contain security controls that help prevent and detect fraud and errors.
Naturally, there’s an upfront cost to buying good accounts payable software and training your staff to use it. You’ll need to find a solution that suits your company’s size, needs and technological sophistication. You’ll also incur ongoing costs to maintain the system and keep it updated.
Pay attention to payables
Don’t underestimate the impact of accounts payable on the financial performance of your business. Taking a “continuous improvement” approach can enhance cash flow and boost profitability. Let us help you devise strategies for the optimal tracking and handling of outgoing payments.
Estates Now Have an Additional Three Years to File for a Portability Election
July 26, 2022 | BY ADMIN
Portability allows a surviving spouse to apply a deceased spouse’s unused federal gift and estate tax exemption amount toward his or her own transfers during life or at death. To secure these benefits, however, the deceased spouse’s executor must have made a portability election on a timely filed estate tax return (Form 706). The return is due nine months after death, with a six-month extension option.
Unfortunately, estates that aren’t otherwise required to file a return (typically because they don’t meet the filing threshold) often miss this deadline. The IRS recently revised its rules for obtaining an extension to elect portability beyond the original nine-months after death (plus six-month extension) timeframe.
In 2017, the IRS issued Revenue Procedure 2017-34, making it easier (and cheaper) for estates to obtain an extension of time to file a portability election. The procedure grants an automatic extension, provided that:
- The deceased was a U.S. citizen or resident,
- The executor wasn’t otherwise required to file an estate tax return and didn’t file one by the deadline, and
- The executor files a complete and properly prepared estate tax return within two years of the date of death.
Since the 2017 ruling, the IRS has had to issue numerous private letter rulings granting an extension of time to elect portability in situations where the deceased’s estate wasn’t required to file an estate tax return and the time for obtaining relief under the simplified method (within two years of the date of death) had expired. According to the IRS, these requests placed a significant burden on the agency’s resources.
The IRS has now issued Revenue Procedure 2022-32. Under the new procedure, an extension request must be made on or before the fifth anniversary of the deceased’s death (an increase of three years). This method, which doesn’t require a user fee, should be used in lieu of the private letter ruling process. (The fee for requesting a private letter ruling from the IRS can cost hundreds or thousands of dollars.)
Don’t miss the revised deadline
If your spouse predeceases you and you’d benefit from portability, be sure that his or her estate files a portability election by the fifth anniversary of the date of death.
Video: Real Estate Right Now | Syndication (Part 1)
July 11, 2022 | BY ALAN BOTWINICK & BEN SPIELMAN
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, this series covers the latest real estate trends and opportunities and how you can make the most of them. Part one of our mini-series on syndication focuses on the use of a clause called a ‘waterfall provision.’
Watch our short video:
A real estate syndicate is formed when an individual, partnership or organization pools together outside capital and invests in real estate. The syndicator will do all the groundwork on behalf of the investors, or “partners”, and will research, locate, purchase and eventually manage the investment property. Although the syndicator puts in sweat equity, it doesn’t invest any of its own capital.
There are several ways that a syndicator can share in the investment’s profits, and the role that each player assumes in the real estate transaction will determine its share. Those roles are explained in the “waterfall provision” found in their partnership agreement.
A ‘waterfall,’ also known as a waterfall ‘model’ or ‘structure,’ is a legal term that appears in a partnership’s operating agreement that describes how and to whom distributions are made. The property’s profits from operations, or from a “capital event” (i.e. refinance or sale), are allocated to the investors based on the terms of the waterfall provision. In the example in our video, the investors agree to contribute $2 million towards the property’s purchase. They make it a 70%/30% split and decide on an 8% “preferred return” on their $2 million capital investment.
Here’s how it will play out: The syndicator keeps an accounting of the property’s cash flow over the course of their ownership and will wait until the investors have been satisfied as specified in the waterfall agreement. In our example, the agreement ensures that the investors earn 8% of their capital investment – that would be $160,000, or 8% in preferred returns – and recoup their original $2 million investment. The syndicator will benefit from the profits of the operation, or its sale or refinance, only after the investors have recouped $2,160,000, (the amount of their capital investment and preferred returns). When the terms are satisfied, the syndicator will earn its 30% share of any residual profits, and the remaining 70% will be shared among the investors. It’s a win-win.
When distributions are made based on the profits of a property’s operations, it results in steady payments over the life of the property. However, it’s very common, and often very profitable, for an ‘event’ to accelerate the waterfall process. If the property is sold or refinanced, profits are actualized quickly and monies are released for distribution quickly. In either case, real estate investment by syndication offers an investment model that can benefit investors at many levels and presents profitable opportunities for syndicators and non-real estate professionals alike.
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.