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Academics, business consultants and employees agree that empathy is one of the most important skills in a successful business leader. Empathy has always been a critical skill, but over the last two years, business leaders may feel they have become something akin to the “Counselor in Chief” or “Chief Empathy Officer.” During challenging times, empathic communications are even more necessary, but empathy is not a trait that comes naturally to everyone. The good news is that even leaders who are not naturally empathic can still communicate messages of empathy in a way that inspires people, builds loyalty and strengthens bonds within their company.

What exactly is empathy? According to the Center for Creative Leadership, empathy is the ability to experience and relate to the thoughts, emotions, or experience of others. In other words, empathy is the ability to understand someone from their perspective. It is the ability to share in how another person feels as they encounter different circumstances, situations and life experiences. Empathy welcomes people to shift from their own experiences and instead think about the experiences of those they interact with.

Why does it matter? According to the statistics, there are many benefits surrounding the importance of empathy in work cultures. Incorporating empathy into a business culture leads to increased employee retention, higher engagement levels, better chances at recruiting top talent, greater employee satisfaction, and better business results. Microsoft CEO Satya Nadella says, “Empathy makes you a better innovator. If I look at the most successful products

we have created, it comes with that ability to meet the unmet, unarticulated needs of customers.”

Just as each of us has varying levels of empathy, not every leader is equally empathic. Regardless of how empathic you are or think you are, here are four simple ways to improve empathy in your communications:

Listening – When communicating, listening is just as important as speaking (maybe more so). Listening with empathy means listening with the purpose of understanding another person’s situation or perspective, by suspending your own thinking, opinions and judgments. Sometimes just an attentive presence is enough to alleviate concerns. Remember that listening only works when the mouth is closed and the ears are open!

Acknowledgement – Leaders are generally good at getting stuff done. But often, when it comes to challenging situations, that’s not what people need. Many times people just need your ear and your caring presence. Many problems just need to be heard and acknowledged, showing the person that you are now aware of the situation and recognize how it can be stressful.

Care – Express authentic feelings of care about how a challenge affects your team. Expressions of care indicate that you are moved by a situation. Remember to not be the predominant speaker during communication exchanges, and don’t talk at length about difficult decisions you’ve had to make. Referencing yourself this way may feel soothing to you, but it is your job to support your team, not the other way around.

Action -Finally, expressions of action are among the best ways to display empathy. By first acknowledging and then acting to address the challenges an employee may be facing, leaders build and strengthen the trust in that relationship. Consider asking simply, ”What do you need?” By giving the person an opportunity to reflect on what they may need, you are initiating a solution to the issue while allowing the person feel heard and seen.

There is no question that the ability to step into another person’s shoes and understand their situation is a powerful trait that builds trust and faith. While empathy may not come easily to all leaders, that shouldn’t stop them from communicating with empathy. At its most basic level, empathy is about building stronger relationships.

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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While contemplating our own mortality is usually not our activity of choice, ignoring the need for an estate plan or procrastinating to create one is asking for trouble. For your estate plan to achieve your goals, avoid these four pitfalls:

Pitfall #1: Failing to update beneficiary forms. Your will spells out who gets what, where, when and how, but it’s often superseded by other documents such as beneficiary forms for retirement plans, annuities, life insurance policies and other accounts. Therefore, like your will, you must also keep these forms up to date. For example, despite your intentions, retirement plan assets could go to a sibling or parent — or even worse, an ex-spouse — instead of your children or grandchildren. Review beneficiary forms periodically and make any necessary adjustments.

Pitfall #2: Not properly funding trusts. Frequently, an estate plan will include one or more trusts, including a revocable living trust. The main benefit of a living trust is that assets transferred to the trust don’t have to be probated and exposed to public inspection. It’s generally recommended that such a trust be used only as a complement to a will, not as a replacement.

However, the trust must be funded with assets, meaning that legal ownership of the assets must be transferred to the trust. For example, if real estate is being transferred, the deed must be changed to reflect this. If you’re transferring securities or bank accounts, you should follow the directions provided by the financial institutions. Otherwise, the assets must be probated.

Pitfall #3: Mistitling assets. Both inside and outside of trusts, the manner in which you own assets can make a big difference. For instance, if you own property as joint tenants with rights of survivorship, the assets will go directly to the other named person, such as your spouse, on your death.

Not only is titling assets critical, you should review these designations periodically, just as you should your beneficiary designations. Major changes in your personal circumstances or the prevailing laws could dictate a change in the ownership method.

Pitfall #4: Not coordinating different plan aspects. Typically, there are several moving parts to an estate plan, including a will, a power of attorney, trusts, retirement plan accounts and life insurance policies. Don’t look at each one in a vacuum. Even though they have different objectives, consider them components that should be coordinated within your overall plan. For instance, you may want to arrange to take distributions from investments — including securities, qualified retirement plans, and traditional and Roth IRAs — in a way that preserves more wealth.

To help ensure that your estate plan succeeds at reaching your goals and avoids these pitfalls, turn to us. We can provide you with the peace of mind that you’ve covered all the estate planning bases.

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Bigger isn’t always better. Your small- or medium-sized business may be eligible for some tax breaks that aren’t available to larger businesses. Here are some examples.

1. QBI deduction

For 2018 through 2025, the qualified business income (QBI) deduction is available to eligible individuals, trusts and estates. But it’s not available to C corporations or their shareholders.

The QBI deduction can be up to 20% of:

QBI earned from a sole proprietorship or single-member limited liability company (LLC) that’s treated as a sole proprietorship for federal income tax purposes, plus
QBI passed through from a pass-through business entity, meaning a partnership, LLC classified as a partnership for federal income tax purposes or S corporation.

Pass-through business entities report tax items to their owners, who then take them into account on their owner-level returns. The QBI deduction rules are complicated, and the deduction can be phased out at higher income levels.

2. Eligibility for cash-method accounting

Businesses that are eligible to use the cash method of accounting for tax purposes have the ability to fine-tune annual taxable income. This is accomplished by timing the year in which you recognize taxable income and claim deductions.

Under the cash method, you generally don’t have to recognize taxable income until you’re paid in cash. And you can generally write off deductible expenses when you pay them in cash or with a credit card.

Only “small” businesses are potentially eligible for the cash method. For this purpose under current law, a small business includes one that has no more than $25 million of average annual gross receipts, based on the preceding three tax years. This limit is adjusted annually for inflation. For tax years beginning in 2022, the limit is $27 million.

3. Section 179 deduction

The Sec. 179 first-year depreciation deduction potentially allows you to write off some (or all) of your qualified asset additions in the first year they’re placed in service. It’s available for both new and used property.

For qualified property placed in service in tax years 2018 and beyond, the deduction rules are much more favorable than under prior law. Enhancements include:

Higher deduction. The Sec. 179 deduction has been permanently increased to $1 million with annual inflation adjustments. For qualified assets placed in service in 2022, the maximum is $1.08 million.

Liberalized phase-out. The threshold above which the maximum Sec. 179 deduction begins to be phased out is $2.5 million with annual inflation adjustments. For qualified assets placed in service in 2022, the phase-out begins at $2.7 million.

The phase-out rule kicks in only if your additions of assets that are eligible for the deduction for the year exceed the threshold for that year. If they exceed the threshold, your maximum deduction is reduced dollar-for-dollar by the excess. Sec. 179 deductions are also subject to other limitations.

Bonus depreciation

While Sec. 179 deductions may be limited, those limitations don’t apply to first-year bonus depreciation deductions. For qualified assets placed in service in 2022, 100% first-year bonus depreciation is available. After this year, the first-year bonus depreciation percentages are scheduled to start going down to 80% for qualified assets placed in service in 2023. They will continue to be reduced until they reach 0% for 2028 and later years.

Contact us to determine if you’re taking advantage of all available tax breaks, including those that are available to small and large businesses alike.

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If you’ve been in business for a while, you’ve probably considered many different employee benefits. One option that might have crossed your desk is an employee stock ownership plan (ESOP).

Strictly defined, an ESOP is considered a retirement plan for employees, but it can also play a role in succession planning by facilitating the transfer of a business to the owner’s children or employees over a period of years in a tax-advantaged way.

Not a buyout

Although an ESOP is a retirement plan, it invests mainly in your own company’s stock. ESOPs are considered qualified plans and, thus, subject to the same IRS and U.S. Department of Labor (DOL) rules as 401(k)s and the like. This includes minimum coverage requirements and contribution limits.

Generally, ESOP distributions to eligible employees are made in stock or cash. For closely held companies, employees who receive stock have the right to sell it back to the company — exercising “put” options or an “option to sell” — at fair market value during certain time windows.

While an ESOP involves transferring ownership to employees, it’s different from a management or employee buyout. Unlike a buyout, an ESOP allows owners to cash out and transfer control gradually. During the transfer period, owners’ shares are held in an ESOP trust and voting rights on most issues other than mergers, dissolutions and other major transactions are exercised by the trustees, who may be officers or other company insiders.

Mandatory valuations

One big difference between ESOPs and other qualified retirement plans is mandated valuations. The Employee Retirement Income Security Act requires trustees to obtain appraisals by independent valuation professionals to support ESOP transactions. Specifically, an appraisal is needed when the ESOP initially acquires shares from the company’s owners and every year thereafter that the business contributes to the plan.

The fair market value of the sponsoring company’s stock is important, because the DOL specifically prohibits ESOPs from paying more than “adequate consideration” when investing in employer securities. In addition, because employees who receive ESOP shares typically have the right to sell them back to the company at fair market value, the ESOP essentially provides a limited market for its shares.

Costs and entity choice

Although ESOPs can be an important part of a succession plan, they have their drawbacks. You’ll incur costs and considerable responsibilities related to plan administration and compliance. Plus, there are costs associated with annual stock valuations and the need to repurchase stock from employees who exercise put options.

Another disadvantage is that ESOPs are available only to corporations of either the C or S variety. Limited liability companies, partnerships and sole proprietorships must convert to the corporate form to establish one of these plans. This raises a variety of financial and tax issues.

It’s also important to consider the potential negative impact of ESOP debt and other expenses on your financial statements and ability to qualify for loans.

A popular choice

There are about 6,500 ESOPs and equivalent plans in the United States today, with roughly 14 million participants, according to the National Center for Employee Ownership. So, if you decide to launch one, you won’t be alone. However, careful planning and expert advice is critical.

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Often at Equinum, we hear people saying they don’t need professional financial advice because “you can find all the information you need on the Internet!”

And they’re right. The age we live in is pretty remarkable. All the information you could ever need – from the most basic of facts to the most complex and debated topics – is housed online.

But raw information isn’t everything. While Google can spit back all the differences between term and permanent life insurance, it can’t advise you in your personal situation. “What is a Roth conversion?” – Google can tell you. “Does a Roth conversion make sense for me?” – now, even Google has it’s limits.

The Internet does try and advise us, but sometimes, that advise can be poor, and other times, cringeworthy. Here are 2 of the many pieces of advice we’ve seen tossed around by influences, bloggers, and clickbait fishers:

“Don’t try to make more money – you’ll be pushed into the next bracket and pay more in taxes.”

Sure, making more money means paying more in taxes, but of course it’s still worthwhile. The U.S. tax code works at a marginal tax rate, where even the richest Americans have their first dollars taxed at 10%. So you’d only be paying a higher tax rate on the ‘extra’ income.

“Invest in the riskiest things, since the higher the risk, the higher the reward.”

What these promoters are missing is that higher risk doesn’t guarantee higher returns – just potential for higher returns!

Can we agree that advice is best through a dynamic conversation with a qualified human being?

Especially if 1 of these 3 people sounds like you:

You’re not the DIY type. You prefer to focus on what you want to focus on – say, family and career – and delegate the rest to people you trust.
You have a complex financial situation, and the cost of an advisor is chump change compared to the cost of making a mistake in investment losses, taxes or legal fees.
You’re financially lonely. You’re not comfortable talking money with your friends or family, so you don’t have anyone to verify that you’re doing what’s financially best for you. The stress of trying to figure it all out on your own is taking quite a toll.

If you could use a second financial opinion (or a first for that matter), reach out to info@equinum.com. Oh, what a pair of professional eyes could do for you…

How to Communicate With More Empathy

Avoid These 4 Estate Planning Pitfalls

Three Tax Breaks for Small Businesses

Evaluating an ESOP From a Succession Planning Perspective

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