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When President Trump’s “One Big Beautiful Bill Act” (OBBBA) took effect, its Research and Development (R&D) provisions caught businesses off guard. Hidden in its tax code are changes that will significantly reshape how businesses invest in discovery and speed breakthroughs to market. For companies staking their future on technology—from biotech to semiconductors—OBBBA isn’t just policy. It triggers massive innovation opportunities aimed squarely at American business.

Whether the bill will deliver the growth surge it promises —or conceals risks between the lines—remains an open question. To find the answer, let’s step back and look at why R&D matters, what exactly has changed in the law, and how businesses may ride this new wave of incentives.

R&D: The Engine Accelerating America’s Next Breakthrough

If the future belongs to those who innovate, then R&D is the vehicle driving us there. Every advancement in technology, from life-saving drugs to quantum computing, begins as an investment in research, with the promise of discovering what’s next.

For decades, nations have raced to pour resources into R&D, understanding that prosperity rises and falls on the strength of new ideas. The U.S., as a leading global investor, spends around 3.4% of GDP on R&D, but others have surged forward: Israel now devotes over 6% of GDP to research, South Korea nearly 5%, with total worldwide spending reaching an estimated $2.7 trillion in 2023. These investments spark jobs, unlock industries, and shape the world’s next big thing.

But here at home, the question has always been how to keep America’s innovation advantage. Policies, especially tax laws, can either unlock the capital needed for experimentation or slow the pace to a crawl. That’s where the OBBBA steps in: by rewriting the rulebook, it promises to unleash the cash and creativity businesses need to lead in discovery.

With OBBBA, the story shifts. No longer bound by restrictive accounting, companies eye new horizons, ready to invest boldly. The stage is set for a new chapter where American innovation may accelerate at unprecedented speed.

The OBBBA’s R&D Tax Overhaul

OBBBA boosts R&D investment through practical reforms across multiple areas:

Immediate Deduction for Domestic R&D Expenses
Starting in tax years after December 31, 2024, businesses can fully deduct domestic R&D expenses (including software development) immediately. This overturns the TCJA requirement to spread costs over five years.

Recovery of Previously Capitalized Costs
Businesses can recover any unamortized R&D costs—either all at once or ratably over two years—starting in 2025. That means cash tied up in accounting rules is suddenly freed.

Small Business Provisions
Companies with average annual gross receipts of $31 million or less for 2022-2024 can retroactively apply these rules back to 2022, amending returns for relief. Companies that didn’t file 2024 can deduct their R&D on the original return.

Foreign R&D Treatment
Expenses for research conducted abroad must still be amortized over 15 years. This creates a powerful incentive to keep research in the U.S.

Research Tax Credit Adjustments
Companies must now reduce deductions by the value of their R&D tax credit (or take a reduced credit), preventing “double-dipping.” This reverts to pre-TCJA rules.

Immediate R&D Deductions Return

Companies can now deduct domestic R&D expenses immediately instead of spreading costs over five years. They can recover previously capitalized costs starting in 2025. Small businesses can retroactively apply these rules back to 2022.

This change frees capital upfront and reduces financial strain for startups running on thin margins. The ability to recover previously capitalized costs could inject much-needed liquidity back into the economy. Larger firms may find themselves rethinking their global footprints, as favorable treatment for U.S.-based research could draw activities back home and bolster hubs like Boston or Silicon Valley.

Impact on Major Companies

Moderna cut annual R&D spending by 23% to $1.1 billion between 2024 and 2027. The company warned that TCJA’s amortization rules forced delays in its R&D pipeline. It could no longer immediately expense research costs. Moderna’s president called this “forced pacing” due to amortization burdens. Under OBBBA, this burden disappears. Moderna can again deduct U.S.-based research immediately. This potentially frees hundreds of millions of dollars for reinvestment in new biotech. Beyond this, these provisions could encourage more mergers and acquisitions. Companies with large unamortized R&D portfolios now look especially attractive, since acquirers could realize immediate deductions. That may spark a wave of deal-making in sectors like tech and pharmaceuticals.

Risk Scenarios: What Could Go Wrong

Companies will naturally seek to maximize their research deductions, potentially expanding how they define qualifying activities. Tax authorities may respond with increased scrutiny and more audits. R&D-heavy industries such as semiconductors will enjoy substantial new advantages. This may create pressure for other sectors to boost their own research investments. The resulting demand for scientific and engineering talent will likely create a competitive hiring market favoring well-resourced firms.

Seize the Opportunity or Face Scrutiny

OBBBA’s R&D provisions make innovation more financially viable in the United States. They loosen TCJA constraints. Businesses can accelerate discovery and bring solutions to market faster. Companies must decide how to respond. Those treating incentives as loopholes could face harsh audits, while those genuinely advancing science and technology could lead a new innovation era.

In the end, the OBBBA sends a powerful message: the U.S. wants to be the world’s innovation engine—and is willing to bet its tax code on it.

This material has been prepared for informational purposes only, and is not intended to provide or 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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There was a time, not so long ago, when “doing the books” meant drowning in paper, waiting weeks for reports, and bracing for bad news at month’s end. Surprise overdraft? Missed payment? Misfiled invoice? It was all part of the game. And for business owners, staying on top of finances often felt more like damage control than decision-making.

But here’s the good news: those days are over.

Cloud-based tools have revolutionized the way businesses can manage and see their finances. If you’re still buried in spreadsheets or waiting for your accountant or bookkeeper to “close the month,” it’s time for a reset. Real-time financial clarity isn’t just possible now—it’s the new standard.

The old way: a recipe for frustration

Let me paint you a picture of how things used to work. A decade ago, my team and I would spend countless hours driving to client offices and sitting on desktop computers running QuickBooks Desktop. Month-end closings were marathon sessions that stretched into weekends. Clients would call frantically asking about their cash flow, and I’d have to tell them, “Give me a few days to get caught up, and I’ll send you a report.”

The inefficiency was staggering. Recordkeeping and payments were reactive instead of proactive, always playing catch-up rather than providing the strategic guidance businesses desperately needed. Financial reports were often weeks behind, making them historical documents rather than actionable business intelligence. It was frustrating for everyone involved.

The cloud changed everything

Online and AI platforms have redefined what’s possible for small and growing businesses. These aren’t just upgrades to traditional accounting software; they’re entirely different ecosystems.

First in line is QuickBooks Online. With this tool, a business’s bookkeeping team can connect directly to bank accounts, credit cards, and payment processors. Transactions flow in automatically, saving hours of manual entry. More importantly, the numbers can be reviewed and reconciled in near-real time. Business owners don’t have to wait 30 days to see what’s happened—their teams can work with data that’s fresh, accurate, and actionable.

Bill.com is another game-changer. Managing payables used to mean chasing approvals, mailing checks, and hoping nothing got lost. Using this platform, invoices can be emailed, scanned by AI, and routed for approval. Once cleared, payments can be scheduled electronically. No paper. No delays. Every transaction syncs seamlessly with the ledger.

We’ve seen the impact. One of our mid-sized retail clients cut AP processing time from 10 hours a week to under two. Their staff now focuses on higher-value tasks, and costly errors like duplicate payments? Gone.

Convenience plus clarity

The convenience factor of cloud tools is obvious. But what excites me most is the clarity they bring.

When a business’s books are updated weekly—or even daily—they can see their cash position at a glance. They know what came in, what went out, and what’s coming due. That kind of real-time visibility is a huge shift from the old days of waiting on monthly reports.

Here’s a simple but powerful example: Derek’s Drills Co. was preparing to invest in a state‑of‑the‑art rotary drilling rig valued at approximately $2.5 million. In the past, the company might have made the purchase based on rough estimates, limited historical data, or outdated spreadsheets. But because its books were up-to-date, executives could walk through the numbers—cash flow trends, recent expenses, outstanding receivables—and decide if the timing was right. Turns out, waiting two more weeks made a big difference. That’s the kind of decision-making power current data gives you.

Empowering businesses to grow smarter

Another advantage of cloud-based tools is the flexibility they offer growing businesses. When routine tasks—such as payables or reconciliations—are handled through streamlined systems, in-house staff can be redeployed to more strategic work. With automation in place, one company was able to shift a full-time office manager from manual invoice entry and check processing into a business development role—both a better fit for his skills and a priority for the organization.

Cloud access also helps safeguard operations during staffing changes. In one case, when a company’s longtime bookkeeper left unexpectedly, their cloud systems allowed the transition to happen smoothly. Payroll still went out on time, vendors were paid, and day-to-day operations continued without interruption.

The takeaway: a well-designed setup can provide continuity, clarity, and capacity when you need them most.

Automation is a tool, not a replacement

One question I hear a lot is, “If all this can be automated, why do I need a bookkeeper or advisor?”

The answer is simple: automation helps, but oversight is essential.

These systems are smart, but they’re not perfect. AI can scan an invoice or categorize a transaction, but it can’t tell you if a vendor double-billed you. It won’t notice that a regular customer’s payment is late, or that your spending is trending higher than normal in one category.

That’s where your professional team comes in. They can review what the systems process and match data to reality. And perhaps most importantly, they can spot the story in the numbers—what’s working, what’s not, and where you might need to pay closer attention.

Is it time to reevaluate your approach?

Cloud-based platforms have completely reshaped the way financial management works. They’ve made businesses more nimble, financial data more accessible, and decision-making more grounded in real-time insight. In my experience, these tools don’t just improve workflows; they fundamentally change the way business owners relate to their numbers. It’s not about catching up—it’s about staying ahead.

If you’re still relying on outdated systems or only reviewing your books once a month (or quarter), it may be time to reconsider. Moving to the cloud isn’t just a tech upgrade; it’s a mindset shift that gives you faster access to information, fewer surprises, and better control over your financial future.

The tools are here. The support is here. What’s left is your decision to run your business with the kind of clarity today’s environment both demands and rewards.

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The following is a true narrative. Names and identifying details have been changed to protect confidentiality.

David Klein didn’t set out to violate federal law. He just needed to make payroll.

I met David when he called our office in a panic. As executive director of Rofeh Services, a nonprofit that helps families navigate medical crises, he was used to managing cash flow problems. But this time, he was staring down the IRS.

The core problem was simple. Rofeh didn’t have enough money to cover its operating expenses. Payroll, rent, vendor bills—the numbers didn’t work. The only liquid funds in the account were the payroll taxes that had already been withheld from employee paychecks: federal income tax, Social Security, and Medicare. That money was supposed to go to the IRS. It was set aside, held in trust.

But David needed to keep the lights on, and the staff paid.

So, he used it.

Over the course of several months, he dipped into the withheld trust funds whenever cash got tight. Just enough to keep payroll going. Each time, he told himself it was temporary—that he’d make it right once funding stabilized. It wasn’t a scheme. It wasn’t theft in his mind. It was survival. A way to buy time.

But the reprieve he was counting on never materialized. Instead, a letter from the IRS arrived.

Rofeh Services owed over $350,000 to the IRS. But the bigger blow came in a second envelope. David himself had been named. The IRS viewed his actions not as a bookkeeping shortcut but as a deliberate misuse of federal funds. Under IRC §6672, they held him personally liable for the entire trust portion. And if they concluded that his decision was willful and knowing, they could escalate the case beyond civil penalties—all the way to felony prosecution, with real prison time on the table.

This is what most people miss. Payroll taxes aren’t just another line item. They don’t belong to the organization. They don’t even belong to the employer. They are held in trust and using them for anything else—even for reasons that feel justified—can trigger personal and criminal exposure.

When I saw the facts, I moved his file to the top of my stack. This was no longer a collections issue. It was a crisis.

First, we stabilized the situation. All future payroll taxes were filed and paid on time. The IRS doesn’t negotiate while you’re still violating.

Next, we ran the numbers. The trust fund portion—the part that exposed David personally—was significant. There was no way to pay in full. Our best move was to file for an Offer in Compromise (OIC).

The OIC process is a grind. Weeks of document gathering, financial disclosures, and IRS scrutiny. Our top priority was keeping David out of a courtroom—or worse. One element gave us a clear path to do that.

By default, when a taxpayer submits a payment toward an outstanding tax balance, the IRS applies it however they see fit—typically to penalties and interest first. But a little-known provision allows taxpayers to designate how voluntary payments are applied. Under Rev. Rul. 79-284, the IRS is required to honor that designation if made clearly. What most people don’t know is that you can even designate an OIC 20% payment towards the trust fund only. By directing the payment to the trust fund portion, we immediately eliminated David’s personal exposure.

When we submitted the designation, the Revenue Officer pushed back. She insisted that you can’t designate an initial OIC payment towards the trust fund only and that the IRS would apply the payment at its discretion, regardless of what we requested.

We didn’t press the issue. The law was clear, and we were confident in our position—but our priority wasn’t to win an argument. It was to keep our client out of court, and out of prison. Preserving a productive relationship with the IRS was essential to that goal.

We gave her the space to reconsider without forcing a confrontation.

“That’s surprising,” I said. “The Offer in Compromise form and the Internal Revenue Manual seem to permit it. Can you walk us through your position?”

Two days later, they reversed course. The payment was applied as directed. David was out of the blast zone.

What followed was slow and procedural—paperwork, correspondence, and the final approval. But the danger had passed. David was no longer at risk of indictment. He could walk into his office without wondering if it might be his last day there.

Today, Rofeh is still running, continuing its mission to help families navigate complex medical crises. David is still at the helm. But the experience reshaped how he thinks about risk, responsibility, and the limits of good intentions. This isn’t just a cautionary tale—it’s a reminder that following the rules is only part of the story. When you find yourself in a bind, it’s knowing how to work within the system that can make all the difference.

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Best Hiring Practices for Accountants: What Firms Should Look for in a New Hire

After years of hiring for both my own team and others, trial and error has taught me that resumes are not the best barometer of a candidate’s potential success. I’ve watched this problem worsen as more accounting firms turn to AI for initial candidate screening. The fundamental issue is that resumes focus heavily on technical skills, which tells only part of the story.

The Skills That Matter Most Can’t Be Taught

Many skills that candidates highlight on their resumes can be taught, which can be categorized as technical or hard skills. Every industry has its core technical requirements.

For accountants, technical requirements typically include GAAP knowledge, financial statement preparation, tax compliance, audit procedures, Excel proficiency, and familiarity with accounting software like QuickBooks, SAP, or Oracle. CPA certification, experience with SOX compliance, and knowledge of industry-specific regulations (such as FASB standards) are equally valuable.

While this knowledge is an essential baseline requirement in most accounting firms, most motivated accounting professionals can develop and expand these technical competencies through training and experience. The key question every hiring manager should consider is, which of these skills does the candidate already possess, and if not, how quickly and effectively can they learn it?

Between the Lines

Technical skills are essential, but for long-term success, soft skills are equally critical. Traits such as patience, confidence, empathy, resilience, and emotional intelligence rarely show up on a résumé.

In accounting roles, these soft skills translate as the patience to work through complex reconciliations, the confidence to question discrepancies and communicate findings to senior management, the ability to work effectively with difficult clients, and the resilience to maintain accuracy despite deadlines. Emotional intelligence is particularly valuable when accountants have unfavorable financial news to convey or sensitive audit findings to share.

Personality assessments have their place in the hiring process, but they should support—not replace—personal interactions. And it is obvious that evaluating a potential candidate’s soft skills does not eliminate the need to verify their technical abilities. The most effective hiring process gives equal weight to both.

Poor hiring decisions are rarely the result of deficiencies in skill. Most often, tension is created within teams or organizations due to interpersonal challenges, such as lack of teamwork, commitment, or empathy. Problematic relationships create far more disruption than gaps in expertise or technical knowledge.

So how can we discover and assess a candidate’s interpersonal abilities and character? Discuss specific situations candidates might encounter to gauge how they would handle real-world workplace situations. “How would you approach a situation where you discover a significant error in last quarter’s financial statements that have already been filed?” or “Describe how you would respond to pressure from a supervisor to make an aggressive accounting estimate that makes you uncomfortable?” These questions reveal both technical understanding and ethical judgment.

When Technical Skills Aren’t Enough

The collapse of Arthur Andersen in 2002 is a powerful reminder that character and ethical judgment are as important as technical expertise. At its peak, Arthur Andersen was one of the “Big Five” accounting firms, employing over 85,000 people in more than eighty countries, and generating revenues exceeding $9 billion annually. Its collapse after the Enron scandal, which employed fraudulent accounting practices to hide debt and inflate profits, became one of the most infamous corporate downfalls in history. Many of the accountants involved in the Enron scandal were highly skilled—they understood complex accounting rules and held strong credentials. But the firm’s culture prioritized revenue above ethics, and too few employees had the moral courage to push back.

The takeaway for today’s accounting firms is clear: hiring based only on technical skills—without evaluating ethical judgment, integrity, and courage—can lead to profound consequences. A staff accountant who flags suspicious entries or potential compliance issues is far more valuable than a technically skilled candidate who follows instructions without question.

Transforming Your Hiring Today

To improve your hiring outcomes, consider implementing these strategies:

Treat resumes as conversation starters rather than decision-making tools

Schedule longer interviews steered towards meaningful dialogue

Create scenarios that reveal how candidates manage real workplace situations.

While assessing technical capabilities, trust your instincts when it comes to overall social and cultural compatibility.

The accounting profession demands technical precision, strong ethical standards, and strong interpersonal skills. Balancing these factors in the hiring process enables a company to build teams that not only perform well operationally but also uphold the integrity that defines the accounting profession and the firm’s culture.

This material has been prepared for informational purposes only and is not intended to provide or 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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In a bold legislative move fulfilling one of his core campaign promises, President Trump has unveiled his ambitious “One Big Beautiful Bill” — a sweeping piece of legislation packed with tax cuts, credits, deduction adjustments, and policy extensions. Despite Republican leadership’s determined efforts to advance the bill through Congress, it is encountering substantial opposition from Democrats and even some resistance from within Republican conservative ranks. Nevertheless, we expect that a significant portion of the bill will ultimately become law and will have a substantial impact on our tax landscape.

The proposed legislation’s remarkably broad scope addresses an eclectic range of groups, including taxpayers, businesses, immigrants, seniors, students, and aliens in both rural and urban America. Its provisions touch on fuel and energy, schools and foundations, healthcare, childcare, Medicare, and Social Security. Additional areas covered include artificial intelligence, adoptees, tribal governments, and national security concerns.

We’ve reviewed the bill, and here are our highlights: the key points that matter most to us and our clients.

Make American Families and Workers Thrive Again

The bill includes an increase to the Qualified Business Income (QBI) deduction from the current 20% to 23%. This change to the QBI deduction will be significant and will provide more favorable tax treatment for pass-through businesses.

Itemized deductions for high-income taxpayers would be capped at a 35% marginal tax rate for taxpayers in the top income bracket.

Make America Win Again

The new bill proposes a substantial increase to the estate and gift tax exemption to $15 million per individual, starting in 2026. The doubling of the exemption amount will significantly reduce the number of estates subject to federal estate taxes and will allow more wealth to be passed on to heirs without incurring steep tax liabilities.

Make Rural America and Main Street Grow Again

The bill reinstates immediate expensing for domestic R&D costs (2024–2029), including software development. Foreign R&D costs require 15-year amortization. Companies can choose 60-month amortization, benefiting U.S. firms but impacting multinational strategies.

The proposed tax bill extends 100% bonus depreciation for qualified property acquired after January 19, 2025, and placed in service before January 1, 2030. This will allow a full-cost deduction in the year of purchase.

Additional Tax Relief for American Families and Workers

The bill introduces a tax credit capped at 10% of a taxpayer’s income for contributions to scholarship-granting organizations, effectively enabling taxpayers to allocate a portion of their Federal tax liability toward K-12 education costs, including private schools, religious institutions, homeschooling, and public school expenses.

A proposed extension of Opportunity Zone (OZ) Provisions through 2033. The extension aims to reinstate step-up in basis benefits for long-term investments and implement stronger reporting requirements to enhance transparency.

Other notable provisions of the proposed bill include:

Tax Rates & Credits

Reduced Tax Rates - Caps maximum at 37%.

Alternative Minimum Tax (AMT) - Extends higher thresholds and exemptions permanently.

Child Tax Credit - Increases to $2,500 per child from 2025 through 2028, then reverts to $2,000.

Green Energy - changes and limitations to several green energy-related tax credits.

Deductions

Standard Deduction - Permanently increases after 2025 personal exemptions repeal.

Eliminated Deductions - Ends miscellaneous itemized deductions.

Tip Income - Adds special deduction for tip earnings if the gross receipts from the business exceed the cost of goods sold and other deductible expenses.

“Pease Limits” - Repeals these limits while capping itemized deductions at 35% for the highest bracket.

SALT Deduction – Increases to $40,000 cap for individuals earning up to $500,000, with a phase-out for higher incomes.

Property & Interest

Car Loan Interest - Creates above-line deduction (2025-2028) capped at $10,000 per taxable year.

Mortgage Interest - Limits deduction to first $750,000 of acquisition debt.

Casualty Losses - Restricts losses to federally declared disaster areas only.

Business & Reporting

Bonus Depreciation - Raises thresholds to $2.5M/$4M in 2025 with inflation adjustments.

1099 Reporting - Raises minimum threshold to $2,000.

As the new legislation moves through Congress, individuals and businesses should consult with their financial advisors to assess how its potential changes may impact their specific circumstances. Although the bill includes many promising provisions, the timeline and details of their implementation remain uncertain. Maximizing the potential benefits of the bill while managing associated risks will require skill and adaptability, no matter if, when, and in what form the legislation ultimately passes.

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Written by Shulem Rosenbaum and the Roth&Co Editorial Team

Late in the afternoon at an unassuming facility in Nevada, Neal Friedman scans a new batch of active pharmaceutical ingredients (APIs) slated for sterile compounding. As Chief Operating Officer at Indigo Health Innovations, a 503B outsourcing facility, he’s part of a small but critical segment of the U.S. pharmaceutical world — one responsible for supplying customized meds that big manufacturers often overlook.

The pallets before him have been steadily rising in price. “API prices from India and China have increased with the new tariffs,” Friedman says, “and we can’t just swap in a new supplier. Our entire production line would need fresh FDA validation. That’s a process measured in months, if not a year.”

It’s an exasperating logistical maze, but Friedman also sees a silver lining. “Yes, tariffs raise costs in the short run,” he concedes, “but if it actually brings more manufacturing stateside, that’s good for everybody. This is national security. Look at what happened during COVID — one disruption overseas, and we were scrounging for basic IV solutions.”

The President agrees. A May 5, 2025, Fact Sheet issued by the White House quotes President Trump’s pithy assessment of America’s global position in the pharmaceutical space. “We don’t want to be buying our pharmaceuticals from other countries because if we’re in a war, we’re in a problem, we want to be able to make our own.”

Tariffs Bite, But Push for Domestic Supply Gains Momentum

Friedman’s story is one of many playing out nationwide as compounding pharmacies grapple with new U.S. trade policies. In early 2025, President Donald Trump announced his intentions to impose sweeping tariffs on pharmaceutical imports to pressure drugmakers into moving production stateside. That threat quickly got the attention of Big Pharma. By March, Merck had opened a $1 billion vaccine plant in North Carolina. Eli Lilly announced plans to invest at least $27 billion to build four new U.S. manufacturing plants, and Pfizer said it might shift overseas production into its American factories. Merck committed to spending $8 billion domestically by 2028.

For compounders on the ground, these investments offer a glimmer of future relief. Over 80% of APIs used in U.S. drugs currently come from facilities in China and India, a reliance that leaves compounders vulnerable. “We’ve been uncomfortably dependent on overseas suppliers for years – COVID-19 made that clear,” Friedman says. Industry groups like the American Hospital Association have warned that blanket tariffs could inadvertently “jeopardize the availability of vital medications” if not carefully calibrated.

Friedman acknowledges the short-term pain: “When shipping and ingredient costs spike, we can’t immediately pass that on to patients or hospitals.” Long-term, though, he sees potential gain. The tariff-induced urgency is reinforcing calls to diversify and domesticate the drug supply chain. In Congressional hearings on chronic drug shortages this year, hospital leaders urged lawmakers to “identify essential drugs needing more domestic manufacturing capacity.”

For compounders like Indigo Health, such moves could be game changers. “If Pfizer starts making key ingredients here, we’d gladly buy American,” Friedman says. The caveat: it will take time for those new facilities to come online. In the interim, outsourcing facilities must navigate a tightrope, balancing higher import costs against fixed healthcare reimbursement rates.

A Regulatory Labyrinth — and Hopes for Reform in Washington

On a busy morning in Queens, New York, Samantha Koegel fields phone calls at ARX Specialty Pharmacy, a 503A facility she helps run as COO. ARX serves patients, compounding everything from custom hormone therapies to preservative-free topicals.

Koegel has witnessed regulations steadily mounting barriers for compounders. “Every time we turn around, there’s a new requirement,” she sighs. A prime example: The FDA recently ended its “interim” category for new bulk substances, preventing 503A pharmacies from using ingredients not yet formally approved. “If a patient needs something not on the FDA’s shortlist, our hands are tied for years.”

Now, however, she sees opportunity. With Trump’s administration prioritizing deregulation and Robert F. Kennedy Jr., leading HHS, Koegel feels unexpectedly optimistic. “I never thought I’d be cheering for an FDA shake-up like this,” she laughs. Her optimism is well-founded. Only days after our conversation, President Trump signed an Executive Order to reduce approval times for U.S. drug manufacturing plants by cutting “duplicative and unnecessary” requirements, streamlining reviews, and providing early support to manufacturers.

“Imagine if the FDA worked with us to fill drug gaps instead of boxing us out,” Koegel says, pointing to the current record of 323 active shortages. She recalls how, during COVID-19, the FDA temporarily allowed compounders to supply critical medications to hospitals. “Why not create an Emergency Authorization pathway for compounded drugs during shortages? With faster approvals or equipment funding, we could triple our output – that’s huge for supply resilience.”

The PBM Squeeze: Long-Term Care’s Unseen Cost Crisis

Even as tariffs and regulations dominate headlines, many pharmacists insist another force has a bigger impact: pharmacy benefit managers, or PBMs — the powerful middlemen who negotiate drug prices and reimbursements. “To be blunt, PBMs are the primary cost drivers in our world, not tariffs,” says John Maguire (a pseudonym), CEO of a large LTC pharmacy in the Midwest who requested anonymity.

Maguire’s critique comes down to basic math. An average long-term care pharmacy spends over $15 in labor and specialized packaging per prescription, but Medicare Part D plans — managed by PBMs — often pay only very low dispensing fees. “We lose money on most generics we dispense because the PBMs price generics too low,” he notes. According to the Senior Care Pharmacy Coalition, the Part D payment model is “broken,” forcing LTC pharmacies to fill prescriptions below cost while allowing PBMs to reap profits.

From his vantage point, tariffs on foreign APIs are a minor factor. The larger problem, Maguire argues, is that a handful of PBMs dominate the market, dictating terms to manufacturers, pharmacies, and payers alike. A recent Federal Trade Commission report highlighted that the six largest PBMs control nearly 95% of all U.S. prescriptions. “That’s basically oligopoly power,” Maguire says. “They decide how much we get paid for a medication, and we have zero say.”

Maguire welcomes Washington’s increasing scrutiny of PBMs, with lawmakers targeting practices like spread pricing and hidden rebate schemes. “It’s heartening to see Congress and the FTC finally shine a light on this,” he says, ranking PBM reform above even tariff relief in importance.

Despite his PBM concerns, Maguire finds hope elsewhere. “I’ll give credit where it’s due — companies like Lilly, Pfizer, and Merck pumping billions into U.S. facilities is a smart move,” he says. He believes domestic production will reduce supply disruptions that lead to price spikes. “When Big Pharma actually does something right — like bringing manufacturing back home — it deserves praise. But we need a system that passes those benefits along.”

Toward a Resilient Future

As America’s compounding pharmacies navigate these converging pressures, three solutions emerge from industry leaders: domestic manufacturing incentives to strengthen supply chains, streamlined regulatory frameworks that maintain safety while enabling swift responses to shortages, and meaningful PBM reforms to ensure sustainable economics.

The cautious optimism of these professionals stems from seeing their concerns finally acknowledged at the highest levels. With a president pushing for American pharmaceutical production, an HHS secretary challenging industry influence, and a Congress attentive to both patient costs and pharmacy viability, the pieces for meaningful reform appear to be aligning.

The narrative of America’s compounders in 2025 is one of friction yielding to hope. As Samantha Koegel aptly puts it: “The system is finally acknowledging what’s broken. Now we have a chance to fix it — to create a pharmacy supply chain that’s more local, a regulatory system that’s more agile, and a market that’s actually fair.” The road ahead remains uncertain, with tariffs, regulatory promises, and PBM oversight hanging in the balance. Yet for the first time in years, these specialized pharmacies can envision a path forward — one where resilience and innovation outweigh the longstanding burdens of foreign dependence, regulatory rigidity, and middleman economics.

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Regulations around COVID-era tax programs were rolled out so fast and furious that accountants had to be on constant alert for updates and changes. So, it didn’t surprise us that the IRS has changed its mind regarding the proper reporting of the Employee Retention Credit (ERC). What is surprising, however, is how unceremoniously the IRS made an about-face on such a significant tax issue, acting as if that was its position all along. It all comes down to how to handle previously filed income tax returns for the periods when an ERC claim was submitted.

Many taxpayers previously struggled with the IRS policy that they must file an amended income tax return to correct their overreported wage expenses, even if the taxpayers haven’t received their money yet (see Notice 2021-20, Q&A 60, and Notice 2021-49, §IV(C) for example). The unwavering position of the IRS was that taxpayers were required to amend the return for the year in which the wage expense occurred, not the year the credit was received. Some taxpayers listened to the IRS and amended their income tax returns; some didn’t. Many tax practitioners struggled with their professional responsibilities advising clients regarding amending income tax returns.

In the event of an ERC audit, one of the first questions an auditor may ask is, “Did you file an amended return to reduce your wage deduction?” Some auditors felt that filing an amended income tax return was a condition precedent to making a proper ERC claim.

On March 20, 2025, the IRS revised its Employee Retention Credit (ERC) FAQs and issued new and surprising guidance on ERC-related reporting. In the “Income Tax and ERC” section of the IRS’s updated ERC website, the IRS explicitly instructs that to address overstated wages,

“… you’re not required to file an amended return or, if applicable, an administrative adjustment request (AAR) to address the overstated wage expenses. Instead, you can include the overstated wage expense amount as gross income on your income tax return for the tax year you received the ERC.

Example: 

Business A claimed an ERC of $700 based on $1,000 of qualified wages paid for tax year 2021 but did not reduce its wage expense on its income tax return for 2021.

The IRS paid the claim to Business A in 2024, so Business A received the benefit of the ERC but hasn’t resolved its overstated wage expense on its income tax return.

Business A does not need to amend its income tax return for tax year 2021. Instead, Business A should account for the overstated deduction by including the $700 in gross income on its 2024 income tax return.”

But what if the taxpayer did reduce his wage expense but his claim was later denied?

The IRS now instructs the taxpayer,

“…in the year their claim disallowance is final, increase their wage expense on their income tax return by the same amount that it was reduced.”

This provision is especially relevant because some “ERC years” are approaching the three-year statute of limitations for amendment. Until now, if the statute of limitations to file an amended return for the year the wages were originally paid had expired, the taxpayer had no practical way to account for this. In fact, many taxpayers who had filed amended returns and added back their overstated wages even received rejections from the IRS, who would not process their returns (and checks!) based on the expired statute of limitations. Now, the IRS permits and even instructs the taxpayer to make corrections in a later tax year.

The IRS’s reasoning for now having the income reported in the year of receipt is the “tax benefit rule,” which states that if a taxpayer takes a deduction based on specific facts but later the circumstances change and contradict those facts, he may need to “undo” part of that deduction by reporting it as income.

Instead of going back and amending the tax return from the year the claim was made, the IRS now allows you to correct the issue in the year you received the ERC by adding the overstated wage amount to the income for that year.

This new practical guidance is welcome for many tax practitioners and their clients. It eliminates the question of whether to file amended returns, allowing taxpayers to legitimately receive the full benefits of the ERC and remain in compliance with the IRS. It also provides an answer for those asked by the IRS why they haven’t yet filed an amended income tax return.

Others who have recently filed amended returns based on prior IRS guidance are wondering whether their returns will even be processed, and now they are in limbo as to whether to account for the ERC in the year of receipt. Never a dull moment for today’s tax practitioners!

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Like much else under the new Trump presidency, the country’s tax landscape is shifting and reshaping beneath our feet.

Thousands of federal jobs have been slashed, including a large swath at the IRS. This, coupled with an IRS hiring freeze, will reduce the IRS’s ability to pursue tax debt collection and slow down audits, collections, and legal actions. The Department of Government Efficiency’s (DOGE) access to the IRS’s Integrated Data Retrieval System will accelerate a swing toward AI-driven fraud detection and enforcement, and could increase scrutiny on delinquent taxpayers and open the door to a wave of litigation in defense of data privacy. Lastly, the Tax Cuts and Jobs Act (TCJA) of 2017, which has kept tax rates low, key deductions and credits in place, and favorable tax breaks available, is set to expire by the end of 2025 and may or may not be renewed.

These potential changes have tax professionals worried about taxpayer health and the IRS’s capacity to enforce tax law and resolve tax controversy issues. Will scrutiny on delinquent taxpayers increase or weaken in 2025? Will there be sufficient IRS staff available to address delinquencies for tax debtors who want to resolve their obligations? What is the recalcitrant taxpayer to do in these tumultuous times?

What are taxpayers thinking

Taxpayers who are in arrears may wonder if it is the right time to come clean and resolve their outstanding tax issues, or to continue to cruise, hoping that IRS disarray will stand in their favor.

According to statistics generated by the Professional Managers Association, the IRS workforce stands at more than 100,000 total employees. Approximately 28,000 of those have been onboarded within the past year, and about 30,000 employees have worked there less than three years. The IRS, as of February 19, 2025, reports that it plans to lay off approximately 6,000 first-year probationary employees, despite the hiring freeze recently imposed by President Trump. These layoffs will disproportionately affect IRS employees in enforcement because they represent a large share of new employees.

While it’s true that the disorder in federal functioning may translate into diminished scrutiny, the dearth in staffing means that there won’t be agents and reps available to address taxpayers’ issues when necessary. If a taxpayer is at the “Final Notice” stage, automated notices will continue to be released, and a levy will automatically be imposed. However, there likely won’t be enough IRS agents to review appeals, release levies, arrange payment plans, or offer compromises for petitioners. We recommend that the delinquent taxpayer move to resolve his tax debt before he gets caught up in the IRS’ machinery and finds he has no recourse for his debt.

 What we’ve seen at the IRS

Our tax controversy team communicates with IRS representatives daily and has found that auditors, tax reps and agents share taxpayers’ state of confusion. They are stressed and anxious in the face of DOGE’s aggressive layoffs, wondering if or where the hatchet will fall next. Many are considering retirement to get out of the line of fire. New employee training has been frozen mid-stream, leaving longstanding agents worried about the extra burden they will shoulder to compensate for insufficient staff. Their state of limbo does not enhance operations. As one auditor told us, “Sorry if I sound muddled; it’s because I am.”

What You Should Do

Compliance is always the answer. File your taxes on time to avoid additional penalties. If you are in arrears, consider setting up a payment plan now, before IRS processing delays get worse. Stay abreast of policy changes; if TCJA provisions expire, your tax bill will change. Finally, if you are out of your depth, seek the help of an accounting professional.

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Back in the day, when Mom and Pop first opened their storefront, Pop hauled the boxes while Mom kept the books. As the store prospered and expanded, Mom got too busy taking orders and sourcing merchandise to stay on top of the paperwork. It was time to hire help. A bookkeeper joined the business and meticulously recorded sales, invoices, purchases, bills, receipts, and other business transactions. Soon there were several bookkeepers on staff dealing with a cash flow rising to nearly $1 million a year.

When Mom and Pop retired to Florida, their son took over and increased operations, hired additional staff, expanded the product line, and upgraded the business’ IT systems. He needed financial statements, tax advice and payroll services. The business was scaling up, but still could not support a full-time financial management team. It was time to outsource, and he wisely chose an accounting firm that offered Client Accounting and Advisory Services (CAAS) to step in and support the business.

Small businesses with revenues of less than $1 million a year can often get by with a talented staff of bookkeepers who manage day-to-day financial records. They record income and expenses, categorize them, and create workable financial statements that keep the business owner up to date on the health of the business. They allow the business owner to delegate the fundamental operations and do what he does best – plan, strategize, connect with clients, and expand.

When operations intensify, it’s time to bring in the big guns. But often, a growing business can’t yet afford to maintain an executive staff. Client Accounting and Advisory Services (CAS) is an outsourcing solution that provides essential executive-level financial functions without the burden of hiring and managing in-house leadership.

CAAS offers core bookkeeping services that typically include financial reporting, payroll processing, cash flow management, budgeting, and compliance support. While these functions may be addressed by a proficient bookkeeping staff, CAAS can go a step above by helping a business streamline its financial processes and improve efficiency. CAAS can supply strategic guidance financial forecasting, risk assessment, tax strategy, and performance benchmarking to help businesses make informed decisions. At its highest level, CAAS can supply controllership or CFO and wealth management services.

More business means more data – ranging from financial metrics like profits and cash flow to customer purchasing patterns, inventory records, supply chain logistics, and compliance documentation. To manage this complex data, a business needs a team of professionals – several pairs of eyes and ears – to ensure data integrity, accuracy, and security. Leveraging the skills of CAAS team of financial and accounting experts can ensure this standard of assurance.

As businesses grow, their financial needs become more complex. Client Accounting and Advisory Services (CAAS) can provide expert financial support without the cost of a full-time team, allowing business owners to confidently focus on expansion.

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Autism rates are skyrocketing across the country, reshaping the healthcare industry’s landscape for families, insurers, and providers. Does this surge in the autistic population make the ABA space a surefire investment opportunity? We believe there is great potential in this space, however, like any industry, a successful ABA agency comes with its own unique challenges and operational demands. To navigate these challenges and ensure long-term success, ABA agencies must focus on key performance indicators that drive both operational efficiency and profitability.

Escalating Demand

Applied Behavior Analysis or ABA has become widely known as the go-to therapy for treating individuals with autism spectrum disorders (ASD). Historically, insurers excluded ABA therapies, classifying them as educational rather than as medical services. However, the 2013 release of The Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition (DSM-5) significantly broadened the definition of autism and today, Medicaid and most insurance plans are mandated under the 2014 Affordable Care Act (ACA) and state law to provide coverage for autism treatment, including ABA therapy.

In a study issued in October of 2024, the journal JAMA Network Open reported that data gathered from over 12 million patients enrolled in major U.S. health care systems determined that between 2011 and 2022 the number of people diagnosed with autism climbed to a shocking 175%. Autism rates stand highest among the very young; according to calculations issued by the U.S. Centers for Disease Control and Prevention, about 1 in 36 children were diagnosed with ASD in 2020.

Do the math – this could translate to an estimated 2.9 million autistic individuals by 2034.

Key performance indicators

Revenue per Client, Therapist Utilization Rate, and Accounts Receivable Turnover are essential key performance indicators. They provide measurable data that enables an agency to monitor cash flow, improve billing efficiency, and maximize revenue. They can help reduce delays in payments, thereby reducing a business’ working capital requirements and enabling appropriate cash flow. These metrics also serve to reflect whether an agency’s performance holds value to a potential investor.

Consider this fictional case scenario:

All-Smiles ABA Center is a friendly place and prides itself on its dedicated and professional staff.

The Accounts Receivables representative is often sick and behind in billing. She manages the agency’s finances by documenting when cash comes in and out, without keeping track of the revenue or expenses for each specific service or the date they are provided.

All-Smiles’ warmhearted therapists will often spend extra time with patients and understand occasional no-shows. The administrative staff is always ready to delay documentation until the client is comfortable with its services.

At the request of its clientele, the agency heavily promotes social skills groups, even though these sessions are reimbursed at much lower rates than direct one-on-one therapy. The majority of the agency’s clients are on Medicaid, which provides lower reimbursement rates, but the agency values its relationships and doesn’t want to make clients feel unwanted by focusing on a more diversified mix.

Accounts Receivable Turnover – All-Smiles billing and receivables processes are underperforming. Agencies must be able to consistently submit accurate and timely claims, in compliance with payor requirements to minimize rejected claims and payment delays. Timely collections are crucial to ensure that funds are available for salaries, and administrative and operational costs. Important metrics for accounts receivables include tracking average days in accounts receivable, collection rates by payor, and percentage of overdue accounts.

Therapist Utilization Rate – Compassionate and dedicated therapists may enhance services – but unbilled time translates directly into lost income. clients whose services earn lower reimbursements, or who take up extra, unbilled, therapy time are bringing in less revenue than it costs to serve them. Tracking an agency’s percentage of billable hours against total hours worked, the average caseload per therapist, and therapists’ cancellation rates maximizes therapist productivity and ensures operational efficiency. All-Smiles would also be wise to assess their client base and focus on clients with more robust coverage that yields reimbursements at higher rates.

Revenue per Client: Understanding how much revenue each client generates is essential in order to evaluate profitability, identify inefficiencies in billing, and ensure the business remains financially sustainable. Tracking revenue by service type helps the company assess which services yield the most profit. All-Smiles accounting and billing processes are so poor that it does not realize that its social skills sessions generate low revenues relative to therapist’s time. As a result, it fails to expand on therapy services or train additional staff and misses opportunities to boost profitability. Because All-Smiles operates on a cash basis and never reviews revenue and direct expenses on a date of service level, they are unable to properly track AR and know its accurate revenue, bad debt, and trends.

By analyzing the information revealed by these KPIs, an agency can track its revenues, scrutinize its performance, and use the data to create its own unique competitive advantage in the industry. It can evaluate profitability and identify opportunities to improve.

Working with our clients in the ABA space has proven that profitability in this industry is less about the volume of clients served and more about operational excellence and strategic management. For existing healthcare entities, the burgeoning autistic population offers promising opportunities to extend services and take advantage of this explosive growth. Established ABA agencies would be wise to analyze these key performance indicators to recognize red flags, maximize their returns, and set a value on their entity to attract potential investors.

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In commercial litigation, it is common for business valuation experts to measure damages based on lost profits, diminished business value, or both. Here’s an introduction to these concepts.

The Basics
Generally, it’s appropriate to estimate lost profits when a plaintiff suffers an economic loss for a discrete period and then returns to normal. On the other hand, diminished business value is typically reserved for businesses that are completely destroyed or suffer a permanent loss, such as the destruction of an entire division or product line.

In rare situations, lost profits may fail to adequately capture a plaintiff’s damages. For example, suppose a defendant’s wrongful conduct damages a plaintiff’s reputation but doesn’t directly affect the plaintiff’s expected profits. Nevertheless, the defendant’s actions have rendered the plaintiff’s business less marketable and, therefore, less valuable. In this situation, diminished business value may be an appropriate measure of damages, even though the plaintiff’s business will survive.

Double Dipping
There are important similarities between how lost profits and diminished business value are measured. Typically, lost profits are a function of lost revenue caused by the defendant’s wrongful conduct and avoided costs that otherwise would have been incurred to generate the revenue. Once lost profits have been estimated, the amount is adjusted to present value.

Alternatively, business value is generally determined using one or more of the following three techniques:

Cost (or asset-based) approach
Market approach
Income approach

Because value is generally a function of a business’s ability to generate future economic benefits, awarding damages based on both lost profits and diminished business value is usually considered double dipping. A possible exception is the “slow death” scenario: A defendant’s wrongful conduct initially causes the plaintiff’s profits to decline, but the plaintiff continues operating. Eventually, however, the plaintiff succumbs to its injuries and goes out of business. In these cases, it may be appropriate for the plaintiff to recover lost profits for the period following the injury along with diminished business value as of the “date of death.”

There’s a Difference
Both lost profits and diminished business value involve calculating the present value of future economic benefits. However, the two approaches have distinct nuances, and the calculations used for each to determine damages will, in most cases, not yield the same result. For example, lost profits are typically measured on a pretax basis, while business value is often determined based on after-tax cash flow.

The fair market value of a business may include adjustments such as discounts for lack of marketability and key person risks, which are often not considered when estimating lost profits. Additionally, business value is based on what is “known or knowable” as of the valuation date, whereas lost profits calculations may sometimes account for developments that have occurred up to the time of trial.

Another differentiating factor lies in each approach’s perspective. Fair market value is generally based on the perspective of a hypothetical buyer, while lost profits consider the specific plaintiff’s perspective.

For example, while lost profits are typically measured on a pre-tax basis, business value is generally determined by after-tax cash flow. Often, a business’s value may include adjustments such as discounts for lack of marketability and key person risks. These may not be considered when estimating lost profits.

Moreover, business value is based on what’s “known or knowable” on the valuation date, but lost profits calculations may sometimes consider developments that have occurred up to the time of trial. Another differentiating factor is each approach’s perspective. Fair market value is generally based on the perspective of a hypothetical buyer, while lost profits can consider the specific plaintiff’s perspective.

Which Way to Go?
Lost profits and diminished business value are closely related, but they’re not identical. Contact us to discuss which measure is appropriate for your situation and how it might affect the outcome.

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The usual question posed by business owners and their leadership teams when they meet to discuss strategic planning is something along the lines of, “How can we safely grow our company to reach the next level of success?” While that is certainly a good launching point, there are other basics to consider. One of them is the environmental, social and governance (ESG) concept.

3 critical components of ESG

ESG generally refers to how companies handle three critical activities:

• Environmental practices. This includes the use of energy, production of waste and consumption of resources.

• Social practices. This includes fair labor practices; worker health and safety; diversity, equity and inclusion. It’s all about a company’s relationships with people, institutions and the community.

• Governance practices. This refers to business ethics, integrity, openness, transparency, legal compliance, executive compensation, cybersecurity, and product or service quality and safety.

Missteps or miscommunications in these areas can spell disaster for a company if it draws public scrutiny or raises compliance issues with regulatory agencies; while integrating robust ESG practices into a company’s strategic planning and daily operations addresses this possible danger and offers many potential advantages.

Benefits

Strong ESG practices could lead to stronger financial performance and offers the following benefits:

• Higher sales. Many customers — particularly younger ones — consider ESG when making purchasing decisions. Some may even be willing to pay more for products or services from businesses that declare their ESG policies.

• Reduced costs. A focus on sustainability can help companies reduce their energy consumption, streamline their supply chains, eliminate waste and operate more efficiently. Conversely, bad publicity associated with government intervention, discrimination or harassment claims, can be costly and damaging.

• Improved access to capital. Clear and demonstrable ESG practices can provide growing companies with access to low-cost capital. Some investors consider a company’s ESG when making additions to their portfolios and may perceive those with ESG initiatives as lower-risk investments.

• More success in hiring and retaining employees. As climate change remains in the public eye, certain job candidates may favor companies that can clearly demonstrate sound environmental practices. Once hired, these employees will likely be more inclined to stay loyal to businesses that are addressing the issue.

Other aspects of ESG also speak to the current concerns and values of workers. Many of today’s employees want more than a paycheck. They expect employers to care for their well-being and protect them from threats such as corruption, unethical behavior and cybercriminals. Comprehensive ESG practices may reassure such employees and keep them close.

Your choice

The importance of ESG practices is not universally agreed upon in the business world. Some approach ESG formally and diligently, while others slide through potential issues. ESG practices are unique to each business and are subject to a company’s leadership team’s judgement. Nonetheless, as a business engages in strategic planning, taking time to consider the impact of ESG-related practices is time well spent. Its potential benefits can only add value in the long run.

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In November 1938, 1.1 million Californians voted to enact the first pension plan, known as the “Ham and Eggs” program. While this referendum failed by a few thousand votes, it was one of the many ideas floated in the tumultuous 1930s. Another famous plan was Francis Townsend’s proposal, advocating for a national sales tax that would furnish every American aged 60 or older with a $200 monthly pension payment.

Amid this era of throwing spaghetti at the pension wall, one program stuck: Social Security. As part of Roosvelt’s New deal, the plan’s inaugural check, a modest $22.54, went to Ida May Fuller on January 31, 1940. It marked the genesis of a system that has since burgeoned into a cornerstone of retirement planning.

Over the decades, Social Security has garnered not only widespread acclaim but also robust political fortitude. Its popularity among seniors, with over 90% actively receiving its benefits, has rendered it a cherished institution in the eyes of voters. Consequently, politicians have been wary of wielding reformative influence, fearing the formidable backlash from this sizable voting bloc.

However, despite its popularity, the program faces an ominous specter: the impending depletion of its trust funds by 2033. Potential remedies, such as raising the retirement age or reducing benefits, evoke memories of France’s tumultuous response last year to its attempt at reforming its retirement system, which was marked by months of fervent protests. More importantly though, due to its popularity among its greatest voting bloc, senior citizens, it’s become the third rail in politics. It’s pretty much political suicide to try to make changes. One level after killing your puppy (IYKYK😉).

As a result, Social Security resembles a driverless car hurtling towards an unavoidable collision, bereft of self-driving software to steer it away from calamity.

Our goal is not to succumb to hyperbole or indulge in doomsday predictions. Instead, we advocate for a proactive approach to retirement planning. Take the reins of your financial future; make sure to save diligently and invest astutely. If Social Security remains a reliable safety net, it will merely enhance your retirement journey, serving as a supplemental boon rather than a sole lifeline.

As President J.F. Kenedy famously said at his inaugural address, “Ask not what your country can do for you; ask what you can do for your country”. By saving enough for retirement, you will be removing the government’s burden to support you in your retirement, and what is more patriotic than that?

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If you’re a confident investor, this might be your moment. High interest rates, tighter financing options and general economic uncertainty have banks worried. Defaults and distressed properties are on the horizon, but surprisingly, banks seem more inclined to sell off their loan portfolios rather than dive into the real estate game. This may be the time for investors to move in and take advantage of bargains and buy-offs.

As the Federal Reserve continues to battle inflation, the resultant high rates have become worrisome to a broad range of investment sectors. The commercial real estate (CRE) industry’s $4.5 trillion of outstanding mortgage debt means that there’s what to worry about. According to research conducted by Ernst & Young LLP , the average reported mortgage rate exceeded the average reported property cap rate in Q4 2022 and Q2 2023. The last time this occurred was during the 2008 financial crisis.

The market’s high volume of distressed debt that is approaching maturity leaves investors operating in loss positions. According to Trepp, a financial data and analytics company that provides information, analytics, and technology solutions to the real estate industry, approximately $2.81 trillion of debt is coming due by 2028. It is likely that banks will be looking to generate workouts with needy borrowers to unload that debt.

Higher interest rates, stiffer financing options and high and rising operating costs have created a sluggish CRE market, negatively affecting real estate valuations. Despite the market’s uncertainty, experts agree that confident buyers, looking for long term results, may find worthwhile opportunities by buying out bank debt.

In an effort to minimize risk and avoid exposure banks are taking a more restrained approach and avoiding foreclosing and repossessions. They are opting instead to unload troubled assets by selling debt. This makes it a good time for the knowledgeable investor to step in. Because banks are looking to dispose of loan books, investors need to be prepared to act quickly. “Investors need to begin planning in advance for transactions in terms of how they plan to mobilize, how they get data, how they are going to underwrite the property cash flows and loan cash flows and ultimately arrive at a price for the portfolio,” says EY’s Kevin Hanrahan

How can the investor take up Hanrahan’s advice? Robust tech capabilities can ensure that the investor is able to pull data, and process and aggregate it swiftly, leaving a clear path for the underwriting process. An investor that can access his or her information efficiently will be able to jump into negotiations quickly with realistic pricing and valuation data.

The continued uncertainty in the real estate industry will be felt uniquely by banks, borrowers, and investors. Experts agree that, as banks make more moves to unload debt, and more loan books enter the marketplace, investors should make sure to be prepared to respond quickly to win deals.

Investors who’ve had the foresight to build relationships with banks, who are able to effectively rely on their technology to access data, and who have the know-how to use their data to calculate realistic pricing, will be in the driver’s seat when an opportunity presents itself. Do your homework and be there with them.

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The Qualified Business Income (QBI) deduction is a tax deduction that allows eligible self-employed individuals and small-business owners to deduct up to 20% of their qualified business income on their taxes. Eligible taxpayers can claim the deduction for tax years beginning after December 31, 2017, and ending on or before December 31, 2025 – so be sure to take advantage of this big tax saver while it’s around.

Deduction basics

Pass-through business entities report their federal income tax items to their owners, who then take them into account on their owner-level returns. So the QBI is written off at the owner level. It can be up to 20% of:

QBI earned from a sole proprietorship or single-member LLC that’s treated as a sole proprietorship for tax purposes, and
QBI from a pass-through entity, meaning a partnership, LLC that’s treated as a partnership for tax purposes or S corporation.

QBI is calculated by taking income and gains and reducing it by the following related deductions.

deductible contributions to a self-employed retirement plan,
the deduction for 50% of self-employment tax, and 3) the deduction for self-employed health insurance premiums.

Unfortunately, the QBI deduction doesn’t reduce net earnings for purposes of the self-employment tax, nor does it reduce investment income for purposes of the 3.8% net investment income tax (NIIT) imposed on higher-income individuals.

Limitations

At higher income levels, QBI deduction limitations come into play. For 2024, these begin to phase in when taxable income before any QBI deduction exceeds $191,950 ($383,900 for married joint filers). The limitations are fully phased in once taxable income exceeds $241,950 or $483,900, respectively.

If your income exceeds the applicable fully-phased-in number, your QBI deduction is limited to the greater of: 1) your share of 50% of W-2 wages paid to employees during the year and properly allocable to QBI, or 2) the sum of your share of 25% of such W-2 wages plus your share of 2.5% of the unadjusted basis immediately upon acquisition (UBIA) of qualified property.

The limitation based on qualified property is intended to benefit capital-intensive businesses such as hotels and manufacturing operations. Qualified property means depreciable tangible property, including real estate, that’s owned and used to produce QBI. The UBIA of qualified property generally equals its original cost when first put to use in the business.

Finally, your QBI deduction can’t exceed 20% of your taxable income calculated before any QBI deduction and before any net capital gain (net long-term capital gains in excess of net short-term capital losses plus qualified dividends).

Unfavorable rules for certain businesses

For a specified service trade or business (SSTB), the QBI deduction begins to be phased out when your taxable income before any QBI deduction exceeds $191,950 ($383,900 for married joint filers). Phaseout is complete if taxable income exceeds $241,950 or $483,900, respectively. If your taxable income exceeds the applicable phaseout amount, you’re not allowed to claim any QBI deduction based on income from a SSTB.

Other factors

There are other rules that apply to this tax break. For example, you can elect to aggregate several businesses for purposes of the deduction. It may allow someone with taxable income high enough to be affected by the limitations described above to claim a bigger QBI deduction than if the businesses were considered separately.

There also may be an impact for claiming or forgoing certain deductions. For example, in 2024, you can potentially claim first-year Section 179 depreciation deductions of up to $1.22 million for eligible asset additions (subject to various limitations). For 2024, 60% first-year bonus depreciation is also available. However, first-year depreciation deductions reduce QBI and taxable income, which can reduce your QBI deduction. So, you may have to thread the needle with depreciation write-offs to get the best overall tax result.

Use it or potentially lose it

Time is running out for self-employed and business owners to take advantage of the QBI; and while Congress could extend it, it’s doubtful that they will. Maximizing the deduction for 2024 and 2025 is a goal worth pursuing. Speak to your accounting professional to find out more.

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Many small businesses start out as “lean enterprises,” with costs kept to a minimum to lower risks and maximize cash flow. But there comes a point in the evolution of many companies — particularly in a tight job market — when investing money in employee benefits becomes advisable, if not mandatory.

Is now the time for your small business to do so? As you compete for top talent and look to retain valued employees, would launching a retirement plan help your case? Quite possibly. And the good news is that the federal government is offering some intriguing incentives for eligible smaller companies ready to make the leap.

Late last year, the Consolidated Appropriations Act, 2023 was signed into law. Within this massive spending package lies the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0). Its provisions bring three key improvements to the small employer pension plan start-up cost tax credit, beginning this year:

1. Full coverage for the smallest of small businesses. SECURE 2.0 makes the credit equal to the full amount of creditable plan start-up costs for employers with 50 or fewer employees, up to an annual cap. Previously, only 50% of costs were allowed. This limit still applies to employers with 51 to 100 employees.

2. Glitch fixed for multiemployer plans. SECURE 2.0 retroactively fixes a technical glitch that prevented employers who joined multiemployer plans in existence for more than 3 years from claiming the small employer pension plan start-up cost credit. If your business joined a pre-existing multiemployer plan before this period, contact us about filing amended returns to claim the credit.

3. Enhancement of employer contributions. Perhaps the biggest change brought by SECURE 2.0 is that certain employer contributions for a plan’s first 5 years now may qualify for the credit. The credit is increased by a percentage of employer contributions, up to a per-employee cap of $1,000, as follows:

100% in the plan’s first and second tax years,
75% in the third year,
50% in the fourth year, and
25% in the fifth year.

For employers with between 51 and 100 employees, the contribution portion of the credit is reduced by 2% times the number of employees above 50.

In addition, no employer contribution credit is allowed for contributions for employees who make more than $100,000 (adjusted for inflation after 2023). The credit for employer contributions is also unavailable for elective deferrals or contributions to defined benefit pension plans.

To be clear, though the name of the tax break is the ‘small employer pension plan start-up cost credit,’ it also applies to qualified plans such as 401(k)s and SIMPLE IRAs, as well as to Simplified Employee Pensions. Our firm can help you determine if now is the right time for your small business to launch a retirement plan and, if so, which one.

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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Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2022. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

Note: Certain tax-filing and tax-payment deadlines may be postponed for taxpayers who reside in or have businesses in federally declared disaster areas.

Monday, October 3

The last day you can initially set up a SIMPLE IRA plan, provided you (or any predecessor employer) didn’t previously maintain a SIMPLE IRA plan. If you’re a new employer that comes into existence after October 1 of the year, you can establish a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence.

Monday, October 17

If a calendar-year C corporation that filed an automatic six-month extension:
- File a 2021 income tax return (Form 1120) and pay any tax, interest and penalties due.
- Make contributions for 2021 to certain employer-sponsored retirement plans.

Monday, October 31

Report income tax withholding and FICA taxes for third quarter 2022 (Form 941) and pay any tax due. (See exception below under “November 10.”)

Thursday, November 10

Report income tax withholding and FICA taxes for third quarter 2022 (Form 941), if you deposited on time (and in full) all of the associated taxes due.

Thursday, December 15

If a calendar-year C corporation, pay the fourth installment of 2022 estimated income taxes.

Contact us if you’d like more information about the filing requirements and to ensure you’re meeting all applicable deadlines.

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Are you an employer who owns a business where tipping is customary for providing food and beverages? You may qualify for a tax credit involving the Social Security and Medicare (FICA) taxes that you pay on your employees’ tip income.

How the credit works

The FICA credit applies with respect to tips that your employees receive from customers in connection with the provision of food or beverages, regardless of whether the food or beverages are for consumption on or off the premises. Although these tips are paid by customers, they’re treated for FICA tax purposes as if you paid them to your employees. Your employees are required to report their tips to you. You must withhold and remit the employee’s share of FICA taxes, and you must also pay the employer’s share of those taxes.

You claim the credit as part of the general business credit. It’s equal to the employer’s share of FICA taxes paid on tip income in excess of what’s needed to bring your employee’s wages up to $5.15 per hour. In other words, no credit is available to the extent the tip income just brings the employee up to the $5.15 per hour level, calculated monthly. If you pay each employee at least $5.15 an hour (excluding tips), you don’t have to be concerned with this calculation.

Note: A 2007 tax law froze the per-hour amount at $5.15, which was the amount of the federal minimum wage at that time. The minimum wage is now $7.25 per hour but the amount for credit computation purposes remains $5.15.

How it works

Example: A waiter works at your restaurant. He’s paid $2 an hour plus tips. During the month, he works 160 hours for $320 and receives $2,000 in cash tips which he reports to you.

The waiter’s $2 an hour rate is below the $5.15 rate by $3.15 an hour. Thus, for the 160 hours worked, he or she is below the $5.15 rate by $504 (160 times $3.15). For the waiter, therefore, the first $504 of tip income just brings him up to the minimum rate. The rest of the tip income is $1,496 ($2,000 minus $504). The waiter’s employer pays FICA taxes at the rate of 7.65% for him. Therefore, the employer’s credit is $114.44 for the month: $1,496 times 7.65%.

While the employer’s share of FICA taxes is generally deductible, the FICA taxes paid with respect to tip income used to determine the credit can’t be deducted, because that would amount to a double benefit. However, you can elect not to take the credit, in which case you can claim the deduction.
Get the credit you’re due

If your business pays FICA taxes on tip income paid to your employees, the tip tax credit may be valuable to you. Other rules may apply. Contact us if you have any questions.

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The end of one year and the beginning of the next is a great opportunity for reflection and planning. You have 12 months to look back on and another 12 ahead to look forward to. Here are five ways to strengthen your business for the new year by doing a little of both:

1. Compare 2019 financial performance to budget. Did you meet the financial goals you set at the beginning of the year? If not, why? Analyze variances between budget and actual results. Then, evaluate what changes you could make to get closer to achieving your objectives in 2020. And if you did meet your goals, identify precisely what you did right and build on those strategies.

2. Create a multiyear capital budget. Look around your offices or facilities at your equipment, software and people. What investments will you need to make to grow your business? Such investments can be both tangible (new equipment and technology) and intangible (employees’ technical and soft skills).

Equipment, software, furniture, vehicles and other types of assets inevitably wear out or become obsolete. You’ll need to regularly maintain, update and replace them. Lay out a long-term plan for doing so; this way, you won’t be caught off guard by a big expense.

3. Assess the competition. Identify your biggest rivals over the past year. Discuss with your partners, managers and advisors what those competitors did to make your life so “interesting.” Also, honestly appraise the quality of what your business sells versus what competitors offer. Are you doing everything you can to meet — or, better yet, exceed — customer expectations? Devise some responsive competitive strategies for the next 12 months.

4. Review insurance coverage. It’s important to stay on top of your property, casualty and liability coverage. Property values or risks may change — or you may add new assets or retire old ones — requiring you to increase or decrease your level of coverage. A fire, natural disaster, accident or out-of-the-blue lawsuit that you’re not fully protected against could devastate your business. Look at the policies you have in place and determine whether you’re adequately protected.

5. Analyze market trends. Recognize the major events and trends in your industry over the past year. Consider areas such as economic drivers or detractors, technology, the regulatory environment and customer demographics. In what direction is your industry heading over the next five or ten years? Anticipating and quickly reacting to trends are the keys to a company’s long-term success.

These are just a few ideas for looking back and ahead to set a successful course forward. We can help you review the past year’s tax, accounting and financial strategies, and implement savvy moves toward a secure and profitable 2020 for your business.

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In its 2018 decision in South Dakota v. Wayfair, the U.S. Supreme Court upheld South Dakota’s “economic nexus” statute, expanding the power of states to collect sales tax from remote sellers. Today, nearly every state with a sales tax has enacted a similar law, so if your company does business across state lines, it’s a good idea to reexamine your sales tax obligations.

What’s nexus?

A state is constitutionally prohibited from taxing business activities unless those activities have a substantial “nexus,” or connection, with the state. Before Wayfair, simply selling to customers in a state wasn’t enough to establish nexus. The business also had to have a physical presence in the state, such as offices, retail stores, manufacturing or distribution facilities, or sales reps.

In Wayfair, the Supreme Court ruled that a business could establish nexus through economic or virtual contacts with a state, even if it didn’t have a physical presence. The Court didn’t create a bright-line test for determining whether contacts are “substantial,” but found that the thresholds established by South Dakota’s law are sufficient: Out-of-state businesses must collect and remit South Dakota sales taxes if, in the current or previous calendar year, they have 1) more than $100,000 in gross sales of products or services delivered into the state, or 2) 200 or more separate transactions for the delivery of goods or services into the state.

Nexus steps

The vast majority of states now have economic nexus laws, although the specifics vary:Many states adopted the same sales and transaction thresholds accepted in Wayfair, but a number of states apply different thresholds. And some chose not to impose transaction thresholds, which many view as unfair to smaller sellers (an example of a threshold might be 200 sales of $5 each would create nexus).

If your business makes online, telephone or mail-order sales in states where it lacks a physical presence, it’s critical to find out whether those states have economic nexus laws and determine whether your activities are sufficient to trigger them. If you have nexus with a state, you’ll need to register with the state and collect state and applicable local taxes on your taxable sales there. Even if some or all of your sales are tax-exempt, you’ll need to secure exemption certifications for each jurisdiction where you do business. Alternatively, you might decide to reduce or eliminate your activities in a state if the benefits don’t justify the compliance costs.

Need help?

Note: If you make sales through a “marketplace facilitator,” such as Amazon or Ebay, be aware that an increasing number of states have passed laws that require such providers to collect taxes on sales they facilitate for vendors using their platforms.

If you need assistance in setting up processes to collect sales tax or you have questions about your responsibilities, contact us.

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Audit season is right around the corner for calendar-year entities. Here’s what your auditor is doing behind the scenes to prepare — and how you can help facilitate the audit planning process.

The big picture

Every audit starts with assessing “audit risk.” This refers to the likelihood that the auditor will issue an adverse opinion when the financial statements are actually in accordance with U.S. Generally Accepted Accounting Principles or (more likely) an unqualified opinion when the opinion should be either modified or adverse.

Auditors can’t test every single transaction, recalculate every estimate or examine every external document. Instead, they tailor their audit procedures and assign audit personnel to keep audit risk as low as possible.

Inherent risk vs. control risk

Auditors evaluate two types of risk:

1. Inherent risk. This is the risk that material departures could occur in the financial statements. Examples of inherent-risk factors include complexity, volume of transactions, competence of the accounting personnel, company size and use of estimates.

2. Control risk. This is the risk that the entity’s internal controls won’t prevent or correct material misstatements in the financial statements.

Separate risk assessments are done at the financial statement level and then for each major account — such as cash, receivables, inventory, fixed assets, other assets, payables, accrued expenses, long-term debt, equity, and revenue and expenses. A high-risk account (say, inventory) might warrant more extensive audit procedures and be assigned to more experienced audit team members than one with lower risk (say, equity).

How auditors assess risk

New risk assessments must be done each year, even if the company has had the same auditor for many years. That’s because internal and external factors may change over time. For example, new government or accounting regulations may be implemented, and company personnel or accounting software may change, causing the company’s risk assessment to change. As a result, audit procedures may vary from year to year or from one audit firm to the next.

The risk assessment process starts with an auditing checklist and, for existing audit clients, last year’s workpapers. But auditors must dig deeper to determine current risk levels. In addition to researching public sources of information, including your company’s website, your auditor may call you with a list of open-ended questions (inquiries) and request a walk-through to evaluate whether your internal controls are operating as designed. Timely responses can help auditors plan their procedures to minimize audit risk.

Your role

Audit fieldwork is only as effective as the risk assessment. Evidence obtained from further audit procedures may be ineffective if it’s not properly linked to the assessed risks. So, it’s important for you to help the audit team understand the risks your business is currently facing and the challenges you’ve experienced reporting financial performance, especially as companies implement updated accounting rules in the coming years.

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Audited financial statements come with a special bonus: a “management letter” that recommends ways to improve your business. That’s free advice from financial pros who’ve seen hundreds of businesses at their best (and worst) and who know which strategies work (and which don’t). If you haven’t already implemented changes based on last year’s management letter, there’s no time like the present to improve your business operations.

Reporting deficiencies

Auditing standards require auditors to communicate in writing about “material weaknesses or significant deficiencies” that are discovered during audit fieldwork.

The AICPA defines material weakness as “a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.” Likewise, a significant deficiency is defined as “a deficiency, or a combination of deficiencies, in internal control that is … important enough to merit attention by those charged with governance.”

Auditors may unearth less-severe weaknesses and operating inefficiencies during the course of an audit. Reporting these items is optional, but they’re often included in the management letter.

Looking beyond internal controls

Auditors may observe a wide range of issues during audit fieldwork. An obvious example is internal control shortfalls. But other issues covered in a management letter may relate to:

Cash management,
Operating workflow,
Control of production schedules,
Capacity,
Defects and waste,
Employee benefits,
Safety,
Website management,
Technology improvements, and
Energy consumption.

Management letters are usually organized by functional area: production, warehouse, sales and marketing, accounting, human resources, shipping/receiving and so forth. The write-up for each deficiency includes an observation (including a cause, if observed), financial and qualitative impacts, and a recommended course of action.

Striving for continuous improvement

Too often, management letters are filed away with the financial statements — and the same issues are reported in the management letter year after year. But proactive business owners and management recognize the valuable insight contained in these letters and take corrective action soon after they’re received. Contact us to help get the ball rolling before the start of next year’s audit.

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Extending credit to business customers can be an effective way to build goodwill and nurture long-term buyers. But if you extend customer credit, it also brings sizable financial risk to your business, as cash flow could grind to a halt if these customers don’t make their payments. Even worse, they could declare bankruptcy and bow out of their obligations entirely.

For this reason, it’s critical to thoroughly research a customer’s creditworthiness before you offer any arrangement. Here are some ways to do so:

Follow up on references. When dealing with vendors and other businesses, trade references are key. As you’re likely aware, these are sources that can describe past payment experiences between a business and a vendor (or other credit user).

Contact the potential customer’s trade references to check the length of time the parties have been working together, the approximate size of the potential customer’s account and its payment record. Of course, a history of late payments is a red flag.

Check banking info. Similarly, you’ll want to follow up on the company’s bank references to determine the balances in its checking and savings accounts, as well as the amount available on its line of credit. Equally important, determine whether the business has violated any of its loan covenants. If so, the bank could withdraw its credit, making it difficult for the company to pay its bills.

Order a credit report. You may want to order a credit report on the business from one of the credit rating agencies, such as Dun & Bradstreet or Experian. Among other information, the reports describe the business’s payment history and tell whether it has filed for bankruptcy or had a lien or judgment against it.

Most credit reports can be had for a nominal amount these days. The more expensive reports, not surprisingly, contain more information. The higher price tag also may allow access to updated information on a company over an extended period.

Explore traditional and social media. After you’ve completed your financial analysis, find out what others are saying — especially if the potential customer could make up a significant portion of your sales. Search for articles in traditional media outlets such as newspapers, magazines and trade publications. Look for anything that may raise concerns, such as stories about lawsuits or plans to shut down a division.

You can also turn to social media and look at the business’s various accounts to see its public “face.” And you might read reviews of the business to see what customers are saying and how the company reacts to inevitable criticisms. Obviously, social media shouldn’t be used as a definitive source for information, but you might find some useful insights.

Although assessing a potential customer’s ability to pay its bills requires some work up front, making informed credit decisions is one key to running a successful company. Our firm can help you with this or other financially critical business practices.

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A primary estate planning goal for most people is to hold on to as much of their wealth as possible to pass on to their children and other loved ones. To achieve this, you must limit estate tax liability and protect assets from creditors’ claims and lawsuits.

The Tax Cuts and Jobs Act reduces or eliminates federal gift and estate taxes for most people (at least until 2026). The gift and estate tax exemption is $11.4 million for 2019. One benefit of this change is that it allows you to focus your estate planning efforts on asset protection and other wealth-preservation strategies, rather than tax minimization. One estate planning vehicle to consider is a “hybrid” domestic asset protection trust (DAPT).

What does “hybrid” mean?

The benefit of a standard DAPT is that it offers creditor protection even if you’re a beneficiary of the trust. But there’s also some risk: Although many experts believe they’ll hold up in court, DAPTs are relatively untested, so there’s some uncertainty over their ability to repel creditors’ claims. A “hybrid” DAPT offers the best of both worlds. Initially, you’re not named as a beneficiary of the trust, which virtually eliminates the risk described above. But if you need access to the funds down the road, the trustee or trust protector can add you as a beneficiary, converting the trust into a DAPT.

Do you need this trust type?

Before you consider a hybrid DAPT, determine whether you need such a trust at all. The most effective asset protection strategy is to place assets beyond the grasp of creditors by transferring them to your spouse, children or other family members, either outright or in a trust, without retaining any control. If the transfer isn’t designed to defraud known creditors, your creditors won’t be able to reach the assets. And even though you’ve given up control, you’ll have indirect access to the assets through your spouse or children (provided your relationship with them remains strong).

If, however, you want to retain access to the assets in the future, without relying on your spouse or children, a DAPT may be the answer.

How does a hybrid DAPT work?

A hybrid DAPT is initially set up as a third-party trust — that is, it benefits your spouse and children or other family members, but not you. Because you’re not named as a beneficiary, the trust isn’t a self-settled trust, so it avoids the uncertainty associated with regular DAPTs.

There’s little doubt that a properly structured third-party trust avoids creditors’ claims. If, however, you need access to the trust assets in the future, the trustee or trust protector has the authority to add additional beneficiaries, including you. If that happens, the hybrid account is converted into a regular DAPT subject to the previously discussed risks.

A flexible tool

The hybrid DAPT can add flexibility while offering maximum asset protection. It also minimizes the risks associated with DAPTs, while retaining the ability to convert to a DAPT should the need arise. Contact us with any questions.

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After insurance policies expire, many businesses just throw away the paper copies and delete the digital files. But you may need to produce evidence of certain kinds of insurance even after the coverage period has expired. For this reason, it’s best to take a long-term approach to certain types of policies.

Occurrence-based insurance

Generally, the policy types in question are called “occurrence-based.” They include:

General liability,
Umbrella liability,
Commercial auto, and
Commercial crime and theft.

You should retain documentation of occurrence-based policies permanently (or as long as your business is operating). A good example of why is in cases of embezzlement. Employee fraud of this kind may be covered under a commercial crime and theft policy. However, embezzlement sometimes isn’t uncovered until years after the crime has taken place.

For instance, suppose that, during an audit, you learn an employee was embezzling funds three years ago. But the policy that covered this type of theft has since expired. To receive an insurance payout, you’d need to produce the policy documents to prove that coverage was in effect when the crime occurred.

Retaining insurance documentation long-term isn’t necessary for every type of policy. Under “claims-made” insurance, such as directors and officers liability and professional liability, claims can be made against the insured business only during the policy period and during a “tail period” following the policy’s expiration. A commonly used retention period for claims-made policies is about six years after the tail period expires.

Additional protection

Along with permanently retaining proof of occurrence-based policies, it’s a good idea to at least consider employment practices liability insurance (EPLI). These policies protect businesses from employee claims of legal rights violations at the hands of their employers. Sexual harassment is one type of violation that’s covered under most EPLI policies — and such claims can arise years after the alleged crime occurred.

As is the case with occurrence-based coverage, if an employee complaint of sexual harassment arises after an EPLI policy has expired — but the alleged incident occurred while coverage was in effect — you may have to produce proof of coverage to receive a payout. So, you should retain EPLI documentation permanently as well.

Better safe than sorry

You can’t necessarily rely on your insurer to retain expired policies or readily locate them. It’s better to be safe than sorry by keeping some insurance policies in either paper or digital format for the long term. This is the best way to ensure that you’ll receive insurance payouts for events that happened while coverage was still in effect. Our firm can help you assess the proper retention periods of your insurance policies, as well as whether they’re providing optimal value for your company.

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Whole Foods Market is now famous as the upscale supermarket chain that was acquired by Amazon for close to $14 billion. However, Whole Foods Market began with humble beginnings. In 1978, John Mackey and Renee Lawson borrowed money from friends and family to open a small natural food store in Austin, Texas. As the store expanded to open more locations and Mackey and Lawson admitted two additional partners and designated specific tasks to each partner, such as finance, human resources, and sales. This process continues today where, although Whole Foods Market is a multinational food chain with 500 locations, each regional manager has the autonomy and flexibility to decide on suppliers and pricing.

The proverb “too many cooks spoil the broth” applies to the management of a business. Thus, establishing the sequence of control as part of a succession plan ensures that the company continues to operate effectively and efficiently – especially if the business is bequeathed to children who do not work in the family business.

The sequence of control of a business succession plan outlines the decision-making process of a closely-held, family business once the owner is determined to be incapacitated or deceased. Although this can be emotionally tolling, the sequence of control is essential for the continuity of the business. The following are questions that arise when planning the sequence of control.

What is the definition of incapacitated?

You undoubtedly know of instances in which the patriarch of a family suffered from dementia or a form of memory loss. You are probably familiar with cases in which people took advantage of individuals suffering from Alzheimer’s disease. Such undue influence can arise if a business owner can no longer exercise prudent business reasoning and judgment. Accordingly, the business succession plan should define “capacity” and specify who makes the determination, which can be a physician or a member of the clergy.

Who assumes control?

It may seem irresponsible to vest absolute control to the child or children who work(s) in the business; however, it may be imprudent to allow children who do not work in the company to be involved in the decision-making process of the business. A business administrator who requires approval for the day-to-day operational decisions in the ordinary course of business may be unable to perform basic administrative duties of the company, especially if consent is needed from an adverse party. Nevertheless, a proper business plan may require a vote of all members for significant business decisions, or decisions that may alter the business structure or significantly impact the business.

How can I secure oversight over the business administrator?

Proper internal controls are always recommended to promote accountability and prevent fraud, but it is even more critical when one heir controls the family business. The business succession plan can provide for a salary and fringe benefits or performance-based compensation, methods for removing or replacing the administrator, an arbitrator to adjudicate disagreements or disputes among family members, and an exit strategy or process of dissolving the business or partnership.

How can I provide for myself and my spouse while incapacitated?

If you are considered an owner of the business during your lifetime or so long that your spouse is alive, your succession plan can stipulate that you receive periodic distributions. However, a fixed withdrawal may prove to be insufficient for your medical needs or general cost of living. Conversely, the business may be dependent on its working capital that is now being distributed and accumulated in your personal checking account.

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Roth&Co is proud to announce the launch of its new Outsourced CFO Services, which provides a full suite of CFO services managed by an experienced and knowledgeable Controller.

Roth & Company prides itself on providing the personalized services of a boutique firm, combined with the experience and expertise of a large organization, and through this new addition, clients will be better equipped to achieve their desired results and reach their business and financial goals.

As part of Roth&Co’s Outsourced CFO Services, a CFO/Controller will work directly with the business, in order to review the accuracy of their financial statements, assist in creating and implementing internal controls and policies and procedures, help them with financial planning, and manage the financial risk of their businesses.

Yona Strimber has joined the Roth&Co team as the lead Controller for this new service. Mr. Strimber has experience managing large client bases within many industries and providing tax and accounting consulting.

“While we are always focused on the numbers, when it comes to taking care of our clients and their businesses, we don’t believe in putting a cap on that,” said Zacharia Waxler, Co-Managing Partner. He continued, “It’s difficult to find someone with the necessary skills who also exhibits the enthusiasm we look for in our team members. When we met Yona though, it was clear that he had the experience and attitude to help our clients grow”.

Carefully guiding businesses through the financial world for over 40 years, Roth & Company continually looks for ways to provide additional resources for its clients, and is excited to offer Outsourced CFO Services to its new and existing clients.

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There are many ways for employers to conduct annual performance reviews. So many, in fact, that owners of small to midsize businesses may find the prospect of implementing a state-of-the-art review process overwhelming.

The simple truth is that smaller companies may not need to exert a lot of effort on a complex approach. Sometimes a simple conversation between supervisor and employee — or even owner and employee — can do the job, as long as mutual understanding is achieved and clear objectives are set.

Remember why it matters

If your commitment to this often-stressful ritual ever starts to falter, remind yourself of why it matters. A well-designed performance review process is valuable because it can:

Provide feedback and counseling to employees about how the company perceives their respective job performances,
Set objectives for the upcoming year and assist in determining any developmental needs, and
Create a written record of performance and assist in allocating rewards and opportunities, as well as justifying disciplinary actions or termination.

Conversely, giving annual reviews short shrift by only orally praising or reprimanding an employee leaves a big gap in that worker’s written history. The most secure companies, legally speaking, document employees’ shortcomings — and achievements — as they occur. They fully discuss performance at least once annually.

Don’t do this!

To ensure your company’s annual reviews are as productive as possible, make sure your supervisors aren’t:

Winging it. Establish clear standards and procedures for annual reviews. For example, supervisors should prepare for the meetings by filling out the same documentation for every employee.

Failing to consult others. If a team member works regularly with other departments or outside vendors, his or her supervisor should contact individuals in those other areas for feedback before the review. You can learn some surprising things this way, both good and bad.

Keeping employees in the dark. Nothing in a performance review should come as a major surprise to an employee. Be sure supervisors are communicating with workers about their performance throughout the year. An employee should know in advance what will be discussed, how much time to set aside for the meeting and how to prepare for it.

Failing to follow through. Make sure supervisors identify key objectives for each employee for the coming year. It’s also a good idea to establish checkpoints in the months ahead to assess the employee’s progress toward the goals in question.

Put something in place

As a business grows, it may very well need to upgrade and expand its performance evaluation process. But the bottom line is that every company needs to have something in place, no matter how basic, to evaluate and document how well employees are performing. Our firm can help determine how your employees’ performance is affecting profitability and suggest ways to cost-effectively improve productivity.

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Roth 401(k) accounts have been around for 13 years now. Studies show that more employers are offering them each year. A recent study by the Plan Sponsor Council of America (PSCA) found that Roth 401(k)s are now available at 70% of employer plans, up from 55.6% of plans in 2016.

However, despite the prevalence of employers offering Roth 401(k)s, most employees aren’t choosing to contribute to them. The PSCA found that only 20% of participants who have access to a Roth 401(k) made contributions to one in 2017. Perhaps it’s because they don’t understand them.

If you offer a Roth 401(k) or you’re considering one, educate your employees about the accounts to boost participation.

A 401(k) with a twist

As the name implies, these plans are a hybrid — taking some characteristics from Roth IRAs and some from employer-sponsored 401(k)s.

An employer with a 401(k), 403(b) or governmental 457(b) plan can offer designated Roth 401(k) accounts.

As with traditional 401(k)s, eligible employees can elect to defer part of their salaries to Roth 401(k)s, subject to annual limits. The employer may choose to provide matching contributions. For 2019, a participating employee can contribute up to $19,000 ($25,000 if he or she is age 50 or older) to a Roth 401(k). The most you can contribute to a Roth IRA for 2019 is $6,000 ($7,000 for those age 50 or older).

Note: The ability to contribute to a Roth IRA is phased out for upper-income taxpayers, but there’s no such restriction for a Roth 401(k).

The pros and cons

Unlike with traditional 401(k)s, contributions to employees’ accounts are made with after-tax dollars, instead of pretax dollars. Therefore, employees forfeit a key 401(k) tax benefit. On the plus side, after an initial period of five years, “qualified distributions” are 100% exempt from federal income tax, just like qualified distributions from a Roth IRA. In contrast, regular 401(k) distributions are taxed at ordinary-income rates, which are currently up to 37%.

In general, qualified distributions are those:

Made after a participant reaches age 59½, or
Made due to death or disability.

Therefore, you can take qualified Roth 401(k) distributions in retirement after age 59½ and pay no tax, as opposed to the hefty tax bill that may be due from traditional 401(k) payouts. And unlike traditional 401(k)s, which currently require retirees to begin taking required minimum distributions after age 70½, Roth 401(k)s have no mandate to take withdrawals.

Not for everyone

A Roth 401(k) is more beneficial than a traditional 401(k) for some participants, but not all. For example, it may be valuable for employees who expect to be in higher federal and state tax brackets in retirement. Contact us if you have questions about adding a Roth 401(k) to your benefits lineup.

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Businesses use two types of audits to gauge financial results: internal and external. Here’s a closer look at how they measure up.

Focus

Internal auditors go beyond traditional financial reporting. They focus on a company’s internal controls, accounting processes and ability to mitigate risk. Internal auditors also evaluate whether the company’s activities comply with its strategy, and they may consult on a variety of financial issues as they arise within the company.

In contrast, external auditors focus solely on the financial statements. Specifically, external auditors evaluate the statements’ accuracy and completeness, whether they comply with applicable accounting standards and practices, and whether they present a true and accurate presentation of the company’s financial performance. Accounting rules prohibit external audit firms from providing their audit clients with ancillary services that extend beyond the scope of the audit.

The audit “client”

Internal auditors are employees of the company they audit. They report to the chief audit executive and issue reports for management to use internally.

External auditors work for an independent accounting firm. The company’s shareholders or board of directors hires a third-party auditing firm to serve as its external auditor. The external audit team delivers reports directly to the company’s shareholders or audit committee, not to management.

Qualifications

Internal auditors don’t need to be certified public accountants (CPAs), although many have earned this qualification. Often, internal auditors earn a certified internal auditor (CIA) qualification, which requires them to follow standards issued by the Institute of Internal Auditors (IIA).

Conversely, the partner directing an external audit must be a CPA. Most midlevel and senior auditors earn their CPA license at some point in their career. External auditors must follow U.S. Generally Accepted Auditing Standards (GAAS), which are issued by the American Institute of Certified Public Accountants (AICPA).

Reporting format

Internal auditors issue reports throughout the year. The format may vary depending on the preferences of management or the internal audit team.

External auditors issue financial statements quarterly for most public companies and at least annually for private ones. In general, external audit reports must conform to U.S. Generally Accepted Accounting Principles (GAAP) or another basis of accounting (such as tax or cash basis reporting). If needed, external auditing procedures may be performed more frequently. For example, a lender may require a private company that fails to meet its loan covenants at year end to undergo a midyear audit by an external audit firm.

Common ground

Sometimes the work of internal and external auditors overlaps. Though internal auditors have a broader focus, both teams have the same goal: to help the company report financial data that people can count on. So, it makes sense for internal and external auditors to meet frequently to understand the other team’s focus and avoid duplication of effort. Contact us to map out an auditing strategy that fits the needs of your company.

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Life presents us with many choices: paper or plastic, chocolate or vanilla, regular or decaf. For businesses, a common conundrum is buy or lease. You’ve probably faced this decision when considering office space or a location for your company’s production facilities. But the buy vs. lease quandary also comes into play with equipment.

Pride of ownership

Some business owners approach buying equipment like purchasing a car: “It’s mine; I’m committed to it and I’m going to do everything I can to familiarize myself with this asset and keep it in tip-top shape.” Yes, pride of ownership is still a thing.

If this is your philosophy, work to pass along that pride to employees. When you get staff members to buy in to the idea that this is your equipment and the success of the company depends on using and maintaining each asset properly, the business can obtain a great deal of long-term value from assets that are bought and paid for.

Of course, no “buy vs. lease” discussion is complete without mentioning taxes. The Tax Cuts and Jobs Act dramatically enhanced Section 179 expensing and first-year bonus depreciation for asset purchases. In fact, many businesses may be able to write off the full cost of most equipment in the year it’s purchased. On the downside, you’ll take a cash flow hit when buying an asset, and the tax benefits may be mitigated somewhat if you finance.

Fine things about flexibility

Many businesses lease their equipment for one simple reason: flexibility. From a cash flow perspective, you’re not laying down a major purchase amount or even a substantial down payment in most cases. And you’re not committed to an asset for an indefinite period — if you don’t like it, at least there’s an end date in sight.

Leasing also may be the better option if your company uses technologically advanced equipment that will get outdated relatively quickly. Think about the future of your business, too. If you’re planning to explore an expansion, merger or business transformation, you may be better off leasing equipment so you’ll have the flexibility to adapt it to your changing circumstances.

Last, leasing does have some tax breaks. Lease payments generally are tax deductible as “ordinary and necessary” business expenses, though annual deduction limits may apply.

Pros and cons

On a parting note, if you do lease assets this year and your company follows Generally Accepted Accounting Principles (GAAP), new accounting rules for leases take effect in 2020 for calendar-year private companies. Contact us for further information, as well as for any assistance you might need in weighing the pros and cons of buying vs. leasing business equipment.

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As the old saying goes, success is going from failure to failure without losing your enthusiasm. The world is teeming with information and advice meant to help you take your great idea to business startup and onward to prosperity, but in the end success goes to those who don’t tire of tackling obstacles and confronting the inevitable predicaments.

Some mistakes are easier to avoid than others are, and they often involve the expertise of other professionals. The largest percentage of failed businesses have stumbled blindly into the financial abyss. Miscalculating and underestimating just how much money a startup needs is common; being hit with a hefty and unexpected tax bill at year’s end is another.

Confer with an attorney before going into business to decide upon the most appropriate legal structure and set up the appropriate filings, licenses or registrations. Make sure you are aware of all your legal responsibilities and liabilities and you will avoid costly errors and ethical issues down the road.

Sounds obvious, but sometimes it is not our instincts that get us in trouble, but our attachment to them, our belief that we know it all, can do it all and will always be right. Honesty and transparency are recent buzzwords in business marketing and PR, but being honest with yourself about your strengths and weaknesses and the risks your business faces is an imperative precursor. To be honest with the world, start by being fiercely honest with yourself then your top management. That’s the way to map out a plan, whether it’s your first business plan, or your tenth. Without proper planning, reality will certainly complicate the fantasy.

Some companies and organizations that are still thriving have made the most monumental and infamous mistakes of all time. Others were not as lucky with their blunders.

In 1977, Kodak filed a patent for one of the first digital camera technologies, but never brought it to market. Blinded by the success of their film business they simply failed to keep pace with the trend. Had Kodak only trusted that instinct and acted on it they might still be a leader in their field. Did they lose sight of their vision to be the means by which people capture their memories? Did they run out of steam to take on a major transition?

When the pressure to make money eases, what will motivate you to keep doing all the things you did to become profitable in the first place? The answer requires honesty.

In 1999, NASA and Lockheed Martin, a global aerospace and security company, collaborated on the design and production of a Mars Orbitor. Due to a simple error, that could have (should have!) been caught numerous times, engineers at Lockheed used English measurements while NASA used metric, a 125 million dollar probe malfunctioned and was lost in space. Both continued on to great achievements. Not without some difficult reckoning, certainly. But when you’re faced with your next failure, remember that your next success still lies ahead.

Roth&Co provides that much needed professional and experienced support to set a course for success and keep you on track.

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If you read the Internal Revenue Code (and you probably don’t want to!), you may be surprised to find that most business deductions aren’t specifically listed. It doesn’t explicitly state that you can deduct office supplies and certain other expenses.

Some expenses are detailed in the tax code, but the general rule is contained in the first sentence of Section 162, which states you can write off “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.”

Basic definitions

In general, an expense is ordinary if it’s considered common or customary in the particular trade or business. For example, insurance premiums to protect a store would be an ordinary business expense in the retail industry.

A necessary expense is defined as one that’s helpful or appropriate. For example, let’s say a car dealership purchases an automatic defibrillator. It may not be necessary for the operation of the business, but it might be helpful and appropriate if an employee or customer suffers a heart attack.

It’s possible for an ordinary expense to be unnecessary — but, in order to be deductible, an expense must be ordinary and necessary.

In addition, a deductible amount must be reasonable in relation to the benefit expected. For example, if you’re attempting to land a $3,000 deal, a $65 lunch with a potential client should be OK with the IRS. (Keep in mind that the Tax Cuts and Jobs Act eliminated most deductions for entertainment expenses but retains the 50% deduction for business meals.)

Examples of not ordinary and unnecessary

Not surprisingly, the IRS and courts don’t always agree with taxpayers about what qualifies as ordinary and necessary expenditures.

In one case, a man engaged in a business with his brother was denied deductions for his private airplane expenses. The U.S. Tax Court noted that the taxpayer had failed to prove the expenses were ordinary and necessary to the business. In addition, only one brother used the plane and the flights were to places that the taxpayer could have driven to or flown to on a commercial airline. And, in any event, the stated expenses including depreciation expenses, weren’t adequately substantiated, the court added. (TC Memo 2018-108)

In another case, the Tax Court ruled that a business owner wasn’t entitled to deduct legal and professional fees he’d incurred in divorce proceedings defending his ex-wife’s claims to his interest in, or portion of, distributions he received from his LLC. The IRS and the court ruled the divorce legal fees were nondeductible personal expenses and weren’t ordinary and necessary. (TC Memo 2018-80)

Proceed with caution

The deductibility of some expenses is clear. But for other expenses, it can get more complicated. Generally, if an expense seems like it’s not normal in your industry — or if it could be considered fun, personal or extravagant in nature — you should proceed with caution. And keep records to substantiate the expenses you’re deducting. Consult with us for guidance.

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Many employers prefer to classify workers as independent contractors to lower costs, even if it means having less control over a worker’s day-to-day activities. But the government is on the lookout for businesses that classify workers as independent contractors simply to reduce taxes or avoid their employee benefit obligations.

Why it matters

When your business classifies a worker as an employee, you generally must withhold federal income tax and the employee’s share of Social Security and Medicare taxes from his or her wages. Your business must then pay the employer’s share of these taxes, pay federal unemployment tax, file federal payroll tax returns and follow other burdensome IRS and U.S. Department of Labor rules.

You may also have to pay state and local unemployment and workers’ compensation taxes and comply with more rules. Dealing with all this can cost a bundle each year.

On the other hand, with independent contractor status, you don’t have to worry about employment tax issues. You also don’t have to provide fringe benefits like health insurance, retirement plans and paid vacations. If you pay $600 or more to an independent contractor during the year, you must file a Form 1099-MISC with the IRS and send a copy to the worker to report what you paid. That’s basically the extent of your bureaucratic responsibilities.

But if you incorrectly treat a worker as an independent contractor — and the IRS decides the worker is actually an employee — your business could be assessed unpaid payroll taxes plus interest and penalties. You also could be liable for employee benefits that should have been provided but weren’t, including penalties under federal laws.

Filing an IRS form

To find out if a worker is an employee or an independent contractor, you can file optional IRS Form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” Then, the IRS will let you know how to classify a worker. However, be aware that the IRS has a history of classifying workers as employees rather than independent contractors.

Businesses should consult with us before filing Form SS-8 because it may alert the IRS that your business has worker classification issues — and inadvertently trigger an employment tax audit.

It can be better to simply treat independent contractors so the relationships comply with the tax rules. This generally includes not controlling how the workers perform their duties, ensuring that you’re not the workers’ only customer, providing annual Forms 1099 and, basically, not treating the workers like employees.

Workers can also ask for a determination

Workers who want an official determination of their status can also file Form SS-8. Disgruntled independent contractors may do so because they feel entitled to employee benefits and want to eliminate self-employment tax liabilities.

If a worker files Form SS-8, the IRS will send a letter to the business. It identifies the worker and includes a blank Form SS-8. The business is asked to complete and return the form to the IRS, which will render a classification decision.

Defending your position

If your business properly handles independent contractors, don’t panic if a worker files a Form SS-8. Contact us before replying to the IRS. With a proper response, you may be able to continue to classify the worker as a contractor. We also can assist you in setting up independent contractor relationships that stand up to IRS scrutiny.

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Many businesses have a life cycle that, as life cycles tend to do, concludes with a period of decline and failure. Often, the demise of a company is driven by internal factors — such as weak financial oversight, lack of management consensus or one-person rule.

External factors typically contribute, as well. These may include disruptive competitors; local, national or global economic changes; or a more restrictive regulatory environment.

But just because bad things happen doesn’t mean they have to happen to your company. To prepare for the worst, identify a business turnaround strategy that you can implement if a severe decline suddenly becomes imminent.

Warning signs

When a company is drifting toward serious trouble, there are usually warning signs. Examples include:

Serious deterioration in the accuracy or usage of financial measurements,
Poor results of key performance indicators — including working capital to assets, sales and retained earnings to assets, and book value to debt,
Adverse trends, such as lower margins, market share or working capital,
Rapid increase in debt and employee turnover, and
Drastic reduction in assessed business value.

Not every predicament that arises will threaten the very existence of your business. But when missteps and misfortune build up, the only thing that may save the company is a well-planned turnaround strategy.

5 stages of a turnaround

No two turnarounds are exactly alike, but they generally occur in five basic stages:

Rapid assessment of the decline by external advisors,
Re-evaluation of management and staffing,
Emergency intervention to stabilize the business,
Operational restoration to pursue or achieve profitability, and
Full recovery and growth.

Each of these stages calls for a detailed action plan. Identify the advisors or even a dedicated turnaround consultant who can help you assess the damage and execute immediate moves. Prepare for the possibility that you’ll need to replace some managers and even lay off staff to reduce employment costs.

In the emergency intervention stage, a business does whatever is necessary to survive — including consolidating debt, closing locations and selling off assets. Next, restoring operations and pursuing profitability usually means scaling back to only those business segments that have achieved, or can achieve, decent gross margins.

Last, you’ll need to establish a baseline of profitability that equates to full recovery. From there, you can choose reasonable growth strategies that will move the company forward without leading it over another cliff.

In case of emergency

If your business is doing fine, there’s no need to create a minutely detailed turnaround plan. But, as part of your strategic planning efforts, it’s still a good idea to outline a general turnaround strategy to keep on hand in case of emergency. Our firm can help you devise either strategy. We can also assist you in generating financial statements and monitoring key performance indicators that help enable you to avoid crises altogether.

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In the course of operating your business, you probably spend time and money “wining and dining” current or potential customers, vendors and employees. What can you deduct on your tax return for these expenses? The rules changed under the Tax Cuts and Jobs Act (TCJA), but you can still claim some valuable write-offs.

No more entertainment deductions

One of the biggest changes is that you can no longer deduct most business-related entertainment expenses. Beginning in 2018, the TCJA disallows deductions for entertainment expenses, including those for sports events, theater productions, golf outings and fishing trips.

Meal deductions still allowed

You can still deduct 50% of the cost of food and beverages for meals conducted with business associates. However, you need to follow three basic rules in order to prove that your expenses are business related:

The expenses must be “ordinary and necessary” in carrying on your business. This means your food and beverage costs are customary and appropriate. They shouldn’t be lavish or extravagant.
The expenses must be directly related or associated with your business. This means that you expect to receive a concrete business benefit from them. The principal purpose for the meal must be business. You can’t go out with a group of friends for the evening, discuss business with one of them for a few minutes, and then write off the check.
You must be able to substantiate the expenses. There are requirements for proving that meal and beverage expenses qualify for a deduction. You must be able to establish the amount spent, the date and place where the meals took place, the business purpose and the business relationship of the people involved.

Set up detailed recordkeeping procedures to keep track of business meal costs. That way, you can prove them and the business connection in the event of an IRS audit.

Other considerations

What if you spend money on food and beverages at an entertainment event? The IRS clarified in guidance (Notice 2018-76) that taxpayers can still deduct 50% of food and drink expenses incurred at entertainment events, but only if business was conducted during the event or shortly before or after. The food-and-drink expenses should also be “stated separately from the cost of the entertainment on one or more bills, invoices or receipts,” according to the guidance.

Another related tax law change involves meals provided to employees on the business premises. Before the TCJA, these meals provided to an employee for the convenience of the employer were 100% deductible by the employer. Beginning in 2018, meals provided for the convenience of an employer in an on-premises cafeteria or elsewhere on the business property are only 50% deductible. After 2025, these meals won’t be deductible at all.

Plan ahead

As you can see, the treatment of meal and entertainment expenses became more complicated after the TCJA. Reach out to your Roth&Co advisor with any questions on how to get the biggest tax-saving bang for your business meal bucks.

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It’s every business owner’s nightmare. Should hackers gain access to your customers’ or employees’ sensitive data, the very reputation of your company could be compromised. And lawsuits might soon follow.

No business owner wants to think about such a crisis, yet it’s imperative that you do. Suffering a data breach without an emergency response plan leaves you vulnerable to not only the damage of the attack itself, but also the potential fallout from your own panicked decisions.

5 steps to take

A comprehensive plan generally follows five steps once a data breach occurs:

1. Call your attorney. He or she should be able to advise you on the potential legal ramifications of the incident and what you should do or not do (or say) in response. Involve your attorney in the creation of your response plan, so all this won’t come out of the blue.

2. Engage a digital forensics investigator. Contact us for help identifying a forensic investigator that you can turn to in the event of a data breach. The preliminary goal will be to answer two fundamental questions: How were the systems breached? What data did the hackers access? Once these questions have been answered, experts can evaluate the extent of the damage.

3. Fortify your IT systems. While investigative and response procedures are underway, you need to proactively prevent another breach and strengthen controls. Doing so will obviously involve changing passwords, but you may also need to add firewalls, create deeper layers of user authentication or restrict some employees from certain systems.

4. Communicate strategically. No matter the size of the company, the communications goal following a data breach is essentially the same: Provide accurate information about the incident in a reasonably timely manner that preserves the trust of customers, employees, investors, creditors and other stakeholders.

Note that “in a reasonably timely manner” doesn’t mean “immediately.” Often, it’s best to acknowledge an incident occurred but hold off on a detailed statement until you know precisely what happened and can reassure those affected that you’re taking specific measures to control the damage.

5. Activate or adjust credit and IT monitoring services. You may want to initiate an early warning system against future breaches by setting up a credit monitoring service and engaging an IT consultant to periodically check your systems for unauthorized or suspicious activity. Of course, you don’t have to wait for a breach to do these things, but you could increase their intensity or frequency following an incident.

Inevitable risk

Data breaches are an inevitable risk of running a business in today’s networked, technology-driven world. Should this nightmare become a reality, a well-conceived emergency response plan can preserve your company’s goodwill and minimize the negative impact on profitability. We can help you budget for such a plan and establish internal controls to prevent and detect fraud related to (and not related to) data breaches.

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A maxim of business is that a company’s hiring and staffing policies will be what make it or break it in the long run. The right people are any company’s greatest asset. Executives and managers go to great lengths to find, hire, train, motivate and retain the best employees. The expense of a good employee is the cost of business and avoiding employee turnover is priceless.

An emerging business trend is poised to revolutionize how businesses hire and employ the right people. According to GlobalWorkplaceAnalytics.com, work-from-home, among the non-self-employed, has grown by 140% since 2005, nearly 10x faster than the rest of the workforce. In the largest year over year growth since 2008, the telecommuter population grew by 11.7%, with 4.3 million employees (3.2% of the workforce) now working from home at least half the time. Feeding or following the trend, forty percent more U.S. employers now offer flexible workplace options than they did five years ago.

Studies are showing numerous benefits to employers. A 2014 Stanford study showed that call center employees increased productivity by 13% when they worked from home. A similar study by the University of Texas found that telecommuters worked on average 5-to-7 hours longer than their in-office counterparts.

Telecommuting employees tend to be much happier than their in-office counterparts, and happy employees are more likely to stay in their position, decreasing turnover. Work quality and loyalty are positively impacted by improved work life balance. With an estimated savings between $2,000 and $7,000 a year, happier telecommuting employees are the result of less stress and more money.

Employers’ bottom lines stand to benefit as well. It is projected that companies would save approximately $11,000 annually on each employee who telecommutes. So what is the potential bottom line impact? If people with compatible work chose to work from home just half the time the savings to businesses nationally would total over $700 Billion a year.

The policy isn’t without its potential pitfalls, and companies considering it should prepare appropriately. Direct oversight needs to be replaced with clear guidelines, performance benchmarks and strong communication tools to keep telework employees connected to supervisors, team members and clients. Remote access also means security concerns have to be assessed and addressed.

Private sector companies aren’t the only ones supporting telework. The State of Tennessee has instituted a telecommuting program. Governing Magazine reports that productivity is up 80% and the state has saved $6.5 million this year alone with an expected $40-60 million in profits next year from the related sale of real estate. Folks, if it’s possible in government, it’s possible anywhere!

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Merger and acquisition activity has been brisk in recent years. If your business is considering merging with or acquiring another business, it’s important to understand how the transaction will be taxed under current law.

Stocks vs. assets

From a tax standpoint, a transaction can basically be structured in two ways:

1. Stock (or ownership interest). A buyer can directly purchase a seller’s ownership interest if the target business is operated as a C or S corporation, a partnership, or a limited liability company (LLC) that’s treated as a partnership for tax purposes.

The now-permanent 21% corporate federal income tax rate under the Tax Cuts and Jobs Act (TCJA) makes buying the stock of a C corporation somewhat more attractive. Reasons: The corporation will pay less tax and generate more after-tax income. Plus, any built-in gains from appreciated corporate assets will be taxed at a lower rate when they’re eventually sold.

The TCJA’s reduced individual federal tax rates may also make ownership interests in S corporations, partnerships and LLCs more attractive. Reason: The passed-through income from these entities also will be taxed at lower rates on a buyer’s personal tax return. However, the TCJA’s individual rate cuts are scheduled to expire at the end of 2025, and, depending on future changes in Washington, they could be eliminated earlier or extended.

2. Assets. A buyer can also purchase the assets of a business. This may happen if a buyer only wants specific assets or product lines. And it’s the only option if the target business is a sole proprietorship or a single-member LLC that’s treated as a sole proprietorship for tax purposes.

Note: In some circumstances, a corporate stock purchase can be treated as an asset purchase by making a “Section 338 election.” Ask your tax advisor for details.

Buyer vs. seller preferences

For several reasons, buyers usually prefer to purchase assets rather than ownership interests. Generally, a buyer’s main objective is to generate enough cash flow from an acquired business to pay any acquisition debt and provide an acceptable return on the investment. Therefore, buyers are concerned about limiting exposure to undisclosed and unknown liabilities and minimizing taxes after the deal closes.

A buyer can step up (increase) the tax basis of purchased assets to reflect the purchase price. Stepped-up basis lowers taxable gains when certain assets, such as receivables and inventory, are sold or converted into cash. It also increases depreciation and amortization deductions for qualifying assets.

Meanwhile, sellers generally prefer stock sales for tax and nontax reasons. One of their main objectives is to minimize the tax bill from a sale. That can usually be achieved by selling their ownership interests in a business (corporate stock or partnership or LLC interests) as opposed to selling business assets.

With a sale of stock or other ownership interest, liabilities generally transfer to the buyer and any gain on sale is generally treated as lower-taxed long-term capital gain (assuming the ownership interest has been held for more than one year).

Keep in mind that other issues, such as employee benefits, can also cause unexpected tax issues when merging with, or acquiring, a business.

Professional advice is critical

Buying or selling a business may be the most important transaction you make during your lifetime, so it’s important to seek professional tax advice as you negotiate. After a deal is done, it may be too late to get the best tax results. Contact us for the best way to proceed in your situation.

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As an individual, you’ve no doubt been urged to regularly check your credit score. Most people nowadays know that, with a subpar personal credit score, they’ll have trouble buying a home or car, or just getting a reasonable-rate credit card.

But how about your business credit score? It’s important for much the same reason — you’ll have difficulty obtaining financing or procuring the assets you need to operate competitively without a solid score. So, you’ve got to be vigilant about it.

Algorithms and data
Business credit scores come from various reporting agencies, such as Experian, Equifax and Dun & Bradstreet. Each agency has its own algorithm for calculating credit scores. Like personal credit scores, higher business credit scores equate with lower risk (and vice versa).

Credit agencies track your business by its employer identification number (EIN). They compile data from your EIN, including the company’s address, phone number, owners’ names and industry classification code. Agencies may also search the Internet and public records for bankruptcies, judgments and tax liens. Suppliers, landlords, leasing companies and other creditors may also report payment experiences with the company to credit agencies.

Important factors
Timely bill payment is the biggest factor affecting your business credit score. But other important ones include:

Level of success.
Higher net worth or annual revenues generally increase your credit score.

Structure.
Corporations and limited liability companies tend to receive higher scores than sole proprietorships and partnerships because these entities’ financial identities are separate from those of their owners.

Industry.
Some agencies keep track of the percentage of companies under the company’s industry classification code that have filed for bankruptcy. Participation in high-risk industries tends to lower a business credit score.

Track record.
Credit agencies also look at the length and frequency of your company’s credit history. Once you establish credit, your business should periodically borrow additional money and then repay it on time to avoid the risk of being downgraded.

Best practices
Business credit scores help lenders decide whether to approve your loan request, as well as the loan’s interest rate, duration and other terms. Unfortunately, some small businesses and start-ups may have little to no credit history.

Build your company’s credit history by applying for a company credit card and paying the balance off each month. Also put utilities and leases in your company’s name, so the business is on the radar of the credit reporting agencies.

Sometimes, credit agencies base their ratings on incomplete, false or outdated information. Monitor your credit score regularly and note any downgrades. In some cases, the agency may be willing to change your score if you contact them and successfully prove that a rating is inaccurate.

Central role
Maintaining a healthy business credit score should play a central role in how you manage your company’s finances.
Contact us for help in using credit to help maintain your cash flow and build the bottom line.

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In the broadest sense, strategic planning comprises two primary tasks: establishing goals and achieving them. Many business owners would probably say the first part, coming up with objectives, is relatively easy. It’s that second part — accomplishing those goals — that can really challenge a company. The key to turning your strategic objectives into a reality is a solid implementation plan.

Start with people
After clearly identifying short- and long-range goals under a viable strategic planning process, you need to establish a formal plan for carrying it out. The most important aspect of this plan is getting the right people involved.

First, appoint an implementation leader and give him or her the authority, responsibility and accountability to communicate and champion your stated objectives. (If yours is a smaller business, you could oversee implementation yourself.)

Next, establish teams of carefully selected employees with specific duties and timelines under which to complete goal-related projects. Choose employees with the experience, will and energy to implement the plan. These teams should deliver regular progress reports to you and the implementation leader.

Watch out for roadblocks
On the surface, these steps may seem logical and foolproof. But let’s delve into what could go wrong with such a clearly defined process.

One typical problem arises when an implementation team is composed of employees wholly or largely from one department. Often, they’ll (inadvertently or intentionally) execute an objective in such a way that mostly benefits their department but ultimately hinders the company from meeting the intended goal.

To avoid this, create teams with a diversity of employees from across various departments. For example, an objective related to expanding your company’s customer base will naturally need to include members of the sales and marketing departments. But also invite administrative, production and IT staff to ensure the team’s actions are operationally practical and sustainable.

Another common roadblock is running into money problems. Ensure your implementation plan is feasible based on your company’s budget, revenue projections, and local and national economic forecasts. Ask teams to include expense reports and financial projections in their regular reports. If you determine that you can’t (or shouldn’t) implement the plan as written, don’t hesitate to revise or eliminate some goals.

Succeed at the important part
Strategic planning may seem to be “all about the ideas,” but implementing the specific goals related to your strategic plan is really the most important part of the process. Of course, it’s also the most difficult and most affected by outside forces. We can help you assess the financial feasibility of your objectives and design an implementation plan with the highest odds of success.

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“I could sell water to a whale.”

Indeed, most salespeople possess an abundance of confidence. One could say it’s a prerequisite for the job. Because of their remarkable self-assurance, sales staffers might appear to be largely autonomous. Hand them something to sell, tell them a bit about it and let them do their thing — right?

Not necessarily. The sales department needs support just like any other part of a company. And we’re not just talking about office supplies and working phone lines. Here are five ways that your business can give its sales staff the support they really need:

1. Show them the data. Virtually every aspect of business is driven by analytics these days, but sales has been all about the data for decades. To keep up with the competition, provide your sales team with the most cutting-edge metrics. The right ones vary depending on your industry and customer base, but consider analytics such as lead conversion rate and quote-to-close.

2. Invest in sales training and upskilling. If you don’t train salespeople properly, they’ll face an uphill climb to success and may not stick around to get there with you. (This is often partly why sales staffs tend to have high turnover.) Once a salesperson is trained, offer continuing education — now commonly referred to as “upskilling” — to continue to enhance his or her talents.

3. Effectively evaluate employee performance. For sales staff, annual job reviews can boil down to a numbers game whereby it was either a good year or a bad one. Make sure your performance evaluations for salespeople are as comprehensive and productive as they are for any other type of employee. Sales goals should obviously play a role, but look for other professional development objectives as well.

4. Promote positivity, ethics and high morale. Sales is often a frustrating grind. It’s not uncommon for sales staff members to fall prey to negativity. This can manifest itself in various ways: bad interactions with customers, plummeting morale and, in worst cases, even unethical or fraudulent activities. Urge your supervisors to interact regularly with salespeople to combat pessimism and find ways to keep spirits high.

5. Regularly re-evaluate your compensation model. Finding the right way to compensate sales staff has challenged, if not perplexed, companies for years. Some businesses opt for commission only, others provide a salary plus commission. There are additional options as well, such as profit margin plans that compensate salespeople based on how well the company is doing.

If your compensation model is working well, you may not want to rock the boat. But re-evaluate its efficacy at least annually and don’t hesitate to explore other approaches. Here at Roth&Co, we can help you analyze the numbers related to compensation as well as the metrics you’re using to track and assess sales.

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With the year underway, your business probably has a strategic plan in place for the months ahead. Or maybe you’ve created a general outline but haven’t quite put the finishing touches on it yet. In either case, there’s a time-tested approach to refining your strategic plan that you should consider: a SWOT analysis. Let’s take a closer look at what each of the letters in that abbreviation stands for:

Strengths. A SWOT analysis starts by identifying your company’s core competencies and competitive advantages. These are how you can boost revenues and build value. Examples may include an easily identifiable brand, a loyal customer base or exceptional customer service.

Unearth the source of each strength. A loyal customer base, for instance, may be tied to a star employee or executive — say a CEO with a high regional profile and multitude of community contacts. In such a case, it’s important to consider what you’d do if that person suddenly left the business.

Weaknesses. Next the analysis looks at the opposite of strengths: potential risks to profitability and long-term viability. These might include high employee turnover, weak internal controls, unreliable quality or a location that’s no longer advantageous.

You can evaluate weaknesses relative to your competitors as well. Let’s say metrics indicate customer recognition of your brand is increasing, but you’re still up against a name-brand competitor. Is that a battle you can win? Every business has its Achilles’ heel — some have several. Identify yours so you can correct them.

Opportunities. From here, a SWOT analysis looks externally at what’s happening in your industry, local economy or regulatory environment. Opportunities are favorable external conditions that could allow you to build your bottom line if your company acts on them before competitors do.

For example, imagine a transportation service that notices a growing demand for food deliveries in its operational area. The company could allocate vehicles and hire drivers to deliver food, thereby gaining an entirely new revenue stream.

Threats. The last step in the analysis is spotting unfavorable conditions that might prevent your business from achieving its goals. Threats might come from a decline in the economy, adverse technological changes, increased competition or tougher regulation.

Going back to our previous example, that transportation service would have to consider whether its technological infrastructure could support the rigorous demands of the app-based food-delivery industry. It would also need to assess the risk of regulatory challenges of engaging independent contractors to serve as drivers.

Typically presented as a matrix (see accompanying image), a SWOT analysis provides a logical framework for better understanding how your business runs and for improving (or formulating) a strategic plan for the year ahead. Our firm can help you gather and assess the financial data associated with the analysis.

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A variety of tax-related limits affecting businesses are annually indexed for inflation, and many have gone up for 2019. Here’s a look at some that may affect you and your business. (more…)

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This year, the optional standard mileage rate used to calculate the deductible costs of operating an automobile for business increased by 3.5 cents, to the highest level since 2008. As a result, you might be able to claim a larger deduction for vehicle-related expense for 2019 than you can for 2018. (more…)

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The dawning of 2019 means the 2018 income tax filing season will soon be upon us. After year end, it’s generally too late to take action to reduce 2018 taxes. Business owners may, therefore, want to shift their focus to assessing whether they’ll likely owe taxes or get a refund when they file their returns this spring, so they can plan accordingly.

With the biggest tax law changes in decades — under the Tax Cuts and Jobs Act (TCJA) — generally going into effect beginning in 2018, most businesses and their owners will be significantly impacted. So, refreshing yourself on the major changes is a good idea.

Taxation of pass-through entities

These changes generally affect owners of S corporations, partnerships and limited liability companies (LLCs) treated as partnerships, as well as sole proprietors:

Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%
A new 20% qualified business income deduction for eligible owners (the Section 199A deduction)
Changes to many other tax breaks for individuals that will impact owners’ overall tax liability

Taxation of corporations

These changes generally affect C corporations, personal service corporations (PSCs) and LLCs treated as C corporations:

Replacement of graduated corporate rates ranging from 15% to 35% with a flat corporate rate of 21%
Replacement of the flat PSC rate of 35% with a flat rate of 21%
Repeal of the 20% corporate alternative minimum tax (AMT)

Tax break positives

These changes generally apply to both pass-through entities and corporations:

A new disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
New limits on net operating loss (NOL) deductions
Elimination of the Section 199 deduction (not to be confused with the new Sec.199A deduction), which was for qualified domestic production activities and commonly referred to as the “manufacturers’ deduction”
A new rule limiting like-kind exchanges to real property that is not held primarily for sale (generally no more like-kind exchanges for personal property)
New limitations on deductions for certain employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation

Preparing for 2018 filing

Keep in mind that additional rules and limits apply to the rates and breaks covered here. Also, these are only some of the most significant and widely applicable TCJA changes; you and your business could be affected by other changes as well. Contact us to learn precisely how you might be affected and for help preparing for your 2018 tax return filing — and beginning to plan for 2019, too.

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Under the Tax Cuts and Jobs Act (TCJA), many more businesses are now eligible to use the cash method of accounting for federal tax purposes. The cash method offers greater tax-planning flexibility, allowing some businesses to defer taxable income. Newly eligible businesses should determine whether the cash method would be advantageous and, if so, consider switching methods.

What’s changed?

Previously, the cash method was unavailable to certain businesses, including:

C corporations — as well as partnerships (or limited liability companies taxed as partnerships) with C corporation partners — whose average annual gross receipts for the previous three tax years exceeded $5 million, and
Businesses required to account for inventories, whose average annual gross receipts for the previous three tax years exceeded $1 million ($10 million for certain industries).

In addition, construction companies whose average annual gross receipts for the previous three tax years exceeded $10 million were required to use the percentage-of-completion method (PCM) to account for taxable income from long-term contracts (except for certain home construction contracts). Generally, the PCM method is less favorable, from a tax perspective, than the completed-contract method.

The TCJA raised all of these thresholds to $25 million, beginning with the 2018 tax year. In other words, if your business’s average gross receipts for the previous three tax years is $25 million or less, you generally now will be eligible for the cash method, regardless of how your business is structured, your industry or whether you have inventories. And construction firms under the threshold need not use PCM for jobs expected to be completed within two years.

You’re also eligible for streamlined inventory accounting rules. And you’re exempt from the complex uniform capitalization rules, which require certain expenses to be capitalized as inventory costs.

Should you switch?

If you’re eligible to switch to the cash method, you need to determine whether it’s the right method for you. Usually, if a business’s receivables exceed its payables, the cash method will allow more income to be deferred than will the accrual method. (Note, however, that the TCJA has a provision that limits the cash method’s advantages for businesses that prepare audited financial statements or file their financial statements with certain government entities.) It’s also important to consider the costs of switching, which may include maintaining two sets of books.

The IRS has established procedures for obtaining automatic consent to such a change, beginning with the 2018 tax year, by filing Form 3115 with your tax return. Contact us to learn more.

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Classifying a worker as an independent contractor frees a business from payroll tax liability and allows it to forgo providing overtime pay, unemployment compensation and other employee benefits. It also frees the business from responsibility for withholding income taxes and the worker’s share of payroll taxes.

For these reasons, the federal government views misclassifying a bona fide employee as an independent contractor unfavorably. If the IRS reclassifies a worker as an employee, your business could be hit with back taxes, interest and penalties.

Key factors

When assessing worker classification, the IRS typically looks at the:

Level of behavioral control. This means the extent to which the company instructs a worker on when and where to do the work, what tools or equipment to use, whom to hire, where to purchase supplies and so on. Also, control typically involves providing training and evaluating the worker’s performance. The more control the company exercises, the more likely the worker is an employee.

Level of financial control. Independent contractors are more likely to invest in their own equipment or facilities, incur unreimbursed business expenses, and market their services to other customers. Employees are more likely to be paid by the hour or week or some other time period; independent contractors are more likely to receive a flat fee.

Relationship of the parties. Independent contractors are often engaged for a discrete project, while employees are typically hired permanently (or at least for an indefinite period). Also, workers who serve a key business function are more likely to be classified as employees.

The IRS examines a variety of factors within each category. You need to consider all of the facts and circumstances surrounding each worker relationship.

Protective measures

Once you’ve completed your review, there are several strategies you can use to minimize your exposure. When in doubt, reclassify questionable independent contractors as employees. This may increase your tax and benefit costs, but it will eliminate reclassification risk.

From there, modify your relationships with independent contractors to better ensure compliance. For example, you might exercise less behavioral control by reducing your level of supervision or allowing workers to set their own hours or work from home.

Also, consider using an employee-leasing company. Workers leased from these firms are employees of the leasing company, which is responsible for taxes, benefits and other employer obligations.

Handle with care

Keep in mind that taxes, interest and penalties aren’t the only possible negative consequences of a worker being reclassified as an employee. In addition, your business could be liable for employee benefits that should have been provided but weren’t. Fortunately, careful handling of contractors can help ensure that independent contractor status will pass IRS scrutiny. Contact us if you have questions about worker classification.

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If most of your money is tied up in your business, retirement can be a challenge. So if you haven’t already set up a tax-advantaged retirement plan, consider doing so this year. There’s still time to set one up and make contributions that will be deductible on your 2018 tax return!

More benefits

Not only are contributions tax deductible, but retirement plan funds can grow tax-deferred. If you might be subject to the 3.8% net investment income tax (NIIT), setting up and contributing to a retirement plan may be particularly beneficial because retirement plan contributions can reduce your modified adjusted gross income and thus help you reduce or avoid the NIIT.

If you have employees, they generally must be allowed to participate in the plan, provided they meet the qualification requirements. But this can help you attract and retain good employees.

And if you have 100 or fewer employees, you may be eligible for a credit for setting up a plan. The credit is for 50% of start-up costs, up to $500. Remember, credits reduce your tax liability dollar-for-dollar, unlike deductions, which only reduce the amount of income subject to tax.

3 options to consider

Many types of retirement plans are available, but here are three of the most attractive to business owners trying to build up their own retirement savings:

1. Profit-sharing plan. This is a defined contribution plan that allows discretionary employer contributions and flexibility in plan design. You can make deductible 2018 contributions as late as the due date of your 2018 tax return, including extensions — provided your plan exists on Dec. 31, 2018. For 2018, the maximum contribution is $55,000, or $61,000 if you are age 50 or older and your plan includes a 401(k) arrangement.

2. Simplified Employee Pension (SEP). This is also a defined contribution plan, and it provides benefits similar to those of a profit-sharing plan. But you can establish a SEP in 2019 and still make deductible 2018 contributions as late as the due date of your 2018 income tax return, including extensions. In addition, a SEP is easy to administer. For 2018, the maximum SEP contribution is $55,000.

3. Defined benefit plan. This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. The maximum annual benefit for 2018 is generally $220,000 or 100% of average earned income for the highest three consecutive years, if less. Because it’s actuarially driven, the contribution needed to attain the projected future annual benefit may exceed the maximum contributions allowed by other plans, depending on your age and the desired benefit.

You can make deductible 2018 defined benefit plan contributions until your tax return due date, including extensions, provided your plan exists on Dec. 31, 2018. Be aware that employer contributions generally are required.

Sound good?

If the benefits of setting up a retirement plan sound good, contact us. We can provide more information and help you choose the best retirement plan for your particular situation.

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The Tax Cuts and Jobs Act (TCJA) didn’t change the federal tax credit for “increasing research activities,” but several TCJA provisions have an indirect impact on the credit. As a result, the research credit may be available to some businesses for the first time.
AMT reform

Previously, corporations subject to alternative minimum tax (AMT) couldn’t offset the research credit against their AMT liability, which erased the benefits of the credit (although they could carry unused research credits forward for up to 20 years and use them in non-AMT years). By eliminating corporate AMT for tax years beginning after 2017, the TCJA removed this obstacle.

Now that the corporate AMT is gone, unused research credits from prior tax years can be offset against a corporation’s regular tax liability and may even generate a refund (subject to certain restrictions). So it’s a good idea for corporations to review their research activities in recent years and amend prior returns if necessary to ensure they claim all the research credits to which they’re entitled.

The TCJA didn’t eliminate individual AMT, but it did increase individuals’ exemption amounts and exemption phaseout thresholds. As a result, fewer owners of sole proprietorships and pass-through businesses are subject to AMT, allowing more of them to enjoy the benefits of the research credit, too.

More to consider

By reducing corporate and individual tax rates, the TCJA also will increase research credits for many businesses. Why? Because the tax code, to prevent double tax benefits, requires businesses to reduce their deductible research expenses by the amount of the credit.

To avoid this result (which increases taxable income), businesses can elect to reduce the credit by an amount calculated at the highest corporate rate that eliminates the double benefit. Because the highest corporate rate has been reduced from 35% to 21%, this amount is lower and, therefore, the research credit is higher.

Keep in mind that the TCJA didn’t affect certain research credit benefits for smaller businesses. Pass-through businesses can still claim research credits against AMT if their average gross receipts are $50 million or less. And qualifying start-ups without taxable income can still claim research credits against up to $250,000 in payroll taxes.

Do your research

If your company engages in qualified research activities, now’s a good time to revisit the credit to be sure you’re taking full advantage of its benefits.

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As we approach the end of the year, it’s a good idea to review your business’s expenses for deductibility. At the same time, consider whether your business would benefit from accelerating certain expenses into this year.

Be sure to evaluate the impact of the Tax Cuts and Jobs Act (TCJA), which reduces or eliminates many deductions. In some cases, it may be necessary or desirable to change your expense and reimbursement policies.

What’s deductible, anyway?

There’s no master list of deductible business expenses in the Internal Revenue Code (IRC). Although some deductions are expressly authorized or excluded, most are governed by the general rule of IRC Sec. 162, which permits businesses to deduct their “ordinary and necessary” expenses.

An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your business. (It need not be indispensable.) Even if an expense is ordinary and necessary, it may not be deductible if the IRS considers it lavish or extravagant.

What did the TCJA change?

The TCJA contains many provisions that affect the deductibility of business expenses. Significant changes include these deductions:

Meals and entertainment. The act eliminates most deductions for entertainment expenses, but retains the 50% deduction for business meals. What about business meals provided in connection with nondeductible entertainment? In a recent notice, the IRS clarified that such meals continue to be 50% deductible, provided they’re purchased separately from the entertainment or their cost is separately stated on invoices or receipts.

Transportation. The act eliminates most deductions for qualified transportation fringe benefits, such as parking, vanpooling and transit passes. This change may lead some employers to discontinue these benefits, although others will continue to provide them because 1) they’re a valuable employee benefit (they’re still tax-free to employees) or 2) they’re required by local law.

Employee expenses. The act suspends employee deductions for unreimbursed job expenses — previously treated as miscellaneous itemized deductions — through 2025. Some businesses may want to implement a reimbursement plan for these expenses. So long as the plan meets IRS requirements, reimbursements are deductible by the business and tax-free to employees.

Need help?

The deductibility of certain expenses, such as employee wages or office supplies, is obvious. In other cases, it may be necessary to consult IRS rulings or court cases for guidance. For assistance, please contact us.

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“I’d like to start a small business. How do I go about it?” a man asked.
“Simple,” said his friend, “buy a big one and wait.”

The recent bankruptcy and subsequent demise of Toys R’ Us was a debacle. By the time the one-time industry disruptor gave up the fight there was only a hint of nostalgia left amongst the millions of would be consumers who grew up as Toys R’ Us kids.

When industry giants die, the ripples reverberate and the question hangs loosely in the air; What killed Toys R’ Us?

The company failed on a few fronts. Consumer needs and industry standards were rapidly changing in an era of growing online sales. Yet, instead of developing a branded online business, they contracted as the sole distributor for Amazon at a cost of 50 million dollars a year. By the time Toys R’ Us sued them successfully to get out of the contract, a distraction that bled time, focus and energy, a rapidly evolved Amazon had learned all they needed to know about selling toys and had acquired Toys R’ Us’ online customer base. You can’t win that back in court.

At the same time, Toys R’ Us’ sprawling brick and mortar stores were neither quick and easy nor cheap. Their shelves overflowing with stock couldn’t compete with the selection, prices and ease offered to consumers online or by big box stores like Wal-Mart and Target, where prices are low and millennial parents can buy a toy while shopping for groceries.

Technology growth created a deadly trifecta – it changed the way people shop, it reduced the market demand and it changed the next generation of consumer, and Toys R’ Us lost on all fronts.
In the end it was poor risk management, and lack of innovation in re-creating the brand, that drowned the giant in a sea of debt.

R.I.P Toys R’ Us.

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Strategic planning is key to ensuring every company’s long-term viability, and goal setting is an indispensable step toward fulfilling those plans. Unfortunately, businesses often don’t accomplish their overall strategic plans because they’re unable to fully reach the various goals necessary to get there.

If this scenario sounds all too familiar, trace your goals back to their origin. Those that are poorly conceived typically set up a company for failure. One solution is to follow the SMART approach.

Definitions to work by

The SMART system was first introduced to the business world in the early 1980s. Although the acronym’s letters have been associated with different meanings over the years, they’re commonly defined as:

Specific. Goals must be precise. So, if your strategic plan includes growing the business, your goals must then explicitly state how you’ll do so. For each goal, define the “5 Ws” — who, what, where, when and why.

Measurable. Setting goals is of little value if you can’t easily assess your progress toward them. Pair each goal with one or more metrics to measure progress and success. This may mean increasing revenue by a certain percentage, expanding your customer base by winning a certain number of new accounts, or something else.

Achievable. Unrealistically aggressive goals can crush motivation. No one wants to put time and effort into something that’s likely to fail. Ensure your goals can be accomplished, but don’t make them too easy. The best ones are usually somewhat of a stretch but still doable. Rely on your own business experience and the feedback of your trusted managers to find the right balance.

Relevant. Let’s say you identify a goal that you know you can achieve. Before locking it in, ask whether and how it will move your business forward. Again, goals should directly and clearly support your long-term strategic plan. Sometimes companies can be tempted by “low-hanging fruit” — goals that are easy to accomplish but lead nowhere.

Timely. Assign each goal a deadline. Doing so will motivate those involved by creating a sense of urgency. Also, once you’ve established a deadline, work backwards and set periodic milestones to help everyone pace themselves toward the goal.

Eye on the future

Strategic planning, and the goal setting that goes along with it, might seem like a waste of time. But even if your business is thriving now, it’s important to keep an eye on the future. And that means long-term strategic planning that includes SMART goals. Our firm would be happy to explain further and offer other ideas.

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“Don’t worry about failure,” advises a successful CEO, “you only have to be right once.”

Both true and misleading, the statement inspires entrepreneurs to keep fighting past the initial failures that are the hallmark of new enterprise. Get past that and numerous skills to master present themselves.

In any business the primary goal is the same- succinctly stated, we aim to create, communicate and deliver value to a target market at a profit.

At the most basic level every business owner is trying to do the same 4 things.

Product management: Improving the tangible or intangible value you wish to deliver to a welcoming and loyal customer base.

Customer management: Knowing your customer base. Who is your target market? The demographics and psychographics of your ideal customer will help you both brand and deliver your product successfully.

Branding: Identifying company values and communicating them to the public. Before attempting to educate the public, you’ll have to be able to answer these few simple questions to yourself: Why are customers going to like this? Why will they adopt this? Why is it better than the traditional way? How do I best identify and communicate our shared values and inspire excitement they are likely to share?

Profitability: Keeping and measuring data is paramount in generating revenue. Understanding the metrics of production costs vs. other business expenses will compel decisiveness about how best to drive profitability. At different times reducing costs, or increasing turnover, productivity or efficiency can be the right answer. You may also choose to expand into new market sectors, or develop new products or services.

Finding all these proficiencies in one human proves difficult, which is why business owners hire employees whom they hope will excel where they lag. But people management can sometimes prove more complicated than product and data management put together. In a recent survey of over 2,000 employees in the marketing sector 83% experienced what they consider poor management with 59% reporting having left a job due to it.

On entrepreneurship, a successful CEO advised, “Failure and invention are inseparable twins. To invent is to experiment- to do it successfully you cannot be failure averse.” It should be your intention to streamline the experience of failure to only those failures that pave the road to success.

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Please download our complimentary year end tax planning guide for individuals

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Once upon a time, some parents and grandparents would attempt to save tax by putting investments in the names of their young children or grandchildren in lower income tax brackets. To discourage such strategies, Congress created the “kiddie” tax back in 1986. Since then, this tax has gradually become more far-reaching. Now, under the Tax Cuts and Jobs Act (TCJA), the kiddie tax has become more dangerous than ever. (more…)

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Meal, vehicle and travel expenses are common deductions for businesses. But if you don’t properly document these expenses, you could find your deductions denied by the IRS. (more…)

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Recently, Governor Phil Murphy signed into law various tax bills that will have an immediate and significant impact on taxpayers in New Jersey. The new tax laws make sweeping changes to the state’s Corporation Business Tax (CBT) Act and results in possibly the most significant overhaul of the CBT since it was first enacted in 1945.

They new tax laws are intended to increase revenue, and to raise the highest rate for individual gross income tax purposes. Below is a summary of these changes. (more…)

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You’ve probably heard about the recent U.S. Supreme Court decision allowing state and local governments to impose sales taxes on more out-of-state online sales. The ruling in South Dakota v. Wayfair, Inc. is welcome news for brick-and-mortar retailers, who felt previous rulings gave an unfair advantage to their online competitors. And state and local governments are pleased to potentially be able to collect more sales tax.

But for businesses with out-of-state online sales that haven’t had to collect sales tax from out-of-state customers in the past, the decision brings many questions and concerns. (more…)

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If you see four possible ways for something to go wrong, and circumvent them all- a fifth way promptly develops. Which is why any plan not amenable to change…is a bad plan.
Strong businesses must be prepared to weather the storms that will inevitably come. A company like Coca Cola Co has, which has been in business over 130 years, has seen many such downs turns, but perhaps none quite as precarious as the negative PR campaign against sugar, that in 2004 set the industry on a downward spiral that continues to this day. The recent sugar tax being imposed across the country is the latest crushing hit in a long battle that shows no sign of letting up. (more…)

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The US Supreme Court overturned over a half century of precedent last Thursday, ruling that a state may reasonably impose sales tax collection obligations on out-of-state retailers with no physical presence in the state based on a certain threshold of in-state sales.

What does this mean for online or out-of-state retailers? (more…)

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