Industries Archives - Page 9 of 46

Members of the Sandwich Generation are in a Unique Situation

Estate & Wealth Transfer Planning|July 29, 2021

The “sandwich generation” is a large segment of the population. These are people who find themselves caring for both their children and their parents at the same time. As a result, estate planning — which traditionally focuses on providing for one’s children — has expanded in many cases to include one’s aging parents as well.

Steps to Ease Complex Issues

Including your parents as beneficiaries of your estate may raise a number of complex issues. As you discuss these issues with your advisor, consider these five planning tips:

Plan for long-term care (LTC) costs. The annual cost of LTC — which may include assisted living facilities, nursing homes or home health care — can reach well into six figures. These expenses aren’t covered by traditional health insurance policies or Social Security, and Medicare provides little, if any, assistance. To prevent LTC expenses from devouring your parents’ resources, work with them to develop a plan for funding their health care needs through LTC insurance, investments or other strategies.
Make gifts. One of the simplest ways to help your parents financially is to make cash gifts to them. If gift and estate taxes are a concern, you can take advantage of the annual gift tax exclusion, which currently allows you to give each parent up to $15,000 per year without triggering gift taxes.
Pay medical expenses. You can pay an unlimited amount of medical expenses on your parents’ behalf, without tax consequences. This is true as long as you make the payments directly to medical providers.
Set up trusts. There are many trust-based strategies you can use to assist your parents. For example, in the event you predecease your parents, your estate plan might establish a trust for their benefit, with any remaining assets passing to your children after your parents die. Another option is to set up trusts during your lifetime that leverage your $11.7 million exemption. Properly designed, these trusts can remove assets — together with all future appreciation in their value — from your taxable estate. They can provide income to your parents during their lives, eventually passing to your children free of gift and estate taxes.
Buy your parents’ home. If your parents have built up significant equity in their home, consider buying it and leasing it back to them. This arrangement allows your parents to tap their home’s equity without moving out. It also provides you with valuable tax deductions for mortgage interest, depreciation, maintenance and other expenses. To avoid negative tax consequences, be sure to pay a fair price for the home (supported by a qualified appraisal) and charge your parents fair-market rent.

Find the Right Balance

As you review these and other options for assisting your aging parents, be cautious of pitfalls. For example, if you give your parents too much, these assets could end up back in your estate and potentially be exposed to gift or estate taxes. Contact us for help in addressing both your children and parents in your estate plan.

Fiduciary Duties: What Nonprofit Board Members Need to Know

Non-Profits|July 28, 2021

It takes more than dedication and enthusiasm for your cause and programs to make a good nonprofit board member. The most critical duty for all board members is being a fiduciary. This means, among other things, that they can be trusted to always act in their nonprofit’s best interests, avoid unnecessary risk, make decisions thoughtfully and execute them efficiently.

Core duties

Not all board members are aware of their duties — and it’s up to your organization to ensure they understand them. In general, a fiduciary has three primary duties:

Care. Board members must exercise reasonable care in overseeing the organization’s financial and operational activities. Although disengaged from day-to-day affairs, they should understand the nonprofit’s mission, programs and structure, make informed decisions, and consult others — including outside experts — when appropriate.
Loyalty. Board members must act solely in the best interests of the organization and its constituents, and not for personal gain.
Obedience. Board members must act in accordance with the organization’s mission, charter and bylaws, and any applicable state or federal laws.

If your board members violate these duties, they may be held personally liable for any financial harm your organization suffers as a result.

Improper Transactions

One of the most challenging — but critical — components of fiduciary duty is the obligation to avoid conflicts of interest. In general, a conflict of interest exists when a nonprofit organization does business with:

A board member,
An entity in which a board member has a financial interest, or
Another company or organization for which a board member serves as a director or trustee.

To avoid even the appearance of impropriety, your nonprofit should also treat a transaction as a conflict of interest if it involves a board member’s spouse or other family member, or an entity in which a spouse or family member has a financial interest.

The key to dealing with conflicts of interest, whether real or perceived, is disclosure. The board member involved should disclose the relevant facts to the board and abstain from any discussion or vote on the issue — unless the board determines that he or she may participate.

Educating your Board

To help your board carry out its duties, provide new members with an orientation that educates them in the basics of nonprofit finance and accounting. Also regularly provide an updated list of responsibilities that covers financial documents, compliance requirements and risk management.

Contact us. We can help inform your board and ensure it meets its fiduciary duties.

Pondering the Possibility of a Company Retreat

Industries|July 27, 2021

As vaccination levels rise and major U.S. population centers fully reopen, business owners may find themselves pondering an intriguing thought: Should we have a company retreat this year?

Although there are still health risks to consider, your employees may love the idea of attending an in-person event after so many months of video calls, emails and instant messages. The challenge to you is to plan a retreat that’s safe, productive and enjoyable — and that doesn’t unreasonably disrupt company operations.

Mixing Business with Fun

First, nail down your primary objectives well in advance. Determine and prioritize a list of the important issues you want to address but include only the top two or three on the final agenda. Otherwise, you risk rushing through some items without adequate time for discussion and formalized action plans.

If one of the objectives is to include time for socializing or recreational activities, great. Mixing business with fun keeps people energized. However, if staff see the retreat as merely time away from the office to party and golf, don’t expect to complete many work-related agenda items. One way to find the right mix is to consider scheduling work sessions for the morning and more fun, team-building exercises later in the day.

Craft a Flexible Budget

Next, work on the budget. Determining available resources early in the planning process will help you set limits for variable costs such as location, accommodations, food, transportation, speakers and entertainment.

Instead of insisting on certain days for the retreat, select a range of possible dates. Doing so widens site selection and makes it easier to negotiate favorable hotel and travel rates. Keep your budget as flexible as possible, building in a 5% to 10% safety cushion. Always expect unforeseen, last-minute expenses.

The good news is that the hospitality industry is generally trying to rebound from the very difficult downturn it suffered because of the pandemic. So, you may be able to find some special deals offered to “draw out” companies that haven’t held a retreat in a while.

Also, if you wish to truly minimize the health risks, you might want to focus on venues with outdoor facilities, such as farms or golf resorts. You could hold sessions mostly outdoors (weather permitting, of course) where it’s very safe.

Reunite and Reenergize

Holding a company retreat this year may be a great way to reunite and reenergize your workforce. As convenient and practical as video meeting technology may be, there’s nothing quite like seeing each other in person. We can help you assess the costs and establish a reasonable budget that supports an enjoyable, productive and cost-effective retreat. Contact us today!

Traveling for Business Again? What can you Deduct?

Industries, Services |July 22, 2021

As we continue to come out of the COVID-19 pandemic, you may be traveling again for business. Under tax law, there are a number of rules for deducting the cost of your out-of-town business travel within the United States. These rules apply if the business conducted out of town reasonably requires an overnight stay.

Note that under the Tax Cuts and Jobs Act, employees can’t deduct their unreimbursed travel expenses through 2025 on their own tax returns. That’s because unreimbursed employee business expenses are “miscellaneous itemized deductions” that aren’t deductible through 2025.

However, self-employed individuals can continue to deduct business expenses, including away-from-home travel expenses.

Here are some of the rules that come into play.

Transportation and Meals

The actual costs of traveling (for example, plane fare and cabs to the airport) are deductible for out-of-town business trips. You’re also allowed to deduct the cost of meals and lodging. Your meals are deductible even if they’re not connected to a business conversation or other business function. The Consolidated Appropriations Act includes a provision that removes the 50% limit on deducting eligible business meals for 2021 and 2022. The law allows a 100% deduction for food and beverages provided by a restaurant. Takeout and delivery meals provided by a restaurant are also fully deductible.

Keep in mind that no deduction is allowed for meal or lodging expenses that are “lavish or extravagant,” a term that’s been interpreted to mean “unreasonable.”

Personal entertainment costs on the trip aren’t deductible, but business-related costs such as those for dry cleaning, phone calls and computer rentals can be written off.

Combining Business and Pleasure

Some allocations may be required if the trip is a combined business/pleasure trip, for example, if you fly to a location for five days of business meetings and stay on for an additional period of vacation. Only the cost of meals, lodging, etc., incurred for the business days are deductible — not those incurred for the personal vacation days.

On the other hand, with respect to the cost of the travel itself (plane fare, etc.), if the trip is “primarily” business, the travel cost can be deducted in its entirety and no allocation is required. Conversely, if the trip is primarily personal, none of the travel costs are deductible. An important factor in determining if the trip is primarily business or personal is the amount of time spent on each (although this isn’’t the sole factor).

If the trip doesn’t involve the actual conduct of business but is for the purpose of attending a convention, seminar, etc., the IRS may check the nature of the meetings carefully to make sure they aren’t vacations in disguise. Retain all material helpful in establishing the business or professional nature of this travel.

Other Traveling Expenses

The rules for deducting the costs of a spouse who is traveling with you on a business trip are very restrictive. No deduction is allowed unless the spouse is an employee of you or your company, and the spouse’s travel is also for a business purpose.

Finally, note that personal expenses you incur at home as a result of taking the trip aren’t deductible. For example, the cost of boarding a pet while you’re away isn’t deductible.

Contact us if you have questions about your small business deductions.

Tax Advantages of Hiring your Child at your Small Business

Tax Prep, Planning & Strategy|July 15, 2021

As a business owner, you should be aware that you can save family income and payroll taxes by putting your child on the payroll.

Here are some considerations.

Shifting business earnings

You can turn some of your high-taxed income into tax-free or low-taxed income by shifting some business earnings to a child as wages for services performed. In order for your business to deduct the wages as a business expense, the work done by the child must be legitimate and the child’s salary must be reasonable.

For example, suppose you’re a sole proprietor in the 37% tax bracket. You hire your 16-year-old son to help with office work full-time in the summer and part-time in the fall. He earns $10,000 during the year (and doesn’t have other earnings). You can save $3,700 (37% of $10,000) in income taxes at no tax cost to your son, who can use his $12,550 standard deduction for 2021 to shelter his earnings.

Family taxes are cut even if your son’s earnings exceed his standard deduction. That’s because the unsheltered earnings will be taxed to him beginning at a 10% rate, instead of being taxed at your higher rate.

Income tax withholding

Your business likely will have to withhold federal income taxes on your child’s wages. Usually, an employee can claim exempt status if he or she had no federal income tax liability for last year and expects to have none this year.

However, exemption from withholding can’t be claimed if: 1) the employee’s income exceeds $1,100 for 2021 (and includes more than $350 of unearned income), and 2) the employee can be claimed as a dependent on someone else’s return.

Keep in mind that your child probably will get a refund for part or all of the withheld tax when filing a return for the year.

Social Security tax savings

If your business isn’t incorporated, you can also save some Social Security tax by shifting some of your earnings to your child. That’s because services performed by a child under age 18 while employed by a parent isn’t considered employment for FICA tax purposes.

A similar but more liberal exemption applies for FUTA (unemployment) tax, which exempts earnings paid to a child under age 21 employed by a parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting only of his or her parents.

Note: There’s no FICA or FUTA exemption for employing a child if your business is incorporated or is a partnership that includes non-parent partners. However, there’s no extra cost to your business if you’re paying a child for work you’d pay someone else to do.

Retirement benefits

Your business also may be able to provide your child with retirement savings, depending on your plan and how it defines qualifying employees. For example, if you have a SEP plan, a contribution can be made for the child up to 25% of his or her earnings (not to exceed $58,000 for 2021).

Contact us if you have any questions about these rules in your situation. Keep in mind that some of the rules about employing children may change from year to year and may require your income-shifting strategies to change too.

Nonprofits: Heed these Financial Danger Signs

Non-Profits|July 14, 2021

Many not-for-profits are just starting to emerge from one of the most challenging environments in recent memory due to the COVID-19 pandemic. Even if your organization is in good shape, don’t get too comfortable. Financial obstacles can appear at any time and you need to be vigilant about acting on certain warning signs. Consider the following.

Budget variances

Once your board has signed off on a budget, you should carefully monitor it for unexplained variances. Although some variances are to be expected, staff should be able to provide reasonable explanations — such as funding changes or macroeconomic factors — for significant discrepancies. Where necessary, work to mitigate negative variances by, for example, cutting expenses.

Also make sure you don’t:

Overspend in one program and funding it by another,
Dip into operational reserves,
Raid an endowment, or
Engage in unplanned borrowing.

Such moves might mark the beginning of a financially unsustainable cycle.

Messy financials

If your financial statements are untimely and inconsistent or aren’t prepared using U.S. Generally Accepted Accounting Principles (GAAP), you could be heading for trouble. Poor financial statements can lead to poor decision-making and undermine your nonprofit’s reputation. They also can make it difficult to obtain funding or financing.

Insist on professionally prepared statements as well as annual audits. Members of your organization’s audit committee should communicate directly with auditors before and during the process, and all board members should have the opportunity to review and question the audit report.

Declining donations

Let’s say you’ve noticed a decline in donations. Then you start hearing from long-standing supporters that they’re losing confidence in your organization’s finances or leadership. Investigate immediately.

Ask supporters what they’re seeing or hearing that prompts their concerns. Also note when development staff hits up major donors outside of the usual fundraising cycle. These contacts could mean your nonprofit is scrambling for cash.

Faulty leadership

Even the most experienced and knowledgeable nonprofit executive director shouldn’t have absolute power. Your board needs to step in if an executive tries to ignore expense limits and breaks other rules of good fiscal management. The board also should question an executive who attempts to choose a new auditor or makes strategic decisions without the board’s input.

Don’t ignore the signs

If one of these danger signs appears, it’s important to act swiftly. Financial problems don’t disappear on their own.

Contact us for help evaluating the situation and for advice on how to get your organization back on track.

Ensure Competitive Intelligence Efforts are Helpful, not Harmful

Industries|July 13, 2021

With so many employees working remotely these days, engaging in competitive intelligence has never been easier. The Internet as a whole, and social media specifically, create a data-rich environment in which you can uncover a wide variety of information on what your competitors are up to. All you or an employee need do is open a browser tab and start looking.

But should you? Well, competitive intelligence — formally defined as the gathering and analysis of publicly available information about one or more competitors for strategic planning purposes — has been around for decades. One could say that a business owner would be imprudent not to keep tabs on his or her fiercest competition.

The key is to engage in competitive intelligence legally and ethically. Here are some best practices to keep in mind:

Know the rules and legal risks.

Naturally, the very first rule of competitive intelligence is to avoid inadvertently breaking the law or otherwise exposing yourself or your company to a legal challenge. The technicalities of intellectual property law are complex; it can be easy to run afoul of the rules unintentionally.

When accessing or studying another company’s products or services, proceed carefully and consult your attorney if you fear you’re on unsteady ground and particularly before putting any lessons learned into practice.

Vet your sources carefully.

While gathering information, you or your employees may establish sources within the industry or even with a specific competitor. Be sure you don’t encourage these sources, even accidentally, to violate any standing confidentiality or noncompete agreements.

Don’t hide behind secret identities.

As easy as it might be to create a “puppet account” on social media to follow and even comment on a competitor’s posts, the negative fallout of such an account being exposed can be devastating. Also, if you sign up to receive marketing e-mails from a competitor, use an official company address and, if asked, state “product or service evaluation” as the reason you’re subscribing.

Train employees and keep an eye on consultants.

Some business owners might assume their employees would never engage in unethical or even illegal activities when gathering information about a competitor. Yet it happens. One glaring example occurred in 2015, when the Federal Bureau of Investigations and U.S. Department of Justice investigated a Major League Baseball team because one of its employees allegedly hacked into a competing team’s computer systems. The investigation concluded in 2017 with a lengthy prison term for the perpetrator and industry fines and other penalties for his employer.

Discourage employees from doing competitive intelligence on their own. Establish a formal policy, reviewed by an attorney, that includes ethics training and strict management oversight. If you engage consultants or independent contractors, be sure they know and abide by the policy as well.

Our firm can help you identify the costs and measure the financial benefits of competitive intelligence. Contact us today!

2021 Q3 Tax Calendar: Key Deadlines

Tax Prep, Planning & Strategy|July 7, 2021

Here are some of the key tax-related deadlines affecting businesses and other employers during the third quarter of 2021. 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.

Monday, August 2

Employers report income tax withholding and FICA taxes for second quarter 2021 (Form 941) and pay any tax due.
Employers file a 2020 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

Tuesday, August 10

Employers report income tax withholding and FICA taxes for second quarter 2021 (Form 941), if you deposited all associated taxes that were due in full and on time.

Wednesday, September 15

Individuals pay the third installment of 2021 estimated taxes, if not paying income tax through withholding (Form 1040-ES).
If a calendar-year corporation, pay the third installment of 2021 estimated income taxes.
If a calendar-year S corporation or partnership that filed an automatic extension:
- File a 2020 income tax return (Form 1120S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due.
- Make contributions for 2020 to certain employer-sponsored retirement plans.

Here Come Child Tax Credit Payments: What you Need to Know

Industries, Services |July 2, 2021

The first advance payments under the temporarily expanded child tax credit (CTC) will begin to arrive for nearly 39 million households in mid-July 2021 — unless, that is, they opt out. Most eligible families won’t need to do anything to receive the payments, but you need to understand the implications and why advance payments might not make sense for your household even if you qualify for them.

Understanding the CTC, then and now

The CTC was established in 1997. Unlike a deduction, which reduces taxable income, a credit reduces the amount of taxes you owe on a dollar-for-dollar basis. While some credits are limited by the amount of your tax liability, others, like the CTC, are refundable, which means that even taxpayers with no federal tax liability can benefit. Historically, the CTC has been only partially refundable in that the refundable amount was limited to $1,400.

The American Rescue Plan Act (ARPA) significantly expands the credit, albeit only for 2021. Specifically, the ARPA boosts the CTC from $2,000 to $3,000 per child ages six through 17, with credits of $3,600 for each child under age six. Plus, the CTC is now fully refundable. It also affords taxpayers the opportunity to take advantage of half of the benefit in 2021, rather than waiting until tax time in 2022.

Note, however, that there are limits to eligibility. The $2,000 credit is subject to a phaseout when income exceeds $400,000 for joint filers and $200,000 for other filers, and this continues under the ARPA — for the first $2,000. A separate phaseout applies for the increased amount: $75,000 for single filers, $112,500 for heads of household and $150,000 for joint filers.

Receiving advance payments

The ARPA directed the U.S. Treasury Department to begin making monthly payments of half of the credit in July 2021, with the remaining half to be claimed in 2022 on 2021 tax returns. For example, a household that’s eligible for a $3,600 CTC will receive $1,800 ($300 in six monthly payments) in 2021 and would claim the balance of $1,800 on the 2021 return. The payments will be made on the 15th of each month through December 2021, except for August, when they’ll be paid on August 13.

To qualify for advance payments, you (and your spouse, if filing jointly) must have:

Filed a 2019 or 2020 tax return that claims the CTC or provided the IRS with information in 2020 to claim a stimulus payment,
A main home in the United States for more than half of the year or file a joint return with a spouse who has a U.S. home for more than half of the year,
A qualifying child who’s under age 18 at the end of 2021 and who has a valid Social Security number, and
Earned less than the applicable income limit.

If the IRS has your bank information, you’ll receive the payments as direct deposits.

Because the IRS will base the payments on your 2020 tax return (or, if not yet available, your 2019 return), it’s possible that you could receive excess payments over the amount you actually qualify for in 2021. In that case — unlike excess stimulus payments — you’ll be required to repay the excess. The IRS will either deduct the amount from your 2021 refund or add it to the amount you owe.

Opting out

The IRS will automatically enroll taxpayers for advance payments, but it’s also providing an online portal at irs.gov where taxpayers can opt out. You might consider opting out if, for example, you were near the income limits in 2019 or 2020, expect to earn more in 2021, and want to avoid excess payments. Be aware that couples filing jointly must both opt out, otherwise the spouse who doesn’t will receive half of the joint payment.

It’s not only a change in expected income that could lead to excess payments; it’s also a change in the number of dependents. For example, divorced couples who share joint custody may alternate the years in which they claim their children as dependents for CTC purposes. If 2021 is your former spouse’s year, consider opting out (your former spouse won’t receive the advance payments based on his or her 2020 tax return but, if eligible, can claim the credit on the 2021 return). Parents of children who will turn age 18 in 2021 also should consider opting out.

The deadline to opt out of the first payment was June 28, 2021, but you can still opt out for future payments.

Estimating — and reducing — 2021 income

When deciding whether to opt out, you can estimate your 2021 income using multiple methods. You could simply look at your modified adjusted gross income on your most recent tax return. You also could project your income for the year and reduce it by the standard deduction (for 2021, it’s $12,550 for individual taxpayers and $25,100 for married couples filing jointly).

If you estimate that your income will be near the eligibility threshold but want to receive the advance payments, you can take measures to reduce your income before year end. You might, for example, increase your 401(k) plan contributions (the contribution limit for 2021 is $19,500). Taxpayers with high deductible health plans and health savings accounts (HSAs) can similarly reduce their income with contributions. The HSA contribution limits for 2021 are $3,600 for individual health plans and $7,200 for family health plans.

Beyond 2021

The expanded CTC is available only for 2021 as of now. President Biden has indicated that he’d like to extend it through at least 2025, and some Democratic lawmakers hope to make it permanent. But it’ll be challenging to pass a bill to make either of these proposals happen. We’ll keep you informed about any developments that could affect your tax planning.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

Rebuilding your Nonprofit’s Operating Reserves

Non-Profits|July 1, 2021

Events of the past year put a dent in many not-for-profit’s reserves. Perhaps you tapped this stash to buy personal protective equipment or to pay staffers’ salaries when your budget no longer proved adequate. As the pandemic wanes and economic conditions improve, you’ll need to start thinking about rebuilding your operating reserves.

Back on steady ground

Assembling an adequate operating reserve takes time and should be regarded as a continuous project. Obviously, it’s nearly impossible to contribute to reserves when you’re under financial stress. But once you feel your nonprofit is on steadier ground, your board of directors needs to determine what amount to target and how your organization will reach that target. It’s also a good time to review circumstances under which reserves can be drawn down.

Reserve funds can come from unrestricted contributions, investment income and planned surpluses. Many boards designate a portion of their organizations’ unrestricted net assets as an operating reserve. On the other hand, funds that shouldn’t be considered part of an operating reserve include endowments and temporarily restricted funds. Net assets tied up in illiquid fixed assets used in operations, such as your buildings and equipment, generally don’t qualify either.

Protection and flexibility

Determining how much should be in your operating reserve depends on your organization and its operations. Generally, if you depend heavily on only a few funders or government grants, your nonprofit probably will benefit from a larger reserve. Likewise, if personnel costs are high, your organization could use a healthy reserve cushion.

Three months of reserves is typically considered a minimum accumulation. Six months of reserves provides greater security. A three-to-six-month reserve should enable your organization to continue its operations for a relatively brief transition in operations or funding. Or, in the worst-case scenario, it would allow for an orderly winding up of affairs.

An operating reserve of more than six months provides greater protection if, for example, something similar to the COVID-19 lockdown occurs again. And a bigger reserve can give you financial flexibility. For example, you might have the funds to pursue a new program initiative that’s not fully funded, or to leverage debt funding for needed facilities or equipment.

No hoarding

Note that it’s generally not a good idea to put aside more than 12 months of expenses. Increasingly, donors want to see the nonprofits they support put funds to work, not hoard them.

Contact us for more information about operating reserves and setting policies that are appropriate for your organization.