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Numerous tax limits affecting businesses have increased for 2020
An array of tax-related limits that affect businesses are annually indexed for inflation, and many have increased for 2020. Here are some that may be important to you and your business.
Social Security tax
The amount of employees’ earnings that are subject to Social Security tax is capped for 2020 at $137,700 (up from $132,900 for 2019).
Deductions
Section 179 expensing:
Limit: $1.04 million (up from $1.02 million for 2019)
Phaseout: $2.59 million (up from $2.55 million)
Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:
Married filing jointly: $326,600 (up from $321,400)
Married filing separately: $163,300 (up from $160,725)
Other filers: $163,300 (up from $160,700)
Retirement plans
Employee contributions to 401(k) plans: $19,500 (up from $19,000)
Catch-up contributions to 401(k) plans: $6,500 (up from $6,000)
Employee contributions to SIMPLEs: $13,500 (up from $13,000)
Catch-up contributions to SIMPLEs: $3,000 (no change)
Combined employer/employee contributions to defined contribution plans (not including catch-ups): $57,000 (up from $56,000)
Maximum compensation used to determine contributions: $285,000 (up from $280,000)
Annual benefit for defined benefit plans: $230,000 (up from $225,000)
Compensation defining a highly compensated employee: $130,000 (up from $125,000)
Compensation defining a “key” employee: $185,000 (up from $180,000)
Other employee benefits
Qualified transportation fringe-benefits employee income exclusion: $270 per month (up from $265)
Health Savings Account contributions:
Individual coverage: $3,550 (up from $3,500)
Family coverage: $7,100 (up from $7,000)
Catch-up contribution: $1,000 (no change)
Flexible Spending Account contributions:
Health care: $2,750 (up from $2,700)
Dependent care: $5,000 (no change)
These are only some of the tax limits that may affect your business and additional rules may apply. If you have questions, please contact us.
© 2019
3 best practices for achieving organic sales growth
Most business owners would probably agree that, when it comes to sales, there’s always room for improvement. To this end, every company should strive for organic sales growth — that is, increases from existing operations unrelated to a merger or acquisition.
That’s not to say a merger or acquisition is necessarily a bad idea, but you can’t rely on major moves like this to regularly boost your numbers. Let’s look at three best practices for achieving organic sales growth.
1. Attentive customer service
Premier customer service is more than just a smile and a handshake. Are your employees really hearing clients’ problems and concerns? Do their solutions not only fix the issue but also, whenever possible, exceed the customers’ expectations?
The ability to conduct productive dialogues with your customers is a key to growing sales. Maintaining a positive, ongoing conversation starts with resolving any negative (or potentially negative) issues that arise as quickly as possible under strictly followed protocols. It also includes simply checking in with customers regularly to see what they may need.
2. Smart marketing
Do you often find yourself wondering why all your marketing channels aren’t generating new leads for your business? Most likely, it’s because some of those channels are no longer connecting with customers and prospects.
Therefore, you might want to step back and reassess the nature and strengths of your company. If you work directly with the buying public, you may want to cast as wide a net as possible. But if you sell to a specific industry or certain types of customers, you may be able to grow sales organically by focusing on professional networking groups, social organizations and trade associations.
3. Great employees
Ultimately, people are what make or break a company. Even the best idea can fail if employees aren’t fully prepared and committed to designing, producing, marketing and selling that product or service. Of course, as you well know, employing talented, industrious staff requires much more than simply getting them to show up for work.
First, you must train employees well. This means they need to know both: 1) how to do their jobs, and 2) how to help grow sales. You might ask: Does every worker really contribute to sales? In a sense, yes, because quality work — from entry-level office staff to executives in corner offices — drives sales.
Second, once an employee is trained, he or she must be periodically retrained. Happy workers are more productive and more likely to preach the excellence of your company’s products or services to friends and family. Sales may occur as a result.
The right moves
These best practices are, obviously, general in nature. The specific moves you need to make to boost your business’s sales numbers will depend on your size, industry, market and focus. Our firm can help you identify optimal strategies for organic sales growth and measure the results.
© 2020
What can AI do for my business?
You’ve no doubt read articles or heard stories about how artificial intelligence (AI) is bringing sweeping change to a wide variety of industries. But it’s one thing to learn about how this remarkable technology is changing someone else’s company and quite another to apply it to your own. Here’s a primer on what AI might be able to do for your business.
3 technology types
AI generally refers to using computers to perform complex tasks usually thought to require human intelligence — such as image perception, voice recognition, decision making and problem solving. Three primary types of technologies fall under the AI umbrella:
1. Machine learning. This involves an iterative process whereby machines improve their performance in a specific task over time with little or no programming or human intervention. It can, for example, improve your forecasting models for determining which products or services will be in high demand with customers.
2. Natural language processing (NLP). This uses algorithms to analyze unstructured human language in documents, emails, texts, conversation or otherwise. Language translation apps are among the most common and dramatic examples of NLP. Communicating with business partners, customers and prospects in other countries — or simply people whose first languages are other than English — has become much easier as this type of software has improved.
3. Robotic process automation (RPA). Using rules and structured inputs, RPA automates time-consuming repetitive manual tasks that don’t require decision making. For instance, an RPA system can collect data from vendor invoices, enter it into a company’s accounting system, and generate an email confirming receipt and requesting additional information if needed. This functionality can help you better time vendor payments to optimize cash flow.
Chat boxes, data sensors
A couple of the most common on-ramps into AI for businesses are chatbots and data sensors. Chatbots are those AI-based instant messaging or voice-based systems that allow users to ask relatively simple questions and get instant answers.
Today’s customers expect to find information quickly and chatbots can provide this speed. However, it’s important to implement a system that enables users to speedily connect to a human customer service rep if their questions or issues are complex or urgent.
Data sensors generally don’t have anything to do with customers, but they can be quite valuable when it comes to your offices or facilities. AI-enhanced building systems allow for real-time monitoring and adjustment of temperature, lighting and other controls. This data can drive predictive analytics that improve decisions about the maintenance and replacement of systems, lowering energy and repair costs.
Upgrade prudently
Precisely how AI might help you run your business more efficiently and profitably depends on the size of your company and the nature of its work. You don’t want to throw dollars at an AI solution just to keep up with the competition. Then again, this technology may offer enticing ways to sharpen your competitive edge. We can help you perform a cost-benefit analysis of any technological upgrade you’re considering.
© 2020
New rules will soon require employers to annually disclose retirement income to employees
As you’ve probably heard, a new law was recently passed with a wide range of retirement plan changes for employers and individuals. One of the provisions of the SECURE Act involves a new requirement for employers that sponsor tax-favored defined contribution retirement plans that are subject to ERISA.
Specifically, the law will require that the benefit statements sent to plan participants include a lifetime income disclosure at least once during any 12-month period. The disclosure will need to illustrate the monthly payments that an employee would receive if the total account balance were used to provide lifetime income streams, including a single life annuity and a qualified joint and survivor annuity for the participant and the participant’s surviving spouse.
Background information
Under ERISA, a defined contribution plan administrator is required to provide benefit statements to participants. Depending on the situation, these statements must be provided quarterly, annually or upon written request. In 2013, the U.S. Department of Labor (DOL) issued an advance notice of proposed rulemaking providing rules that would have required benefit statements provided to defined contribution plan participants to include an estimated lifetime income stream of payments based on the participant’s account balance.
Some employers began providing this information in these statements — even though it wasn’t required.
But in the near future, employers will have to begin providing information to their employees about lifetime income streams.
Effective date
Fortunately, the effective date of the requirement has been delayed until after the DOL issues guidance. It won’t go into effect until 12 months after the DOL issues a final rule. The law also directs the DOL to develop a model disclosure.
Plan fiduciaries, plan sponsors, or others won’t have liability under ERISA solely because they provided the lifetime income stream equivalents, so long as the equivalents are derived in accordance with the assumptions and guidance and that they include the explanations contained in the model disclosure.
Stay tuned
Critics of the new rules argue the required disclosures will lead to confusion among participants and they question how employers will arrive at the income projections. For now, employers have to wait for the DOL to act. We’ll update you when that happens. Contact us if you have questions about this requirement or other provisions in the SECURE Act.
© 2019
New law helps businesses make their employees’ retirement secure
A significant law was recently passed that adds tax breaks and makes changes to employer-provided retirement plans. If your small business has a current plan for employees or if you’re thinking about adding one, you should familiarize yourself with the new rules.
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law on December 20, 2019 as part of a larger spending bill. Here are three provisions of interest to small businesses.
Employers that are unrelated will be able to join together to create one retirement plan. Beginning in 2021, new rules will make it easier to create and maintain a multiple employer plan (MEP). A MEP is a single plan operated by two or more unrelated employers. In the past, there were barriers that made it difficult to setting up and running these plans. Soon, there will be increased opportunities for small employers to join together to receive better investment results, while allowing for less expensive and more efficient management services.
There’s an increased tax credit for small employer retirement plan startup costs. If you want to set up a retirement plan, but haven’t gotten around to it yet, new rules increase the tax credit for retirement plan start-up costs to make it more affordable for small businesses to set them up. Starting in 2020, the credit is increased by changing the calculation of the flat dollar amount limit to: The greater of $500, or the lesser of: a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan, or b) $5,000.
There’s a new small employer automatic plan enrollment tax credit. Not surprisingly, when employers automatically enroll employees in retirement plans, there is more participation and higher retirement savings. Beginning in 2020, there’s a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. This credit is on top of an existing plan start-up credit described above and is available for three years. It is also available to employers who convert an existing plan to a plan with automatic enrollment.
These are only some of the retirement plan provisions in the SECURE Act. There have also been changes to the auto enrollment safe harbor cap, nondiscrimination rules, new rules that allow certain part-timers to participate in 401(k) plans, increased penalties for failing to file retirement plan returns and more. Contact us to learn more about your situation.
© 2019
Cost management: A budget’s best friend
If your company comes up over budget year after year, you may want to consider cost management. This is a formalized, systematic review of operations and resources with the stated goal of reducing costs at every level and controlling them going forward. As part of this effort, you’ll answer questions such as:
Are we operating efficiently? Cost management can help you clearly differentiate activities that are running smoothly and staying within budget from the ones that are constantly breaking down and consuming extra dollars.
Depending on your industry, there are likely various metrics you can calculate and track to determine which aspects of your operations are inefficient. Sometimes improving efficiency is simply a matter of better scheduling. If you’re constantly missing deadlines or taking too long to fulfill customers’ needs, you’re also probably losing money playing catch-up and placating disappointed buyers.
Can we really see our supply chain? Maybe you’ve bought the same types of materials from the same vendors for many years. Are you really getting the most for your money? A cost management review can help you look for better bargains on the goods and services that make your business run.
A big problem for many businesses is lack of practical data. Without the right information, you may not be fully aware of the key details of your supply chain. There’s a term for this: supply chain visibility. When you can’t “see” everything about the vendors that service your company, you’re much more vulnerable to hidden costs and overspending.
Is technology getting the better of us? At this point, just about every business process has been automated one way or another. But are you managing this technology or is it managing you? Some companies overspend unnecessarily while others miss out on ways to better automate activities. Cost management can help you decide whether to simplify or upgrade.
For example, many businesses have historically taken an ad hoc approach to procuring technology. Different departments or individuals have obtained various software over the years. Some of this technology may still be in regular use but, in many cases, an expensive application sits dormant while the company still pays for licensing or tech support.
Conversely, a paid-for but out-of-date application could be slowing operational or supply chain efficiency. You may have to spend money to save money by getting something that’s up-to-date and fully functional.
The term “cost management” is often applied to specific projects. But you can also apply it to your business, either as an emergency step if your budget is really out of whack or as a regular activity for keeping the numbers in line. Our firm can help you conduct this review and decide what to do about the insights gained.
© 2020