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Ashleigh Laabs 8/10/21 Ashleigh Laabs 8/10/21

DEI programs are good for business

Many businesses are spending more time and resources on supporting the well-being of their employees. This includes recognizing and addressing issues related to diversity, equity and inclusion (DEI).

A thoughtfully designed DEI program can do more than just head off potential conflicts and disruptions among coworkers; it can help you attract good job candidates, retain your best employees and create a more engaged, productive workforce.

Strategic objectives

Essentially, DEI programs are formal efforts to help employees better understand, accept and appreciate differences among everyone on staff. Differences addressed typically include race, ethnicity, gender identification, age, religion, disabilities and sexual orientation. They may also include education, personality types, skill sets and life experiences. A program can comprise training courses, seminars, guest speakers, group discussions and social events.

Strategic objectives may vary depending on the business. Some companies wish to improve collaboration and productivity within or among teams, departments or business units. Others are looking to attract more diverse job candidates. And still others want to connect with growing multicultural markets that don’t necessarily respond to “traditional” messaging.

Think of implementing a DEI program as an investment. It should include specific goals and achievable, measurable returns.

Key components

Many DEI programs fail because of lack of consensus regarding their value or faulty design. Begin with executive buy-in. Successful programs start with the support of ownership and senior leadership. If they’re not committed to the program, it probably won’t last long (if it gets off the ground at all). Typically, a champion will need to build the case of why a DEI program is needed and explain how it will positively impact the organization.

You’ll also need to assemble the right team. Form a DEI committee to identify objectives and give the program its initial size and shape. If you happen to employ someone who has been involved in launching a DEI program in the past, learn all you can from that employee’s experience. Otherwise, encourage your team to research successful and unsuccessful programs. You might even engage a consultant who specializes in the field.

For clarity and consistency, put your DEI program in writing. The committee needs to develop clear language spelling out each goal. The objectives can then be reviewed, discussed and revised. Ensure the objectives support your strategic plan and that you can accurately measure progress toward each. Don’t launch the program until you’re confident it will improve your organization, not distract it.

How work is done

Events of the last year or so have led most businesses to reconsider the size, composition and operational approach of their workforces. In many industries, DEI awareness and training is playing an important role in this reckoning. We’d be happy to help you assess the costs and feasibility of a program for your business.

Ashleigh Laabs 7/29/21 Ashleigh Laabs 7/29/21

Keep family matters out of the public eye by avoiding probate

Although probate can be time consuming and expensive, one of its biggest downsides is that it’s public — anyone who’s interested can find out what assets you owned and how they’re being distributed after your death. The public nature of probate may also draw unwanted attention from disgruntled family members who may challenge the disposition of your assets, as well as from other unscrupulous parties.

The good news is that by implementing the right estate planning strategies, you can keep much or even all of your estate out of probate.

Probate, defined

Probate is a legal procedure in which a court establishes the validity of your will, determines the value of your estate, resolves creditors’ claims, provides for the payment of taxes and other debts, and transfers assets to your heirs.

Is probate ever desirable? Sometimes. Under certain circumstances, you might feel more comfortable having a court resolve issues involving your heirs and creditors. Another possible advantage is that probate places strict time limits on creditor claims and settles claims quickly.

Choose the right strategies

There are several tools you can use to avoid (or minimize) probate. (You’ll still need a will — and probate — to deal with guardianship of minor children, disposition of personal property and certain other matters.)

The simplest ways to avoid probate involve designating beneficiaries or titling assets in a manner that allows them to be transferred directly to your beneficiaries outside your will. So, for example, be sure that you have appropriate, valid beneficiary designations for assets such as life insurance policies, annuities and retirement plans.

For assets such as bank and brokerage accounts, look into the availability of “payable on death” (POD) or “transfer on death” (TOD) designations, which allow these assets to avoid probate and pass directly to your designated beneficiaries. However, keep in mind that while the POD or TOD designation is permitted in most states, not all financial institutions and firms make this option available.

For homes or other real estate — as well as bank and brokerage accounts and other assets — some people avoid probate by holding title with a spouse or child as “joint tenants with rights of survivorship” or as “tenants by the entirety.” But this has three significant drawbacks: 1) Once you retitle property, you can’t change your mind, 2) holding title jointly gives the joint owner some control over the asset and exposes it to his or her creditors, and 3) there may be undesirable tax consequences.

A handful of states permit TOD deeds, which allow you to designate a beneficiary who’ll succeed to ownership of real estate after you die. TOD deeds allow you to avoid probate without making an irrevocable gift or exposing the property to your beneficiary’s creditors.

Discuss your options

Because of probate’s public nature, avoiding the process to the extent possible is a goal of many estate plans. Implementing the proper strategies in your plan can protect your privacy and save your family time and money. Contact us with questions or to discuss your options.

FMD’s estate planning team will work with you and your legal and financial advisers to design plans that align with your goals and objectives. When it comes to estate planning and wealth preservation, every one of our clients receives the quality of service and personal attention that are the hallmarks of FMD. To learn more about how we can help address your estate planning and wealth preservation needs, contact us today.

Ashleigh Laabs 7/29/21 Ashleigh Laabs 7/29/21

Get serious about your strategic planning meetings

Most business owners would likely agree that strategic planning is important. Yet many companies rarely engage in active measures to gather and discuss strategy. Sometimes strategic planning is tacked on to a meeting about something else; other times it occurs only at the annual company retreat when employees may feel out of their element and perhaps not be fully focused.

Businesses should take strategic planning seriously. One way to do so is to hold meetings exclusively focused on discussing your company’s direction, establishing goals and identifying the resources you’ll need to achieve them. To get the most from strategy sessions, follow some of the best practices you’d use for any formal business meeting.

Set an agenda

Every strategy session should have an agenda that’s relevant to strategic planning — and only strategic planning. Allocate an appropriate amount of time for each agenda item so that the meeting is neither too long nor too short.

Before the meeting, distribute a document showing who’ll be presenting on each agenda topic. The idea is to create a “no surprises” atmosphere in which attendees know what to expect and can thereby think about the topics in advance and bring their best ideas and feedback.

Lay down rules (if necessary)

Depending on your workplace culture, you may want to state some upfront rules. Address the importance of timely attendance and professional decorum — either in writing or by announcement as the meeting begins.

Every business may not need to do this, but meetings that become hostile or chaotic with personal conflicts or “side chatter” can undermine the purpose of strategic planning. Consider whether to identify conflict resolution methods that participants must agree to follow.

Choose a facilitator

A facilitator should oversee the meeting. He or she is responsible for:

Starting and ending on time,
Transitioning from one agenda item to the next,
Enforcing the rules as necessary,
Motivating participation from everyone, and
Encouraging a positive, productive atmosphere.

If no one at your company feels up to the task, you could engage an outside consultant. Although you’ll need to vet the person carefully and weigh the financial cost, a skilled professional facilitator can make a big difference.

Keep minutes

Recording the minutes of a strategic planning meeting is essential. An official record will document what took place and which decisions (if any) were made. It will also serve as a log of potentially valuable ideas or future agenda items.

In addition, accurate meeting minutes will curtail miscommunications and limit memory lapses of what was said and by whom. If no record is kept, people’s memories may differ about the conclusions reached and disagreements could later arise about where the business is striving to head.

Gather ’round

By gathering your best and brightest to discuss strategic planning, you’ll put your company in a stronger competitive position. Contact our firm for help laying out some of the tax, accounting and financial considerations you’ll need to talk about.

Ashleigh Laabs 7/23/21 Ashleigh Laabs 7/23/21

Can a broken trust be fixed?

An irrevocable trust has long been a key component of many estate plans. But what if it no longer serves your purposes? Is it too late to change it? Depending on applicable state law, you may have several options for fixing a “broken” trust.

How trusts break

There are several reasons a trust can break, including:

Changing family circumstances. A trust that works just fine when it’s established may no longer achieve its original goals if your family circumstances change. Some examples are a divorce, second marriage or the birth of a child.

New tax laws. Many trusts were created when gift, estate and generation-skipping transfer (GST) tax exemption amounts were relatively low. However, for 2021, the exemptions have risen to $11.7 million, so trusts designed to minimize gift, estate and GST taxes may no longer be necessary. And with transfer taxes out of the picture, the higher income taxes often associated with these trusts — previously overshadowed by transfer tax concerns — become a more important factor.

Mistakes. Potential errors include naming the wrong beneficiary, omitting a critical clause from the trust document, including a clause that’s inconsistent with your intent, and failing to allocate your GST tax exemption properly.

These are just a few examples of the many ways you might end up with a trust that fails to achieve your estate planning objectives.

How to fix them

If you have one or more trusts in need of repair, you may have several remedies at your disposal, depending on applicable law in the state where you live and, if different, in the state where the trust is located. Potential remedies include:

Reformation. The Uniform Trust Code (UTC), adopted in more than half the states, provides several remedies for broken trusts. Non-UTC states may provide similar remedies. Reformation allows you to ask a court to rewrite a trust’s terms to conform with the grantor’s intent. This remedy is available if the trust’s original terms were based on a legal or factual mistake.

Modification. This remedy may be available, also through court proceedings, if unanticipated circumstances require changes in order to achieve the trust’s purposes. Some states permit modification — even if it’s inconsistent with the trust’s purposes — with the consent of the grantor and the beneficiaries.

Decanting. Many states have decanting laws, which allow a trustee, according to his or her distribution powers, to “pour” funds from one trust into another with different terms and even in a different location. Depending on your circumstances and applicable state law, decanting may allow a trustee to correct errors, take advantage of new tax laws or another state’s asset protection laws, add or eliminate beneficiaries, and make other changes, often without court approval.

Seek professional guidance

The rules regarding modification of irrevocable trusts are complex and vary dramatically from state to state. And there are risks associated with revising or moving a trust, including uncertainty over how the IRS will view the changes. Before you make any changes, talk to us about the potential benefits and risks.

Ashleigh Laabs 7/22/21 Ashleigh Laabs 7/22/21

Keeping remote sales sharp in the new normal

The COVID-19 pandemic has dramatically affected the way people interact and do business. Even before the crisis, there was a trend toward more digital interactions in sales. Many experts predicted that companies’ experiences during the pandemic would accelerate this trend, and that seems to be coming to pass.

As this transformation continues, your business should review its remote selling processes and regularly consider adjustments to adapt to the “new normal” and stay ahead of the competition.

3 tips to consider

How can you maximize the tough lessons of 2020 and beyond? Here are three tips for keeping your remote sales operations sharp:

1. Stay focused on targeted sales. Remote sales can seemingly make it possible to sell to anyone, anywhere, anytime. Yet trying to do so can be overwhelming and lead you astray. Choose your sales targets carefully. For example, it’s typically far easier to sell to existing customers with whom you have an established relationship or to prospects that you’ve thoroughly researched.

Indeed, in the current environment, it’s even more critical to really know your customers and prospects. Determine whether and how their buying capacity and needs have changed because of the pandemic and resulting economic changes — and adjust your sales strategies accordingly.

2. Leverage technology. For remote selling to be effective, it needs to work seamlessly and intuitively for you and your customers or prospects. You also must recognize technology’s limitations.

Even with the latest solutions, salespeople may be unable to pick up on body language and other visual cues that are more readily apparent in a face-to-face meeting. That’s why you shouldn’t forego in-person sales calls if safe and feasible — particularly when it comes to closing a big deal.

In addition to video, other types of technology can enhance or support the sales process. For instance, software platforms that enable you to create customized, interactive, visually appealing presentations can help your sales staff meet some of the challenges of remote interactions. In addition, salespeople can use brandable “microsites” to:

Share documents and other information with customers and prospects,
Monitor interactions and respond quickly to questions, and
Appropriately tailor their follow-ups.

Also, because different customers have different preferences, it’s a good idea to offer a variety of communication platforms — such as email, messaging apps, videoconferencing and live chat.

3. Create an outstanding digital experience. Customers increasingly prefer the convenience and comfort of self-service and digital interactions. So, businesses need to ensure that customers’ experiences during these interactions are positive. This requires maintaining an attractive, easily navigable website and perhaps even offering a convenient, intuitive mobile app.

An important role

The lasting impact of the pandemic isn’t yet clear, but remote sales will likely continue to play an important role in the revenue-building efforts of many companies. We can help you assess the costs of your technology and determine whether you’re getting a solid return on investment.

Ashleigh Laabs 7/20/21 Ashleigh Laabs 7/20/21

A fresh look at CRTs, CRATs and CRUTs

A charitable remainder trust (CRT) allows you to support a favorite charity while potentially boosting your cash flow, shrinking the size of your taxable estate, and reducing or deferring income taxes. In a nutshell, you contribute stock or other assets to an irrevocable trust that provides you — and, if you desire, your spouse (or others you designate) — with an income stream for life or for a term of up to 20 years. At the end of the trust term, the remaining trust assets are distributed to one or more charities you’ve selected.

When you fund the trust, you’re entitled to claim a charitable income tax deduction equal to the present value of the remainder interest (subject to applicable limits on charitable deductions). Your annual payouts from the trust can be based on a fixed percentage of the trust’s initial value — this is known as a charitable remainder annuity trust (CRAT). Or they can be based on a fixed percentage of the trust’s value recalculated annually — in what’s known as a charitable remainder unitrust (CRUT).

CRUT advantages

Generally, CRUTs are preferable for two reasons. First, the annual revaluation of the trust assets allows payouts to increase if the trust assets grow, which can allow your income stream to keep up with inflation. Second, donors can make additional contributions to CRUTs, but not to CRATs.

The fixed percentage — called the unitrust amount — can range from 5% to 50%. A higher rate increases the income stream, but it reduces the value of the remainder interest and, therefore, the charitable deduction. Also, to pass muster with the IRS, the present value of the remainder interest must be at least 10% of the initial value of the trust assets.

The determination of whether the remainder interest meets the 10% requirement is made at the time the assets are transferred. If the ultimate distribution to charity is less than 10% of the amount transferred, there’s no adverse tax impact related to the contribution.

NIMCRUTs can provide an income boost

By designing a CRUT with a “net income with makeup” feature — known as a NIMCRUT — you can reduce or even eliminate payouts early in the trust term and enjoy larger payouts in later years when you’re retired or otherwise need an income boost.

Each year, a NIMCRUT distributes the lesser of the unitrust amount (say, 5%) or the trust’s net income. The trustee can invest the trust assets in growth investments that produce little or no income, allowing the trust to grow tax-free and deferring distributions to later years. The deferred payouts accumulate in a “makeup account.”

When you’re ready to begin receiving an income, the trustee shifts the assets into income-producing investments. You can use the funds in the makeup account to increase your distributions beyond the unitrust amount (up to the amount of net income).

Handle with care

CRTs, CRATs and CRUTs require careful planning and solid investment guidance to ensure that they meet your needs. Contact us to discuss your options before taking action.

Ashleigh Laabs 7/20/21 Ashleigh Laabs 7/20/21

5 ways to take action on accounts receivable

No matter the size or shape of a business, one really can’t overstate the importance of sound accounts receivable policies and procedures. Without a strong and steady inflow of cash, even the most wildly successful company will likely stumble and could even collapse.

If your collections aren’t as efficient as you’d like, consider these five ways to improve them:

1. Redesign your invoices. It may seem superficial, but the design of invoices really does matter. Customers prefer bills that are aesthetically pleasing and easy to understand. Sloppy or confusing invoices will likely slow down the payment process as customers contact you for clarification rather than simply remit payment. Of course, accuracy is also critical to reducing questions and speeding up payment.

2. Appoint a collections champion. At some companies, there may be several people handling accounts receivable but no one primarily focusing on collections. Giving one employee the ultimate responsibility for resolving past due invoices ensures the “collection buck” stops with someone. If budget allows, you could even hire an accounts receivable specialist to fill this role.

3. Expand your payment options. The more ways customers can pay, the easier it is for them to pay promptly. Although some customers still like traditional payment options such as mailing a check or submitting a credit card number, more and more people now prefer the convenience of mobile payments via a dedicated app or using third-party services such as PayPal, Venmo or Square.

4. Get acquainted (or reacquainted) with your customers. If your business largely engages in B2B transactions, many of your customers may have specific procedures that you must follow to properly format and submit invoices. Review these procedures and be sure your staff is following them carefully to avoid payment delays. Also, consider contacting customers a couple of days before payment is due — especially for large payments — to verify that everything is on track.

5. Generate accounts receivable aging reports. Often, the culprit behind slow collections is a lack of timely, accurate data. Accounts receivable aging reports provide an at-a-glance view of each customer’s current payment status, including their respective outstanding balances. Aging reports typically track the payment status of customers by time periods, such as 0–30 days, 31–60 days, 61–90 days and 91+ days past due.

With easy access to this data, you’ll have a better idea of where to focus your efforts. For example, you can concentrate on collecting the largest receivables that are the furthest past due. Or you can zero in on collecting receivables that are between 31 and 60 days outstanding before they get any further behind.

Need help setting up aging reports or improving the ones you’re currently running? Please let us know — we’d be happy to help with this or any aspect of improving your accounts receivable processes.

Ashleigh Laabs 7/12/21 Ashleigh Laabs 7/12/21

Who in a small business can be hit with the “Trust Fund Recovery Penalty?”

There’s a harsh tax penalty that you could be at risk for paying personally if you own or manage a business with employees. It’s called the “Trust Fund Recovery Penalty” and it applies to the Social Security and income taxes required to be withheld by a business from its employees’ wages.

Because taxes are considered property of the government, the employer holds them in “trust” on the government’s behalf until they’re paid over. The penalty is also sometimes called the “100% penalty” because the person liable and responsible for the taxes will be penalized 100% of the taxes due. Accordingly, the amounts IRS seeks when the penalty is applied are usually substantial, and IRS is aggressive in enforcing the penalty.

Wide-ranging penalty

The Trust Fund Recovery Penalty is among the more dangerous tax penalties because it applies to a broad range of actions and to a wide range of people involved in a business.

Here are some answers to questions about the penalty so you can safely avoid it.

What actions are penalized? The Trust Fund Recovery Penalty applies to any willful failure to collect, or truthfully account for, and pay over Social Security and income taxes required to be withheld from employees’ wages.

Who is at risk? The penalty can be imposed on anyone “responsible” for collection and payment of the tax. This has been broadly defined to include a corporation’s officers, directors and shareholders under a duty to collect and pay the tax as well as a partnership’s partners, or any employee of the business with such a duty. Even voluntary board members of tax-exempt organizations, who are generally exempt from responsibility, can be subject to this penalty under some circumstances. In some cases, responsibility has even been extended to family members close to the business, and to attorneys and accountants.

According to the IRS, responsibility is a matter of status, duty and authority. Anyone with the power to see that the taxes are (or aren’t) paid may be responsible. There’s often more than one responsible person in a business, but each is at risk for the entire penalty. You may not be directly involved with the payroll tax withholding process in your business. But if you learn of a failure to pay over withheld taxes and have the power to pay them but instead make payments to creditors and others, you become a responsible person.

Although a taxpayer held liable can sue other responsible people for contribution, this action must be taken entirely on his or her own after the penalty is paid. It isn’t part of the IRS collection process.

What’s considered “willful?” For actions to be willful, they don’t have to include an overt intent to evade taxes. Simply bending to business pressures and paying bills or obtaining supplies instead of paying over withheld taxes that are due the government is willful behavior. And just because you delegate responsibilities to someone else doesn’t necessarily mean you’re off the hook. Your failure to take care of the job yourself can be treated as the willful element.

Never borrow from taxes

Under no circumstances should you fail to withhold taxes or “borrow” from withheld amounts. All funds withheld should be paid over to the government on time. Contact us with any questions about making tax payments.

Ashleigh Laabs 7/12/21 Ashleigh Laabs 7/12/21

Heading across state lines with your trust requires planning

In some cases, it may be desirable to move a trust to a more favorable jurisdiction. But moving a trust from one state to another can present significant risks, so don’t attempt to do so without considering all the benefits, limitations and risks, and obtaining professional advice.

Reasons to move a trust

There are many reasons for moving a trust to another jurisdiction, such as:

Avoiding or reducing state income taxes on the trust’s accumulated ordinary income and capital gains,
Taking advantage of trust laws that allow the trustee to improve investment performance,
Extending the trust’s duration,
Obtaining stronger creditor protection for beneficiaries, and
Reducing fees and administrative expenses.

Many people retire to states with more favorable tax laws. But just because you move to a state with lower income or estate taxes doesn’t mean your trusts move with you.

For individual income tax purposes, you’re generally taxed by your state of domicile. The state to which a trust pays taxes, however, depends on its situs.

Can your trust be moved?

Moving a trust means changing its situs from one state to another. Generally, this isn’t a problem for revocable trusts. In fact, it’s possible to change situs for a revocable trust by simply modifying it. Or, if that’s not an option, you can revoke the trust and establish a new one in the desired jurisdiction.

If a trust is irrevocable, whether it can be moved depends, in part, on the language of the trust document. Many trusts specify that the laws of a particular state govern them, in which case those laws would likely continue to apply even if the trust were moved. Some trusts expressly authorize the trustee or beneficiaries to move the trust from one jurisdiction to another.

If the trust document doesn’t designate a situs or establish procedures for changing situs, then the trust’s situs depends on several factors. These include applicable state law, where the trust is administered, the trustee’s state of residence, the domicile of the person who created the trust, the location of the beneficiaries and the location of real property held by the trust.

The actual process of moving the trust may entail creating a new trust to which the existing trust’s assets are transferred, merging the existing trust into a new trust or modifying the existing trust to designate the new state as its situs.

Depending on the trust’s terms and applicable state law, the move may require court approval or the unanimous consent of the trust’s beneficiaries.

Understanding the risks

Depending on your circumstances, moving a trust can offer tax savings and other benefits. Keep in mind, however, that the laws governing trusts are complex and vary considerably from state to state. We can help you determine whether the benefits outweigh the risks.

Ashleigh Laabs 7/12/21 Ashleigh Laabs 7/12/21

IRS extends administrative relief for 401(k) plans

As mitigation measures related to COVID-19 ease, it will be interesting to see which practices and regulatory changes taken in response to the pandemic remain in place long-term. One of them might be relief from a sometimes-inconvenient requirement related to the administration of 401(k) plans.

A virtual solution

In IRS Notice 2021-40, the IRS recently announced a 12-month extension of its temporary relief from the requirement that certain signatures be witnessed “in the physical presence” of a 401(k) plan representative or notary public.

The original relief, which appeared in IRS Notice 2020-42, was provided primarily to facilitate plan loans and distributions under the CARES Act. However, the relief could be used during 2020 for any signature that, under regulations, had to be witnessed in the physical presence of a plan representative or notary public. This included required spousal consents. The relief was subsequently extended through June 30, 2021, under IRS Notice 2021-03.

Under the notices, signatures witnessed remotely by a plan representative satisfy the physical presence requirement if the electronic system uses live audio-video technology and meets four requirements established under the original relief:

Live presentation of a photo ID,
Direct interaction,
Same-day transmission, and
Return with the representative’s acknowledgment.

Signatures witnessed by a notary public satisfy the physical presence requirement if the electronic system for remote notarization uses live audio-video technology and is consistent with state-law requirements for a notary public.

Comments requested

As mentioned, IRS Notice 2021-40 further extends the relief — subject to the same conditions — through June 30, 2022. The notice also requests comments regarding whether permanent modifications should be made to the physical presence requirement. Comments are specifically requested regarding:

The costs and other effects of the physical presence requirement and its temporary waiver,
Whether the relief has resulted in fraud, coercion or other abuses,
How the witnessing requirements are expected to be fulfilled as the pandemic abates,
What procedural safeguards should be instituted if the physical presence requirement is permanently modified, and
Whether permanent relief should use different procedures for witnessing by plan representatives or notary publics.

Comments should be submitted by September 30, 2021.

More information

Going forward, the need for a signature may often relate to spousal consents. If your business recently established a 401(k), the plan may be designed to limit or even eliminate the need for spousal consents.

However, plans that offer annuity forms of distribution are still subject to the spousal consent rules. And other 401(k) plans must require spousal consent if a married participant wants to name a non-spouse as primary beneficiary. Feel free to contact our firm for more information on the latest IRS guidance addressing employee benefits.

Ashleigh Laabs 7/6/21 Ashleigh Laabs 7/6/21

Does your estate plan address your grandchildren in a fair manner?

Many people, when planning their estates, simply divide their assets equally among their children. But “equal” may not necessarily mean “fair.” It all depends on your family’s circumstances. Specifically, providing for grandchildren is one area where equal treatment may inadvertently result in unfairness.

Consider this scenario

Bob has two adult children, Ted and Carol. Ted has two children and Carol has four. Suppose Bob’s estate plan calls for his $8 million estate to be divided equally between his two children.

When he dies, Ted and Carol each receive $4 million. But after they die, Ted’s two children receive $2 million each from their grandparent’s inheritance, while Carol’s four children receive only $1 million each. (This assumes, of course, that Ted and Carol each preserve the full amount of their inheritances.)

Possible solutions

To help ensure that Bob’s grandchildren are treated equally, he can purchase a life insurance policy, with the proceeds divided equally among his grandchildren. Alternatively, he can arrange policies on the lives of Ted and Carol designed to provide equal amounts to each grandchild. One advantage of this approach is that, because Ted and Carol are younger, the available death benefits would be greater. Bob could use gifts or loans to help Ted and Carol pay the premiums.

Life insurance allows Bob to provide more for his grandchildren, on an equal basis, while still dividing his other assets equally between his children. Depending on how Ted and Carol spend their inheritances, Ted’s children may still receive more than Carol’s on a per capita basis, but the additional assets provided by life insurance will likely make Bob’s estate plan appear “more fair” in the eyes of his grandchildren.

If you have concerns about how to properly address certain family members in your estate plan, please contact us. We’d be happy to assess your situation and offer the proper guidance.

Ashleigh Laabs 7/6/21 Ashleigh Laabs 7/6/21

10 facts about the pass-through deduction for qualified business income

Are you eligible to take the deduction for qualified business income (QBI)? Here are 10 facts about this valuable tax break, referred to as the pass-through deduction, QBI deduction or Section 199A deduction.

It’s available to owners of sole proprietorships, single member limited liability companies (LLCs), partnerships and S corporations. It may also be claimed by trusts and estates.
The deduction is intended to reduce the tax rate on QBI to a rate that’s closer to the corporate tax rate.
It’s taken “below the line.” That means it reduces your taxable income but not your adjusted gross income. But it’s available regardless of whether you itemize deductions or take the standard deduction.
The deduction has two components: 20% of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate; and 20% of the taxpayer’s combined qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income.
QBI is the net amount of a taxpayer’s qualified items of income, gain, deduction and loss relating to any qualified trade or business. Items of income, gain, deduction and loss are qualified to the extent they’re effectively connected with the conduct of a trade or business in the U.S. and included in computing taxable income.
QBI doesn’t necessarily equal the net profit or loss from a business, even if it’s a qualified trade or business. In addition to the profit or loss from Schedule C, QBI must be adjusted by certain other gain or deduction items related to the business.
A qualified trade or business is any trade or business other than a specified service trade or business (SSTB). But an SSTB is treated as a qualified trade or business for taxpayers whose taxable income is under a threshold amount.
SSTBs include health, law, accounting, actuarial science, certain performing arts, consulting, athletics, financial services, brokerage services, investment, trading, dealing securities and any trade or business where the principal asset is the reputation or skill of its employees or owners.
There are limits based on W-2 wages. Inflation-adjusted threshold amounts also apply for purposes of applying the SSTB rules. For tax years beginning in 2021, the threshold amounts are $164,900 for singles and heads of household; $164,925 for married filing separately; and $329,800 for married filing jointly. The limits phase in over a $50,000 range ($100,000 for a joint return). This means that the deduction reduces ratably, so that by the time you reach the top of the range ($214,900 for singles and heads of household; $214,925 for married filing separately; and $429,800 for married filing jointly) the deduction is zero for income from an SSTB.
For businesses conducted as a partnership or S corporation, the pass-through deduction is calculated at the partner or shareholder level.

As you can see, this substantial deduction is complex, especially if your taxable income exceeds the thresholds discussed above. Other rules apply. Contact us if you have questions about your situation.

Ashleigh Laabs 6/30/21 Ashleigh Laabs 6/30/21

Eligible Businesses: Claim the Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC) is a valuable tax break that was extended and modified by the American Rescue Plan Act (ARPA), enacted in March of 2021. Here’s a rundown of the rules.

Background

Back in March of 2020, Congress originally enacted the ERTC in the CARES Act to encourage employers to hire and retain employees during the pandemic. At that time, the ERTC applied to wages paid after March 12, 2020, and before January 1, 2021. However, Congress later modified and extended the ERTC to apply to wages paid before July 1, 2021.

The ARPA again extended and modified the ERTC to apply to wages paid after June 30, 2021, and before January 1, 2022. Thus, an eligible employer can claim the refundable ERTC against “applicable employment taxes” equal to 70% of the qualified wages it pays to employees in the third and fourth quarters of 2021. Except as discussed below, qualified wages are generally limited to $10,000 per employee per 2021 calendar quarter. Thus, the maximum ERTC amount available is generally $7,000 per employee per calendar quarter or $28,000 per employee in 2021.

For purposes of the ERTC, a qualified employer is eligible if it experiences a significant decline in gross receipts or a full or partial suspension of business due to a government order. Employers with up to 500 full-time employees can claim the credit without regard to whether the employees for whom the credit is claimed actually perform services. But, except as explained below, employers with more than 500 full-time employees can only claim the ERTC with respect to employees that don’t perform services.

Employers who got a Payroll Protection Program loan in 2020 can still claim the ERTC. But the same wages can’t be used both for seeking loan forgiveness or satisfying conditions of other COVID relief programs (such as the Restaurant Revitalization Fund program) in calculating the ERTC.

Modifications

Beginning in the third quarter of 2021, the following modifications apply to the ERTC:

Applicable employment taxes are the Medicare hospital taxes (1.45% of the wages) and the Railroad Retirement payroll tax that’s attributable to the Medicare hospital tax rate. For the first and second quarters of 2021, “applicable employment taxes” were defined as the employer’s share of Social Security or FICA tax (6.2% of the wages) and the Railroad Retirement Tax Act payroll tax that was attributable to the Social Security tax rate.
Recovery startup businesses are qualified employers. These are generally defined as businesses that began operating after February 15, 2020, and that meet certain gross receipts requirements. These recovery startup businesses will be eligible for an increased maximum credit of $50,000 per quarter, even if they haven’t experienced a significant decline in gross receipts or been subject to a full or partial suspension under a government order.
A “severely financially distressed” employer that has suffered a decline in quarterly gross receipts of 90% or more compared to the same quarter in 2019 can treat wages (up to $10,000) paid during those quarters as qualified wages. This allows an employer with over 500 employees under severe financial distress to treat those wages as qualified wages whether or not employees actually provide services.
The statute of limitations for assessments relating to the ERTC won’t expire until five years after the date the original return claiming the credit is filed (or treated as filed).

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Are your company’s job descriptions pulling their weight?

At many businesses, job descriptions have it easy. They were “hired” (that is, written) many years ago. They haven’t had to change or do anything, really, besides get copied and pasted into a want ad occasionally. They’re not really good at what they do, but they’re used again and again because everyone assumes they’re just fine.

The problem is, they’re not. Outdated, vague or inaccurate job descriptions can lead to longer hiring times, bad hires, workplace conflicts and even legal exposure in employment law actions. So, now the million-dollar question: Are your company’s job descriptions pulling their weight?

Review and revise

There’s only one way to find out: Conduct a thorough review of your job descriptions to determine whether they’re current and comprehensive.

Check to see whether they list outdated procedures or other outmoded elements, such as software you’ve long since phased out. As necessary, carefully revise the wording to describe the duties and responsibilities for a particular position as it exists today.

If you don’t already have formal, written job descriptions for every position, don’t panic. Ask employees in those positions to document their everyday duties and responsibilities. Each worker’s supervisor should then verify and, if necessary, help refine the description.

Put them to work

After you’ve updated or created your job descriptions, you can use them to increase organizational efficiency. Weed out the marginal duties from essential ones. Eliminate superfluous and redundant tasks, focusing each position on activities that generate revenue or eliminate expenses. You may be able to make improvements in other areas, too, such as:

Recruiting. Are you hiring people with the right skills? Up-to-date job descriptions provide a better road map for finding ideal candidates to fill your open positions.

Compensation. A complete and accurate description of the hiring requirements, job duties and responsibilities of a position provide context and rationalization for how that person is compensated.

Workload distribution. Are workloads efficiently distributed among employees? If not, rearrange them. You may find this necessary and beneficial when duties change because of revisions to job descriptions.

Cross-training. Can your employees handle their coworkers’ duties and responsibilities? In both emergencies and non-emergencies (vacations, for instance) — and as a fraud-prevention measure — having workers who are able to cover for each other temporarily is critical.

Performance management. Are employees doing their best? Detailed job descriptions allow supervisors to better determine whether workers are completing their assigned duties, meeting or exceeding expectations and growing with the company.

Stop the slackers

No business should put up with slacker job descriptions that do nothing but hang around the break room exchanging gossip and eating all the donuts. Ensure yours are actively contributing to your company’s success by managing their performance just as you do for real-live humans.

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Make health care decisions while you’re healthy

Estate planning isn’t just about what happens to your assets after you die. It’s also about protecting yourself and your loved ones. This includes having a plan for making critical medical decisions in the event you’re unable to make them yourself. And, as with other aspects of your estate plan, the time to act is now, while you’re healthy. If an illness or injury renders you unconscious or otherwise incapacitated, it’ll be too late.

To ensure that your wishes are carried out, and that your family is spared the burden of guessing — or arguing over — what you would decide, put those wishes in writing. Generally, that means executing two documents: a living will and a health care power of attorney (HCPA).

Clarifying the terminology

Unfortunately, these documents are known by many different names, which can lead to confusion. Living wills are sometimes called “advance directives,” “health care directives” or “directives to physicians.” And HCPAs may also be known as “durable medical powers of attorney,” “durable powers of attorney for health care” or “health care proxies.” In some states, “advance directive” refers to a single document that contains both a living will and an HCPA.

For the sake of convenience, we’ll use the terms “living will” and “HCPA.” Regardless of terminology, these documents serve two important purposes: 1) to guide health care providers in the event you become terminally ill or permanently unconscious, and 2) to appoint someone you trust to make medical decisions on your behalf.

Living will

A living will expresses your preferences for the use of life-sustaining medical procedures, such as artificial feeding and breathing, surgery, invasive diagnostic tests, and pain medication. It also specifies the situations in which these procedures should be used or withheld.

Living wills often contain a do-not-resuscitate order (DNR), which instructs medical personnel to not perform CPR in the event of cardiac arrest.

HCPA

An HCPA authorizes a surrogate — your spouse, child or another trusted representative — to make medical decisions or consent to medical treatment on your behalf when you’re unable to do so. It’s broader than a living will, which generally is limited to end-of-life situations, although there may be some overlap.

An HCPA might authorize your surrogate to make medical decisions that don’t conflict with your living will, including consenting to medical treatment, placing you in a nursing home or other facility, or even implementing or discontinuing life-prolonging measures.

Document storage and upkeep

No matter how carefully you plan, living wills and HCPAs are effective only if your documents are readily accessible and health care providers honor them. Store your documents in a safe place that’s always accessible and be sure your loved ones know where to find them.

Also, keep in mind that health care providers may be reluctant to honor documents that are several years old, so it’s a good idea to sign new ones periodically. Contact us for additional information.

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Members of the sandwich generation find themselves in a unique situation

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, so 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 while providing 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.

Ashleigh Laabs 6/22/21 Ashleigh Laabs 6/22/21

Don’t assume your profitable company has strong cash flow

Most of us are taught from a young age never to assume anything. Why? Well, because when you assume, you make an … you probably know how the rest of the expression goes.

A dangerous assumption that many business owners make is that, if their companies are profitable, their cash flow must also be strong. But this isn’t always the case. Taking a closer look at the accounting involved can provide an explanation.

Investing in the business

What are profits, really? In accounting terms, they’re closely related to taxable income. Reported at the bottom of your company’s income statement, profits are essentially the result of revenue less the cost of goods sold and other operating expenses incurred in the accounting period.

Generally Accepted Accounting Principles (GAAP) require companies to “match” costs and expenses to the period in which revenue is recognized. Under accrual-basis accounting, it doesn’t necessarily matter when you receive payments from customers or when you pay expenses.

For example, inventory sitting in a warehouse or retail store can’t be deducted — even though it may have been long paid for (or financed). The expense hits your income statement only when an item is sold or used. Your inventory account contains many cash outflows that are waiting to be expensed.

Other working capital accounts — such as accounts receivable, accrued expenses and trade payables — also represent a difference between the timing of cash flows. As your business grows and strives to increase future sales, you invest more in working capital, which temporarily depletes cash.

However, the reverse also may be true. That is, a mature business may be a “cash cow” that generates ample dollars, despite reporting lackluster profits.

Accounting for expenses

The difference between profits and cash flow doesn’t begin and end with working capital. Your income statement also includes depreciation and amortization, which are noncash expenses. And it excludes changes in fixed assets, bank financing and owners’ capital accounts, which affect cash on hand.

Suppose your company uses tax depreciation schedules for book purposes. Let say, in 2020, you bought new equipment to take advantage of the expanded Section 179 and bonus depreciation allowances. Then you deducted the purchase price of these items from profits in 2020. However, because these purchases were financed with debt, the actual cash outflows from the investments in 2020 were minimal.

In 2021, your business will make loan payments that will reduce the amount of cash in your checking account. But your profits will be hit with only the interest expense (not the amount of principal that’s being repaid). Plus, there will be no “basis” left in the 2020 purchases to depreciate in 2021. These circumstances will artificially boost profits in 2021, without a proportionate increase in cash.

Keeping your eye on the ball

It’s dangerous to assume that, just because you’re turning a profit, your cash position is strong. Cash flow warrants careful monitoring. Our firm can help you generate accurate financial statements and glean the most important insights from them.

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Traveling for business again? What can you deduct?

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 travel (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 expenses

The rules for deducting the costs of a spouse who accompanies 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.

Ashleigh Laabs 6/15/21 Ashleigh Laabs 6/15/21

2021 Q3 tax calendar: Key deadlines for businesses and other employers

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.

Ashleigh Laabs 6/10/21 Ashleigh Laabs 6/10/21

Help guide your family with a road map for your estate plan

You’ve likely spent a lot of time working with your advisor to plan your estate. While documents such as your will, various trusts and a power of attorney are essential, consider adding a “road map” to your plan.

Plot it out

Essentially, the road map is an informal letter or other document that guides your family in understanding and executing your estate plan and ensuring that your wishes are carried out.

Your road map should include, among other things:

The location of your will, living and other trusts, tax returns and records, powers of attorney, insurance policies, deeds, automobile titles, and other important documents,
A personal financial statement that lists stocks, bonds, real estate, bank accounts, retirement plans, vehicles and other assets, as well as information about mortgages, credit cards and other debts,
An inventory of digital assets — such as email accounts, online bank and brokerage accounts, online photo galleries, digital music and book collections, and social media accounts — including login credentials or a description of arrangements made to provide your representative with access,
The location of family heirlooms or other valuable personal property,
A list of important professional contacts, including your estate planning attorney, accountant, insurance agent and financial advisors,
Computer passwords and home security system codes,
Safe combinations and the location of any safety deposit boxes and keys, and
Information about funeral arrangements or burial wishes.

Explain your thinking

The road map may also be a good place to explain to your loved ones the reasoning behind certain estate planning decisions. Perhaps you’re distributing your assets unequally, distributing specific assets to specific heirs or placing certain restrictions on an heir’s entitlement to trust distributions. There are many good reasons for using these strategies, but it’s important for your family to understand your motives to avoid hurt feelings or disputes.

Finally, like other estate planning documents, your road map won’t be effective unless your family knows where to find it, so it’s a good idea to leave it with a trusted advisor and a copy in a place where your heirs will likely find it.

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