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A general look at generative AI for businesses
If you follow the news, you’ve probably heard a lot about artificial intelligence (AI) and how it’s slowly and steadily expanding into various aspects of our lives. One widely cited example is ChatGPT, an AI “chatbot” that can engage in conversations with users and create coherently written articles, as well as other content, when prompted.
ChatGPT and other similar chatbots are what’s known as “generative” AI. The operative word there refers to software that’s able to generate new content based on input from users and existing data either inputted during development or gathered from the internet.
Along with college students and the curious, more and more businesses are joining the ranks of generative AI users. Research and advisory firm Gartner surveyed more than 1,400 company leaders in September 2023. Two in five (40%) said their organizations were piloting generative AI programs — a substantial increase from the 15% results of the same survey conducted by Gartner about six months earlier.
Imagine the possibilities
Naturally, how companies are using generative AI depends on factors such as industry, mission, operational needs and strategic objectives. But it can be informative to look at a few examples.
In consumer goods and retail, for instance, businesses are using generative AI to create new product designs, optimize materials and align aesthetics with the latest trends. In the energy sector, it’s being used to improve supply chain logistics and better forecast demand. In health care, generative AI is helping accelerate scientific research and enhance medical imaging.
More generally, this technology could help many types of businesses:
Generate marketing and advertising content,
Analyze financial data and produce reports that assess risk or draw trendlines, and
Develop chatbots or other means to automate customer service.
There’s no harm in letting your imagination run wild. Think about what types of content and knowledge AI could create for your company that, in years previous, would’ve probably only been possible to develop by hiring new employees or engaging consultants.
Be methodical
Of course, pondering the possibilities of generative AI should never translate to blindly throwing money at it. To start exploring the possibilities, sit down with your leadership group and discuss the topic.
If you’re wholly new to it, be sure everyone does some preliminary research. You might even ask an IT staffer or someone else knowledgeable about AI to do a presentation. As part of your research and discussion, make sure to learn about the potential legal and public relations liabilities.
Should everyone agree that pursuing generative AI is a good strategic decision, form a project team to identify “use cases” — that is, specific ways your business could use it to deliver practical, competitive functionalities. Prioritize the use cases you come up with and choose a winner to go after first.
You may be able to buy an AI product to fulfill this need. In such a case, you’d have to shop carefully, thoroughly train the appropriate staff members and cautiously roll out the solution. Doing so would be relatively simpler than developing your own AI app, but you’d need to manage the purchase and implementation with return on investment firmly in mind.
The other option is to indeed create your own proprietary generative AI app. This would likely be a much more costly and labor-intensive option, but you’d be able to customize the solution to your ultra-specific needs.
Prepare for the future
What can generative AI do for your business? Maybe a little, maybe a lot. One thing’s for sure, its influence on how business is done will only get stronger in the years ahead. We can help you assess the costs vs. benefits of this or any other technology.
© 2024
When one trustee isn’t enough, consider appointing a trust protector
Irrevocable trusts can allow for the smooth, tax-advantaged transfer of wealth to family members. But there’s a drawback: When you set up an irrevocable trust, you must relinquish control of the assets placed in it. What you can control is who will eventually oversee distribution of assets after your death.
However, sometimes — particularly when the trust creator isn’t completely confident that the trustee will carry out his or her wishes — one trustee isn’t enough. That’s when you might want to consider appointing a trust protector.
Board/CEO relationship
A trust protector is to a trustee what a corporate board of directors is to a CEO. A trustee manages the trust on a day-to-day basis. The protector oversees the trustee and weighs in on critical decisions, such as the sale of closely held business interests or investment transactions involving large dollar amounts.
There’s virtually no limit to the powers you can confer on a trust protector. For example, you can enable a trust protector to:
Replace a trustee,
Appoint a successor trustee or successor trust protector,
Approve or veto investment or beneficiary distribution decisions, and
Resolve disputes between trustees and beneficiaries.
A word of warning: Although it may be tempting to provide a protector with a broad range of powers, this can hamper the original trustee’s ability to manage the trust efficiently. Keep in mind that the idea is to protect the integrity of the trust, not to appoint a co-trustee.
Exercise of discretion
Trust protectors offer many benefits. For example, a protector with the power to remove and replace the trustee can do so if the trustee develops a conflict of interest or fails to manage the trust assets in the beneficiaries’ best interests.
A protector with the power to modify the trust’s terms can correct mistakes in the trust document or clarify ambiguous language. Or a protector with the power to change the way trust assets are distributed, if necessary, to achieve your original objectives can help ensure your loved ones are provided for in the way you would have desired.
Wise choice
Choosing the right trust protector is critical. Given the power he or she will have over your family’s wealth, you’ll want to choose someone whom you trust and who’s qualified to make investment and other financial decisions. Many people appoint a trusted advisor — such as an accountant, attorney or investment advisor — who may not be able or willing to serve as trustee but who can provide an extra layer of protection by monitoring the trustee’s performance.
Appointing a family member as protector is also possible, but it can be risky. If the protector is a beneficiary or has the power to direct the trust assets to him- or herself (or for his or her benefit), this power could be treated as a general power of appointment, potentially triggering negative tax consequences.
Powers and duties
If you decide you’d like to have a trust protector, ask your attorney to draw up documents that clearly define this individual’s role and authority. Your attorney will be able to explain a protector’s customary powers and duties, but you should also bring up specific scenarios that you want to protect against.
© 2024
Empower your sellers with sales enablement
The driving revenue force of just about every kind of business is sales. But all too often, once a sales team is up and running, it’s left to its own devices to maintain its strengths, develop new skills and upgrade its technology. This can produce mixed results — some sales departments are remarkably self-sufficient while others could really use more organizational support.
To remove the guesswork, many of today’s businesses are investing in sales enablement. This is an enterprise-wide, collaborative and continuous approach to empowering the sales department to do its best work.
Pillars of the concept
Wait a minute, you might say, isn’t sales enablement just another name for sales training? No, not entirely.
Training is certainly a part of the equation. A sales enablement program will involve ongoing training on the latest sales techniques, changes in the marketplace, the company’s latest products or services, and so forth. But this training doesn’t occur haphazardly — it’s regularly scheduled and typically segmented into easily digestible learning modules, generally a more effective approach than overloading sales reps with info on a sales retreat or in sporadic seminars.
There are several other pillars of sales enablement as well. One is content. Under their programs, many companies build a library of materials that features items such as:
Books and articles on best practices,
Customer testimonials,
Product “spec sheets,” slide decks and demos, and
Reports and spreadsheets with the latest competitive intelligence.
Another key feature of a sales enablement program is coaching. This may involve engaging outside consultants to provide coaching services to sales reps or developing internal mentoring or partnering.
Technology is also central to sales enablement. Most programs involve regular discussions with the leadership team and IT department about what tools could best serve the sales team. Notably, there are multiple software platforms on the market focused on sales enablement that can help businesses set up and manage their programs. Some customer relationship management software offers help in this area, too.
Benefits in the offing
There’s a reason sales enablement has caught on with many different types of companies. There are significant benefits in the offing.
First, a well-designed program can get new hires up to speed much more quickly than a more casual, ad hoc approach to “rookie” training. And for fully onboarded and seasoned employees, sales enablement can save time and effort by providing easy access to the relevant and up-to-date data, content and tools that support their activities. Ultimately, it can boost productivity for the whole team and, thereby, revenue for the business.
Also, the ongoing training and coaching features of sales enablement help sales reps keep their skills sharp and their knowledge growing. The aforementioned learning modules, webinars, podcasts, quizzes and other learning formats may give them an edge over competitors with less educational support.
There’s the engagement factor, too. A sales enablement program communicates to new hires, as well as established reps, that the organization fully supports them. As word gets around, you may attract stronger job candidates and enjoy better employee retention rates.
A major initiative
As the saying goes, nothing worth doing is easy. To implement and run a successful sales enablement program, you’ll need to invest considerable time and resources. And before any of that, you’ll need to set clear, measurable objectives — as well as a reasonable budget. For help with the financial side of planning a major initiative like this, contact us.
© 2024
4 ways to make an incentive trust more effective
Estate planning isn’t just about sharing wealth with the younger generation. For many people, it’s equally important to share one’s values and to encourage their children or other heirs to lead responsible, productive and fulfilling lives. One tool for achieving this goal is an incentive trust, which conditions distributions on certain behaviors or achievements that you wish to inspire.
Incentive trusts can be effective, but they should be planned and drafted carefully to avoid unintended consequences. Let’s examine four tips for designing a more effective incentive trust.
1. Focus on the positives
Avoid negative reinforcement, such as conditioning distributions on the avoidance of undesirable or self-destructive behavior. This sort of “ruling from the grave” is likely to be counterproductive. Not only can it lead to resentment on the part of your heirs, but it may backfire by encouraging them to conceal their conduct and avoid seeking help. Trusts that emphasize positive behaviors, such as going to college or securing gainful employment, can be more effective.
2. Be flexible
Leading a worthy life means different things to different people. Rather than dictating specific behaviors, it’s better to establish the trust with enough flexibility to allow your loved ones to shape their own lives.
For example, some people attempt to encourage gainful employment by tying trust distributions to an heir’s earnings. But this can punish equally responsible heirs who wish to be stay-at-home parents or whose chosen careers may require them to start with low-paying, entry-level jobs or unpaid internships. A well-designed incentive trust should accommodate nonfinancial measures of success.
3. Consider a principle trust
Drafting an incentive trust can be a challenge. Rewarding positive behavior requires a complex set of rules that condition trust distributions on certain achievements or milestones, such as gainful employment, earning a college degree or reaching a certain level of earnings. But it’s nearly impossible to anticipate every contingency.
One way to avoid unintended consequences is to establish a principle trust. Rather than imposing a complex, rigid set of rules for distributing trust funds, a principle trust guides the trustee’s decisions by setting forth the principles and values you hope to encourage and providing the trustee with discretion to evaluate each heir on a case-by-case basis. Bear in mind that for this strategy to work, the trustee must be someone you trust to carry out your wishes.
4. Provide a safety net
An incentive trust need not be an all-or-nothing proposition. If your trust beneficiaries are unable to satisfy the requirements you set forth in your incentive trust, consider offering sufficient funds to provide for their basic needs and base additional distributions on the behaviors you wish to encourage.
According to Warren Buffett, the ideal inheritance is “enough money so that they feel they could do anything, but not so much that they could do nothing.” A carefully designed incentive trust can help you achieve this goal. If you have questions regarding the use of an incentive trust, please contact us.
© 2024
April 15 is the deadline to file a gift tax return
Not only is April 15 the deadline to file a 2023 income tax return and pay any taxes due, it’s also the deadline to file a gift tax return. If you made substantial gifts of wealth to family members in 2023, you may have to file a gift tax return. It’s due by April 15 of the year after you make the gift, so the deadline for 2023 gifts is coming up soon. But you can extend the deadline to October 15 by filing for an extension.
When a return is required
Generally, a federal gift tax return (Form 709) is required if you make gifts to or for someone during the year that exceed the annual gift tax exclusion ($17,000 per person for 2023 and $18,000 per person for 2024). There’s a separate exclusion for gifts to a noncitizen spouse ($175,000 for 2023 and $185,000 for 2024).
Also, if you make gifts of future interests, such as transfers to a trust for a donee’s benefit, even if they’re less than the annual exclusion amount, a gift tax return is required. Finally, if you split gifts with your spouse, regardless of the amount, you must file a gift tax return.
Being required to file a form doesn’t necessarily mean you owe gift tax. You’ll owe tax only if you’ve already exhausted your lifetime gift and estate tax exemption ($12.92 million for 2023 and $13.61 million for 2024).
When a return isn’t required
No gift tax return is required if you:
Paid qualifying educational or medical expenses on behalf of someone else directly to an educational institution or health care provider,
Made gifts of present interests that fell within the annual exclusion amount,
Made outright gifts to a spouse who’s a U.S. citizen, in any amount, including gifts to marital trusts that meet certain requirements, or
Made charitable gifts and aren’t otherwise required to file Form 709 — if a return is required, charitable gifts should also be reported.
If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.
In some cases, it’s even advisable to file Form 709 to report nongifts. For example, suppose you sold assets to a family member or a trust. Again, filing a return triggers the statute of limitations and prevents the IRS from claiming, more than three years after you filed the return, that the assets were undervalued and, therefore, partially taxable.
Turn to us for help
Estate tax rules and regulations can be complicated. If you need help determining whether you need to file a gift tax return, contact us.
© 2024
Applying for a commercial loan with confidence
Few and far between are businesses that can either launch or grow without an infusion of outside capital. In some cases, that capital comes in the form of a commercial loan from a bank or some other type of lender.
If you and your company’s leadership team believe a loan will soon be necessary, it’s important to approach the endeavor with confidence. That starts with having valid, well-considered strategic reasons for borrowing. From there, you need to engage your bank or a prospective lender with a strong air of professionalism and certainty.
Essential questions
First, familiarize yourself with how the process works. It’s essentially built on four basic questions:
How much money do you want?
How do you plan to use the loan proceeds?
When do you need the funds?
How soon can you repay the loan?
Your loan officer will also likely ask about your business’s previous sources of financing. So, be ready to explain how you’ve financed your company to date. Methods may include personal cash infusions, forgone salaries and sweat equity, as well as any equity contributions from friends, family members and outside investors.
Loan products
As you’re probably aware, banks and lenders offer a variety of commercial loan products. Another way of expressing confidence is to know what you want. Common options include:
Lines of credit. One of these gives you access to an agreed-upon amount of funds that you can draw on as needed. As is the case with a credit card, you pay interest only on the outstanding balance.
Traditional term loans. These are what most people likely envision when they see the term “commercial loan.” You receive a lump sum with repayment terms, which include a payment schedule and interest rate.
Asset-based loans. True to the name, asset-based loans typically fund equipment purchases or plant expansions. The length of the loan is usually tied to the life of the asset being financed, and that asset is usually pledged as collateral.
Supporting documents
No matter the product, banks and lenders want to work with serious borrowers who are deeply knowledgeable about the financial condition and projected performance of their businesses. To this end, don’t go into the initial meeting empty-handed. Prepare a comprehensive loan application package that includes:
A “statement of purpose” explaining your strategic plans for the funds,
Your business plan,
Three years of financial statements, if available,
Three years of business tax returns, if available,
Personal financial statements and tax returns for all owners,
Appraisals of any assets pledged as collateral, and
Carefully prepared, reasonable financial projections.
Remember that most loan officers have been around the block. They know how to critically evaluate financial documents and prospective borrowers’ underlying assumptions. As much as possible, support your case with market research and data. Be confident — but realistic — about your strengths and market opportunities, as well as forthcoming about the challenges you’ll likely face in accomplishing your strategic objectives.
If your bank or lender finds your business a viable borrower, your application will be given to an underwriting committee or department. Underwriters will have greater confidence in your financial statements if they’re prepared by a CPA and conform to U.S. Generally Accepted Accounting Principles. Professionally prepared financial projections are also recommended.
Shop around
Underwriters don’t approve every loan application, so don’t give up if a bank or lender turns you down. In fact, it’s a good idea to shop around. For help preparing to apply for a commercial loan and managing the approval process, contact your FMD advisor.
© 2024
Independent contractor vs. employee status: The DOL issues new final rule
The U.S. Department of Labor’s (DOL’s) test for determining whether a worker should be classified as an independent contractor or an employee for purposes of the federal Fair Labor Standards Act (FLSA) has been revised several times over the past decade. Now, the DOL is implementing a new final rule rescinding the employer-friendly test that was developed under the Trump administration. The new, more employee-friendly rule takes effect March 11, 2024.
Role of the new final rule
Even though the DOL’s final rule isn’t necessarily controlling for courts weighing employment status issues, it’s likely to be considered persuasive authority. Moreover, it’ll guide DOL misclassification audits and enforcement actions.
If you’re found to have misclassified employees as independent contractors, you may owe back pay if employees weren’t paid minimum wage or overtime pay, as well as penalties. You also could end up liable for withheld employee benefits and find yourself subject to various federal and state employment laws that apply based on the number of affected employees.
The rescinded test
The Trump administration’s test (known as the 2021 Independent Contractor Rule) focuses primarily on whether, as an “economic reality,” workers are dependent on employers for work or are in business for themselves. It examines five factors. And while no single factor is controlling, the 2021 rule identifies two so-called “core factors” that are deemed most relevant:
The nature and degree of the employer’s control over the work, and
The worker’s opportunity for profit and loss.
If both factors suggest the same classification, it’s substantially likely that classification is proper.
The new test
The final new rule closely shadows the proposed rule published in October 2022. According to the DOL, it continues the notion that a worker isn’t an independent contractor if, as a matter of economic reality, the individual is economically dependent on the employer for work. The DOL says the rule aligns with both judicial precedent and its own interpretive guidance prior to 2021.
Specifically, the final rule enumerates six factors that will guide DOL analysis of whether a worker is an employee under the FLSA:
The worker’s opportunity for profit or loss depending on managerial skill (the lack of such opportunity suggests employee status),
Investments by the worker and the potential employer (if the worker makes similar types of investments as the employer, even on a smaller scale, it suggests independent contractor status),
Degree of permanence of the work relationship (an indefinite, continuous or exclusive relationship suggests employee status),
The employer’s nature and degree of control, whether exercised or just reserved (control over the performance of the work and the relationship’s economic aspects suggests employee status),
Extent to which the work performed is an integral part of the employer’s business (if the work is critical, necessary or central to the principal business, the worker is likely an employee), and
The worker’s skill and initiative (if the worker brings specialized skills and uses them in connection with business-like initiative, the worker is likely an independent contractor).
In contrast to the 2021 rule, all factors will be weighed — no single factor or set of factors will automatically determine a worker’s status.
The final new rule does make some modifications and clarifications to the proposed rule. For example, it explains that actions that an employer takes solely to comply with specific and applicable federal, state, tribal or local laws or regulations don’t indicate “control” suggestive of employee status. But those that go beyond compliance and instead serve the employer’s own compliance methods, safety, quality control, or contractual or customer service standards may do so.
The final rule also recognizes that a lack of permanence in a work relationship can sometimes be due to operational characteristics unique or intrinsic to particular businesses or industries and the workers they employ. The relevant question is whether the lack of permanence is due to workers exercising their own independent business initiative, which indicates independent contractor status. On the other hand, the seasonal or temporary nature of work alone doesn’t necessarily indicate independent contractor classification.
The return, and clarification, of the factor related to whether the work is integral to the business also is notable. The 2021 rule includes a noncore factor that asks only whether the work was part of an integrated unit of production. The final new rule focuses on whether the business function the worker performs is an integral part of the business.
For tax purposes
In a series of Q&As, the DOL addressed the question: “Can an individual be an employee for FLSA purposes even if he or she is an independent contractor for tax purposes?” The answer is yes.
The DOL explained that the IRS applies its version of the common law control test to analyze if a worker is an employee or independent contractor for tax purposes. While the DOL considers many of the same factors as the IRS, it added that “the economic reality test for FLSA purposes is based on a specific definition of ‘employ’ in the FLSA, which provides that employers ‘employ’ workers if they ‘suffer or permit’ them to work.”
In court cases, this language has been interpreted to be broader than the common law control test. Therefore, some workers who may be classified as contractors for tax purposes may be employees for FLSA purposes because, as a matter of economic reality, they’re economically dependent on the employers for work.
Next steps
Not surprisingly, the DOL’s final new rule is already facing court challenges. Nonetheless, you should review your work relationships if you use freelancers and other independent contractors and make any appropriate changes. Remember, too, that states can have different tests, some of which are more stringent than the DOL’s final rule. Contact your employment attorney if you have questions about the DOL’s new rule. We can assist with any issues you may have regarding independent contractor status for tax purposes.
© 2024
Lines may blur when it comes to estate and family business succession planning
Owners of closely held businesses typically have a significant portion of their wealth tied up in their enterprises. If you own a closely held business with your relatives involved, and don’t take the proper estate planning steps to ensure that it lives on after you’re gone, you may be placing your family at financial risk.
Differences between ownership and management succession
One challenge of transferring a family-owned business is distinguishing between ownership and management succession. When a business is sold to a third party, ownership and management succession typically happen simultaneously. But in a family-owned business, there may be reasons to separate the two.
From an estate planning perspective, transferring assets to the younger generation as early as possible allows you to remove future appreciation from your estate, minimizing any estate tax liability. However, you may not be ready to hand over the reins of your business or you may feel that your children aren’t yet ready to take over.
There are several strategies owners can use to transfer ownership without immediately giving up control, including:
Placing business interests in a trust, family limited partnership (FLP) or other vehicle that allows the owner to transfer substantial ownership interests to the younger generation while retaining management control,
Transferring ownership to the next generation in the form of nonvoting stock, or
Establishing an employee stock ownership plan.
Another reason to separate ownership and management succession is to deal with family members who aren’t involved in the business. Providing heirs outside the business with nonvoting stock or other equity interests that don’t confer control can be an effective way to share the wealth while allowing those who work in the business to take over management.
Conflicts may arise
Another unique challenge presented by family businesses is that the older and younger generations may have conflicting financial needs. Fortunately, several strategies are available to generate cash flow for the owner while minimizing the burden on the next generation. They include:
An installment sale of the business to children or other family members. This provides liquidity for the owners while easing the burden on the younger generation and improving the chances that the purchase can be funded by cash flows from the business. Plus, as long as the price and terms are comparable to arm’s-length transactions between unrelated parties, the sale shouldn’t trigger gift or estate taxes.
A grantor retained annuity trust (GRAT). By transferring business interests to a GRAT, owners obtain a variety of gift and estate tax benefits (provided they survive the trust term) while enjoying a fixed income stream for a period of years. At the end of the term, the business is transferred to the owners’ children or other beneficiaries. GRATs are typically designed to be gift-tax-free.
Because each family business is different, it’s important to work with your estate planning advisor to identify appropriate strategies in line with your objectives and resources.
Plan sooner rather than later
Regardless of your strategy, the earlier you start planning the better. Transitioning the business gradually over several years or even a decade or more gives you time to educate family members about your succession planning philosophy. It also allows you to relinquish control over time and implement tax-efficient business transfer strategies.
© 2024
Small businesses can help employees save for retirement, too
Many small business owners run their companies as leanly as possible. This often means not offering what are considered standard fringe benefits for midsize or larger companies, such as a retirement plan.
If this is the case for your small business, don’t give up on the idea of helping your employees save for retirement in a tax-advantaged manner. When you’re ready, there are a couple account-based options that are relatively simple and inexpensive to launch and administrate.
SEP IRAs
Simplified Employee Pension IRAs (SEP IRAs) are individual accounts that small businesses establish on behalf of each participant. (Self-employed individuals can also establish SEP IRAs.) Participants own their accounts, so they’re immediately 100% vested. If a participant decides to leave your company, the account balance goes with them — most people roll it over into a new employer’s qualified plan or traditional IRA.
What are the advantages for you? SEP IRAs don’t require annual employer contributions. That means you can choose to contribute only when cash flow allows.
In addition, there are typically no setup fees for SEP IRAs, though participants generally must pay trading commissions and fund expense ratios (a fee typically set as a percentage of the fund’s average net assets). In 2024, the contribution limit is $69,000 (up from $66,000 in 2023) or up to 25% of a participant’s compensation. That amount is much higher than the 2024 limit for 401(k)s, which is $23,000 (up from $22,500 in 2023).
What’s more, employer contributions are tax-deductible. Meanwhile, participants won’t pay taxes on their SEP IRA funds until they’re withdrawn.
There are some disadvantages to consider. Although participants own their accounts, only employers can make SEP IRA contributions. And if you contribute sparsely or sporadically, participants may see little value in the accounts. Also, unlike many other qualified plans, SEP IRAs don’t permit participants age 50 or over to make additional “catch-up” contributions.
SIMPLE IRAs
Another strategy is to offer employees SIMPLE IRAs. (“SIMPLE” stands for “Savings Incentive Match Plan for Employees.”) As is the case with SEP IRAs, your business creates a SIMPLE IRA for each participant, who’s immediately 100% vested in the account. Unlike SEP IRAs, SIMPLE IRAs allow participants to contribute to their accounts if they so choose.
SIMPLE IRAs are indeed relatively simple to set up and administer. They don’t require the sponsoring business to file IRS Form 5500, “Annual Return/Report of Employee Benefit Plan.” Nor must you submit the plan to nondiscrimination testing, which is generally required for 401(k)s.
Meanwhile, participants face no setup fees and enjoy tax-deferred growth on their account funds. Best of all, they can contribute more to a SIMPLE IRA than they can to a self-owned traditional or Roth IRA. The 2024 contribution limit for SIMPLE IRAs is $16,000 (up from $15,500 in 2023), and participants age 50 or over can make catch-up contributions to the tune of $3,500 this year (unchanged from last year).
On the downside, that contribution limit is lower than the limit for 401(k)s. Also, because contributions are made pretax, participants can’t deduct them, nor can they take out plan loans. Then again, making pretax contributions does lower their taxable income.
Perhaps most important is that employer contributions to SIMPLE IRAs are mandatory — you can’t skip them if cash flow gets tight. However, generally, you may deduct contributions as a business expense.
Is now the time?
Overall, the job market remains somewhat tight and, in some industries, the competition for skilled labor is fierce. Offering one of these IRA types may enable you to attract and retain quality employees more readily. Some small businesses may even qualify for a tax credit if they start a SEP IRA, SIMPLE IRA or other eligible plan. We can help you decide whether now is the right time to do so.
© 2024
Addressing your elderly parents in your estate plan in 5 steps
Typically, an estate plan includes accommodations for your spouse, children, grandchildren and even future generations. But some members of the family can be overlooked, such as your parents or in-laws. Yet the older generation may also need your financial assistance.
How can you best handle the financial affairs of parents in the later stages of life? Incorporate their needs into your own estate plan while tweaking, when necessary, the arrangements they’ve already made. Here are five critical steps:
Open the lines of communication. Before going any further, have an honest discussion with your elderly relatives, as well as other family members who may be involved, such as your siblings. Make sure you understand your parents’ wishes and explain the objectives you hope to accomplish. Understandably, they may be hesitant or too proud to accept your help or provide information, so some arm twisting may be required.
Identify key contacts. Just like you’ve done for yourself, compile the names and addresses of professionals important to your parents’ finances and medical conditions. These may include stockbrokers, financial advisors, attorneys, CPAs, insurance agents and physicians.
List and value their assets. If you’re going to be able to manage the financial affairs of your parents, having knowledge of their assets is vital. It would be wise to keep a list of their investment holdings, IRA and retirement plan accounts, and life insurance policies, including current balances and account numbers. Be sure to add in projections for Social Security benefits. When all is said and done, don’t be surprised if their net worth is higher or lower than what you (or they) initially thought. You can use this information to formulate the appropriate estate planning techniques.
Execute documents. The next step is to develop a plan incorporating several legal documents. If your parents have already created one or more of these documents, they may need to be revised or coordinated with new ones. Some elements commonly included in an estate plan are:
Wills. Your parents’ wills control the disposition of their possessions, such as cars and jewelry, and tie up other loose ends. (Of course, jointly owned property with rights of survivorship automatically passes to the survivor.) Notably, a will also establishes the executor of your parents’ estates. If you’re the one providing financial assistance, you’re probably the optimal choice.
Living trusts. A living trust can supplement a will by providing for the disposition of selected assets. Unlike a will, a living trust doesn’t have to go through probate, so this might save time and money, while avoiding public disclosure.
Powers of attorney. This document authorizes someone to legally act on behalf of another person. With a durable power of attorney, the most common version, the authorization continues after the person is disabled. This enables you to better handle your parents’ affairs.
Living wills or advance medical directives. These documents provide guidance for end-of-life decisions. Make sure that your parents’ physicians have copies so they can act according to your parents’ wishes.
Make monetary gifts. If you decide the best approach for helping your parents is to give them monetary gifts, it’s relatively easy to avoid gift tax liability. Under the annual gift tax exclusion, you can give each recipient up to $18,000 in 2024 without paying any gift tax. Any excess may be sheltered by the generous $13.61 million gift and estate tax exemption amount in 2024. Contact your FMD advisor with any questions.
© 2024
Is it time to upgrade your business’s accounting software?
By now, just about every company uses some kind of accounting software to track, manage and report its financial transactions. Many businesses end up using several different types of software to handle different accounting-related functions. Others either immediately or eventually opt for a comprehensive solution that addresses all their needs.
Although there’s some truth to the old expression “if it ain’t broke, don’t fix it,” companies often soldier on for years with inefficient or outdated accounting software. How do you know when it’s time to upgrade? Look for certain telltale signs.
It’s slowing us down
Accounting software is intended to make your and your employees’ lives easier. Among its primary purposes are to automate repetitive tasks, save time and provide quicker access to financial insights. If you or your staff are spending an inordinate amount of time wrestling with your current software to garner such benefits, an upgrade may be in order.
There’s also the issue of whether and how your business has grown recently. While some software developers market their products as “scalable” — that is, able to expand functionality right along with users’ needs — your mileage may vary. Keep a running list of the accounting functions your company needs and use it to assess the viability of your software.
Some lack of functionality can be relatively obvious. For example, many employees today need mobile access to accounting data, whether because they’re working remotely or traveling for the business. If your software makes this difficult — or, more dangerously, lacks trustworthy cybersecurity — it may be time to upgrade.
In addition, think about integration. As mentioned, some companies wind up using several different kinds of accounting-related software, and these various products may not “play well” together. In such cases, upgrading to a broader solution is worth considering.
There are various products specifically designed for small businesses. Growing midsize companies might be ready for enterprise resource planning (ERP) software, which integrates accounting with other functions such as inventory, sales and marketing, and human resources.
It’s getting us in trouble
The accounting software needs of most businesses tend to gradually evolve over time, making it tough to decide when to invest in an upgrade. However, there are some glaring red flags that can make the decision much easier — though they can also pressure companies into making a rushed purchase of new technology.
For instance, though privately owned companies aren’t required to follow the same accounting standards as publicly held ones, they still need sound financial reporting for tax purposes and possibly to comply with state or local regulations. If you’ve run into trouble with tax authorities or other agencies because of accounting mistakes or inconsistencies, an upgrade could help.
And, of course, financial reporting isn’t only about taxes and compliance, it plays a huge role in obtaining loans, attracting investors, and perhaps winning bids or arranging joint ventures. If you and your leadership team believe you’re being outcompeted because you can’t make the right strategic moves, investing in better accounting software may be one of the steps you need to take.
Last but not least, we mentioned cybersecurity above, but it bears repeating: Any indication that your accounting software is vulnerable to hackers or internal fraud should be regarded as an immediate call to action. Fortify your existing software or find a more secure product.
Business imperative
Long gone are the days when companies could rely on a dusty ledger and ink to record their financial transactions. The right accounting software is a business imperative. We’d be happy to help you assess your current needs and decide whether now’s the time to upgrade.
© 2024
Take care of a loved one who has special needs with a special needs trust
When creating or revising your estate plan, it’s important to take into account all of your loved ones. Because each family has its own unique set of circumstances, there are a variety of trusts and other vehicles available to specifically address most families’ estate planning objectives.
Special needs trusts (SNTs), also called “supplemental needs trusts,” benefit children or other family members with disabilities that require extended-term care or that prevent them from being able to support themselves. This trust type can provide peace of mind that your loved one’s quality of life will be enhanced without disqualifying him or her for Medicaid or Supplemental Security Income (SSI) benefits.
Preserve government benefits
An SNT may preserve your loved one’s access to government benefits that cover health care and other basic needs. Medicaid and SSI pay for basic medical care, food, clothing and shelter. However, to qualify for these benefits, a person’s resources must be limited to no more than $2,000 in “countable assets.” Important note: If your family member with special needs owns more than $2,000 in countable assets, thus making him or her ineligible for government assistance, an SNT is useless.
Generally, every asset is countable with a few exceptions. The exceptions include a principal residence, regardless of value (but if the recipient is in a nursing home or similar facility, he or she must intend and be expected to return to the home); a car; a small amount of life insurance; burial plots or prepaid burial contracts; and furniture, clothing, jewelry and certain other personal belongings.
An SNT is an irrevocable trust designed to supplement, rather than replace, government assistance. To preserve eligibility for government benefits, the beneficiary can’t have access to the funds, and the trust must be prohibited from providing for the beneficiary’s “support.” That means it can’t be used to pay for medical care, food, clothing, shelter or anything else covered by Medicaid or SSI.
Pay for supplemental expenses
With those limitations in mind, an SNT can be used to pay for virtually anything government benefits don’t cover, such as unreimbursed medical expenses, education and training, transportation (including wheelchair-accessible vehicles), insurance, computers, and modifications to the beneficiary’s home. It can also pay for “quality-of-life” needs, such as travel, entertainment, recreation and hobbies.
Keep in mind that the trust must not pay any money directly to the beneficiary. Rather, the funds should be distributed directly — on behalf of the beneficiary — to the third parties that provide goods and services to him or her.
Consider the trust’s language
To ensure that an SNT doesn’t disqualify the beneficiary from government benefits, it should prohibit distributions directly to the beneficiary and prohibit the trustee from paying for any support items covered by Medicaid or SSI. Some SNTs specify the types of supplemental expenses the trust should pay; others give the trustee sole discretion over nonsupport items.
Alert family and friends
After creating or revising your estate plan, discuss your intentions with your family. This is especially important if your plan includes an SNT. To ensure an SNT’s terms aren’t broken, family members and friends who want to make gifts or donations must do so directly to the trust and not to the loved one with special needs. Contact us with any questions regarding an SNT.
© 2024
Seeing the big picture with an enterprise risk management program
There’s no way around it — owning and operating a business comes with risk. On the one hand, operating under excessive levels of risk will likely impair the value of a business, consume much of its working capital and could even lead to bankruptcy if those risks become all-consuming. But on the other hand, no business can operate risk-free. Those that try will inevitably miss out on growth opportunities and probably get surpassed by more ambitious competitors.
How can you find the right balance? One way to manage your company’s “risk profile” is to implement a formal enterprise risk management (ERM) program.
Optimization, not elimination
Most businesses have internal controls to prevent fraud, maintain compliance and reduce errors. But an ERM program goes much further. It’s a top-down framework that starts at the C-suite and addresses risk at every level of the organization. An effective ERM program helps you and your leadership team not only identify major threats, but also devise feasible strategic, operational, reporting and compliance objectives.
Traditional risk management techniques, which are often informal and ad hoc, use a “siloed” approach. In other words, each department focuses on minimizing its own risks. The efficacy of this approach is limited at best, for a couple reasons. First, it fails to address how risks may arise in the way departments interact — or don’t interact — with each other. Second, it often wrongly assumes that the goal of risk management is to eliminate risk. In truth, the proper goal of risk management is to optimize risk; that is, develop strategic objectives and operate the business under acceptable levels of inevitable risk.
An ERM program takes an integrated approach. It recognizes that many risks are enterprise-wide and interrelated. For example, say a business identifies a new vendor offering substantially reduced prices on key materials. From the accounting department’s perspective, the deal may seem like a no-brainer. But an analysis under an ERM program could reveal that the vendor is situated in a high-risk area for natural disasters or civil unrest. Or the ERM analysis might show that the vendor is a bad match technologically or has poor cybersecurity.
Good starting point
Naturally, every company’s framework for an ERM program will differ depending on factors such as its size and structure. But one tool that’s proven helpful to many businesses is the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO’s) Enterprise Risk Management — Integrated Framework, which was originally published in 2004.
COSO is a joint initiative of five private sector organizations that develop frameworks and guidance on ERM, internal controls and fraud deterrence. The five organizations are the American Accounting Association, the American Institute of Certified Public Accountants, Financial Executives International, the Institute of Internal Auditors and the Institute of Management Accountants.
The original COSO framework covers four categories of objectives: strategic, operations, reporting and compliance. It also sets forth eight key components: 1) internal environment, 2) objective setting, 3) event identification, 4) risk assessment, 5) risk response, 6) control activities, 7) information and communication, and 8) monitoring. Note that, in 2017, COSO published an updated complementary publication entitled Enterprise Risk Management — Integrating with Strategy and Performance.
Perfect framework
Are you tired of putting out fires or having to rethink major strategic decisions because they’re just a little bit off the mark? If so, a formal ERM program may be the solution you’re looking for. We’d be happy to help you build the perfect framework for your business.
© 2024
3 common forms of insurance fraud (and how businesses can fight back)
Businesses of all shapes and sizes are well-advised to buy various forms of insurance to manage operational risks. But insurance itself is far from risk-free. You might overpay for a policy that you don’t really need. Or you could invest in cheap coverage that does you little to no good when you need it.
Perhaps the most insidious risk associated with insurance, however, is fraud. Dishonest individuals, whether inside your company or outside of it, can exploit a policy to defraud your company. Let’s explore three of the most typical forms of insurance fraud and some best practices for fighting back.
1. Premium diversion
According to the website of the U.S. Federal Bureau of Investigation, this is the most common form of insurance fraud. It occurs when an employee or insurance agent fails to submit premium payments to the underwriter. Rather, the person steals the funds for either personal use or to cover other business expenses.
It might seem like there’s not much you can do to stop an unethical insurance agent from committing this crime. But you can reduce the odds of running into a fraudster by performing a thorough background check on any insurance agent or broker that you choose to work with.
Internally, if possible, segregate the duties of the employee who submits premium payments from the person who accounts for those funds. Don’t allow one employee to control the whole process. In addition, educate all staff members about the danger of premium diversion and the consequences — such as termination and prosecution — of committing it or any type of fraud. Implement a confidential hotline so employees can report suspicious activities.
2. Workers’ compensation schemes
Under one of these scams, an employee exaggerates or fabricates an injury or illness to receive workers’ compensation benefits. For example, a worker might mischaracterize a relatively minor injury suffered at work as a major one. Or an employee could submit a claim for a condition that isn’t related to work.
To help prevent false workers’ comp insurance claims, develop required reporting processes for employees. Staff members should provide detailed information about incidents and any medical treatment they received. Your insurer should be able to provide comprehensive forms and suggest industry-specific measures to ensure employees provide truthful, relevant claims information.
Also, conduct regular audits of workers’ comp claims. Doing so may uncover patterns of fraudulent activity — even long-running schemes. For instance, if one employee repeatedly submits claims but is known to engage in physically demanding or dangerous activities outside of work, it may be appropriate to scrutinize those claims.
3. Health insurance scams
Here, a perpetrator might add a fictitious employee to your company’s plan or use a stolen or “synthetic” (mixture of real and false) identity to enroll a nonexistent dependent. The fraudster then pockets whatever reimbursements come in.
To reduce the risk of such scams, establish strong plan verification procedures. These might include background checks on all participants, including submissions of required documentation such as Social Security and driver’s license numbers. Additionally, conduct regular plan audits to reconcile those enrolled with current payroll records and department headcounts.
Just a few
Unfortunately, these are just a few of the types of insurance fraud that can strike your business. Any one of them can cost you real money, slow down productivity as you deal with the mess, and hurt your reputation in the marketplace and as an employer. We can assist you in tracking your insurance costs and establishing internal controls that help prevent fraud.
© 2024
4 good reasons to turn down an inheritance
Most people are happy to receive an inheritance. But there may be situations when you might not want one. You can use a qualified disclaimer to refuse a bequest from a loved one. Doing so will cause the asset to bypass your estate and go to the next beneficiary in line. Let’s take a closer look at four reasons why you might decide to take this action:
1. Gift and estate tax savings. This is often cited as the main incentive for using a qualified disclaimer. But make sure you understand the issue. For starters, the unlimited marital deduction shelters all transfers between spouses from gift and estate tax. In addition, transfers to nonspouse beneficiaries, such as your children and grandchildren, may be covered by the gift and estate tax exemption.
The exemption shelters a generous $13.61 million in assets for 2024. By maximizing portability of any unused exemption amount, a married couple can effectively pass up to $27.22 million in 2024 to their heirs, free of gift and estate taxes.
However, despite these lofty amounts, wealthier individuals, including those who aren’t married and can’t benefit from the unlimited marital deduction or portability, still might have estate tax liability concerns. By using a disclaimer, you ensure that the exemption won’t be further eroded by the inherited amount. Assuming you don’t need the money, shifting the funds to the younger generation without them ever touching your hands can save gift and estate taxes for the family as a whole.
2. Generation-skipping transfer (GST) tax. Disclaimers may also be useful in planning for the GST tax. This tax applies to most transfers that skip a generation, such as bequests and gifts from a grandparent to a grandchild or comparable transfers through trusts. Like the gift and estate tax exemption, the GST tax exemption is $13.61 million for 2024.
If GST tax liability is a concern, you may want to disclaim an inheritance. For instance, if you disclaim a parent’s assets, the parent’s exemption can shelter the transfer from the GST tax when the inheritance goes directly to your children. The GST tax exemption for your own assets won’t be affected.
3. Family businesses. A disclaimer may also be used as a means for passing a family-owned business to the younger generation. By disclaiming an interest in the business, you can position stock ownership to your family’s benefit.
4. Charitable deductions. In some cases, a charitable contribution may be structured to provide a life estate, with the remainder going to a charitable organization. Without the benefit of a charitable remainder trust, an estate won’t qualify for a charitable deduction in this instance. But using a disclaimer can provide a deduction because the assets will pass directly to the charity.
Be aware that a disclaimer doesn’t have to be an “all or nothing” decision. It’s possible to disclaim only certain assets, or only a portion of a particular asset, which would otherwise be received. In any case, before making a final decision on whether to accept a bequest or use a qualified disclaimer to refuse it, turn to us with any questions.
© 2024
Comparing inter vivos and testamentary trusts
Creating and adhering to an estate plan is no simple task. Generally, the end goal of estate planning is to divide up and transfer assets to loved ones at minimal or zero tax cost. Of course, a will is a good starting point, but it may be supplemented by various other estate planning techniques, including trusts.
Trusts are essentially used to accommodate asset transfers beyond dispositions in a will. There are two main types of trusts: the inter vivos trust and the testamentary trust. Let’s take a closer look at each option.
Inter vivos trust
An inter vivos trust, sometimes called a “living trust,” is created during your lifetime. The trust may be irrevocable or revocable, depending on your needs and how it’s set up.
As the name implies, an irrevocable trust requires that you give up rights to revoke or revise the trust. For example, you can’t change the beneficiaries or otherwise amend the terms. With a revocable trust, you retain the right to make changes up until the time of death.
The assets in an irrevocable trust are removed from your taxable estate, while revocable trust assets aren’t. But the estate tax shelter is no longer as powerful an incentive as it used to be due to the generous federal gift and estate tax exemption. For 2024, the exemption amount is $13.61 million, up from $12.92 million in 2023. (In 2026, the exemption is scheduled to return to the 2017 amount of $5 million, plus inflation adjustments, unless Congress acts to extend the higher amount.)
A revocable trust gives you more flexibility in handling trust assets. For this reason, it’s generally the preferred type of inter vivos trust.
Regardless of whether the trust is irrevocable or revocable, assets are titled in the name of the trust, giving the trust legal ownership. When the grantor passes away, the designated beneficiaries are granted access to the assets, which are then managed by a successor trustee, based on the trust’s terms.
Most notably, the trust’s assets avoid probate, which can be a lengthy and costly process in some states. Also, probate is open to the public, so the inter vivos trust ensures privacy. Assets held in trust are seamlessly transferred to the intended recipients. This is usually the main benefit sought by parties creating an inter vivos trust.
Testamentary trust
As opposed to an inter vivos trust, a testamentary trust is created when the grantor passes away. It doesn’t officially become effective until the grantor’s death, and at that time it becomes irrevocable.
Unlike an inter vivos trust, your estate will likely have to pass through probate before a testamentary trust begins to operate. Once the trust is created by will, the executor adheres to the terms regarding transfers to the trust.
Because the trust must go through probate, it may be problematic if you use certain assets, such as real estate or securities. This may also cause concerns if the beneficiaries need fast access to funds.
Note that the testamentary trust may be coordinated with the gift and estate tax exemption, to ensure that your estate doesn’t encounter federal estate tax problems upon the transfer of assets. This type of trust allows you to maintain control over assets until death and provide future security for your heirs.
What’s the right trust for you?
There’s no right or wrong answer to that question. The choice between an inter vivos or testamentary trust often depends on your estate planning objectives, including tax implications and whether you prefer to avoid probate or to maintain control over assets. Turn to us for help in creating the right trust for you.
© 2024
There’s a new threshold for electronically filing information returns
Does your business file 10 or more information returns with the IRS? If so, you must now file them electronically. This is a significant rule change that went into effect on January 1, 2024, for 2023 tax year information returns.
The threshold for electronically filing most information returns has dropped from 250 to 10. Before the new rule, only businesses filing 250 or more information returns were required to do so electronically. Notably, the 250-return threshold was applied separately to each type of information return. Now, businesses must e-file returns if the combined total of all the information return types filed is 10 or more.
Final regulations on the new rule were issued February 21, 2023, by the U.S. Department of the Treasury and the IRS.
Affected information returns
The IRS reports that it receives nearly 4 billion information returns each year. And by 2028, the agency predicts it will receive over 5 billion information returns per year.
The final regs state that the new e-filing requirements will be imposed on those taxpayers “required to file certain returns, including partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns, certain information returns, registration statements, disclosure statements, notifications, actuarial reports, and certain excise tax returns.”
Here are just some of the forms involved:
Forms 1099 issued to report independent contractor income, interest and dividend income, retirement plan distributions, prizes and other payments,
Form W-2 issued to report employee wages,
Form 1098 issued to report mortgage interest paid for the year, and
Form 8300 issued to report cash payments over $10,000 received in a trade or business.
Note: January 31 is the deadline for submitting to the government W-2 wage statements, 1099-NEC forms for independent contractors and other forms. You can find an IRS guide to information returns and when they’re due here.
Penalties and exceptions
The IRS may impose penalties on companies that are required to e-file information returns but instead file them on paper. Filers who would suffer an undue hardship if they had to file electronically can request a waiver from the e-filing requirement by filing Form 8508 with the IRS. Contact us for more guidance on your information return filing obligations.
© 2024
Account-based marketing can help companies rejoice in ROI
When it comes to marketing, business owners and their leadership teams often assume that they should “cast a wide net.” But should you? If your company is looking to drive business-to-business (B2B) sales, a generalized approach to marketing could leave key customers and optimal prospects feeling like they’re receiving vague messages from a provider that doesn’t really know them. That’s where account-based marketing comes in.
Simply defined, account-based marketing is a strategy under which marketing and sales teams collaboratively focus on targeted high-value accounts. The objective is to create a customized experience for each account that locks in the buyer long-term through deep relationship building and personalized service.
Benefits and risks
The primary potential benefit of a successful account-based marketing campaign is return on investment (ROI). By focusing on customers and prospects most likely to invest substantial dollars in your products or services, you’ll better position yourself to win those odds and bring in substantial revenue. Indeed, the internet abounds with marketing surveys indicating that large percentages of responding B2B companies have gotten a higher ROI from account-based marketing than from other strategies.
Another potential benefit is better aligning marketing with sales. Many businesses struggle with mismatched messaging coming from the marketing and sales departments, respectively. This can lead to customer confusion and internal conflicts. Account-based marketing requires marketing and sales to work together to devise a unified, unique approach to each targeted account.
A third potential benefit is establishing your B2B company as an industry expert. In most industries, when word gets out that a company is successfully marketing directly to certain well-known players, that business’s reputation rises because, clearly, it “speaks the language.”
Of course, account-based marketing has its risks. The biggest one is, as you might’ve guessed, a negative ROI. You’ll need to invest substantial time and resources on each targeted account. If the initiative flounders, the resulting losses can be steep. You may also end up ignoring other customers or prospects. Your business could even hurt its reputation by interacting with a major industry player in a less than flattering way.
3 steps to success
So, how do you avoid those downsides? Here are a three general steps to success:
1. Create a framework. Before doing anything, your business will need a broad framework for executing an account-based marketing strategy. A good way to build one is to use a readily available template to map out the process. You’ll also need to form a dedicated account-based marketing team. You might even invest in specialized software to automate everything.
2. Choose your targets. This may be the most important step! You’ve got to pick the customers and prospects that are the best fits for account-based marketing. It’s generally best to start with a short list or even just one or two. Next, meticulously research key details about each business, such as its mission, size, revenue model and spending patterns. Also, identify the specific individuals you’ll need to win over within the target company.
3. Design, execute and analyze. As mentioned, you’ll need to design a customized campaign for each account. Do so with great care, relying on your research and meaningful interactions with contacts at the business in question. From there, be prepared to measure and analyze your results and iterate the campaigns as necessary.
A significant boost
Account-based marketing isn’t feasible for every business. But if you believe that messaging directly to a few key customers or prospects could give your B2B company’s sales a significant boost, it’s worth considering. For help projecting the results of an account-based marketing campaign, or assistance choosing and analyzing metrics for a campaign in progress, contact your FMD advisor.
© 2024
A power of attorney is a critical component of an effective estate plan
While much of your estate plan focuses on actions that take place after death, it’s equally important to have a plan for making critical financial or medical decisions if you’re unable to make them for yourself during your lifetime. This is why including a power of attorney in your estate plan is a must.
Defining a power of attorney
A power of attorney is defined as a legal document authorizing another person to act on your behalf. This person is referred to as the “attorney-in-fact” or “agent” — or sometimes by the same name as the document, “power of attorney.” Generally, there are separate powers of attorney for health care and property.
Be aware that a power of attorney is no longer valid if you become incapacitated. For many people, this is actually when the authorization is needed the most. Therefore, to thwart dire circumstances, you can adopt a “durable” power of attorney.
A durable power of attorney remains in effect if you become incapacitated and terminates only on your death. Thus, it’s generally preferable to a regular power of attorney. The document must include specific language required under state law to qualify as a durable power of attorney.
Naming your power of attorney
Despite the name, your power of attorney doesn’t necessarily have to involve an attorney, although that’s an option. Typically, in the case of a power of attorney for property, the designated agent is either a professional, such as an attorney, CPA or financial planner, or a family member or close friend. In any event, the person should be someone you trust implicitly and who is adept at financial matters. In the case of a health care power of attorney, a family member or close friend is the most common choice.
Regardless of whom you choose, it’s important to name a successor agent in case your top choice is unable to fulfill the duties or predeceases you.
Usually, the power of attorney will simply continue until death. However, you may revoke it — whether it’s durable or not — at any time and for any reason. If you’ve had a change of heart, notify the agent in writing about the revocation. In addition, notify other parties who may be affected.
Time is of the essence
To ensure that your health care and financial wishes are carried out, prepare and sign health care and financial powers of attorney as soon as possible. Don’t forget to let your family know how to gain access to the documents in case of emergency. Note that health care providers and financial institutions may be reluctant to honor a power of attorney that was executed years or decades earlier. Sign new documents periodically. Contact your FMD advisor with questions.
© 2024
The IRS unveils ERTC relief program for employers
Since July 2023, the IRS has taken a series of actions in response to what it has termed a “flood of ineligible claims” for the Employee Retention Tax Credit (ERTC). Most recently, it launched a Voluntary Disclosure Program (VDP). The program presents a valuable, but temporary, opportunity for eligible employers.
Flood of invalid ERTC claims
The ERTC is a refundable tax credit intended for businesses that 1) continued paying employees while they were shut down due to the pandemic in 2020 and 2021, or 2) suffered significant declines in gross receipts from March 13, 2020, to December 31, 2021.
With the credits worth up to $26,000 per retained employee, fraudulent promoters and marketers quickly pounced, offering to help employers file claims in exchange for large upfront fees or percentages of the money received. But the requirements for the credit are stringent, and many employers were misled into filing claims that have proven to be invalid, leaving those claimants at risk of liability for credit repayment, penalties and interest, as well as other tax problems.
IRS’s response
In the face of the deluge of invalid claims, the IRS intensified audits and criminal investigations of both promoters and businesses filing suspect claims. As of December 2023, it had more than 300 criminal cases underway with claims worth nearly $3 billion, and thousands of ERTC claims had been referred for audit.
The IRS also has instituted a moratorium on the processing of new ERTC claims. And, in October 2023, the agency began offering a withdrawal option for eligible employers that filed a claim but haven’t yet received, cashed or deposited a refund. Withdrawn claims will be treated as if they were never filed, so taxpayers need not fear repayment, penalties or interest.
In late December 2023, the IRS announced another ERTC relief initiative, the VDP. The program is intended for employers that claimed and received credit money but weren’t entitled to it.
VDP nuts and bolts
Employers that participate in the VDP may benefit in several ways. For example, they’re required to repay only 80% of the credit received (if repayment in full isn’t possible, the IRS may authorize an installment plan). They also aren’t required to repay any interest received on an ERTC refund or amend their income tax returns to reduce wage expense.
These employers won’t be subject to penalties or underpayment interest if the 80% repayment is made before the signed closing agreement is returned to the IRS. The 20% reduction won’t be treated as taxable income, and the IRS won’t audit the ERTC on employment tax returns for the tax periods covered by the closing agreement.
An employer can apply for the VDP for each tax period in which:
Its ERTC claim was 1) processed and paid as a refund that has been cashed or deposited, or 2) paid in the form of a credit applied to that or another tax period,
It believes it wasn’t entitled to the ERTC,
It isn’t under IRS audit for employment taxes,
It isn’t under IRS criminal investigation, and
The IRS hasn’t reversed, or notified the employer of its intent to reverse, the ERTC to zero (for example, with a letter or notice disallowing the credit).
Notably, the IRS is sending up to 20,000 letters with proposed tax adjustments for the 2020 tax year to recover ineligible claims, in addition to 20,000 denial letters it sent earlier. The agency continues to work on the 2021 tax year, with more mailings to come. When an employer is identified through this work as receiving excessive or erroneous ERTCs, the IRS will pursue normal tax assessment and collection procedures.
If a third-party payer filed an employment tax return that reported an employer’s ERTC-related wages and credits, the employer can participate in the VDP only through the third-party payer. It’ll be rejected if it applies with its own employer identification number.
Act now
Bear in mind that not every ERTC claim was invalid. If you’re at all uncertain about the validity of your claim, regardless of whether you’ve received payment, we can help you navigate this increasingly complex area of your tax liability. The VDP is open only until March 22, 2024, though, so don’t delay.
© 2024