Have You and Your Spouse Coordinated your Estate Plans?

When it comes to estate planning, married couples often assume that simply naming each other in their wills or designating each other as beneficiaries is sufficient. However, unintended consequences can result if you and your spouse fail to properly coordinate your estate plans.

Examples include conflicting provisions, unexpected tax consequences or assets passing in ways that don’t align with your shared wishes. Coordinated estate planning can help ensure that both your and your spouse’s documents and strategies work together harmoniously, protecting your legacies and the financial well-being of your loved ones.

Boost tax efficiency

One of the primary benefits of coordinating estate plans is tax efficiency. By working together, you and your spouse can take full advantage of the marital deduction and applicable gift and estate tax exemptions. This can help minimize the overall tax burden on both estates.

Coordination becomes especially important if you have a blended family, where children from previous relationships are involved, or in situations with complex assets like business interests or multiple properties. Clear and consistent planning that factors in tax consequences can help ensure that all beneficiaries are treated fairly and that your intentions are honored.

Streamline administration

Another benefit of coordinated planning is it helps streamline the administration of the estate. If one spouse becomes incapacitated or passes away, a well-integrated plan can reduce the administrative burden on the surviving spouse, avoid disputes and accelerate the transfer of assets.

Coordinating plans also allow you and your spouse to make joint decisions about health care directives, powers of attorney and guardianship of minor children, ensuring that both of your wishes are respected and consistently documented.

Follow your state’s law

Keep in mind that state law generally governs estate matters. Therefore, state law determines if your property is community property, separate property or tenancy by the entirety.

For instance, California is a community property state. That generally means that half of what you own is your spouse’s property and vice versa, though there are some exceptions.

Be proactive

Married spouses who coordinate their estate plans can avoid pitfalls and maximize the benefits of thoughtful planning. Taking these steps proactively can strengthen your and your spouse’s financial security and shared legacy. FMD can help ensure that all elements of your plans are aligned and up to date.

4 Ways Business Owners Can Make “The Leadership Connection”

To get the most from any team, its leader must establish a productive rapport with each member. Of course, that’s easier said than done if you own a company with scores or hundreds of workers. Still, it’s critical for business owners to make “the leadership connection” with their employees.

Simply put, the leadership connection is an authentic bond between you and your staff. When it exists, employees feel like they genuinely know you — if not literally, then at least in the sense of having a positive impression of your personality, values and vision. Here are four ways to build and strengthen the leadership connection with your workforce.

1. Listen and share

Today’s employees want more than just equitable compensation and benefits. They want a voice. To that end, set up an old-fashioned suggestion box or perhaps a more contemporary email address or website portal for staff to share concerns and ask questions.

You can directly reply to queries with broad implications. Meanwhile, other executives or managers can handle questions specific to a given department or position. Choose communication channels thoughtfully. For example, you might share answers through company-wide emails or make them a feature of an internal newsletter or blog. Video messages can also be effective.

2. Stage formal get-togethers

Although leaders at every level need to be careful about calling too many meetings, there’s still value in getting everyone together in one place in real time. At least once a year, consider holding a “town hall” meeting where:

• The entire company gathers to hear you (and perhaps others) present on the state of the business, and

• Anyone can ask a question and have it answered (or receive a promise for an answer soon).

Town hall meetings are a good venue for discussing the company’s financial performance and establishing expectations for the immediate future.

You could even take it to the next level by organizing a company retreat. One of these events may not be feasible for businesses with bigger workforces. However, many small businesses organize off-site retreats so everyone can get better acquainted and explore strategic ideas.

3. Make appearances

Meetings are useful, but they shouldn’t be the only time staff see you. Interact with them in other ways as well. Make regular visits to each unit, department or facility of your business. Give managers a chance to speak with you candidly. Sit in on meetings; ask and answer questions.

By doing so, you may gather ideas for eliminating costly redundancies and inefficiencies. Maybe you’ll even find inspiration for your next big strategic move. Best of all, employees will likely get a morale boost from seeing you take an active interest in their corners of the company.

4. Have fun and celebrate

All work and no play makes business owners look dull and distant. Remember, employees want to get to know you as a person, at least a little bit. Show positivity and a sense of humor. Share appropriate personal interests, such as sports or caring for pets, in measured amounts.

Above all, don’t neglect to celebrate your business’s successes. Be enthusiastic about hitting sales numbers or achieving growth targets. Recognize the achievements of others — not just on the executive team but throughout the company. Give shout-outs to staff members on their birthdays and work anniversaries.

It’s all about trust

At the end of the day, the leadership connection is all about building trust. The greater your employees’ trust in you, the more loyal, engaged and productive they’ll likely be. FMD can help you measure your business’s productivity and evaluate workforce development costs.

IRS Clarifies Theft and Fraud Loss Deductions

The Tax Cuts and Jobs Act (TCJA) significantly limited the types of theft losses that are deductible on federal income taxes. But a recent “advice memo” (CCA 202511015) from the IRS’s Office of Chief Counsel suggests more victims of fraudulent scams may be able to claim a theft loss deduction than previously understood.

Casualty loss deduction basics

The federal tax code generally allows individuals to deduct the following types of losses, if they weren’t compensated for them by insurance or otherwise:

• Losses incurred in a business,

• Losses incurred in a transaction entered into for profit (but not connected to a business), or

• Losses not connected to a business or a transaction entered into for profit, which arise from a casualty or theft loss (known as personal casualty or theft losses).

A variety of fraud schemes may fall under the third category.

To deduct a theft loss, the taxpayer/victim generally must establish that:

• The loss resulted from conduct that’s deemed theft under applicable state law, and

• The taxpayer has no reasonable prospect of recovery of the loss.

From 2018 through 2025, though, the TCJA allows the deduction of personal casualty or theft losses only to the extent of personal casualty gains (for example, an insurance payout for stolen property or a destroyed home) except for losses attributable to a federally declared disaster. As a result, taxpayers who are fraud victims generally qualify for the deduction only if the loss was incurred in a transaction entered into for profit. That would exclude the victims of scams where no profit motive exists. The loss of the deduction can compound the cost of scams for such victims.

The IRS analysis

The IRS Chief Counsel Advice memo considers several types of actual scams and whether the requisite profit motive was involved to entitle the victims to a deduction. In each scenario listed below, the scam was illegal theft with little or no prospect of recovery:

Compromised account scam. The scammer contacted the victim, claiming to be a fraud specialist at the victim’s financial institution. The victim was induced to authorize distributions from IRA and non-IRA accounts that were allegedly compromised and transfer all the funds to new investment accounts. The scammer immediately transferred the money to an overseas account.

The IRS Chief Counsel found that the distributions and transfers were made to safeguard and reinvest all the funds in new accounts in the same manner as before the distributions. The losses, therefore, were incurred in a transaction entered into for profit and were deductible.

“Pig butchering” investment scam. This crime is so named because it’s intended to get every last dollar by “fattening up” the victim with fake returns, thereby encouraging larger investments. The victim here was induced to invest in cryptocurrencies through a website. After some successful investments, the victim withdrew funds from IRA and non-IRA accounts and transferred them to the website. After the balance grew significantly, the victim decided to liquidate the investment but couldn’t withdraw funds from the website.

The Chief Counsel determined that the victim transferred the funds for investment purposes. So the transaction was entered into for profit and the losses were deductible.

Phishing scam. The victim received an email from the scammer claiming that his accounts had been compromised. The email, which contained an official-looking letterhead and was signed by a “fraud protection analyst,” directed the victim to call the analyst at a provided number.

When the victim called, the scammer directed the victim to click a link in the email, giving the scammer access to the victim’s computer. Then, the victim was instructed to log in to IRA and non-IRA accounts, which allowed the scammer to grab the username and password. The scammer used this information to distribute all the account funds to an overseas account.

Because the victim didn’t authorize the distributions, the IRS weighed whether the stolen property (securities held in investment accounts) was connected to the victim’s business, invested in for profit or held as general personal property. The Chief Counsel found that the theft of property while invested established that the victim’s loss was incurred in a transaction entered into for profit and was deductible.

Romance scam. The scammer developed a virtual romantic relationship with the victim. Shortly afterwards, the scammer persuaded the victim to send money to help with supposed medical bills. The victim authorized distributions from IRA and non-IRA accounts to a personal bank account and then transferred the money to the scammer’s overseas account. The scammer stopped responding to the victim’s messages.

The Chief Counsel concluded this loss wasn’t deductible. The victim didn’t intend to invest or reinvest any of the distributed funds so there was no profit motive. In this case, the losses were nondeductible.

Note: If the scammer had directed the victim to a fraudulent investment scheme, the results likely would’ve been different. The analysis, in that situation, would mirror that of the pig butchering scheme.

Kidnapping scam. The victim was convinced that his grandson had been kidnapped. He authorized distributions from IRA and non-IRA accounts and directed the funds to an overseas account provided by the scammer.

The victim’s motive wasn’t to invest the distributed funds but to transfer them to a kidnapper. Unfortunately, these losses were also nondeductible.

What’s next?

It’s uncertain whether the TCJA’s theft loss limit will be extended beyond 2025. In the meantime, though, some scam victims may qualify to amend their tax returns and claim the loss deduction. Contact FMD if you need assistance or have questions about your situation.

Why Choosing the Right Trustee Matters

It’s not uncommon for an estate plan to contain multiple trusts. They can enable you to hold assets for and transfer them to beneficiaries, avoid probate, and possibly reduce estate tax exposure. When drafting a trust, you must appoint a trustee. This can be an individual or a financial institution.

Before choosing a trustee, know that the job comes with many responsibilities — from keeping careful records and making smart investment choices to staying fair and keeping beneficiaries informed. A trustee must always put the beneficiaries’ interests first and handle everything with care, honesty and good judgment.

What are a trustee’s tasks?

Trustees have significant legal responsibilities, primarily related to administering the trust on behalf of beneficiaries according to the terms of the trust document. However, the role can require many different types of tasks. For example, even if a tax professional is engaged to prepare tax returns, the trustee is responsible for ensuring that they’re completed correctly and filed on time.

One of the more challenging trustee duties is to accurately account for investments and distributions. When funds are distributed to cover a beneficiary’s education expenses, for example, the trustee should record both the distribution and the expenses covered. Beneficiaries are allowed to request an accounting of the transactions at any time.

The trustee needs to invest assets within the trust reasonably, prudently and for the long-term sake of beneficiaries. And trustees must avoid conflicts of interest — that is, they can’t act for personal gain when managing the trust. For instance, trustees typically can’t purchase assets from the trust. The trustee probably would prefer a lower purchase price, which would run counter to the best interests of the trust’s beneficiaries.

Finally, trustees must be impartial. They may need to decide between competing interests while still acting within the terms of the trust document. An example of competing interests might be when a trust is designed to provide current income to a first beneficiary during his or her lifetime, after which the assets pass to a second beneficiary. Although the first beneficiary would probably prefer that the trust’s assets be invested in income-producing securities, the second would likely prefer growth investments.

What qualities should you look for?

Several qualities help make someone an effective trustee, including:

• A solid understanding of tax and trust law,

• Investment management experience,

• Bookkeeping skills,

• Integrity and honesty, and

• The ability to work with all beneficiaries objectively and impartially.

And because some trusts continue for generations, trustees may need to be available for an extended period. For this reason, many people name a financial institution or professional advisor, rather than a friend or family member, as trustee.

Consider all your options

Naming a trustee is an important decision, as this person or institution will be responsible for carrying out the terms outlined in the trust documents. FMD can help you weigh the options available to you.

Cost Management is Critical for Companies Today

Many business owners take an informal approach to controlling costs, tackling the issue only when it becomes an obvious problem. A better way to handle it is through proactive, systematic cost management. This means segmenting your company into its major spending areas and continuously adjusting how you allocate dollars to each. Here are a few examples.

Supply chain

Most supply chains contain opportunities to control costs better. Analyze your company’s sourcing, production and distribution methods to find them. Possibilities include:

• Renegotiating terms with current suppliers,

• Finding new suppliers, particularly local ones, and negotiating better deals, and

• Investing in better technology to reduce wasteful spending and overstocking.

If you haven’t already, openly address what’s on everyone’s mind these days: global tariffs. Work with your leadership team and professional advisors to study how current tariffs affect your company. In addition, do some scenario planning to anticipate what you should do if those tariffs rise or fall.

Product or service portfolio

You might associate the word “portfolio” with investments. However, every business has a portfolio of products and services that it sells to customers. Review yours regularly. Like an investment portfolio, a diversified product or service portfolio may better withstand market risks. But offering too many products or services exhausts resources and exposes you to high costs.

Consider simplifying your portfolio to eliminate the costs of underperforming products or services. Of course, you should do so only after carefully analyzing each offering’s profitability. Focusing on only high-margin or in-demand products or services can reduce expenses, increase revenue and strengthen your brand.

Operations

Many business owners are surprised to learn that their companies’ operations cost them money unnecessarily. This is often the case with companies that have been in business for a long time and gotten used to doing things a certain way.

The truth is, “we’ve always done it that way” is usually a red flag for inefficiency or obsolescence. Undertake periodic operational reviews to identify bottlenecks, outdated processes and old technology. You may lower costs, or at least control them better, by upgrading equipment, implementing digital workflow solutions or “rightsizing” your workforce.

Customer service

Customer service is the “secret sauce” of many small to midsize companies, so spending cuts here can be risky. But you still need to manage costs proactively. Relatively inexpensive technology — such as website-based knowledge centers, self-service portals and chatbots — may reduce labor costs.

Perform a comprehensive review of all your customer-service channels. You may be overinvesting in one or more that most customers don’t value. Determine where you’re most successful and focus on leveraging your dollars there.

Marketing and sales

These are two other areas where you want to optimize spending, not necessarily slash it. After all, they’re both critical revenue drivers. When it comes to marketing, you might be able to save dollars by:

• Refining your target audience to reduce wasted “ad spend,”

• Embracing lower-cost digital strategies, and

• Analyzing customer data to personalize outreach.

Data is indeed key. If you haven’t already, strongly consider implementing a customer relationship management (CRM) system to gather, organize and analyze customer and prospect info. In the event you’ve had the same CRM system for a long time, look into whether an upgrade is in order.

Regarding sales costs, reevaluate your compensation methods. Can you adjust commissions or incentives to your company’s advantage without disenfranchising sales staff? Also, review travel budgets. Now that most salespeople are back on the road, their expenses may rise out of proportion with their results. Virtual meetings can reduce travel expenses without sacrificing engagement with customers and prospects.

The struggle is real

Cost management isn’t easy. Earlier this year, a Boston Consulting Group study found that, on average, only 48% of cost-saving targets were achieved last year by the 570 C-suite executives surveyed. Beating that percentage will take some work. To that end, please contact FMD. We can analyze your spending and provide guidance tailored to your company’s distinctive features.

Members of the “Sandwich Generation” Face Unique Estate Planning Circumstances

Members of the sandwich generation — those who find themselves simultaneously caring for aging parents while supporting their own children — face unique financial and emotional pressures. One critical yet often overlooked task amid this juggling act is estate planning.

How can you best handle your parents’ financial affairs in the later stages of life? Consider incorporating their needs into your estate plan while tweaking, when necessary, the arrangements they’ve already made. Let’s take a closer look at four critical steps.

1. Make cash gifts to your parents and pay their medical expenses

One of the simplest ways to help your parents 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. For 2025, you can give each parent up to $19,000 without triggering gift taxes or using your lifetime gift and estate tax exemption. The exemption amount for 2025 is $13.99 million.

Plus, payments to medical providers aren’t considered gifts, so you can make such payments on your parents’ behalf without using any of your annual exclusion or lifetime exemption amounts.

2. Set up trusts

There are many trust-based strategies you can use to assist your parents. For example, if you predecease your parents, your estate plan might establish a trust for their benefit, with any remaining assets passing to your children when your parents die.

Another option is to set up trusts during your lifetime that leverage your $13.99 million gift and estate tax 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.

3. 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, pay a fair price for the home (supported by a qualified appraisal) and charge your parents fair-market rent.

4. Plan for long-term care expenses

The annual cost of long-term care (LTC) can easily reach six figures. Expenses can include assisted living facilities, nursing homes and home health care.

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 or other investments.

Don’t forget about your needs

As part of the sandwich generation, it’s easy to lose sight of yourself. After addressing your parents’ needs, focus on your own. Are you saving enough for your children’s college education and your own retirement? Do you have a will and power of attorney in place for you and your spouse?

With proper planning, you’ll make things less complex for your children so they might avoid some of the turmoil that you could be going through. Contact FMD for additional planning techniques if you’re a member of the sandwich generation.

EBHRAs: A Flexible Health Benefits Choice for Businesses

Today’s companies have several kinds of tax-advantaged accounts or arrangements they can sponsor to help employees pay eligible medical expenses. One of them is a Health Reimbursement Arrangement (HRA).

Under an HRA, your business sets up and wholly funds a plan that reimburses participants for qualified medical expenses of your choosing. (To be clear, employees can’t contribute.) The primary advantage is that plan design is very flexible, giving you greater control of your “total benefits spend.” Plus, your company’s contributions are tax deductible.

How flexible are HRAs? They’re so flexible that businesses have multiple plan types to choose from. Let’s focus on one in particular: excepted benefit HRAs (EBHRAs).

4 key rules

Although traditional HRAs integrated with group health insurance provide significant control, they’re still subject to mandates under the Public Health Service Act (PHSA), which was amended by the Affordable Care Act (ACA). This means you must deal with prohibitions on annual and lifetime limits for essential health benefits and requirements to provide certain preventive services without cost-sharing.

Because employer contributions to EBHRAs are so limited, participants’ accounts under these plans qualify as “excepted benefits.” Therefore, these plans aren’t subject to the ACA’s PHSA mandates. Any size business may sponsor an EBHRA, but you must follow certain rules. Four of the most important are:

1. Contribution limits. In 2025, employer-sponsors may contribute up to $2,150 to each participant per plan year. You can, however, choose to contribute less. You can also decide whether to allow carryovers from year to year, which don’t count toward the annual limit.

2. Qualified reimbursements. An EBHRA may reimburse any qualified, out-of-pocket medical expense other than premiums for:

• Individual health coverage,

• Medicare, and

• Non-COBRA group coverage.

Premiums for coverage consisting solely of excepted benefits can be reimbursed, as can premiums for short-term, limited-duration insurance (STLDI). However, under certain circumstances, federal agencies may prohibit small employer EBHRAs in some states from allowing STLDI premium reimbursement. (Contact your benefits advisor for further information.)

3. Required other coverage. Employer-sponsors must make other non-excepted, non-account-based group health plan coverage available to EBHRA participants for the plan year. Thus, you can’t also offer a traditional HRA.

4. Uniform availability. An EBHRA must be made available to all similarly situated individuals under the same terms and conditions, as defined and provided by applicable regulations.

Additional compliance matters

An EBHRA’s status as an excepted benefit means it’s not subject to the ACA’s PHSA mandates (as mentioned) or the portability and nondiscrimination rules of the Health Insurance Portability and Accountability Act (HIPAA).

However, EBHRAs are subject to HIPAA’s administrative simplification requirements. This includes the law’s privacy and security rules unless an exception applies — such as for certain small self-insured, self-administered plans.

In addition, like traditional HRAs integrated with group health insurance, EBHRAs sponsored by businesses are generally subject to the Employee Retirement Income Security Act (ERISA). This means:

• Reimbursement requests must comply with ERISA’s claim and appeal procedures,

• Participants must receive a summary plan description, and

• Other ERISA requirements may apply.

Finally, EBHRAs must comply with ERISA’s nondiscrimination rules. These ensure that benefits provided under the plan don’t disproportionately favor highly compensated employees over non-highly compensated ones.

Many factors to analyze

As noted above, the EBHRA is only one type of plan your company can consider. Others include traditional HRAs integrated with group health insurance, qualified small employer HRAs and individual coverage HRAs.

Choosing among them — or whether to sponsor an HRA at all — will call for analyzing factors such as what health benefits you already offer, which employees you want to cover, how much you’re able to contribute and which medical expenses you wish to reimburse. Let FMD help you evaluate all your benefit costs and develop a strategy for health coverage that makes the most sense for your business.

Factor in GST Tax when Transferring Assets to your Grandchildren

If you’re considering making asset transfers to your grandchildren or great grandchildren, be sure your estate plan addresses the federal generation-skipping transfer (GST) tax. This tax ensures that large estates can’t bypass a round of taxation that would normally apply if assets were transferred from parent to child, and then from child to grandchild.

Because of the complexity and potential tax liability, careful estate planning is essential when considering generation-skipping transfers. Trusts are often used as a strategic vehicle to allocate the GST tax exemption amount effectively and ensure that assets pass tax-efficiently to younger generations.

ABCs of the GST tax

The GST tax applies at a flat 40% rate — in addition to otherwise applicable gift and estate taxes — to transfers that skip a generation. “Skip persons” include your grandchildren, other relatives who are more than one generation below you and unrelated people who are more than 37½ years younger than you. There’s an exception, however, for a grandchild whose parent (your child) predeceases you. In that case, the grandchild moves up a generation and is no longer considered a skip person.

Even though the GST tax enjoys an annual inflation-adjusted lifetime exemption in the same amount as the lifetime gift and estate tax exemption (currently, $13.99 million), it works a bit differently. For example, while the gift and estate tax exemption automatically protects eligible transfers of wealth, the GST tax exemption must be allocated to a transfer to shelter it from tax.

3 transfer types trigger GST tax

There are three types of transfers that may trigger the GST tax:

1. A direct skip — a transfer directly to a skip person that is subject to federal gift and estate tax,

2. A taxable distribution — a distribution from a trust to a skip person, or

3. A taxable termination — such as when you establish a trust for your children, the last child beneficiary dies and the trust assets pass to your grandchildren.

The GST tax doesn’t apply to transfers to which you allocate your GST tax exemption. In addition, the GST tax annual exclusion — which is similar to the gift tax annual exclusion — allows you to transfer up to $19,000 per year (for 2025) to any number of skip persons without triggering GST tax or using up any of your GST tax exemption.

Transfers to a trust qualify for the annual GST tax exclusion only if the trust 1) is established for a single beneficiary who’s a grandchild or other skip person, and 2) provides that no portion of its income or principal may be distributed to (or for the benefit of) anyone other than that beneficiary. Additionally, if the trust doesn’t terminate before the beneficiary dies, any remaining assets will be included in the beneficiary’s gross estate.

If you wish to make substantial gifts, either outright or in trust, to your grandchildren or other skip persons, allocate your GST tax exemption carefully. Turn to FMD for answers regarding the GST tax.

How Companies Can Spot Dangers by Examining Concentration

At first glance, the word “concentration” might seem to describe a positive quality for any business owner. You need to concentrate, right? Only through laser focus on the right strategic goals can your company reach that next level of success.

In a business context, however, concentration can refer to various aspects of your company’s operations. And examining different types of it may help you spot certain dangers.

Evaluate your customers

Let’s start with customer concentration, which is the percentage of revenue generated from each customer. Many small to midsize companies rely on only a few customers to generate most of their revenue. This is a precarious position to be in.

The dilemma is more prevalent in some industries than others. For example, a retail business will likely market itself to a relatively broad market and generally not face too much risk related to customer concentration. A commercial construction company, however, may serve only a limited number of clients that build, renovate or maintain offices or other facilities.

How do you know whether you’re at risk? One rule of thumb says that if your biggest five customers make up 25% or more of your revenue, your customer concentration is generally high. Another simple measure says that, if any one customer represents 10% or more of revenue, you’re at risk of having elevated customer concentration.

In an increasingly specialized world, many businesses focus solely on specific market segments. If yours is one of them, you may not be able to do much about customer concentration. In fact, the very strength of your company could be its knowledge and attentiveness to a limited number of buyers.

Nonetheless, know your risk and explore strategic planning concepts that may help you mitigate it. If diversifying your customer base isn’t an option, be sure to maintain the highest level of service.

Look at other areas

There are other types of concentration. For instance, vendor concentration refers to the number and types of vendors a company uses to support its operations. Relying on too few vendors is risky. If any one of them goes out of business or substantially raises prices, the company could suffer a severe rise in expenses or even find itself unable to operate.

Your business may also be affected by geographic concentration. This is how a physical location affects your operations. For instance, if your customer base is concentrated in one area, a dip in the regional economy or the arrival of a disruptive competitor could negatively impact profitability. Small local businesses are, by definition, subject to geographic concentration. However, they can still monitor the risk and explore ways to mitigate it — such as through online sales in the case of retail businesses.

You can also look at geographic concentration globally. Say your company relies solely or largely on a specific foreign supplier for iron, steel or other materials. That’s a risk. Tariffs, which have been in the news extensively this year, can significantly impact your costs. Geopolitical and environmental factors might also come into play.

Third, stay cognizant of your investment concentration. This is how you allocate funds toward capital improvements, such as better facilities, machinery, equipment, technology and talent. The term can also refer to how your company manages its investment portfolio, if it has one. Regularly reevaluate risk tolerance and balance. For instance, are you overinvesting in technology while underinvesting in hiring or training?

Study your company

As you can see, concentration takes many different forms. This may explain why business owners often get caught off guard by the sudden realization that their companies are over- or under-concentrated in a given area. FMD can help you perform a comprehensive risk assessment that includes, among other things, developing detailed financial reports highlighting areas of concentration.

Mitigate the Risks: Tips for Dealing with Tariff-Driven Turbulence

President Trump’s “Liberation Day” announcement of global tariffs caught businesses, as well as foreign countries and worldwide financial markets, off guard. While the president has long endorsed the imposition of tariffs, many businesses expected him to take a targeted approach. Instead, Trump rolled out a baseline tariff on all imports to the United States and higher tariffs on certain countries, including some of the largest U.S. trading partners. (On April 9, Trump announced a 90-day pause on some reciprocal tariffs, with a 10% baseline tariff remaining in effect for most countries and a 145% tariff on imports from China.)

The tariff plan sent businesses, both large and small, scrambling. Even companies accustomed to dealing with tariffs have been shaken because this round is so much more extensive and seemingly subject to change than those in the past.

Proponents of tariffs say they can be used as a negotiating tool to get other countries to lower their tariffs on U.S. imports, thereby leveling the global trade playing field. They also argue that if domestic and foreign companies relocate to the United States, it’ll create jobs for Americans, fuel construction industry growth and provide additional tax revenue.

Since more changes are expected as countries and industries negotiate with the administration for reduced rates and exemptions, some degree of uncertainty is likely to prevail for at least the short term. In the meantime, businesses have several areas they should focus on to reduce the tariff hit to their bottom lines.

1. Financial forecasting

No business should decide how to address tariff repercussions until they’ve conducted a comprehensive financial analysis to understand how U.S. and retaliatory tariffs will affect costs. You might find, for example, that your business needs to postpone impending plans for capital asset purchases or expansion.

Modeling, or scenario planning, is often helpful during unpredictable periods. Begin by identifying all the countries involved in your supply chain, whether you deal with them directly or through your suppliers, and the applicable tariffs, whether you’re importing or exporting goods.

You can then develop a model that projects how different sourcing scenarios might play out. The model should compare not only the costs of foreign vs. domestic options but also the resulting impact on your pricing, labor costs, cash flow and, ultimately, profitability. This information can allow you to build contingency plans to help reduce the odds of being caught flat-footed as new developments unfurl.

Modeling can provide valuable guidance if you’re considering reshoring your operations. Of course, reshoring isn’t a small endeavor. Moreover, U.S. infrastructure may not be adequate for your business needs.

Manufacturers also should note the shortage of domestic manufacturing workers. According to pre-tariff analysis from the National Association of Manufacturers, the U.S. manufacturing industry could require some 3.8 million jobs by 2033, and more than 1.9 million may go unfilled.

2. Pricing

Perhaps the most obvious tactic for companies incurring higher costs due to tariffs is to pass the increases along to their customers. It’s not that simple, though.

Before you raise your prices, you must take into account factors such as your competitors’ pricing and how higher prices might affect demand. The latter is especially critical for price-sensitive consumer goods where even a small price jump could undermine demand.

Consumers have already been cutting back on spending based on rising fears of inflation and a possible recession. Price increases, therefore, are better thought of as a single component in a more balanced approach.

3. Foreign Trade Zones

You may be able to take advantage of Foreign Trade Zones (FTZs) to minimize your tariff exposure. In these designated areas near U.S. ports of entry, a company can move goods in and out of the country for operations (including assembly, manufacturing and processing) but pay reduced or no tariffs.

Tariffs are paid when the goods are transferred from an FTZ into the United States for consumption. While in the zone, though, goods aren’t subject to tariffs. And, if the goods are exported, no tariff applies.

Note: Trump already has narrowed some of the potential benefits of FTZs, so avoid making them a cornerstone of your tariff strategy.

4. Internal operations

If your company’s suppliers are in high-tariff countries, you can look into switching to lower-cost suppliers in countries that have negotiated lower tariffs.

You may not be able to escape higher costs stemming from tariffs, but you can take steps to cut other costs by streamlining operations. For example, you could invest in technologies to improve efficiency or trim worker hours and employee benefits. You also should try to renegotiate contracts with suppliers and vendors, even if those relationships aren’t affected by tariffs. Such measures might make it less necessary to hike your prices.

You can control your overall costs as well by breaking down departmental silos so the logistics or procurement department isn’t making tariff-related decisions without input from others. Your finance and tax departments need to weigh in to achieve the optimal cost structures.

5. Tax planning

Maximizing your federal and state tax credits is paramount in financially challenging times. Technology investments, for example, may qualify for Section 179 expensing and bonus depreciation (which may return to 100% in the first year under the upcoming tax package being negotiated in Congress). Certain sectors may benefit from the Sec. 45X Advanced Manufacturing Production Credit or the Sec. 48D Advanced Manufacturing Investment Credit. Several states also offer tax credits for job creation, among other tax incentives.

This may be a wise time to consider changing your inventory accounting method, if possible. The last-in, first-out (LIFO) method assumes that you use your most recently purchased materials first. The cost of the newer, pricier items is charged first to the cost of goods sold, boosting it and cutting both your income and taxes. Bear in mind, though, that LIFO isn’t permitted under the International Financial Reporting Standards and is more burdensome than the first-in, first-out method.

6. Compliance

Regardless of the exact percentages of U.S. and retaliatory tariffs, you can count on tighter scrutiny of your compliance with the associated rules and requirements. These probably will become more complicated than they’ve been in the past.

For example, expect greater documentation requirements and shifting rules for identifying an item’s country of origin. The higher compliance burden alone will ramp up your costs — but the costs of noncompliance could be far greater.

Stay vigilant

The tariff landscape is rapidly evolving. You need to monitor the actions by the Trump administration, the responses of other countries and how they affect your business operations. You may have to pivot as needed to keep costs low (by reshoring or switching to suppliers in low-tariff countries). If you don’t have the requisite financial expertise on staff to keep up with it all, we can help. Contact FMD today about how to plan ahead — and stay ahead of the changes.

Undoing an Irrevocable Life Insurance Trust is Possible

Life insurance can be a powerful estate planning tool. Indeed, it creates an instant source of wealth and liquidity to meet your family’s financial needs after you’re gone. And to shield the proceeds from potential estate taxes, thus ensuring more money for your loved ones, many people transfer their policies to irrevocable life insurance trusts (ILITs).

But what if you have an ILIT that you no longer need? Does its irrevocable nature mean you’re stuck with it forever? Not necessarily. You may have options for pulling a life insurance policy out of an ILIT or even unwinding the ILIT entirely.

Benefits of an ILIT

An ILIT shields life insurance proceeds from estate tax because the trust, rather than the insured, owns the policy. Note, however, that under the “three-year rule,” if you transfer an existing policy to an ILIT and then die within three years, the proceeds remain taxable. That’s why it’s preferable to have the ILIT purchase a new policy, if possible, rather than transfer an existing policy to the trust.

The key to removing the policy from your taxable estate is to relinquish all “incidents of ownership.” That means, for example, you can’t retain the power to change beneficiaries; assign, surrender or cancel the policy; borrow against the policy’s cash value; or pledge the policy as security for a loan (although the trustee may have the power to do these things).

Reasons to undo an ILIT

Generally, there are two reasons you might want to undo an ILIT: 1) you no longer need life insurance, or 2) you still need life insurance but your estate isn’t large enough to trigger estate tax, and you’d like to eliminate the restrictions and expense associated with the ILIT. Although your ability to undo an ILIT depends on the circumstances, potential options include:

Allowing the insurance to lapse. This may be a viable option if the ILIT only holds a term life insurance policy that you no longer need. You simply stop making contributions to the trust to cover premium payments. Technically, the ILIT continues to exist, but once the policy lapses it owns no assets. It’s possible to allow a permanent life insurance policy to lapse, but other options may be preferable, especially if the policy has a significant cash value.

Swapping the policy for cash or other assets. Many ILITs permit the grantor to retrieve a policy from the ILIT by substituting cash or other assets of equivalent value. If allowed, you may be able to gain access to a policy’s cash value by swapping it for illiquid assets of equivalent value.

Surrendering or selling the policy. If your ILIT holds a permanent insurance policy, the trust might surrender it, which will preserve its cash value but avoid the need to continue paying premiums. Alternatively, if you’re eligible, the trust could sell the policy in a life settlement transaction.

Distributing the trust assets. Some ILITs give the trustee the discretion to distribute trust funds (including the policy’s cash value, other trust assets or possibly the policy itself) to your beneficiaries, such as your spouse or children. Typically, these distributions are limited to funds needed for “health, education, maintenance and support.”

These are some, but by no means all, of the strategies that may be available to unwind an ILIT. Contact FMD for additional details.

Need to Modify an Existing Irrevocable Trust? Decant It

“Decanting” an irrevocable trust allows a trustee to use his or her distribution powers to transfer assets from one trust into another with different — often more favorable — terms. Much like decanting wine to separate it from sediment, trust decanting “pours” assets into a new vessel, potentially improving clarity and control.

While the original trust must be irrevocable, meaning its terms typically can’t be changed by the grantor, decanting offers a lawful method for trustees to update or adjust those terms under certain conditions.

Decanting Q&As

There are several reasons a trustee might consider decanting. For example, the original trust may lack flexibility to deal with changing tax laws, family circumstances or beneficiary needs. Decanting can allow for the removal of outdated provisions, the addition of modern administrative powers or even a change in the trust’s governing law to a more favorable jurisdiction. It may also provide a way to correct drafting errors, protect assets from creditors or introduce special needs provisions for a beneficiary who becomes disabled.

However, decanting laws vary dramatically from state to state, so it’s important to familiarize yourself with your state’s rules and evaluate their effect on your estate planning goals. Here are several common questions and answers regarding decanting a trust:

Q: If your trust is in a state without a decanting law, can you benefit from another state’s law?

A: Generally yes, but to avoid any potential complaints by beneficiaries it’s a good idea to move the trust to a state whose law specifically addresses this issue. In some cases, it’s simply a matter of transferring the existing trust’s governing jurisdiction to the new state or arranging for it to be administered in that state.

Q: Does the trustee need to notify beneficiaries or obtain their consent?

A: Decanting laws generally don’t require beneficiaries to consent to a trust decanting and several states don’t even require that beneficiaries be notified. Where notice is required, the specific requirements are all over the map: Some states require notice to current beneficiaries while others also include contingent or remainder beneficiaries. Even if notice isn’t required, notifying beneficiaries may help stave off potential disputes in the future.

Q: What is the trustee’s authority?

A: When exploring decanting options, trustees should consider which states offer them the greatest flexibility to achieve their goals. In general, decanting authority is derived from a trustee’s power to make discretionary distributions. In other words, if the trustee is empowered to distribute the trust’s funds among the beneficiaries, he or she should also have the power to distribute them to another trust. But state decanting laws may restrict this power.

Decanting can be complicated

Because of its complexity, decanting an irrevocable trust should be approached with careful legal and tax guidance. When used appropriately, it can be a strategic way to modernize an inflexible trust and better serve your long-term goals as well as your beneficiaries. Consult FMD before taking action.

There’s No Time like the Present to have Your Will Drafted

When a person considers an “estate plan,” he or she typically thinks of a will. And there’s a good reason: A well-crafted, up-to-date will is the cornerstone of an estate plan. Importantly, a will can help ease the burdens on your family during a difficult time. Let’s take a closer look at what to include in a will.

Start with the basics

Typically, a will begins with an introductory clause identifying yourself and where you reside (city, state, county, etc.). It should also state that this is your official will and replaces any previous wills.

After the introductory clause, a will generally explains how your debts are to be paid. The provisions for repaying debt typically reflect applicable state laws.

You may also use a will to name a guardian for minor children. To be on the safe side, name a backup in case your initial choice is unable or unwilling to serve as guardian or predeceases you. 

Make bequests

One of the major sections of your will — and the one that usually requires the most introspection — divides up your remaining assets. Outside your residuary estate, you’ll likely want to make specific bequests of tangible personal property to designated beneficiaries. For example, you might leave a family heirloom to a favorite niece or nephew.

When making bequests, be as specific as possible. Don’t simply refer to jewelry or other items without describing them in detail. This can avoid potential conflicts after your death.

If you’re using a trust to transfer property, identify the property that remains outside the trust, such as furniture and electronic devices. Typically, these items won’t be suitable for inclusion in a trust.

Appoint an executor

Name your executor — usually a relative or professional — who’s responsible for administering your will. Of course, this should be a reputable person whom you trust.

Also, include a successor executor if the first choice can’t perform these duties. If you’re inclined, you may use a professional as the primary executor or as a backup.

Follow federal and state laws

Be sure to meet all the legal obligations for a valid will in the applicable state and keep it current. Sign the will, putting your initials on each page, with your signature attested to by witnesses. Include the addresses of the witnesses in case they ever need to be located. Don’t use beneficiaries as witnesses. This could lead to potential conflicts of interest.

Keep in mind that a valid will in one state is valid in others. So if you move, you won’t necessarily need a new will. However, there may be other reasons to update it at that time. Contact FMD with any questions regarding your will.

Businesses Considering Incorporation should Beware of the Reasonable Compensation Conundrum

Small to midsize businesses have valid reasons for incorporating, not the least of which is putting that cool “Inc.” at the end of their names. Other reasons include separating owners’ personal assets from their business liabilities and offering stock options as an employee incentive.

If you’re considering incorporation for your company, however, it’s essential to be aware of the associated risks. One of them is the reasonable compensation conundrum.

How much is too much?

Let’s say you decide to convert your business to a C corporation. After completing the incorporation process, you can pay owners, executives and other highly compensated employees some combination of compensation and dividends.

More than likely, you’ll want to pay your highly compensated employees more in compensation and less in dividends because compensation is tax deductible and dividends aren’t. But be careful — the IRS may be watching. If it believes you’re excessively compensating a highly compensated employee for tax avoidance purposes, it may challenge your compensation approach.

Such challenges typically begin with an audit and may result in the IRS being allowed to reclassify compensation as dividends — with penalties and interest potentially tacked on. What’s worse, if the tax agency succeeds with its challenge, the difference between what you paid a highly compensated employee and what the tax agency considers a reasonable amount for the services rendered usually isn’t deductible.

Of course, you can contest an IRS challenge. However, doing so usually involves considerable legal expenses and time — and a positive outcome is far from guaranteed.

Note: S corporations are a different story. Under this entity type, income and losses usually “pass through” to business owners at the individual level and aren’t subject to payroll tax. Thus, S corporation owners usually prefer to receive distributions. As a result, the IRS may raise a reasonable compensation challenge when it believes a company’s owners receive too little salary.

What are the factors?

There’s no definitive bright-line test for determining reasonable compensation. However, over the years, courts have considered various factors, including:

• The nature, extent and scope of an employee’s work,

• The employee’s qualifications and experience,

• The size and complexity of the business,

• A comparison of salaries paid to the sales, gross income and net worth of the business,

• General economic conditions,

• The company’s financial status,

• The business’s salary policy for all employees,

• Salaries of similar positions at comparable companies, and

• Historical compensation of the position.

It’s also important to assess whether the business and employee are dealing at an “arm’s length,” and whether the employee has guaranteed the company’s debts.

Can you give me an example?

Just a few years ago, a case played out in the U.S. Tax Court illustrating the risks of an IRS challenge regarding reasonable compensation.

The owner of a construction business structured as a C corporation led his company through tough times and turned it into a profitable enterprise. When the business recorded large profits in 2015 and 2016, primarily because of the owner’s personal efforts and contacts, it paid him a bonus of $5 million each year in addition to his six-figure salary. The IRS claimed this was excessive.

The Tax Court relied heavily on expert witnesses to make its determination. Ultimately, it decided against the business, finding that reasonable amounts for the bonuses were $1.36 million in 2015 and $3.68 million in 2016, respectively. (TC Memo 2022-15)

Who can help?

As your business grows, incorporation may help your company guard against certain risks and achieve a greater sense of stature. However, there are tax complexities to consider. If you’re thinking about it, please contact FMD for help identifying the advantages and risks from both tax and strategic perspectives.

In Certain Situations, Filing a Gift Tax Return is Required or Recommended

Thanks to the annual gift tax exclusion, you can systematically reduce your taxable estate with little effort. And while you typically don’t have to file a gift tax return, in some situations, doing so may be required or recommended.

Know when a return is required

The annual gift tax exclusion amount for 2024 is $18,000 per recipient. (It’ll increase to $19,000 per recipient beginning in 2025.)

So, for example, if you have three children and seven grandchildren, you can give up to $180,000 in 2024 ($18,000 x 10) without gift tax liability. Under this scenario, you aren’t required to file a gift tax return.

If your spouse consents to a “split gift,” you can jointly give up to $36,000 per recipient in 2024. When making split gifts, you must file a gift tax return (unless you reside in a community property state). If your gift exceeds the annual gift tax exclusion amount, the federal gift and estate tax exemption may shelter the excess from tax if a gift tax return is filed. In 2024, the exemption amount is an inflation-adjusted $13.61 million. In 2025, the exemption amount increases to an inflation-adjusted $13.99 million.

Avoid a filing penalty

Failing to file a required gift tax return may result in a penalty of 5% per month of the tax due, up to 25%. Bear in mind that you might file a gift tax return even if you’re technically not required to do so. The return establishes the value of assets for tax purposes and provides a measure of audit protection from the IRS.

If you file a gift tax return and honestly disclose the value of the gifts, a safe-harbor rule prohibits audits after three years. However, the safe-harbor rule doesn’t apply in the event of fraudulent statements or inadequate disclosure.

Mind the filing deadline

The due date for filing a gift tax return for 2024 is April 15, 2025, the same due date for filing an individual income tax return. If you file for an extension, the filing due date is October 15, 2025. Contact FMD if you have questions about whether a gift requires filing a gift tax return.

Sharing Your Estate Plan’s Details with Family has Pros and Cons

When it comes to estate planning, one important decision many people struggle with is whether to share the details of their plans with family members. There’s no one-size-fits-all answer — it largely depends on your goals and your family’s dynamics. However, thoughtful communication can go a long way in reducing confusion and conflict after your death. Let’s take a closer look at the pros and cons of sharing your estate planning decisions with your family.

The pros

Sharing the details of your estate plan provides many benefits, including:

Explaining your wishes. When they design their estate plans, most people want to treat all their loved ones fairly. But “fair” doesn’t always mean “equal.” The problem is that your beneficiaries may not understand that without an explanation.

For example, suppose you have adult children from a previous marriage and minor children from your second marriage. Treating both sets of children equally may not be fair, especially if the adult children are financially independent and the younger children still face significant living and educational expenses. It may make sense to leave more of your wealth to your younger children. And explaining your reasoning upfront can go a long way toward avoiding hurt feelings or disputes.

Obtaining feedback. Sharing your plans with loved ones allows them to ask questions and provide feedback. If family members feel they’re being treated unfairly, you may wish to discuss alternatives that better meet their needs while still satisfying your estate planning objectives.

Streamlining estate administration. Sharing details of your plan with your executor, trustees and any holders of powers of attorney will enable them to act quickly and efficiently when the time comes. This is particularly important for people you’ve designated to make health care decisions or handle your financial affairs if you become incapacitated.

The cons

There may be some disadvantages to sharing the details of your plan, including:

Strained relationships. Some loved ones may be disappointed when they learn the details of your estate plan, which can lead to strained relationships. Keeping your plans to yourself allows you to avoid these uncomfortable situations. On the other hand, it also deprives you of an opportunity to resolve such conflicts during your lifetime.

Encouragement of irresponsible behavior. Some affluent parents worry that the promise of financial independence may give their children a disincentive to behave in a financially responsible manner. They may not pursue higher education, remain gainfully employed and generally lead productive lives. Rather than keeping your children’s inheritance a secret, a better approach may be to use your estate plan to encourage desirable behavior.

Don’t forget to factor in your state’s laws

As you think over how much you wish to disclose to your loved ones about your estate plan, be sure to consider applicable state law. The rules governing what a trustee must disclose to beneficiaries about the terms of the trust vary from state to state. Some states permit so-called “quiet trusts,” also known as “silent trusts,” which make it possible to keep the trust a secret from your loved ones.

Other states require trustees to inform the beneficiaries about the trust’s existence and terms, often when they reach a certain age. For example, trustees may be required to provide beneficiaries with a copy of the trust and an annual accounting of its assets and financial activities. However, many states allow you to place limits on the information provided to beneficiaries.

Sharing is caring

Ultimately, a well-crafted estate plan should speak for itself. But open communication, when done thoughtfully, can support your plan’s success and give your loved ones clarity and peace of mind. Contact FMD with questions.

If Your Estate Includes IP, Consider these Planning Strategies

Over your lifetime, you’ve likely accumulated various tangible assets. These may include automobiles, personal property or art. It’s relatively easy to account for such assets in your estate plan, but what about intangible assets, such as intellectual property (IP)? These assets behave differently from other types of property, so careful planning is required to preserve their value for your family.

What is IP?

IP generally falls into one of four categories: patents, copyrights, trademarks and trade secrets. Let’s focus on only patents and copyrights, creatures of federal law intended to promote scientific and creative endeavors by providing inventors and artists with exclusive rights to benefit economically from their work for a certain period.

In a nutshell, patents protect inventions. To obtain patent protection, inventions must be novel, “nonobvious” and useful. The two most common patent types are utility and design patents:

• A utility patent may be granted to someone who “invents or discovers any new and useful process, machine, manufacture or composition of matter, or any new useful improvement thereof.”

• A design patent is available for a “new, original and ornamental design for an article of manufacture.”

Under current law, a utility patent protects an invention for 20 years from the patent application filing date. A design patent lasts 15 years from the patent issue date. For utility patents, it typically takes at least a year to a year and a half from the date of filing to the date of issue.

When it comes to copyrights, they protect the original expression of ideas that are fixed in a “tangible medium of expression,” typically in the form of written works, music, paintings, sculptures, photographs, sound recordings, films, computer software, architectural works and other creations. Unlike patents, which the U.S. Patent and Trademark Office must approve, copyright protection kicks in as soon as a work is fixed in a tangible medium.

For works created in 1978 or later, an author-owned copyright lasts for the author’s lifetime plus 70 years. A “work-for-hire” copyright expires 95 years after the first publication date or 120 years after the date the work is created, whichever is earlier. More complex rules apply to works created before 1978.

What are the estate planning considerations?

For estate planning purposes, IP raises two important questions:

1. What’s the IP worth?

2. How should it be transferred?

Valuing IP is a complex process. So it’s best to obtain an appraisal from a professional with experience valuing this commodity.

After you know the IP’s value, it’s time to decide whether to transfer it to family members, colleagues, charities or others through lifetime gifts or bequests after your death. The gift and estate tax consequences will likely affect your decision. However, you also should consider your income needs and who’s in the best position to monitor your IP rights and take advantage of their benefits.

For example, if you continue to depend on the IP for your livelihood, hold on to it until you’re ready to retire or no longer need the income. You also might want to sell or retain ownership of the IP if your children or other transferees lack the desire or wherewithal to take advantage of its economic potential and monitor and protect it against infringers.

Whichever strategy you choose, it’s important to plan the transaction carefully to ensure your objectives are achieved. There’s a common misconception that when you transfer ownership of the tangible medium on which IP is recorded you also transfer the IP rights. IP rights are separate from the work and are retained by the creator — even if the work is sold or given away.

Turn to a professional 

Having your assets distributed according to your wishes after your death is a primary reason for having an estate plan. And whether artistic or scientific endeavors are the source of your wealth or simply meaningful diversions, it’s likely that you care deeply about who ultimately possesses your works and enjoys their benefits. Contact FMD to help ensure your estate plan correctly accounts for your IP.

Is Your Business on Top of its Tech Stack?

Like many business owners, you’ve probably received a lot of technology advice. One term you may hear frequently is “tech stack.” Information technology (IT) folks love to throw this one around while sharing their bits and bytes of digital wisdom.

Well, they’re not wrong about its importance. Your tech stack is crucial to maintaining smooth operations, but it can be a major drain on cash flow if not managed carefully.

Everything you use

For the purpose of running a business, a tech stack can be defined as all the software and other digital tools used to support the company’s operations and IT infrastructure. It includes assets such as your:

• Accounting software,

• Customer relationship management platform,

• Project management tools,

• Cloud storage, and

• Communication apps.

Note: In a purely IT context, the term is widely defined as the set of technologies used to develop an application or website.

For businesses, a tech stack’s objective is to streamline workflows and promote productivity while maintaining strong cybersecurity. Unfortunately, as it grows, a tech stack can leave companies struggling with overspending, inefficiencies and employee apathy.

Case in point: For its 2025 State of Digital Adoption Report, software platform provider WalkMe surveyed nearly 4,000 enterprise leaders and employees worldwide. The data showed that about 43% of enterprise tech stacks are currently more complex than they were three years ago. Disturbingly, the report found the average large enterprise lost $104 million in 2024 because of underused technology, fragmented IT strategy and low employee adoption of tech tools.

Although these results focus on larger companies, small to midsize businesses face the same risks. Over time, companies often layer technologies upon technologies, sometimes introducing redundant or extraneous tools that are largely ignored.

5 factors to consider

Balancing functionality and innovation without overspending is the key to staying on top of your tech stack. Here are five factors to focus on:

1. Composition. Many business owners lose track of the many complex elements of their tech stacks. The best way to stay informed is to conduct regular IT audits. These are formal, systematic reviews of your IT infrastructure, which includes your tech stack. Audits often reveal redundant software subscriptions and underused or forgotten software licenses.

2. Integration/compatibility. When tech tools don’t play well together — or at all — data silos spring up and redundant work drags everyone down. This leads to more errors and less productivity. When managing your tech stack, choose solutions that integrate well across your operations. As feasible, replace those that don’t.

3. Price to value. Choosing IT tools primarily based on cost is risky. Although you should budget carefully, opting for cheaper solutions can ultimately increase technology expenses because of greater inefficiencies and the constant need to add tools to fill functionality gaps. Stay mindful of getting good value for the price and make choices that align with your strategic objectives.

4. Scalability. Generally, as a business grows, its technology needs expand and evolve. That doesn’t mean you always have to buy new software, however. Look for solutions that can scale up with growth or down during slower periods. Shop for assets that offer flexibility along with the right functionality.

5. Adoptability. Your company could have the most powerful software tool in existence, but if it sits unused, that item is just a wasted expense taking up space in your tech stack. Add new technology cautiously. Consult your leadership team, survey the employees who’ll be using it and ask for vendor references. When you do buy something, roll it out with an effective communication strategy and thorough training.

A technological tree

Like a tree, a tech stack can grow out of control and become a nuisance or even a danger to everyone around it. Properly pruned and otherwise well-maintained, however, it can be a powerful and functional business feature. Let FMD help you identify all your technology costs and assess the return on investment of every component of your tech stack.

How Companies Can Better Control IT Costs

Most small to midsize businesses today are constantly under pressure to upgrade their information technology (IT). Whether it’s new software, a better way to use the cloud or a means to strengthen cybersecurity, there’s always something to spend more money on.

If your company keeps blowing its IT budget, rest assured — you’re not alone. The good news is that you and your leadership team may be able to control these costs better through various proactive measures.

Set a philosophy and exercise governance

Assuming your company hasn’t already, establish a coherent IT philosophy. Depending on its industry and mission, your business may need to spend relatively aggressively on technology to keep up with competitors. Or maybe it doesn’t. You could decide to follow a more cautious spending approach until these costs are under control.

Once you’ve set your philosophy, develop clear IT governance policies and procedures for purchases, upgrades and usage. These should, for example, mandate and establish approval workflows and budgetary oversight. You want to ensure that every dollar spent aligns with current strategic objectives and will likely result in a positive return on investment (ROI).

Beware of shiny new toys! Many businesses exceed their IT budgets when one or two decision-makers can’t control their enthusiasm for the latest and greatest solutions. Grant final approval for major purchases, or even a series of minor ones, only after carefully analyzing the technology you have in place and identifying legitimate gaps or shortcomings.

Also, remember that overspending on technology is often driven by undertrained employees. Teach and remind your users to adhere to your IT policies and follow procedures. Doing so can help prevent costly operational mistakes and cybersecurity breaches.

Conduct regular audits

You can’t control costs in any business area unless you know precisely what they are. To get the information you need, regularly conduct IT audits. These are formal, systematic reviews of your IT infrastructure, policies, procedures and usage. IT audits often reveal budget drainers such as:

• Redundant subscriptions for software or other tech services,

• Underused or forgotten software licenses, and

• Outdated or abandoned hardware.

You may discover, for instance, that you’re paying for several different software products with overlapping functionalities. Choosing one and discarding the others could generate substantial savings.

As you search for overspending, also look for examples of IT expenditures delivering a good ROI. You want to be able to refine and repeat whatever decision-making process led you to those wins.

Keep an eye on the cloud

One specific type of IT expense that plagues many businesses relates to cloud services. Like many companies, yours probably uses a “pay as you go” subscription model that includes discounts or rate reductions for lower usage. However, if you don’t monitor your actual cloud usage and claim those discounts or cheaper rates, you can wind up overpaying for months or even years without realizing it.

To avoid this sad fate, ensure that at least one person within your business is well-acquainted with your cloud services contract. Assign this individual (usually a technology executive) the responsibility of making sure the company claims all discounts or rate adjustments it’s entitled to.

One best practice to strongly consider is setting up weekly cloud cost reports that go to the leadership team. Also, be prepared to occasionally renegotiate your cloud services contract so it’s as straightforward as possible and optimally suited to your business’s needs.

Don’t give up

To be clear, controlling IT costs should never mean cutting corners or scrimping on mission-critical technology expenses — particularly those related to cybersecurity. That said, you also should never give up on managing your IT budget. FMD can help you develop a tailored cost-control strategy that keeps your technology current and supports your business objectives.

Stepped-Up Basis Rules Can Ease the Income Tax Bite of an Inheritance

With the federal gift and estate tax exemption amount set at $13.99 million for 2025, most people won’t be liable for these taxes. However, capital gains tax on inherited assets may cause an unwelcome tax bite.

The good news is that the stepped-up basis rules can significantly reduce capital gains tax for family members who inherit your assets. Under these rules, when your loved one inherits an asset, the asset’s tax basis is adjusted to the fair market value at the time of your death. If the heir later sells the asset, he or she will owe capital gains tax only on the appreciation after the date of death rather than on the entire gain from when you acquired it.

Primer on capital gains tax

When assets such as securities are sold, any resulting gain generally is a taxable capital gain. The gain is taxed at favorable rates if the assets have been owned for longer than one year. The maximum tax rate on a long-term capital gain is 15% but increases to 20% for certain high-income individuals.

Conversely, a short-term capital gain is taxed at ordinary income tax rates as high as 37%. Gains and losses are accounted for when filing a tax return, so high-taxed gains may be offset wholly or partially by losses.

The amount of a taxable gain is equal to the difference between the basis of the asset and the sale price. For example, if you acquire stock for $10,000 and then sell it for $50,000, your taxable capital gain is $40,000.

These basic rules apply to capital assets owned by an individual and sold during his or her lifetime. However, a different set of rules applies to inherited assets.

How stepped-up basis works

When assets are passed on through inheritance, there’s no income tax liability until the assets are sold. For these purposes, the basis for calculating gain is “stepped up” to the value of the assets on the date of your death. Thus, only the appreciation in value since your death is subject to tax because the individual inherited the assets. The appreciation during your lifetime goes untaxed.

Securities, artwork, bank accounts, business interests, investment accounts, real estate and personal property are among the assets affected by the stepped-up basis rules. However, these rules don’t apply to retirement assets such as 401(k) plans or IRAs.

To illustrate the benefits, let’s look at a simplified example. Dan bought XYZ Corp. stock 10 years ago for $100,000. In his will, he leaves all the XYZ stock to his daughter, Alice. When Dan dies, the stock is worth $500,000. Alice’s basis is stepped up to $500,000.

When Alice sells the stock two years later, it’s worth $700,000. She must pay the maximum 20% rate on her long-term capital gain. On these facts, Alice has a $200,000 gain. With the 20% capital gains rate, she owes $40,000. Without the stepped-up basis, her tax on the $600,000 gain would be $120,000.

What happens if an asset declines in value after the deceased acquired it? The adjusted basis of the asset the individual inherits is still the value on the date of death. This could result in a taxable gain on a subsequent sale if the value rebounds after death, or a loss if the asset’s value continues to decline.

Turn to us for help

Without the stepped-up basis rules, your beneficiaries could face much higher capital gains taxes when they sell their inherited assets. If you have questions regarding these rules, please contact FMD.