Category: Uncategorized

The New Era of “No Tax” Policies: Selective Tax Exemptions and Their Side Effects

4 min read

No Tax on Tips, No Tax on Over TimeFormer President and current candidate Donald Trump introduced a new policy of his in a recent Arizona rally: No more income tax on overtime pay. This follows both Trump and Vice President Harris’ proposal for a no income tax on tips policy, as well.

Below we will look at the two recent proposals and what they could mean for both taxpayers and businesses.

No Tax on Tips

The no tax on tips policy looks to lighten the tax burden on service industry workers. According to the Fair Labor and Standards Act, anyone who “customarily and regularly” receives $30 or more in tips per month is considered a tipped worker. The mechanism to exempt tip income could possibly come through three different mechanisms.

One option would be to categorize tips as gifts. Service employees are often paid wages lower than the minimum wage (as low as $2.31 per hour), with employers required to “top-up” an employee to the federal minimum wage of $7.25 if tips don’t at least make up the difference themselves. As a result, considering tips as gifts may not legally work.

A second option is to treat a specified amount of tips as non-taxable income. Consider a policy, for example, in which up to $25,000 in tips is treated as non-taxable income. Legally, this is straightforward, but it could have various knock-off effects on those it is intended to help. For example, a taxpayer’s gross income could fall so low they no longer qualify for the earned income tax credit and end up being a net negative.

Finally, there is a third option of creating a new deduction; allowing taxpayers to first claim the income and then take a deduction to offset it. The issue here is that given the claimed income level of most tipped workers, an additional deduction may not be one-for-one incrementally beneficial to the standard deduction. In other words, so much of their income is already non-taxable, this wouldn’t make much of a difference.

Side-Effects

Depending on how the policy is structured, there are negative side effects that could accompany the policy change. Compliance with reporting tip income is already spotty at best. It’s not uncommon for tipped workers to underreport their tip income, especially for cash tips. The main concern is that employers and employees may try to game the system. There is a real chance that who is tipped changes and people may try to change compensation schemes so that other types of income are then changed to tip income to take advantage of the changes; especially for taxpayers for whom the law was never intended to help.

Non-Taxable Overtime

The second proposal is to exempt overtime wages from income taxation. The idea is that it would help workers who get to keep more of their money; and at the same time helping businesses, since employees would be incentivized to work more hours, thereby negating the need to hire more employees. While on the surface it seems like a policy to help the hardest working, there are potential problems.

Unfair to Regular Wage Earners

There are two possible issues. First, it leaves behind hourly workers who cannot work overtime due to other responsibilities, health or their job’s duties. It also disadvantages those who have to work multiple jobs (because their job doesn’t offer overtime, but they need the money).

Second, it doesn’t consider salaried positions. There are many salaried positions, where workers are exempt from overtime laws – and a large swath of these are not highly paid positions.

Administrative Complications

Employers and the IRS would need to deal with distinguishing between regular wages and overtime earnings. What is considered overtime is not always clear when there are pay concepts such as bonuses, shift differentials, commissions or other alternative payment arrangements. It would also add significant complexity to payroll systems.

Conclusion

While both policies are well intended, the devil is in the details. Implementation would need to be carefully considered; the intended taxpayers might not be the main beneficiaries; and there is room for fraud.

Pre-Retirement Planning Guide Estate Plan

5 min read

Pre-Retirement Planning Guide - Step 5: Estate PlanStep 5: Estate Plan

The value of an estate plan is twofold. Yes, you want to pass your assets on to heirs in a seamless and tax-efficient manner. But it is also a roadmap to help your heirs understand the full breadth of your assets, where they are located, and how they should be disseminated according to your wishes.

Two important components of your estate plan come into play before you pass away. The first is a Power of Attorney. This document appoints someone you trust – a relative, a friend or a custodial like a bank – to handle your finances on your behalf should you become incapacitated. The second is a Health Care Directive, in which you name someone to make medical decisions for you when you no longer can. To accompany this document, you also may want to complete a living will, generally a boilerplate form that lets medical providers know if you want to forgo life-saving procedures and treatments if you’re in a terminal condition, a coma or near the end of life. Also known as a DNR (do not resuscitate), this document dictates your wishes rather than placing the burden on someone else.

Write a Last Will and Testament

The more complex the estate, the more likely you will need an estate attorney to help you. However, in many cases, an individual can create a will on his own using state-provided forms. The most important thing to remember is that each state has its own requirements regarding wills, such as whether it can be handwritten or even digital and who and how it should be witnessed and possibly notarized. Every time you move to another state throughout your lifetime, you’ll need to update or replace your will to reflect your new home state’s rules.

Your will should name an executor or personal representative in charge of executing the will’s instructions. If you are not married and have minor children, you’ll need to name a guardian for them once you’re deceased. Note that while the age of majority is generally 18, this can vary by state or jurisdiction. Your will should instruct how your assets should be disseminated and to whom, including contingent beneficiaries (should your first choice die before you), and specifically name anyone whom you don’t want to receive proceeds. For example, without a will as a guide, a probate judge may decide that a step-brother should receive your assets instead of your best friend since he is technically a relative.

Be aware that the beneficiary designations on your accounts (e.g., bank, investment, insurance policies) supersede instructions in your will. For example, if you want your second wife to be the sole beneficiary of your assets but forget to change her as the beneficiary on your 401(k) account, your ex will get the payout. That’s the same for all of your accounts with a named beneficiary, so every time you remarry or experience other life-altering events, be sure to review your account beneficiaries and estate plan documents.

Also, make it easy for your executor to find the documents needed to liquidate and/or transfer assets. A simple way to do this is to keep a three-ring binder or file drawer that houses documents/statements for each of your assets, including banking and investment accounts, former and current employer retirement plans, life insurance policies, annuities, real estate property records, etc. If you have a home or property that needs to be sold with proceeds split among your heirs, you should keep records to help establish the property’s cost basis. This includes the sale price and closing expenses from when you purchased the home, as well as the cost of any major repairs or renovations (e.g., new roof, HVAC, additional rooms). When the house is sold, the amount of the sale price minus the cost basis will determine whether or not capital gains need to be paid. Note that taxes on property and investments will need to be paid before assets can be disseminated to your heirs.

Your will is designed to guide a probate judge so that your estate can be settled quickly. However, if you want your heirs to have access to your assets without being subject to probate, consider naming them as joint account owners on your bank and investment accounts as well as the deeds to your properties.

With larger or more complex estates, you might want to consider a trust. Estate planning trusts vary by the type of beneficiary, payout structure, and tax benefit. A trust avoids probate and can help minimize the tax burden on your accumulated assets. Bear in mind that there are dozens of different types of trusts for different circumstances, so it’s important to work with an experienced estate attorney to determine what works best for your situation.

Remember, your estate plan should be a living document that is reviewed and updated every few years to incorporate any new changes in your life, including marriage, children, divorce, and death.

Keeping the Government Open, Stopping the Flow of Synthetic Drugs, and Improving Wireless Communications on Land and in Space

4 min read

Keeping the Government Open, Stopping the Flow of Synthetic Drugs, and Improving Wireless Communications on Land and in SpaceContinuing Appropriations and Extensions Act, 2025 (HR 9747) – This continuing resolution was introduced on Sept. 22 as a “clean” extenuation of the federal budget to fund the government until Dec. 20. Up until this point, a handful of Republicans had attached unrelated bills pertaining to November election restrictions, which they did not have the votes to pass in the House and would never have passed in the Senate. After several weeks of threatening to shut down the government by not passing a continuing appropriations bill, the House Speaker proposed this “last-minute” tied over with the minimum appropriations necessary to keep the government up and running. While it still does not solidify the federal budget for the 2025 fiscal year (Sept. 29, 2024, through Sept. 27, 2025), this bill is expected to pass in the House on Sept. 25 and to clear the Senate and be signed by the president by Sept. 29.

Preventing the Financing of Illegal Synthetic Drugs Act (HR 1076) – Introduced by Rep. Mónica De La Cruz (R-TX) on Feb. 17, 2023, this bill directs the Government Accountability Office to conduct a study on illegal funding sources related to the trafficking of synthetic drugs such fentanyl and methamphetamine. The bill passed in the House on May 22, 2023, in the Senate on July 23, 2024, and was signed into law by the president on Sept. 13.

Launch Communications Act (S 1648) – This act will update ground-to-space rocket communications going forward. Presently, commercial missions are required to use the government-owned spectrum to communicate during launches, including special temporary authority for private companies. This bill permits the Federal Communications Commission (FCC) to facilitate seamless access to broadband spectrum frequencies for commercial space launches and re-entries. The bill, which was introduced on May 17, 2023, by Sen. Eric Schmitt (R-MO), passed unanimously in the Senate on Oct. 21, 2023, and in the House on Sept. 17. It is currently awaiting signature by the president for enactment.

FUTURE Networks Act (HR 1513) – The acronym stands for Future Uses of Technology Upholding Reliable and Enhanced Networks Act. Introduced by Doris Matsui (D-CA) on March 9, 2023, this act would instruct the Federal Communications Commission (FCC) to establish a 6G Task Force comprised of private, academic and government experts to monitor the status of sixth-generation wireless technology, including its possible uses. The House passed the bill on Sept. 18, and the bill now rests with the Senate.

Violence Against Women by Illegal Aliens Act (HR 7909) – This bill would amend the Immigration and Nationality Act to make non-U.S. nationals (aliens) convicted of or having admitted to committing sex offenses or domestic violence (including conspiracy to commit a sex offense) be ineligible for country admission and deportable. Introduced by Rep. Nancy Mace (R-SC), the bill passed in the House on Sept. 18 and currently lies in the Senate.

Intergovernmental Critical Minerals Task Force Act (S 1871) – Introduced by Sen. Gary Peters (D-MI) on June 8, 2023, this bill would enable coordination among state, local, tribal and territorial jurisdictions with the federal government to mitigate national security risks related to the current U.S. critical mineral supply chains. Specifically, the intent is to make the United States less reliant on China and other countries for critical minerals and rare earth metals. Provisions of the bill allow for development, mining and strengthening of our domestic workforce and to improve partnerships with allied countries for dependable mineral supply chains. The bill passed in the Senate on Sept. 8 and is currently with the House.

SMART Leasing Act (S 211) – Introduced on Feb. 1, 2023, by Sen. Gary Peters (D-MI), this bill would launch a program to lease underutilized properties owned by the federal government. The net funding would then be used for capital projects and to help offset the national deficit. The act passed in the Senate on Aug. 1 and is currently under consideration in the House.

How to Account for Stranded Assets

4 min read

How to Account for Stranded AssetsWith more than 14 million electric vehicle (EV) registrations in 2023 worldwide and 2023 seeing an increase in EV sales over 2022 by 35 percent, manufacturers are probably happy – but not those producing the traditional internal combustion engine (ICE) vehicles. This is according to the International Energy Agency’s Global EV Outlook 2024: Trends in Electric Cars.

This statistic is important because it illustrates how assets can be rendered less useful and potentially turn into stranded assets. A stranded asset, defined, is an asset that’s no longer able to provide its owner the profitable payback they originally expected. The difference is based on shifts, primarily negative, that impact the asset’s expected productive performance.

How & Why Assets Become Stranded

When an asset loses its earning power, normally due to extraneous circumstances, like the invention of a more efficient battery, it can become stranded. For example, a machine that’s exclusively capable of making an internal combustion engine (ICE) vehicle can be considered stranded as the transition to electric vehicles (EV) is made. Since the machine is less valuable because it makes fewer and fewer ICE vehicles, it could be impaired or stranded.

This example illustrates that new technology, especially one that moves forward, can render equipment less useful than previously expected. Other ways assets can be stranded include administrative modifications, evolving societal conventions, etc.

Considerations for Stranded Assets by Testing an Asset for Impairment

The primary way to establish if an asset is stranded is to run an impairment test on it. Stranded assets impact the income statement via a non-cash loss, along with impacting the balance sheet by reducing asset value. Therefore, companies must report a loss on the income statement as it’s completely written off the balance sheet.

Whether it’s through the lens of International Financial Reporting Standards (IFRS) or generally accepted accounting principles (GAAP), whether an asset is intangible or tangible, when its value issue is less than book value or impaired, it must be written down.

GAAP Standard

The first step is to determine the carrying value. This is calculated by subtracting the accumulated depreciation from the asset’s original cost. From there, the asset’s projected undiscounted future cash flows (UFCF) are analyzed against the asset’s carrying value. If the total UFCF is less than the carrying value, an asset is considered impaired.

IFRS Standard

The first step also looks at an asset’s carrying value. From there, if either of the following two values is lower than the carrying value, it’s considered impaired:

  • Present value of future cash flows generated by the asset (the so-called “fair value in use” consideration)
  • Fair value less costs to sell the asset

Financial Statement Considerations

If an asset is impaired or stranded, whatever amount the asset drops by, it lowers the business’ asset’s value on the balance sheet. Looking at the income statement, it’s considered a loss. Additionally, since a devaluation is not considered a cash event, it doesn’t trigger any cash outflows. A real-world example can better illustrate this.

The following assumes a business reports its accounting under GAAP. It could be a company that produces fracking equipment to recover natural gas and crude oil. With the uncertainty of domestic fossil fuel policy, specifically where land can be explored, the threat of OPEC and/or Iran being able to determine their production, and the threat of increased government spending on green energy, fracking equipment has a current carrying value of $10 million. However, with increased competition from the three different factors, the same assets can produce an aggregate of $7.5 million in undiscounted future cash flows.

Based on GAAP, since the carrying value is $2.5 million more than the total undiscounted future cash flows, the business would need to record the same amount for an impairment loss. The journal entries would be:

Loss from Impairment Debit:. $2.5 million

Provision for Impairment Losses Credit:  $2.5 million

Conclusion

When it comes to accounting for stranded assets, it’s important to ensure guidelines are followed based on the type of accounting standards businesses must follow.

Looking at the Expanded Accounting Equation

3 min read

Expanded Accounting EquationWhether it’s a private equity transaction or an institutional or retail investor, analyzing a company’s financial statements is an important part of fundamental analysis. One important but basic way to analyze whether a company is worth investing in is through the expanded accounting equation. The most straightforward equation to analyze a business’s balance sheet is:

Assets = Liabilities + Shareholder’s Equity

However, there are more detailed equations that analysts can employ to more closely examine a company’s financial situation. One way to look at it is by more comprehensive equations that break down net income and the transactions related to the equity owners (dividends, etc.).

This equation is a building block of accounting because it focuses on double-entry accounting – or that each occurrence impacts the bifurcated accounting equation – requiring the correct solution to always be in balance. This system is used for journal entries, regardless of the type of transaction. Looking at this equation in greater detail, here’s a more granular example:

Assets = Retained Earnings + Liabilities + Share Capital

Assets are the capital that give a business the ability to benefit from projected, increased productivity and hopefully increased gains. Whether it’s short-term (less than 12 months) or long-term (more than 12 months), it can take the form of real estate, cash, cash-equivalents, pre-paid expenses, accounts receivable, etc.

Liabilities are the amounts owed to lenders due to past agreements. This is related to the sum of liabilities, which is the total of current (up to 12 months) liabilities, plus long-term (more than 12 months) debt and related obligations. This takes the form of loans, accounts payable, owed taxes, etc. Shareholder’s equity is how much the company owners may assert ownership on after accounting for all liabilities.

Another way this equation can be expressed is as follows:

Assets = Liabilities + Contributed Capital + Beginning Retained Earnings + Revenue + Expenses + Dividends

Depending on the financial outcome of the company, dividends and expenses may be negative numbers.

To further explain, these variations on the equation help analysts break down shareholder’s equity. Revenues and expenses illustrate the delta in net income over discrete accounting/earning periods from sales and costs, respectively. Stockholder transactions are able to be accounted for by looking at what capital the original stockholders provided to the business and dividends, or earnings distributed to the company’s stockholders. Retained earnings are carried over from a prior accounting period to the present accounting period. Despite being elementary, the information is helpful for business managers and investors to develop a higher level of analysis.

When it comes to evaluating bankruptcy, it can help investors determine the likelihood of receiving compensation. When it comes to liabilities, should debts be due sooner or over longer periods of time, these debts always have priority. When it comes to liquidated assets, these are then used to satisfy shareholders’ equity until funds are exhausted.  

While this is not a comprehensive look at how to analyze a company, it provides internal and external stakeholders with a way to build a strong financial analytical foundation.

From Likes to Leads: Converting Social Media Analytics into Business Opportunities

4 min read

Converting Social Media Analytics into Business OpportunitiesSocial media has become a powerful tool for helping businesses reach their prospects and customers. By using social media, a business can connect with its audience, build brand awareness, and drive sales. However, many struggle to convert social media engagement – likes, shares, comments, and followers – into tangible business opportunities. Transforming these engagements into actionable leads and sales is where the real power of social media lies. To successfully unlock this potential, businesses must effectively use social media analytics.

Understanding Social Media Analytics

Social media analytics involves gathering and analyzing data from social media platforms to help make informed business decisions. This data includes metrics such as engagement rates, reach, impressions, follower growth, and sentiment analysis, among others. By understanding what this data signifies, businesses can gain valuable insights into the behavior, preferences, and needs of their audience. These insights are then used to tailor marketing strategies, create more relevant content, and improve customer interactions.

The Shift from Vanity Metrics to Meaningful Insights

Sometimes, it’s easy to get caught up in vanity metrics, such as the number of likes or followers. It is important to note that these metrics do not necessarily translate to sales. To convert social media engagement into leads, businesses need to focus on meaningful insights that reveal how engaged their audience is and how this engagement can be leveraged.

For instance, instead of focusing on the number of likes, businesses should analyze which types of posts are receiving the most engagement and why. This includes checking the topics, formats or times of day that generate more interest and engagement. By identifying patterns and trends, businesses can enhance their content strategy to focus on what resonates most with their audience.

Identifying and Nurturing Potential Leads

After having a better understanding of what drives engagement, businesses can begin to identify potential leads within their social media audience. This is where advanced analytics tools come into play. Tools that track and analyze individual user interactions will help identify users who consistently engage with posted content.

For example, a user who frequently comments on posts, shares content, or clicks on links may demonstrate a strong interest in the business’s products or services. Businesses can categorize such users as potential leads. More focus is placed on this category by nurturing them through personalized content, direct engagement, and targeted offers.

It is also good to note that social media analytics is a powerful tool for analyzing competitors’ strategies, too. By monitoring their comment sections, a business can identify gaps or unmet needs in their audience that present opportunities to capture market share.

Leveraging Social Media Ads for Lead Generation

Social media advertising is another effective way to convert social media engagement into leads. Platforms like Facebook, Instagram, LinkedIn, and X (formerly Twitter) offer advanced targeting options that allow businesses to create highly personalized ad campaigns based on user data. Businesses can create ads specifically designed to appeal to their most engaged followers.

For instance, if analytics reveal that a particular segment of followers is highly interested in a specific product, businesses can create ads that feature this product and offer a special promotion or discount.

Turning Engagement into Sales Through Conversion Optimization

Once potential leads are identified and targeted through ads or personalized content, the next step is to optimize the conversion process. This involves ensuring a seamless journey from social media engagement to lead capture and eventual sale. A critical aspect of this process is the landing page – a dedicated page on the business’s website designed to capture leads.

The landing pages must be tailored to match the expectations set by the social media content or ads that drove the traffic. For example, if an ad on a social media platform promises a free or discounted offer, the landing page should prominently feature this offer. Additionally, it helps A/B test different landing page designs, headlines and calls to action to identify the most effective strategies.

Using Analytics to Measure and Improve ROI

Unlike traditional marketing channels, social media analytics can track and measure the effectiveness of marketing campaigns. By tracking key performance indicators (KPIs) such as reach, click-through rates, conversions, and cost per lead, businesses can measure the effectiveness of their social media campaigns and make necessary adjustments.

Continuous monitoring and optimization ensure that social media efforts drive engagement and contribute to the business’s bottom line.

In conclusion, converting social media engagement into actionable leads and sales opportunities requires a strategic approach leveraging social media analytics’ power. Businesses can tailor their content, identify and nurture potential leads, and optimize their conversion strategies by moving beyond vanity metrics and focusing on meaningful insights. This will ultimately drive business growth and success in today’s competitive digital landscape.

7 Reasons You Need a Will

4 min read

7 Reasons You Need a WillDrafting a will is not something that people, for the most part, want to think about. But no one gets out of life alive. So, if you want to have a say in what happens to your property and assets after you’re gone, a will is a very smart idea. Here are a few specific reasons why having a will makes good sense.

Facilitates Probate

First, a definition: Probate is the legal procedure your estate goes through after you pass. During this process, a court will start the process of distributing your estate to those you designate. When you have a will, the probate process has a legal document as a guide, one the court uses that clearly defines your wishes. This way, there are fewer roadblocks. Things go a lot more smoothly.

Protects Your Estate

Now, if you don’t have a will, there’s no binding legal document that espouses what you want to do with your assets. Instead, the probate court will distribute your estate according to your state’s intestacy laws. There’s no guarantee that the state agrees with what you want.

Designates Who Gets What

This is one of the most important. If your family includes ex-spouses and/or estranged relatives, having a will helps prevent squabbles. An unhappy relative will think twice about protesting when you have a well-drafted will.

Disinherits People, Too

If you don’t have a will, again, probate courts will distribute your estate based on your state’s intestacy laws, which create a hierarchy of inheritance among your surviving family members. Because families – and life – can be messy, when you have a will, you can specify who doesn’t get parts of your estate. Better still, you can even specify certain people to receive your assets as beneficiaries, who aren’t necessarily relatives. When you’re this specific within a legal document, it can further safeguard your wishes.

Provides For Your Children and Pets

When you have a will, it gives you the power to decide who will care for your children if they’re minors when you pass. If you don’t decide, a court will appoint a guardian. It’s safe to say that most people don’t want this; you know your children best. Since pets are considered property and they can’t inherit, you can make sure your beloved furry family members are adopted by a person or organization that you know and trust.

Specifies the Executor and Administrator of Your Estate

You get to decide who these people are, though sometimes they can be the same person. Generally, their function is to make sure your beneficiaries receive the assets you’ve designated for them. Having these trusted people in place will give you peace of mind. When you don’t have these individuals in place, you give up the control you could have had.

Helps Minimize Estate Taxes

Yes, it’s true. Your family, should they inherit property from you after you’re gone, might have to pay taxes on it. That’s why it pays to look into estate planning tools. When you have a will, you can build these stipulations into it. Just ask your accountant and/or lawyer to help you navigate these waters. It’s well worth it.

These are just a few of the reasons you need a will. Probably the main reason is that tomorrow isn’t guaranteed. When you’re gone, you’ve missed your opportunity to legally draft your final desires. That’s why, when you’ve set up provisions for all the things you’ve worked so hard for and all the people you leave behind, it’s truly an act of love.

 

Sources

Top 10 Reasons to Have a Will (findlaw.com)

Executor vs. Administrator: What’s the Difference? – Policygenius

Probate – What Is Probate & How To Avoid It | Trust & Will (trustandwill.com)