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Back to Business Basics

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Hand drawing a conceptual diagram about the importance to find the shortest way to go from point A to point B, or a simple solution to a problem.It’s reassuring to remember that downturns are a normal part of the business cycle. And, just as there are strategies that help businesses thrive during profitable times, there are basic survival tactics that businesses can employ when the outlook is less than rosy.

Control Spending

Finances should be your fundamental concern when economic conditions are unsettled. When sales are slow, it’s time to preserve your cash. Look closely at how you can reduce overhead. Make certain that all your operating expenses are necessary. Even if you’ve recently made cuts, see if there are other measures you can take. Unless absolutely necessary, consider putting plans that call for capital investment on the back burner until conditions improve.

Maintain Customers

While containing costs is essential, maintaining your customer base is also crucial. So, when you’re deciding how to trim spending, make sure you don’t make cuts in areas that deliver real value to your customers. At the same time, watch your receivables. Make sure your customers’ accounts stay current.

Think Short Term

Plan purchases for the short term, keeping a minimum of cash tied up in inventory. At the same time, however, make sure you’ll be able to restock quickly. Your suppliers may be able to suggest ways you can cut costs (perhaps by using different materials or an alternative manufacturing process). See if you can negotiate better credit terms.

Plan for Contingencies

There’s a big difference between imagining that you might have to seriously scale back your business and having an action plan in place that you can quickly execute. To develop a realistic contingency plan, prepare a budget based on the impact you imagine an extended downturn would have on your business. Then outline the steps you would need to take to survive those conditions. For an added level of preparedness, draw up a second, “worst case scenario” budget and chart the cost-cutting steps you’d need to take to outlive those more dire circumstances.

Many businesses will survive challenging economic times by being informed about their financial condition and by planning ahead to succeed.

Beneficial Ownership Information Reporting Under the Corporate Transparency Act

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Serious millennial man using laptop sitting at the table in a home office, focused guy in casual clothing looking at the paper, communicating online, writing emails, distantly working or studying on computer at home.What is Beneficial Ownership Information Reporting?

Beneficial Ownership Information (BOI) reporting is a federal requirement by the Corporate Transparency Act (CTA). BOI reports include information about all the company’s beneficial owners.

Who is considered a Beneficial Owner?

A beneficial owner is any individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25 percent of the company’s ownership interests.

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a United States federal law that aims to increase transparency in corporate ownership. The law requires that individuals considered beneficial company owners in the U.S. provide the Financial Crimes Enforcement Network (FinCEN) with specific information.

For individuals, that includes:

  • their full name
  • date of birth
  • current residential address
  • a federally issued identification number from a driver’s license or passport

For companies, that includes:

  • legal entity name or DBA name
  • business address
  • state jurisdiction of formation of registration
  • IRS TIN

Any changes to the above reporting information must be updated with the FinCEN within 30 days of the change.

What is considered a Reporting Company?

Companies required to report a BOI are referred to as reporting companies. There are two types of reporting companies: domestic and foreign. They are defined as follows:

  1. Domestic reporting companies are corporations, limited liability companies (LLC), and other entities created by filing a document with a secretary of state or similar office in the U.S.
  2. Foreign reporting companies are entities (including corporations and LLCs) formed under a foreign country’s law and registered to do business in the U.S. by filing a document with a secretary of state or similar office.

There are 23 types of entities that are exempt from the reporting requirements. Those entities can be found on the FinCEN website.

What is the Reporting Process?

The reporting process takes place via an online portal on the FinCEN’s website. Filing begins January 1, 2024, with an initial filing window of one year (i.e., initial BOI reporting can be done from January 1, 2024, through January 1, 2025). The FinCEN will not accept BOI reporting before January 1, 2024. There is no fee for submitting this information.

New entities established after December 31, 2023, must report within 90 days of establishment.

Hefty civil ($500/day) and criminal penalties (up to $10,000) can be imposed on companies that fail to file a complete report.

To be sure that you and your firm comply with BOI reporting requirements, check with your trusted tax accountant or CPA.

Tips on Tax Planning

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Flat monthly payments calendar. Woman with payment schedule pay money for interest rate, fees, principal and financial bills by month period. Reminder of salary day. Due date of debt, loan, house rentYou may not think about taxes often, but they can prove to be a large expense. That’s why it’s important to make the most of any opportunities you may have to lower your tax liability. Here’s a look at some of the factors you may want to consider in your planning.

Standard Deduction or Itemizing

The Tax Cuts and Jobs Act (TCJA) contained many provisions that will be in place through the 2025 tax year. For example, there are significantly higher standard deductions for each filing status and various itemized deductions have been reduced or eliminated. As a result, many people who previously itemized are now better off taking the standard deduction. But don’t automatically rule out itemizing, especially if you expect to make a large charitable contribution or will have a lot of medical and dental expenses. By bunching these items in one tax year, to the extent possible, you may have enough to make itemizing worthwhile that year.

Home/Work Tax Breaks

If you are a traditional full-time employee and work from home, home office expenses are not deductible, even if you itemize. The deduction for unreimbursed employee business expenses (and various other miscellaneous expenses) won’t be restored until 2026. However, if you are a self-employed/gig worker, you may qualify to deduct your home office expenses. Certain requirements apply.

Moving Expenses

Work-related moving expenses may now be deducted only if you are an active-duty member of the Armed Forces and the move is per a military reassignment. This deduction is available whether you itemize or claim the standard deduction.

Health Savings Accounts (HSAs)

HSAs continue to offer tax breaks. If you are covered by a qualified high-deductible health plan and meet other requirements, you can contribute pretax income to an employer-sponsored HSA or make deductible contributions to an HSA you open on your own. An HSA can earn interest or be invested, growing in a tax-deferred manner similar to an individual retirement account (IRA). And HSA withdrawals for qualified medical expenses are tax free. You can also carry over a balance from year to year, allowing the account to grow.

Family Related Tax Credits

The TCJA expanded tax credits for families, doubling the child credit and adding a family credit for dependents who don’t qualify for the child credit. Credits include one for each child under age 18 at the end of the tax year and another for each qualifying dependent who isn’t a qualifying child. The latter category includes an older dependent child or a dependent elderly parent.

The adoption credit and the income exclusion for employer adoption assistance are still in place. You’ll want to check into the details if you are adopting a child.

Section 529 Plans*

These tax-advantaged savings plans assist in paying for education. While initially used to pay for a college education, 529 plans may now cover elementary through high school education as well. Some states offer tax breaks for 529 plan contributions. However, contributions are not deductible on your federal return. Growth related to 529 contributions is tax deferred, and withdrawals for qualified education expenses — including elementary and secondary school tuition of up to $10,000 per year per student — are free of federal income taxes.

A special break allows you to front-load five years’ worth of gift tax annual exclusions and make up to a $85,000 contribution per beneficiary in one tax year free of federal gift tax. If you make the contribution with your spouse, the total can be extended to $170,000. (These limits may be inflation adjusted.)

Other Education Tax Breaks

As before, you may be able to take advantage of either the American Opportunity credit or the Lifetime Learning credit for higher education costs. The first credit can be up to $2,500 per student per year for the first four years of college. The second credit is limited to $2,000 per tax return and is available for qualified expenses of any post-high school education at an eligible educational institution, including graduate school.

In addition, if you are paying off your student loans, you may be able to deduct the interest, up to $2,500 per year. This deduction is available whether you claim the standard deduction or itemize.

Keep in mind that there are income limits for these tax breaks.

Investments

To help reduce the taxes you pay on investment gains in taxable accounts, you may want to consider:

  • Selling securities with unrealized losses before year end to offset realized capital gains.
  • Choosing mutual funds** with low portfolio turnover rates that tend to generate long-term capital gains, since the lower long-term rates offer a tax savings.
  • Factoring in that you can deduct only $3,000 of net capital losses per year against other income ($1,500 if you’re married filing separately), but you can carry forward excess losses to subsequent tax years.

You should also be aware that if you have modified adjusted gross income of over $200,000 ($250,000 if married filing jointly; $125,000 if married filing separately), you may owe a 3.8% “net investment income tax,” or NIIT.

Retirement

While the TCJA made only minimal changes in the area of retirement planning, there are still issues to consider. The main one is whether you want to pay taxes on your retirement account contributions later (when you eventually take distributions from your account) or pay taxes on them now (which means potentially tax-free distributions when you retire). It all depends on the type of savings vehicle you use.

Traditional 401(k), 403(b), and 457 plans and traditional IRAs allow you to save for retirement on a tax-deferred basis. Your employer may also choose to make contributions to your plan account. Salary deferrals to 401(k) and similar plans are generally pretax, while traditional IRA contributions are tax deductible under certain circumstances.

Roth alternatives — available in some employers’ 401(k), 403(b), and 457 plans, as well as through a Roth IRA you open on your own — provide no tax break on contributions. However, investment earnings accumulate tax deferred. And, when requirements are met, distributions from your account are tax free. Since Roth accounts in employer plans lack income restrictions, you may be able to make larger contributions to an employer’s Roth plan than to a Roth IRA.

As always, make sure that you obtain professional advice before making tax-related decisions. Your tax professional can provide detailed information and help you evaluate what might be appropriate for your personal tax situation.

Your Plan Account Statement Can Reveal Valuable Information

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Crop hand of cartoon employer with magnifier looking through candidates resume in searchIt’s smart to make a point of reviewing your retirement plan account statement in detail at least once a year. You’ll want to ensure that the information in your statement is accurate and assess whether you should make any changes in your contribution level or investments going forward.

Ensure Personal Details Are Correct

To start your review, check the following for accuracy:

  • Personal information (e.g., name, address, phone, etc.)
  • Hire date (since it can affect vesting)
  • Contribution amounts (yours and your employer’s, if applicable)
  • Investment instructions
  • Beneficiary designation

Review Your Investments’ Performance

Any large change — up or down — in one investment market can impact your portfolio’s overall asset allocation.* Consider rebalancing** your portfolio at least once a year so that the percentages you have invested in stocks, bonds, and cash alternatives remain in line with your desired asset allocation.

As a retirement plan investor, your investment goals are typically long term. As such, you may decide to allocate a greater percentage of your portfolio to stock funds*** since a longer investing horizon gives your portfolio more time to recover from any short-term declines in the stock market. However, if there have been changes in your financial situation — for example, you have experienced a job loss, or you have had to deal with large, unexpected expenses — you may have less tolerance for investment risk than before. If that’s the case, you may choose to lower your exposure to higher risk investments in your portfolio.

One of the best ways to measure your portfolio’s performance is to compare your investments to benchmarks. Benchmarking helps put performance in perspective. For example, it can be disturbing when a fund you own has a negative return. However, it doesn’t seem so bad if the fund’s comparable index dropped by a similar percentage.

Likewise, if the overall market fell 10% while your fund only fell by 5%, you would understand that your fund did well in the circumstances. However, if your fund earned returns of 5% during a period when its benchmark rose by 15%, then you may want to examine whether continuing to hold that fund makes sense.

Portfolio Turnover Rate

The term portfolio turnover rate refers to the percentage of a mutual fund’s holdings that changes over a given period of time. Certain types of stock funds may have high turnover rates because they pursue aggressive or growth strategies. Other types — value funds, for example — may have lower turnover rates.

It can be a red flag if a fund’s portfolio turnover rate is much higher than that of other funds in the same style category and the fund consistently underperforms similar funds and its benchmark. Portfolio turnover rate is just one of the many factors investors should review when assessing funds in their portfolios.

Management Fees

Mutual funds charge management fees to help cover the expenses of operating the fund. Typically, management fees are used to compensate the investment managers who select and monitor the fund’s investments. Deciding whether to continue owning a mutual fund based on how much it charges in annual management fees is a subjective judgement. If the management fees are higher than those of other comparable funds and the fund’s performance demonstrates no appreciable difference, then it might be worth looking deeper into the issue.

Work With a Professional

Reviewing your retirement plan account statement can help identify strengths as well as deficiencies in your retirement planning and allow you to respond accordingly. Your financial professional can also be a valuable partner in ensuring that you are on the right track to a financially solid retirement.

What Is Your Most Valuable Asset?

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Happy businesswoman using a digital tablet. Young leading businesswoman using a wireless tablet. Creative designer working in her agency. Designer standing in her office using an online appYour most valuable asset isn’t your real estate or the tech stocks you bought in the 90s that have done well. It isn’t even your business per se. Your most valuable asset is you — specifically your ability to run a profitable company and make money.

Are you protecting that asset from the risk that a disabling illness or accident might prevent you from working? If you don’t have disability income insurance, you’re not protected.

What Are the Odds?

People generally think the odds of becoming disabled are low. But the numbers say otherwise: More than one in four 20-year-old workers become disabled before reaching retirement age. Here’s another reality check: Serious accidents are not the leading cause of long-term disability; chronic conditions are. Muscle and bone disorders (such as a back disorder or joint or muscle pain) are responsible for more than one in four disabilities.

How Long Could You Go Without an Income?

Even a short period of disability could be devastating. The average group long-term disability claim lasts 2.6 years. Even if you have reserves you 3 could tap, your personal finances would take a hit. If and when you were able to start earning an income again, you might have to start all over.

What Would Happen to Your Business?

Your involvement is vital to your company’s financial success. If you’re unable to work, you might have to hire someone to take your place and borrow money to pay the bills until you’re back on the job. Bottom line? If you’re sidelined by a long disability, it could jeopardize the success or even the survival of your business.

What Can You Do?

Call your financial professional to review and discuss this important issue.

Try a Trust

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Two confident business man shaking hands during a meeting in the office, success, dealing, greeting and partnerYou don’t have to be fabulously wealthy to benefit from a trust. For many people, a trust is a great financial planning tool.

What Is a Trust?

A trust is a legal arrangement between the person who sets up the trust and transfers property to it (the “grantor”) and the individual or institution that agrees to manage the trust assets (the “trustee”). The grantor specifies who is to benefit from the trust (the “beneficiaries”) both during his or her lifetime and at death, if applicable, names the trustee, and spells out in the legal document creating the trust how the trust assets are to be managed and distributed.

What Can a Trust Do?

Trusts can be used for many purposes, including:

  • Managing your assets if you become incapacitated. With a revocable living trust, you can stay in control of your assets while you’re able and avoid probate after your death. You can also arrange to have a successor trustee make investment decisions and handle other financial matters for your benefit if you’re no longer able to do so. This arrangement avoids the expense and complications of a court-ordered guardianship or conservatorship.
  • Reducing the size of your estate. With a grantor retained annuity trust (GRAT), you transfer assets with the potential for appreciation to an irrevocable trust for the benefit of a child, other family member, or noncharitable beneficiary and retain an annuity interest for a term of years. When the annuity ends, your child (or other beneficiary) will receive the remaining trust assets. If you outlive the trust term, the value of the assets won’t be included in your estate.
  • Donating to charity. If you set up a charitable remainder trust (CRT), you receive an income stream from the donated assets for life or a set number of years. Then, at your death or when the trust term ends, the charity you have chosen will get the trust assets. If you set up a charitable lead trust (CLT), the charity you choose receives income from the assets for a period of time that you specify. After that period ends, the assets flow to your family as “remainder beneficiaries.” Both CRTs and CLTs offer potential income tax and estate tax advantages.
  • Preserving wealth for future generations. With a dynasty trust, wealth is preserved and generated by cascading through multiple generations. Any income or appreciation generated by the trust assets may be exempt from estate and generation-skipping transfer taxes as long as it remains in the trust and if the laws governing such trusts are satisfied. Typically, your children and then your grandchildren would be the trust income beneficiaries. You also can determine under what conditions your beneficiaries can or cannot receive income from the trust.
  • Protecting assets from creditors. When you set up a trust, you can generally include “spendthrift” provisions that prevent your beneficiaries from assigning their interest in the trust to creditors. Putting assets in trust for your child instead of giving them to your child outright may be a good way to provide asset protection in case of a future divorce or major lawsuit.

Your financial and legal professionals can provide more information about the different types of trusts and how they may apply to your situation.