Month: May 2018

Do bad sales months often take you by surprise? If so, don’t forget the power of flash reports — that is, snapshots of critical data for quick, timely viewing every day or week.

One specific way to use them is to track bookings vs. shippings. Doing so can help you determine what percentage of volume for certain months should be booked by specific dates. These reports are particularly useful if more than 30 days elapse between these activities.

Get super specific

Here’s how your flash report might work: Every workday, record the new orders taken (bookings) and the orders filled (shippings).

Sort the flash report by order date and subtotal the sales amounts at various points in time before the last day of the month.

Look at how many of the month’s shipped orders are booked 60, 45, 30 and 15 days before the end of the month. If you don’t have this historical data, start recording it for at least three months to establish meaningful trends.

Once you know the timeframes of your bookings and shippings, expand this activity to your sales staff by displaying the totals of bookings and shippings by salesperson on the flash report. Use the percentage of business that ideally should be booked at certain time intervals to establish individual sales goals and compare your progress with these goals.

See the future

Don’t wait until month’s end to discover that your sales weren’t up to your desired results. With flash reports, you can tell in advance that sales performance is lagging and have enough time to take corrective action. What’s more, today’s business dashboard software can enable you to generate this data more quickly than ever. For further information about flash reports, and help developing your own that are specific to your company’s needs, please contact us.

© 2018

Today many employees receive stock-based compensation from their employer as part of their compensation and benefits package. The tax consequences of such compensation can be complex — subject to ordinary-income, capital gains, employment and other taxes. But if you receive restricted stock awards, you might have a tax-saving opportunity in the form of the Section 83(b) election.

Convert ordinary income to long-term capital gains

Restricted stock is stock your employer grants you subject to a substantial risk of forfeiture. Income recognition is normally deferred until the stock is no longer subject to that risk (that is, it’s vested) or you sell it.

At that time, you pay taxes on the stock’s fair market value (FMV) at your ordinary-income rate. The FMV will be considered FICA income, so it also could trigger or increase your exposure to the additional 0.9% Medicare tax.

But you can instead make a Sec. 83(b) election to recognize ordinary income when you receive the stock. This election, which you must make within 30 days after receiving the stock, allows you to convert future appreciation from ordinary income to long-term capital gains income and defer it until the stock is sold.

The Sec. 83(b) election can be beneficial if the income at the grant date is negligible or the stock is likely to appreciate significantly. With ordinary-income rates now especially low under the Tax Cuts and Jobs Act (TCJA), it might be a good time to recognize such income.

Weigh the potential disadvantages

There are some potential disadvantages, however:

• You must prepay tax in the current year — which also could push you into a higher income tax bracket or trigger or increase the additional 0.9% Medicare tax. But if your company is in the earlier stages of development, the income recognized may be relatively small.
• Any taxes you pay because of the election can’t be refunded if you eventually forfeit the stock or sell it at a decreased value. However, you’d have a capital loss in those situations.
• When you sell the shares, any gain will be included in net investment income and could trigger or increase your liability for the 3.8% net investment income tax.

It’s complicated

As you can see, tax planning for restricted stock is complicated. Let us know if you’ve recently been awarded restricted stock or expect to be awarded such stock this year. We can help you determine whether the Sec. 83(b) election makes sense in your specific situation.

© 2018

It’s not uncommon for businesses to sometimes generate tax losses. But the losses that can be deducted are limited by tax law in some situations. The Tax Cuts and Jobs Act (TCJA) further restricts the amount of losses that sole proprietors, partners, S corporation shareholders and, typically, limited liability company (LLC) members can currently deduct — beginning in 2018. This could negatively impact owners of start-ups and businesses facing adverse conditions.

Before the TCJA

Under pre-TCJA law, an individual taxpayer’s business losses could usually be fully deducted in the tax year when they arose unless:

• The passive activity loss (PAL) rules or some other provision of tax law limited that favorable outcome, or
• The business loss was so large that it exceeded taxable income from other sources, creating a net operating loss (NOL).

After the TCJA

The TCJA temporarily changes the rules for deducting an individual taxpayer’s business losses. If your pass-through business generates a tax loss for a tax year beginning in 2018 through 2025, you can’t deduct an “excess business loss” in the current year. An excess business loss is the excess of your aggregate business deductions for the tax year over the sum of:

• Your aggregate business income and gains for the tax year, and
• $250,000 ($500,000 if you’re a married taxpayer filing jointly).

The excess business loss is carried over to the following tax year and can be deducted under the rules for NOLs.

For business losses passed through to individuals from S corporations, partnerships and LLCs treated as partnerships for tax purposes, the new excess business loss limitation rules apply at the owner level. In other words, each owner’s allocable share of business income, gain, deduction or loss is passed through to the owner and reported on the owner’s personal federal income tax return for the owner’s tax year that includes the end of the entity’s tax year.

Keep in mind that the new loss limitation rules apply after applying the PAL rules. So, if the PAL rules disallow your business or rental activity loss, you don’t get to the new loss limitation rules.

Expecting a business loss?

The rationale underlying the new loss limitation rules is to restrict the ability of individual taxpayers to use current-year business losses to offset income from other sources, such as salary, self-employment income, interest, dividends and capital gains.

The practical impact is that your allowable current-year business losses can’t offset more than $250,000 of income from such other sources (or more than $500,000 for joint filers). The requirement that excess business losses be carried forward as an NOL forces you to wait at least one year to get any tax benefit from those excess losses.

If you’re expecting your business to generate a tax loss in 2018, contact us to determine whether you’ll be affected by the new loss limitation rules. We can also provide more information about the PAL and NOL rules.

© 2018

When business people speak of innovation, the focus is usually on a pioneering product or state-of-the-art service that will “revolutionize the industry.” But innovation can apply to any aspect of your company — including customer service.

Many business owners perceive customer service as a fairly cut-and-dried affair. Customers call, you answer their questions or solve their problems — and life goes on. Yet there are ways to transform this function and, when companies do, word gets around. People want to do business with organizations that are easy to interact with.

Here are four ways to encourage innovation in your customer service department:

1. Welcome failure. Providing world-class customer service involves risk, and inevitably you’ll sometimes fail. For example, many businesses have jumped at the chance to use “big data” to develop automated systems to direct customers to answers and solutions. But the impersonality of these systems can frustrate the buying public until you establish the right balance of machine and human interaction. Remember, every failure opens the door to better strategies for serving your customers.

2. Link compensation to employees’ contributions. Companies that fail to reward innovation aren’t likely to retain their best customers or establish a good reputation. Because customer service employees tend to be paid hourly or relatively nominal salaries, consider a cash bonus program for the “most innovative idea of the year.” Or you could hold semiannual or even quarterly innovation challenges with prizes such as gift cards or additional time off.

3. Praise the groundbreakers. Employees who challenge customer-service tradition may find themselves at odds with management. But don’t be too quick to reprimand those with new ideas or methods. Fresh language and modes of communication enter the public consciousness regularly. Give companywide recognition to those who find ways to adapt — even if their initial efforts bend the rules a bit.

4. Be the customer. Among the most simple and practical ways to innovate your customer service is to simply pretend you’re a customer to get a firsthand view on how your employees treat those who contact your business. Business owners can make these calls themselves or, if your voice is too recognizable, find someone who’s less familiar but capable of taking detailed notes of the interaction.

Finding new ways to improve your company’s customer service isn’t easy. But innovations are always just one bright idea away. If you’d like more information and ideas about building your bottom line, contact our firm.

© 2018

In many parts of the country, summer is peak season for selling a home. If you’re planning to put your home on the market soon, you’re probably thinking about things like how quickly it will sell and how much you’ll get for it. But don’t neglect to consider the tax consequences.

Home sale gain exclusion

The U.S. House of Representatives’ original version of the Tax Cuts and Jobs Act included a provision tightening the rules for the home sale gain exclusion. Fortunately, that provision didn’t make it into the final version that was signed into law.

As a result, if you’re selling your principal residence, there’s still a good chance you’ll be able to exclude up to $250,000 ($500,000 for joint filers) of gain. Gain that qualifies for exclusion also is excluded from the 3.8% net investment income tax.

To qualify for the exclusion, you must meet certain tests. For example, you generally must own and use the home as your principal residence for at least two years during the five-year period preceding the sale. (Gain allocable to a period of “nonqualified” use generally isn’t excludable.) In addition, you can’t use the exclusion more than once every two years.

More tax considerations

Any gain that doesn’t qualify for the exclusion generally will be taxed at your long-term capital gains rate, as long as you owned the home for at least a year. If you didn’t, the gain will be considered short-term and subject to your ordinary-income rate, which could be more than double your long-term rate.

Here are some additional tax considerations when selling a home:

Tax basis. To support an accurate tax basis, be sure to maintain thorough records, including information on your original cost and subsequent improvements, reduced by any casualty losses and depreciation claimed based on business use.

Losses. A loss on the sale of your principal residence generally isn’t deductible. But if part of your home is rented out or used exclusively for your business, the loss attributable to that portion may be deductible.

Second homes. If you’re selling a second home, be aware that it won’t be eligible for the gain exclusion. But if it qualifies as a rental property, it can be considered a business asset, and you may be able to defer tax on any gains through an installment sale or a Section 1031 exchange. Or you may be able to deduct a loss.

A big investment

Your home is likely one of your biggest investments, so it’s important to consider the tax consequences before selling it. If you’re planning to put your home on the market, we can help you assess the potential tax impact. Contact us to learn more.

© 2018

“That’s just the cost of doing business.” You’ve probably heard this expression many times. It’s true that, to invoke another cliché, you’ve got to spend money to make money. But that doesn’t mean you have to take rising operational costs sitting down.

Cost control is a formal management technique through which you evaluate your company’s operations and isolate activities costing you too much money. This isn’t something you can do on your own — you’ll need a total team effort from your managers and advisors. Done properly, however, the results can be well worth it.

Asking tough questions

While performing a systematic review of the operations and resources, cost control will drive you to ask some tough questions. Examples include the following:

• Is the activity in question operating as efficiently as possible?
• Are we paying reasonable prices for supplies or materials while maintaining quality?
• Can we upgrade our technology to minimize labor costs?

A good way to determine whether your company’s expenses are remaining within reason is to compare them to current industry benchmarks.

Working with your team

There’s no way around it — cost-control programs take a lot of hard work. Reducing expenses in a lasting, meaningful way also requires creativity and imagination. It’s one thing to declare, “We must reduce shipping costs by 10%!” Getting it done (and keeping it done) is another matter.

The first thing you’ll need is cooperation from management and staff. Business success is about teamwork; no single owner or manager can do it alone.

In addition, best-in-class companies typically seek help from trusted advisors. An outside expert can analyze your efficiency, including the results of cost-control efforts. This not only brings a new viewpoint to the process, but also provides an objective review of your internal processes.

Sometimes it’s difficult to be impartial when you manage a business every single day. Professional analysts can take a broader view of operations, resulting in improved cost-control strategies.

Staying in the game

An effective, ongoing program to assess and contain expenses can help you prevent both gradual and sudden financial losses while staying competitive in your market. For further information about cost control, and customized help succeeding at it, please contact us.

© 2018

Every business owner launches his or her company wanting to be successful. But once you get out there, it usually becomes apparent that you’re not alone. To reach any level of success, you’ve got to be competitive with other similar businesses in your market.

When strategic planning, one important question to regularly ask is: Just how competitive are we anyway? Objectively making this determination entails scrutinizing key factors that affect profitability, including:

Industry environment. Determine whether there are any threats facing your industry that could affect your business’s ability to operate. This could be anything from extreme weather to a product or service that customers might use less should the economy sour or buying trends significantly change.

Tangible and intangible resources. Competitiveness can hinge on the resources to which a business has access and how it deploys them to earn a profit. What types of tangible — and intangible — resources does your business have at its disposal? Are you in danger of being cut off or limited from any of them?

For example, do you own state-of-the-art technology that allows you to produce superior products or offer premium services more quickly and cheaply than competitors? Assess how suddenly this technology could become outdated — or whether it already has.

Strength of leadership team. As the owner of the business, you may naturally and rightly assume that its management is in good shape. But be open to an objective examination of its strengths and weaknesses.

For instance, maybe you’ve had some contentious interactions with employees as of late. Ask your managers whether underlying tensions exist and, if so, how you might improve morale going forward. There’s probably no greater danger to competitiveness than a disgruntled workforce.

Relationships with suppliers, customers and regulators. For most businesses to function competitively, they must rely on suppliers and nurture strong relationships with customers. In addition, if your company is subject to regulatory oversight, it has to cooperate with local, state and federal officials.

Discuss with your management team the steps the business is currently taking to measure and manage the state of its relationships with each of these groups. Have you been paying suppliers on time? Are you getting positive customer feedback (directly or online)? Are you in compliance with applicable laws and regulations — and are there any new ones to worry about?

Loss of competitiveness can often sneak up on companies. One minute you’re operating in the same stable market you’ve been in for years, and the next minute a disruptor comes along and upends everything. Contact us for more information and other profit-building ideas.

© 2018