Business Planning

Does Spring Cleaning Apply to Businesses?

Spring is a time to clean out the cobwebs and make our home fresh again for many of us. But, what about our businesses? You might ask yourself if any aspects of your business need “spring cleaning”. While the first quarter of the year will be focused on compiling and presenting last year’s data, it also provides the perfect time to identify key initiatives to improve your operations and set the stage for growth for the current year and years ahead.

What needs to be done to support future growth? What other objectives have been identified that may require substantial resources and effort from your team?

With Spring right around the corner, what better time to look at ways to streamline your processes, remove nonperforming items from your product or service lines, and remove any wasteful activities or low ROI investments or expenditures. Once identified, how easy will that change be to implement? Is your team ready for that change? Or will you hit roadblocks? We are no strangers to change over the last two years, but if there is no external force, like a pandemic, mandating the change, you should consider strategic planning as a key element to aid in focusing your future.

Predict your Change Success by using our Diagnostic

Finding success in new initiatives is fleeting for most, as 70% of change initiatives fail! But wait, we didn’t fail to move our businesses to remote operations or operate with safety protocols during the pandemic or many of the other changes we faced. Our readiness, capability, and beliefs all aligned with the goal during that time. How do we get that exact alignment with initiatives we are planning now? Look at all the factors that contribute to change success by taking the Change Success Diagnostic in our website’s Resources Section. Sometimes, the best initiatives are stymied because the optimum environmental conditions are not right to allow for change.

Our Firm has utilized this Change Success Diagnostic to evaluate the potential for success of various initiatives in the past. It will answer questions such as these: Is there a champion who leads the initiative? Do key people in your organization support and believe in the project? See how you and your team align on readiness, capability, and beliefs for projection on your probability of success! Invite your team members to complete the Change Success Diagnostic for a goal you are tackling together.

If you have a personal goal in mind, fill out the personal Change Success Diagnostics in the Resources Section. If you would like to discuss your Change Success Diagnostic, please contact Wayne Pinnell at 949-450-6200 or I can’t wait to hear from you on what change you are tackling this Spring!

    Business Planning

Rolling Forecasts Provide Flexibility in Uncertain Times

Forecasting how your company is likely to perform over the next year can be challenging, especially when it’s unclear where the markets are heading. But accurate forecasts are critical when managing a business. For example, they may be used to order inventory, hire additional workers, apply for loans and credit lines, and evaluate investment alternatives.
As the COVID-19 pandemic persists, many companies have responded to these challenges by switching from static forecasts to rolling ones. Here’s how the transition can make the forecasting process more efficient and accurate.

Static vs. Rolling Forecasts

Traditional static (or fixed) forecasts are created at the start of the fiscal year — often based on the company’s historical financial statements — and then used as a guide for the following year. This approach works well for established organizations that experience relatively minor changes year to year. But for most businesses, static forecasts quickly become outdated, because they don’t allow adjustments throughout the year for variances that inevitably take place. The traditional approach is based on inflexible assumptions that must be completely recast if conditions change.

Managers who use static forecasts typically see the forecasting process as a once-a-year exercise. Many fail to compare expected to actual performance until year end. And those who notice when actual results fall short may fail to revise their annual goals — instead hoping to make up for the shortcoming before year end, leading to counterproductive behaviors.
For example, to make up for missed sales goals through the year, salespeople may resort to aggressive discounting at year end, which can erode profits. In other situations, after a particularly successful month, workers may decide to slack off in the subsequent month, because they’re ahead of schedule.

Conversely, rolling forecasts require regular updates based on what’s actually happening in your business and marketplace. This approach makes the forecasting process more adaptable, accurate and meaningful.

How it Works

Rather than leaving a budget in place for the year, companies with rolling budgets set times throughout the year to readjust the numbers. For example, you might budget four quarters ahead. At the end of each quarter, you would update the budgets for the next three quarters and add a new fourth quarter.
The rolling approach encourages management to take an agile, forward-looking perspective. It facilitates timely responses to emerging trends, whether on the revenue side, the expense side or both. It also calls for regular budget monitoring and real-time review. These steps can help management catch significant variances and make appropriate adjustments.

On a Roll

Uncertainty abounds today. Some businesses have seen a major decline in revenue during the pandemic but are hopeful that conditions will improve. Others have revised their strategies to take advantage of emerging opportunities. Many are struggling to manage supply chain issues, labor shortages and rising costs that could outlast the pandemic. Regardless of which challenges you’re facing, rolling forecasts can be a helpful management tool. Contact us for help implementing a more agile approach to forecasting for 2022.

© 2021

    Business Planning

Hit or Miss: Is Your Working Capital On-Target?

Working capital equals the difference between current assets and current liabilities. Organizations need a certain amount of working capital to run their operations smoothly. The optimal (or “target”) amount of working capital depends on the nature of operations and the industry. Inefficient working capital management can hinder growth and performance.


The term “liquidity” refers to how quickly an item can be converted to cash. In general, receivables are considered more liquid than inventory. Working capital is often evaluated using the following liquidity metrics:

Current ratio. This is computed by dividing current assets by current liabilities. A current ratio of at least 1.0 means that the company has enough current assets on hand to cover liabilities that are due within 12 months.

Quick (or acid-test) ratio. This is a more conservative liquidity benchmark. It typically excludes prepaid assets and inventory from the calculation.

An alternative perspective on working capital is to compare it to total assets and annual revenues. From this angle, working capital becomes a measure of operating efficiency. Excessive amounts of cash tied up in working capital detract from other spending options, such as expanding to new markets, buying equipment and paying down debt.

Best Practices

High liquidity generally equates with low financial risk. However, you can have too much of a good thing. If working capital is trending upward from year to year or it’s significantly higher than your competitors — it may be time to look at your asset efficiency.

Lean operations require taking a closer look at each component of working capital and implementing these best practices:

1. Put cash to good use. Excessive cash balances encourage management to become complacent about working capital. If your organization has plenty of money in its checkbook, you might be less hungry to collect receivables and less disciplined when ordering inventory.

2. Expedite collections. Organizations that sell on credit effectively finance their customers’ operations. Stale receivables — typically any balance over 45 or 60 days outstanding, depending on the industry — are a red flag of inefficient working capital management.

Getting a handle on receivables starts by evaluating which items should be written off as bad debts. Then viable balances need to be “talked in the door” as soon as possible. Enhanced collections efforts might include early bird discounts, electronic invoices and collections-based sales compensation programs.

3. Carry less inventory. Inventory represents a huge investment for manufacturers, distributors, retailers, and contractors. It’s also difficult to track and value. Enhanced forecasting and data sharing with suppliers can reduce the need for safety stock and result in smarter ordering practices. Computerized technology — such as barcodes, radio frequency identification and enterprise resource planning tools — also improve inventory tracking and ordering practices.

4. Postpone payments. Credit terms should be extended as long as possible — without losing out on early-bird discounts. If you can stretch your organization’s average days in payables from, say, 45 to 60 days, it trains vendors and suppliers to accept the new terms, particularly if you’re a predictable, reliable payor.

Prioritize working capital

Some organizations are so focused on the income statement, including revenue and profits, that they lose sight of the strategic significance of the balance sheet — especially working capital accounts. We can benchmark your organization’s liquidity and asset efficiency over time and against competitors. If necessary, we also can help implement strategies to improve your performance, without exposing you to unnecessary risk.

© 2021

    Business Planning

10 Financial Statement Areas to Watch for COVID-Related Effects

The COVID-19 pandemic is still adversely affecting many businesses and not-for-profit organizations, but the effects vary, depending on the nature of operations and geographic location. Has your organization factored the impact of the pandemic into its financial statements? You might not have considered this question since last year if your organization prepares statements that comply with U.S. Generally Accepted Accounting Principles only at year-end.

As we head into audit season for 2021, it’s time to evaluate whether your financial situation has gotten better — or worse — this year. Here are 10 financial statement areas to hone in on:

1. Revenue recognition. Assess how changes in customer preferences, contract modifications, discounts, refund concessions, and changes in credit policies or payment terms impact the top line of the income statement. Also, consider related collectability of accounts receivable.

2. Government grants. You may account for these grants as revenue or donor-restricted contributions. Government funding programs may have eligibility, documentation, expense tracking and other requirements (such as government audits) that you may need to address.

3. Estimates and fair values. These items are typically based on budgeting and forecasting of revenue, costs and cash flows. Uncertainty may increase the discount rates used in making estimates and decrease the fair values of certain balance sheet items.

4. Investments. Market changes caused by the pandemic may negatively affect the fair values of investments and financial instruments that qualify for hedge accounting.

5. Inventory. It’s possible that certain market conditions — including inflation, reductions in production and supply chain disruptions — may affect the value of raw materials, work-in-progress and finished goods inventory. Consider the need for write-offs due to obsolescence.

In addition, travel and work restrictions may delay, restrict or prevent year-end physical inventory counts. Your external auditors may have to observe counts remotely, which, in turn, may require additional testing procedures during audit fieldwork.

6. Property, plant, and equipment. Evaluate changes in useful lives and related deprecation due to changes in business plans. There may also be potential impairment of long-lived assets and leased assets.

7. Goodwill and other intangible assets. Because of COVID-19 triggering events, these items may require impairment testing and write-offs may be needed.

8. Deferred tax assets. Consider the value of deferred tax assets on your balance sheet and how likely they are to be realized if you have incurred losses in the current year and have uncertainty about future events, including the impact of possible federal tax law changes.

9. Accrued liabilities. You may need to book additional liabilities this year for employee terminations, changes in benefits, and payroll tax payment deferrals. Also consider whether existing contingency accruals are still adequate.

10. Long-term debt. You may have debt classification issues for existing loans if your organization fails to meet its debt covenants. Financial difficulties may result in debt modification or extinguishment. Also, evaluate the compliance requirements of the Paycheck Protection Program (PPP) loans and the probability of forgiveness.

This list is a useful starting point for discussions about how the pandemic has affected financial results in 2021. If you have questions about how to report the effects, contact us for guidance. Your preparedness will help facilitate audit fieldwork and minimize adjustments to your in-house financial reports.

© 2021

    Business Planning

New Law Doubles Business Meal Deductions and Makes Favorable PPP Loan Changes

The COVID-19 relief bill, signed into law on December 27, 2020, provides a further response from the federal government to the pandemic. It also contains numerous tax breaks for businesses. Here are some highlights of the Consolidated Appropriations Act of 2021 (CAA), which also includes other laws within it.

Business meal deduction increased

The new law includes a provision that removes the 50% limit on deducting business meals provided by restaurants and makes those meals fully deductible.

As background, ordinary and necessary food and beverage expenses that are incurred while operating your business are generally deductible. However, for 2020 and earlier years, the deduction is limited to 50% of the allowable expenses.

The new legislation adds an exception to the 50% limit for expenses of food or beverages provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022.

The use of the word “by” (rather than “in”) a restaurant clarifies that the new tax break isn’t limited to meals eaten on a restaurant’s premises. Takeout and delivery meals from a restaurant are also 100% deductible.

Note: Other than lifting the 50% limit for restaurant meals, the legislation doesn’t change the rules for business meal deductions. All the other existing requirements continue to apply when you dine with current or prospective customers, clients, suppliers, employees, partners and professional advisors with whom you deal with (or could engage with) in your business.

Therefore, to be deductible:

  • The food and beverages can’t be lavish or extravagant under the circumstances, and
  • You or one of your employees must be present when the food or beverages are served.

If food or beverages are provided at an entertainment activity (such as a sporting event or theater performance), either they must be purchased separately from the entertainment or their cost must be stated on a separate bill, invoice or receipt. This is required because the entertainment, unlike the food and beverages, is nondeductible.

PPP loans

The new law authorizes more money towards the Paycheck Protection Program (PPP) and extends it to March 31, 2021. There are a couple of tax implications for employers that received PPP loans:

  • Clarifications of tax consequences of PPP loan forgiveness. The law clarifies that the non-taxable treatment of PPP loan forgiveness that was provided by the 2020 CARES Act also applies to certain other forgiven obligations. Also, the law makes clear that taxpayers, whose PPP loans or other obligations are forgiven, are allowed deductions for otherwise deductible expenses paid with the proceeds. In addition, the tax basis and other attributes of the borrower’s assets won’t be reduced as a result of the forgiveness.
  • Waiver of information reporting for PPP loan forgiveness. Under the CAA, the IRS is allowed to waive information reporting requirements for any amount excluded from income under the exclusion-from-income rule for forgiveness of PPP loans or other specified obligations. (The IRS had already waived information returns and payee statements for loans that were guaranteed by the Small Business Administration).

Much more

These are just a couple of the provisions in the new law that are favorable to businesses. The CAA also provides extensions and modifications to earlier payroll tax relief, allows changes to employee benefit plans, includes disaster relief and much more. See our summary blog post on the CAA or contact us if you have questions about your situation.

© 2021

    Business Planning

Business Tax Provisions Included in the CAA 2021 Legislation

The Consolidated Appropriations Act of 2021 (the CAA 2021) signed into law on December 27, 2020, is a further legislative response to the coronavirus (COVID-19) pandemic. The CAA 2021 include-along with spending and other non-tax provisions, and tax provisions primarily affecting individuals-the numerous business tax provisions briefly summarized below. The provisions are found in two of the several acts included in the CAA 2021, specifically, (1) the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the TCDTR) and (2) the COVID-related Tax Relief Act of 2020 (the COVIDTRA).

Tax provisions made permanent (without other changes)

The TCDTR makes permanent without other changes (1) the railroad track maintenance credit and (2) the exclusion of the aging period in determining the mandatory interest capitalization period in producing beer, wine or distilled spirits,

Tax provisions extended (without other changes)

The TCDTR extends the following tax credits without other changes: (1) the new markets tax credit, (2) the work opportunity credit, (3) the employer credit for paid family and medical leave that was provided by the 2017 Tax Cuts and Jobs Act (2017 TCJA), (4) the carbon sequestration credit, (5) the business energy credit (the “Code Sec. 48 credit”) both as regards termination dates and phase-downs of credit amounts, (6) the credit for electricity produced from renewable resources (the “Code Sec. 45 credit”) and the election to claim the Code Sec. 48 credit instead for certain facilities (but the phase-down of the amount of the Code Sec. 45 credit for wind facilities isn’t deferred), (7) the Indian employment credit, (8) the mine rescue team training credit, (9) the American Samoa development credit, (10) the second generation biofuel producer credit, (11) the qualified fuel cell motor vehicle credit as applied to businesses, (12) the alternative fuel refueling property credit as applied to businesses, (13) the two-wheeled plug-in electric vehicle credit as applied to businesses, (14) the credit for production from Indian coal facilities, and (15) the energy efficient homes credit.
Additional provisions extended by the TCDTR without other changes are the following:,(1) the exclusion from employee income of certain employer payments of student loans, (2) the 3-year recovery period for certain racehorses, (3) favorable cost recovery rules for business property on Indian reservations, (4) the 7-year recovery period for motor sports entertainment complexes, (5) expensing for film, television and live theatrical productions, (6) empowerment zone tax incentives except for the increased section 179 expensing for qualifying property and the deferral of capital gain for dispositions of qualifying assets, and (7) the exclusion from being personal holding company income for certain payments or accruals of dividends, interest, rents, and royalties from a related person that is a controlled foreign corporation.

Energy provisions

The TCDTR makes changes to energy provisions in addition to making them permanent or extending them.

The TCDTR adds “waste energy recovery property” to the types of property that qualify for the Code Sec. 48 credit (above). And the credit rate assigned is 30%. “Waste energy recovery property” is property (1) the construction of which begins before 2024, (2) that has a capacity of no more than 50 megawatts, and (3) generates electricity solely from heat from buildings or equipment if the primary purpose of that building or equipment isn’t the generation of electricity. But it doesn’t include property eligible for the Code. Sec. 48 credit for cogeneration property unless the taxpayer doesn’t take the Code Sec. 48 credit for that property.

For wind facilities that are “qualified offshore wind facilities” the TCDTR relaxes the rules under which wind facilities that are eligible for the Code Sec. 45 credit can, by election (see above), be eligible instead for the Code Sec. 48 credit.

The TCDTR makes permanent the energy efficient commercial buildings deduction. Additionally, the TCDTR indexes for inflation the per-square-foot dollar caps on the full and partial versions of the deduction. And the TCDTR provides that to the extent that deductibility depends on specified recognized energy efficient standards, the referred-to standards will be standards issued within two years of construction (rather than the standards bearing now-stale dates that applied under pre-TCDTR law).

Clarifications of tax consequences of PPP loan forgiveness

The COVIDTRA clarifies that the non-taxable treatment of Payroll Protection Program (PPP) loan forgiveness that was provided by the 2020 CARES Act also applies to certain other forgiven obligations.

Also, the COVIDTRA clarifies that taxpayers whose PPP loans or other obligations are forgiven as described above are allowed deductions for otherwise deductible expenses paid with the proceeds and that the tax basis and other attributes of the borrower’s assets won’t be reduced as a result of the forgiveness.

Waiver of information reporting for PPP loan forgiveness

The COVIDTRA allows IRS to waive information reporting requirements for any amount excluded from income under the exclusion-from-income rule for forgiveness of PPP loans or other specified obligations. Note: IRS had already waived, before enactment of the COVIDTRA, information returns and payee statements for loans guaranteed by the Small Business Administration under section 7(a)(36) of the Small Business Act.

Extensions and modifications of earlier payroll tax relief

The TCDTR extends the CARES Act credit, allowed against the employer portion of the Social Security (OASDI) payroll tax or of the Railroad Retirement tax, for qualified wages paid to employees during the COVID-19 crisis. Under the extension, qualified wages must be paid before July 1, 2021 (instead of January 1, 2021). Additionally, beginning on January 1, 2021, the credit rate is increased from 50% to 70% of qualified wages and qualified wages are increased from $10,000 for the year to $10,000 per quarter. Many other rules are also relaxed. And the TCDTR makes some retroactive clarifications and technical improvements to the credit as initially enacted.

The COVIDTRA extends (1) the credits provided by the Families First Coronavirus Response Act (FFCRA) against the employer portion of OASDI and Railroad Retirement taxes for qualifying sick and family paid leave and (2) the equivalent FFCRA-provided credits for the self-employed against the self-employment tax. Under the extension of the employer credits, wages taken into account are those paid before April 1, 2021 (instead of January 1, 2021). Under the extension of the credits for the self employed, the days taken into account are those before April 1, 2021 (instead of January 1, 2021).

The COVIDTRA also makes retroactive clarifications of (1) the employer (but not self-employed equivalent) FFCRA paid leave credits that were extended as discussed above, (2) the exclusion of qualifying paid leave in calculating the employer portion of Railroad Retirement taxes and (3) and the increase in the amount of the FFRCA paid leave credits against the employer portion of Railroad Retirement taxes by the amount of the Medicare payroll taxes on qualifying paid leave.

Additionally, the COVIDTRA directs IRS to extend the Presidentially ordered deferral of the employee’s share of OASDI and Railroad Retirement taxes. As first provided by IRS, the deferral was of taxes to be withheld and paid on wages and other compensation (up to $4,000 every two weeks) paid in the period from September 1, 2020 to December 31, 2020 so that the taxes were instead withheld and paid ratably in the period from January 1, 2021 to April 30, 2021. Under the deferral, the period over which the deferred-from-2020 taxes are ratably withheld and paid is extended to all of 2021 (instead of the four month period ending on April 30, 2021).

Employee benefits and deferred compensation

The TCDTR provides that expenses for business-related food and beverages provided by a restaurant are fully deductible through 2022 instead of being subject to the 50% limit that generally applies to business meals.

The TCDTR temporarily allows (1) carryovers and relaxed grace period rules for unused flexible spending arrangement (FSA) amounts, whether in a health FSA or a dependent care FSA, (2) the raising of the maximum eligibility age of a dependent under a dependent care FSA from 12 to 13 and (3) prospective changes in election limits set forth by a plan (subject to the applicable limits under the Code).

With a view to layoffs in the current economic climate, the TCDTR relaxes rules that would otherwise cause a partial qualified retirement plan termination if the number of active participants decreases.

Because of market volatility during the Covid-19 pandemic, the COVIDTRA relaxes, if certain conditions are met, the funding standards that if met allow a defined benefit pension plan to transfer funds to a retiree health benefits account or retiree life insurance account within the plan.

The CARES Act’s relaxed rules for “coronavirus-related distributions” are retroactively amended by the COVIDTRA to additionally provide that a coronavirus-related distribution that is a during-employment withdrawal from a money purchase pension plan meets the distribution requirements of Code Sec. 401(a).

And under a provision of narrow applicability, the TCDTR lowers to 55 years from the usually applicable 59 1/2 years the age at which certain employees in the building or construction trades can, though still employed, receive pension plan payments under certain multiple employer plans without affecting the status of trusts that are part of the pension plans as qualified trusts.

Residential real estate depreciation

For tax years beginning after December 31, 2017, the TCDTR assigns a 30-year ADS depreciation period to residential rental property even though it was placed in service before January 1, 2018 (when the 2017 TCJA first applied the more-favorable 30 year period) if the property (1) is held by a real property trade or business electing out of the limitation on business interest deductions and (2) before January 1, 2018 wasn’t subject to the ADS.

Farmers’ net operating losses

The COVIDTRA allows farmers who had in place a two-year net operating loss carryback before the CARES Act to elect to retain that two-year carryback rather than claim the five-year carryback provided in the CARES Act. It also allows farmers who before the Cares Act waived the carryback of a net operating loss to revoke the waiver.

Low-income housing credit

The TCDTR provides a 4% per year credit floor for buildings that aren’t eligible for the 9% per-year credit floor. (Both floors are alternatives to the calculation under which the per-year credit is generally a percentage, prescribed by IRS, that is intended to result in a credit that, in the aggregate over the 10-year credit period, has a present value of 70% of the qualified basis for certain new buildings and 30% of the qualified basis for certain other buildings.)

Life insurance

The TCDTR changes the interest rate assumptions that determine whether a contract meets the cash value and premium caps for qualifying as a life insurance contract. The change is to designated floating rates from the respective 4% and 6% rates fixed by prior law.

Disaster relief

The TCDTR includes several provisions targeted at “qualified disaster areas,” some of which affect individuals and some which affect businesses as described below. “Qualified disaster areas” are areas for which a major disaster was Presidentially declared during the period beginning on January 1, 2020 and ending 60 days after the day of enactment of the TCDTR. The incidence period of the disaster must begin after December 27, 2019 but not after the day of enactment of the TCDTR. Excluded are areas for which a major disaster was declared only because of COVID-19.

The relief includes relief for retirement funds that consists of the following: (1) waiver of the 10% early withdrawal penalty for up to $100,000 of certain withdrawals by individuals living in a qualified disaster area and that have suffered economic loss because of the disaster (qualified individuals), (2) a right to re-contribute to a plan distributions that were intended for home purchase but not used because of a qualified disaster, and (3) relaxed plan loan rules for qualified individuals. Changes to plan amendment rules facilitate the relief.

The relief also provides to employers in the harder-hit parts of a qualified disaster area an up-to-$2,400-per-employee employee retention credit, subject to coordination with certain other employer tax credits. Generally, tax-exempt organizations can enjoy the credit by taking it as a credit against FICA taxes.

Corporations are provided with relaxed charitable deduction rules for qualified-disaster-related contributions, and individuals are provided with relaxed loss allowance rules for qualified-disaster-related casualty.

The low income housing credit is modified to allow, subject to various limitations, increases in the state-wide credit ceilings to the extent allocations are made to harder-hit parts of qualified disaster areas.

Excise taxes

The TCDTR makes various excise tax changes for beer, wine and distilled spirits. The TCDTR also provides that the temporary increase in the Black Lung Disability Trust Fund tax won’t apply to coal sales after 2021 (instead of after 2020). And the end of the liability imposed because of the Oil Spill Liability Trust Fund Rate is deferred until after 2025. Additionally, the alternative fuels credit against the diesel and special motor fuels tax is extended.

To discuss any questions you may have, please contact a member of your engagement team or reach out to us via our website.

© 2021 Thomson Reuters/Tax & Accounting. All Rights Reserved.
    Business Planning

2020 Charitable Giving and the CARES Act

Year-end charitable giving has the potential to be a life-saving donation to nonprofit organizations as individuals, businesses and nonprofit organizations are wrapping up the most challenging year in our recent history (which seems like an understatement). For those individuals who are charitably-inclined, who want to give back, who wish to do their part to ensure no one is left behind, this may be an opportune time to make a charitable contribution.

Earlier this year, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion economic stimulus package legislated to further incentivize charitable giving by providing increased tax incentives for charitable giving for both individuals and corporations.

Do you Itemize Deductions?

Individuals who itemize deductions can now benefit from the increase in the limit historically placed on adjusted gross income (AGI) for cash contributions. For cash contributions made in 2020, you can elect to deduct up to 100 percent of your AGI (increased from 60 percent).

Not Itemizing?

The CARES Act provides for a new charitable deduction for those individuals who do not itemize. You may now claim an “above-the-line” deduction for charitable gifts made in cash up to $300 as long as you are not itemizing your deductions on your 2020 income tax return.

Interested in Corporate Giving?

The AGI limit for cash contributions was also increased for corporate donors. Corporations can now deduct up to 25 percent of their taxable income (increased from 10 percent).

AGI Limitations

It is important to note that the above tax incentives only apply to cash contributions to public charities and do not apply to contributions to supporting organizations or public charities that sponsor donor-advised funds. That being said, because no changes were made to existing deductions for contributions into a donor-advised fund, you are still able to deduct cash contributions to a donor-advised fund up to 60 percent of AGI and appreciated property contributions up to 30 percent of AGI.

Carryover of Excess Contributions

If your 2020 donations exceed your AGI deduction limit, you may carry forward excess deductions for up to five tax years.

Selected Distributions from Eligible Retirement Plans and IRAs

The Cares Act eliminated the $100,000 annual limitation historically imposed on 2020 distributions from eligible retirement plans and IRA accounts. Therefore, if you are charitably inclined, you may be able to take a significant distribution from your eligible retirement plan or IRA during 2020, donate it to a charity, and claim a deduction for the full amount of the distribution.

  • If you are under age 591/2, you should be able to withdraw up to $100,000 in aggregate from specified qualified retirement plans and IRAs during 2020 without a 10 percent early withdrawal penalty, provided you meet the eligibility requirements.
  • The 20 percent mandatory federal withholding tax is waived for corona-virus related distributions (CRDs).
  • The requirement to take required minimum distributions (RMDs) for 2020 has been waived.
Tax and Legal Advice Disclaimer

This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your tax, legal and accounting advisors before engaging in any transaction.

    Business Planning

Employers Have Questions And Concerns About Deferring Employees’ Social Security Taxes

The IRS has provided guidance to employers regarding the recent presidential action to allow employers to defer the withholding, deposit and payment of certain payroll tax obligations.

The three-page guidance in Notice 2020-65 was issued to implement President Trump’s executive memorandum signed on August 8.

Private employers still have questions and concerns about whether, and how, to implement the optional deferral. The President’s action only defers the employee’s share of Social Security taxes; it doesn’t forgive them, meaning employees will still have to pay the taxes later unless Congress acts to eliminate the liability. (The payroll services provider for federal employers announced that federal employees will have their taxes deferred.)

Deferral basics

President Trump issued the memorandum in light of the COVID-19 crisis. He directed the U.S. Secretary of the Treasury to use his authority under the tax code to defer the withholding, deposit and payment of certain payroll tax obligations.
For purposes of the Notice, “applicable wages” means wages or compensation paid to an employee on a pay date beginning September 1, 2020, and ending December 31, 2020, but only if the amount paid for a biweekly pay period is less than $4,000, or the equivalent amount with respect to other pay periods.

The guidance postpones the withholding and remittance of the employee share of Social Security tax until the period beginning on January 1, 2021, and ending on April 30, 2021. Penalties, interest and additions to tax will begin to accrue on May 1, 2021, for any unpaid taxes.

“If necessary,” the guidance states, an employer “may make arrangements to collect the total applicable taxes” from an employee. But it doesn’t specify how.

Be aware that under the CARES Act, employers can already defer paying their portion of Social Security taxes through December 31, 2020. All 2020 deferred amounts are due in two equal installments — one at the end of 2021 and the other at the end of 2022.

Many employers opting out

Several business groups have stated that their members won’t participate in the deferral. For example, the U.S. Chamber of Commerce and more than 30 trade associations sent a letter to members of Congress and the U.S. Department of the Treasury calling the deferral “unworkable.”

The Chamber is concerned that employees will get a temporary increase in their paychecks this year, followed by a decrease in take-home pay in early 2021. “Many of our members consider it unfair to employees to make a decision that would force a big tax bill on them next year… Therefore, many of our members will likely decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law,” the group explained.

Businesses are also worried about having to collect the taxes from employees who may quit or be terminated before April 30, 2021. And since some employees are asking questions about the deferral, many employers are also putting together communications to inform their staff members about whether they’re going to participate. If so, they’re informing employees what it will mean for next year’s paychecks.

How to proceed

Contact us if you have questions about the deferral and how to proceed at your business.

© 2020

    Business Planning

To Pivot Successfully: Start with Why!

Business is hard! Even in a booming economy, companies that don’t constantly pivot and adapt to changes in their industry, the economy, and the needs of their consumer can often go out of business as a result.  Throw in a global pandemic, stay-at-home orders, and more than 40 million jobless claims since the start of the pandemic, and many business owners are asking themselves, “What do I do now”? To develop your strategy, to pivot your business and emerge as a stronger organization on the other side of this crisis, business owners should not be asking themselves,  “WHAT do I do?” but rather, “WHY do I do it?”  Author Simon Sinek says great leaders start with why.  Why do you do what you do? What is your purpose? If you pivot based on WHAT, it stifles your creativity. If you pivot based on WHY, you will see all kinds of opportunities in this new world of COVID-19 to execute on your WHY and serve customers in entirely new ways.

Take Nike, for example. They are known primarily for making sneakers and other athletic apparel. They have thousands of physical stores across the world.  When the pandemic started in China, Nike was forced to close more than 5,000 of its 7,000 directly owned and partner-operated stores across China. If they pivoted based on what they do, the natural reaction would have been to pivot its focus from its retail stores to its online store.  While that may have been the end result, Nike didn’t build their strategy around promoting their apparel online. Instead, Nike started with their mission statement: “To bring inspiration and innovation to every athlete in the world.”

As a result of going back to their mission statement, or their WHY, Nike’s staff first engaged with the Chinese consumers digitally by offering at-home workouts.  Between December 2019 and February 2020, Nike reported more than 35% growth in online sales in China.  Then, once its retail stores began to reopen, Nike’s digital business accelerated, even more, approaching triple-digit growth levels.  You see, Nike didn’t start by just selling athletic apparel online. It started by providing inspiration and innovation to athletes in China who were impacted by the pandemic. That inspiration and innovation then drove its digital sales. They pivoted based on their mission statement – their WHY – and the results speak for themselves.

Most companies are having to pivot their businesses as a result of the global pandemic. Next time you meet over a Zoom with your business advisors, take some time to focus on the why, and discover some new strategies for pivoting your business.

    Business Planning

How Today’s Crisis Can Create a Future Proofed Company

A few years ago, I read Antifragile by Nassim Nicholas Taleb. While the author’s tone and style may not strike the right chord with all readers, I’m reminded once again of this fascinating and controversial book. His contrarian view on the business world was interesting reading then, but today, in light of the COVID-19 crisis, it can be considered a timely business philosophy to ponder. This book follows his earlier, best-known work, Black Swan.

Mr. Taleb’s premise is that when a business undergoes significant stress and disorder, when the chaos is taken in the right light, it is more likely to survive and ultimately flourish. Rather than being fatally harmed by the chaos, the business will grow stronger when it successfully deals with chaotic conditions. The business will become antifragile, which, in Mr. Taleb’s view, is far better than becoming just resilient. While a resilient business will learn how to resist the stressors but basically stay the same, the antifragile business will grow better and better as it learns to deal with the stresses that come.

As someone who deals with companies every day and currently sees grave concerns expressed by nearly all businesses working with our Orange County accounting firm, Mr. Taleb’s views are somewhat reassuring. I’ve been fascinated by both Black Swan and Antifragile for quite some time, but today, as we all grapple with the utter chaos and disorder of COVID-19, this philosophy seems to be tailor-made for today’s tremendously unsettled business arena.

The author cites examples of companies, and even industries, that have endured one crisis after another, and rather than being defeated, they learn from the crises and are stronger at the end of each situation. In effect, they are “future proofing” their companies, making them able to withstand and even thrive when they encounter adversities that lie ahead. No one likes feeling fragile and vulnerable in their business, and we usually take steps to avoid these situations. But chaotic and disruptive environments, such as our current coronavirus situation, actually may help businesspeople future proof their companies.

Taking just one industry, the airline industry, Mr. Taleb cites examples of how airlines have found themselves extremely vulnerable and on the verge of catastrophic failure. Sometimes it’s an individual airline in trouble, such as a largescale crash, or it can be the industry overall, such as the days, months and even years, following 9/11. For the individual airline disaster, the future proofing aspect comes in, for example, when investigators study the “black box” recovered from the crash site and learn clues about how to avoid accidents like this in the future. For the overall industry, it’s learning ways of cutting costs to survive – which may be disliked by the flying public, but in recent years has returned the airlines to a thriving industry.

The current crisis is putting many industries in chaos. We are still early-stage and we don’t know how it ultimately will play out. But experiences from past economic downturns or natural disasters will be drawn upon to survive COVID-19. This crisis is unlike others we all have experienced, as we will constantly be going through the disaster response cycle, giving us the opportunity to put this antifragile concept to the test daily. I am hopeful each of us will find that their responses to the crisis will make them stronger each day and in the future.

If you have questions or concerns, please contact our Orange County accounting firm to speak to one of our experts today.

    Business Planning

Tips for those Working Remotely

As we, and so many other companies enter the second week of working from home, and many who have had to possibly embrace this model overnight, we offer you well wishes and some tips for working at home.

1. Create a stable workplace. If you do not have an extra room, carve out a spot you can use every day.

2. Follow your schedule. Start on time, takes breaks and lunch – follow as much normal routine as you can.

3. Be productive. It is way too easy to turn on the TV and caught up in the repetitive newscasts. Set daily goals and get them done.

4. Communicate – more. While we are all out of the office, communication is critical. A big concern is that we will lose touch, so some sub-tips:

a. Use social video platforms – Zoom, Skype, High Five, and Facetime to meet with your teams, have 1:1 conversations.

b. Schedule regular meetings with your teams. Let them share things that may be personal; listen and show compassion.

c. Use your ‘breaks’ and lunchtime to schedule chats.

d. Use the phone – call a co-worker, family member, etc. to check in.

5. Get some fresh air. Take a break from your workspace and get outside, while maintaining social distance from your neighbors. Open your windows to allow fresh air to circulate for at least 15 minutes a day.

And, finally, realize that we are all in this together. We need to support and communicate with each other to get our jobs done, keep our relationships going and just help one another through these times.

Do your part – Stay Home.  We can do it!

    Business Planning

Profitable Growth, Take 2: Gaining Measurable Results from a Waste Audit

An efficient route to profitable growth for many businesses lies in a waste audit. As I shared in my previous article, profitable growth is achieved by eliminating waste and minimizing overspending within an organization. We covered the helpful DOWNTIME list of eight common types of waste and discussed why it’s worth pursuing both top-line and bottom-line growth to achieve long-term business health.

Below, I explore a case study of a successful waste audit and share some helpful strategies for seeing results from your company’s first one.

A Waste Audit In Practice

A waste audit sounds good in theory, but what about in practice? Working with a professional service company as their business advisors, we ran a waste audit and realized they were spending a considerable amount every year on subcontractors.

While hiring the subcontractors made the managers’ lives easier, it also cost them a fortune (this fell into the “extra processing” waste category, in case you were curious). We worked with them to help improve their operations. We found that many full-time employees were being overscheduled to ensure project completion, but at the cost of efficient time management. In this case, properly budgeting the project and scheduling resources freed up hours that could be used on other projects.

Proper utilization of the company’s existing resources decreased the need to hire subcontractors. The company initially had three subcontractors. Now, two years later, they only have one. This small change saved the company thousands of dollars annually, and therefore increased profitability.

One subtle reduction in waste created thousands of dollars in profit without having to increase revenue. That is the art of waste auditing. It’s not always about massive sweeping changes. Sometimes it’s about smaller, attainable adjustments that can make a significant impact.

The Waste Audit Tool

When we’re conducting a waste audit with our clients, we use a waste audit tool, shown below. In essence, this involves creating a waste statement for one year. List each waste and how much you estimate it costs your company annually. If you don’t know the exact number, you can simply rank the dollar amount from low, medium, to high.

For each item you identify as potential waste, rank the “ease of removal” by considering how easy it is to eliminate that waste from a scale of -5 to +5 (+5 being the easiest). This method helps to identify two things:

  1. Which wastes are costing the most money?
  2. Which wastes are the most manageable problems to fix?

We’ve been doing this a while, and we’ve found that the best approach isn’t always to handle the most expensive wastes first. Instead, start by tackling the wastes that are easier to fix. Organizational behavior changes are tough. You don’t want to demotivate your staff with a challenging, disruptive change that has a slim chance of success.

After a few successes, then tackle the larger projects. Going for the lower-hanging fruit is a fantastic way to ease into profitable growth.

Unsure how to start implementing your waste audit findings? Here’s a quick breakdown of our process:

Become More Profitable Today

As business advisors and CPAs, we’re experts at waste audits—as a complement to our assurance services. If you want to determine whether your company is suffering from unnecessary waste and work on increasing profit, we would love to speak with you to learn more about your business and identify areas where our business advisors could potentially offer solutions.

    Business Planning

Conducting a Waste Audit for Profitable Growth

Most business owners look at profitability as a one-way street, as a simple equation where more revenue equals more profitability. While there’s some truth to that, there’s much more to consider.

As business advisors and CPAs, at Haskell & White we spend our time buried in profit and loss statements. We’ve found that often, the key to increasing profitability is more about decreasing waste than it is about top-line growth.

Stick with me on this one. There’s merit to increasing revenue. It’s the most straightforward way to drive growth. More cash flow at the top trickles down and creates more money at the bottom. However, to create profitable growth, it’s essential to look at the entire picture, not just the incoming revenue.

Profitable Growth vs. Top-Line Growth

Many business owners do a great job at landing new clients. Their lead generation pipeline is solid, and their sales teams are talented. But, every dollar of revenue a company earns has to make its way through the income statement. You have to buy equipment, pay employees, purchase inventory, and more.

The result? More revenue creates more work for the business, and it doesn’t often result in much money in the business owner’s pocket. This is where the difference lies: Top-line growth puts an emphasis on increasing revenue. Profitable growth focuses on margins, decreasing waste, and creating sustainable long-term growth.

Both are important. But, as business advisors, we see our clients consistently losing thousands of dollars due to unnecessary waste. This disconnect is why we advise all our clients who are looking to increase profitability to start with a waste audit.

What Constitutes Waste?

A waste audit involves looking at your company’s profit and loss statement and finding areas where you’re spending more money than necessary. First, let’s talk about waste.

What constitutes waste? As business advisors (in addition to our assurance and tax planning services), we like to use Toyota’s eight most prevalent wastes as a guideline. Though originally developed for Toyota’s production system, we’ve found that these types of waste apply to almost every business.

You simply need to remember the acronym DOWNTIME, which represents the following:

  • Defects – Ranging from poor equipment quality to inadequate training, this applies to essentially any defect in your system that results in having to scrap or re-do work.
  • Overproduction – Situations where you have too much product or are spending too much time on low-paying clients. Paying too much overtime also falls into this category.
  • Waiting – Essentially, the money lost due to waiting: waiting on client responses, credit approvals, or simply being unable to finish tasks in a timely manner.
  • UNused Talent – Improper task delegation or not utilizing your employees’ talents appropriately.
  • Transportation – Transportation costs like freight, travel, company vehicle usage costs, and transportation to meetings, or even paying for overnight shipping when standard shipping would suffice.
  • Inventory – Having too much product on hand, too many SKUs, outdated products, or continuing to buy products that aren’t selling. Packaging costs and write-offs also apply.
  • Motion – Related to efficiency in movement and how your systems affect that efficiency—including your office layout, the location of your tools, required travel, and more. Think about the daily processes and how habitual motions detract from the bottom dollar.
  • Extra Processing – Using unnecessary resources: the wrong tools, the wrong people for the job, or too many people working on the same project. This can also include paper waste or excessive documentation.

Each company’s application of these eight wastes varies dramatically. If you’re a manufacturing company, defects are typically associated with equipment. If you’re a retailer, defects may be associated with bad products. Whatever your industry, it’s simple to apply these eight areas of waste to your organization and begin seeing where you might be hemorrhaging potential profit.

There’s a lot more to get into, which is why I’ll be dedicating another article sharing a case study of a successful waste audit and my recommendations for simplifying your first waste audit to start seeing results faster. If your curiosity is piqued and you’re interested in learning more about how we can support your company’s efforts at profitable growth, feel free to get in touch for a complimentary consultation.
    Business Planning

GPS Diagnostic: Identify Your Top Factors to Maximize Growth and Profit in Your Business

Whether you’re interested in exit planning or discovering opportunities for growing your profits, planning is an essential part of any business. As the adage goes, failing to plan is planning to fail.

When you think about tax planning or public accounting services, business advisory doesn’t immediately come to mind. The role a CPA plays in your business can be that of a historian, producing financial statements and tax returns that ensure you are in compliance and documenting your business history. Here at Haskell & White, we’re a little different. We believe in helping our clients do more.

We like to take things a step further by helping you identify ways to increase revenue, maximize profits, and achieve long-term business goals. Understanding your business and the financials puts us in an excellent position to advise you on taking your business to the next level, protecting what you’ve built, or maximizing your place in the market. That’s why we utilize the GPS Business Diagnostic to focus on what matters. GPS stands for Growth & Profit Solutions, and that’s exactly what this tool provides.

What’s Working and What Isn’t?

When you’re in the thick of operations, it’s difficult to see the forest for the trees. If you aren’t hitting your profit goals, it’s likely that some underlying problems are stalling your success. But how do you differentiate issues from opportunities? How can you tell what’s working and what isn’t?

Our GPS Business Diagnostic is a check-up for your business. Similar to the GPS on your phone or in your car, this tool works like a roadmap for success.

It’s like getting a bird’s eye view of what’s going on inside of your organization. By filling out a short, five-minute questionnaire, you can quickly identify your top three areas of high performance and your top three areas needing improvement. Once these areas are identified, we assist in building strategic plans to capitalize on your strengths and reduce the effects of any weaknesses.

This analysis goes beyond routine public accounting services and instead looks at ten holistic success factors, which include:

  1. People
  2. Systems
  3. Implementation
  4. Strategy
  5. Profit
  6. Leadership
  7. Innovation
  8. Marketing
  9. Sales
  10. Technology

Once completed, you instantly get a visual report, including line bar presentations of all ten areas, color-coded to represent how you’re performing in them. Green bars represent your strengths, while red bars represent your weaknesses. Yellow bars are the areas in between.

How Public Accounting Services Can Support Growth and Profit

From Gallup’s CliftonStrengths specialists to Tim Ferris’s 4-hour workweek, many experts agree that the real key to success lies in finding your strengths and capitalizing on them. For your weaker areas, it’s about eliminating the time you spend on them by automating processes or finding simple solutions for improvement.

As a public accounting firm, sometimes we speak with company leaders who want to increase the top line revenue number to improve their profit percentage, only to realize after using our GPS tool that concentrating on efficiency and removing “waste” in the business will be a better approach. We discover that they’re spending capital inefficiently, making it appear that they aren’t hitting their bottom line. In reality, it’s an operations issue versus a sales issue. Finding opportunities to eliminate excess spending and maximize cost efficiencies can make a huge difference for these companies.

Other times, we’ll find that companies aren’t pricing their products effectively. Their margins are too small and they’re leaving money on the table. In other instances, we find that there’s a talent issue. People are in the wrong positions or critical positions are missing. For example, a company may be poised for growth, but without a key operations leader in place, incoming demand may not be met.

The ten areas listed above represent the ten barriers to business success. If you’re failing in any of these facets, you’re limiting your potential for growth.

Ready to Try the GPS Business Diagnostic?

Whether you’re experiencing growing pains, failing to hit your profit goals, or you want to get a sense of where your business stands, give this diagnostic a try. It’s completely free, and it only takes about five minutes to complete. It’s simple, straightforward, and perfect for a middle-market company.

A quick tip: we recommend having multiple members of your management team take the assessment for the most evident results. Getting perspectives from different stakeholders allows you to see which strengths and weaknesses overlap. Our favorite feature of this resource is combining multiple reports to see if the leaders of an organization are in sync.

If you’re looking for more insight after seeing your results, we offer a one-hour consultation to review the report.

Why not work with a public accounting firm that not only ensures you are in compliance but also focuses on your future? Our GPS Business Diagnostic is just one resource we utilize to help chart your future. Give it a try; the results might surprise you.
    Business Planning

Prepare for Success with a Change Success Diagnostic

Is your company preparing for a big change? We’re the first to admit that corporate change initiatives can be daunting.

In fact, research indicates that 70% of all change initiatives fail. Whether you’re integrating a new software, in the middle of a merger, or hiring new staff, change is especially challenging if you haven’t prepared for it. The trial-and-error approach often leads to unnecessary costs, wasted time, and a frustrated and demotivated team. When you’re looking at making a change in a company, there are three key items you need to assess:

  • How ready is my organization for change?
  • How capable are we of changing?
  • How might our current belief systems affect the change?

These fundamental questions help determine if your change initiative will be successful. Utilizing our Change Success Diagnostic helps you identify areas to improve before taking on a change initiative. Identifying in advance where you might need more support improves your opportunity for success.

Our business advisory services focus on recognizing your goals for the company’s future to help you achieve sustained success. Here at Haskell & White, an Orange County CPA firm, we’re passionate about helping our clients grow and plan for the long term. Part of that planning involves preparing for significant changes in your business.

What Does the Diagnostic Do?

The Change Success Diagnostic is based on doctoral research that investigated companies around the world which handled change initiatives with great success. The research identified three areas critical for enacting change and how to measure their impact. As part of our business advisory services, we’ve found that using this diagnostic to assess how prepared a company is for a given change is extremely helpful and prevents wasted efforts. That way, they can see which areas need improvement before diving headfirst into something new.

There are three primary areas and ten sub-factors that play into a company’s ability to be successful in adapting to change, including:

  1. Readiness
    1. Leadership Support
    2. Need for Change
    3. WIIFM (What’s In It for Me?)
    4. Change Process
    5. Confidence
  2. Capability
    1. People Capability
    2. Organizational Capability
  3. Belief
    1. Significant Others
    2. Attitude
    3. Perceived Difficulty

After completing a quick questionnaire, our diagnostic provides you with a visual and quantified representation of how ready your organization is for change. Complete with percentages and breakdowns for each area, this diagnostic has helped our clients avoid headaches, wasted money, and time.

Why You Should Give It a Try

Knowing your strengths and weak points when it comes to change preparedness helps your organization adapt in order to achieve a more successful outcome of new initiatives. We recommend having several people from your company complete the diagnostic to gain a more balanced perspective. Doing so allows deeper insights into potential problem spots, which are often hidden or not discussed.

For instance, if someone from your organization completes the assessment and scores low in perceived difficulty, meaning they think that the change will be difficult, this may spark a conversation among leadership to understand why. Perhaps staff members are worried about implementing new tech because the existing IT department is lacking. You could address this perception of difficulty by planning to hire additional tech support for the implementation.

We’re not the typical Orange County CPA Firm offering business advisory services without practicing what we preach, either. We use (and continue to use) this resource within our own organization when we implement new initiatives. We’ve found it to be an essential tool in our business advisory services toolkit.

Leveraging the Change Success Diagnostic (Even if You Aren’t Looking for Business Advisory Services)

Planning for a substantial change? Or is one being forced upon your competitors? Try this diagnostic out first. It’s free, and it only takes a few minutes to complete. Once you finish, you’ll instantly get a visual report representing how prepared you are for a change initiative in your company.

Don’t be too concerned if your results come in low: most people who take this assessment score around 40-50% (out of 100% prepared). Also, know that we offer a wide range of business advisory services and solutions, so if you aren’t prepared, we’re here to help get you there.

Want to see if you’re actually ready for that upcoming change initiative: new POS system, merger, or change in management? Give the diagnostic a try now.