Tax and Financial News October 2018
Tax Reform 2.0
The House Republicans recently introduced legislation that, bundled together, is being referred to as Tax Reform 2.0. Expanding on the Tax Cuts and Jobs Act (TCJA), it’s composed of three main bills that intend to address some of most criticized portions of the TCJA.
H.R. 6760, Protecting Family and Small Business Tax Cuts Act of 2018
Currently, the TCJA tax cuts for individuals and small businesses expire in 2025, but this bill would make them permanent. The bill would also extend the lower 7.5 percent deduction floor for medical expenses through 2020; currently, this provision expires after 2018.Additionally, the bill attempts to clarify the increased child tax credit by making it explicit that a taxpayer identification number is needed to claim any non-child dependent. The estimated cost of these tax law changes is approximately $631 billion over 10 years.
H.R. 6757, Family Savings Act of 2018
This bill aims to help families start saving earlier and save more by expanding options. For example, one of the new savings vehicles the bill is set to create is a universal savings account allowing up to $2,500 in after-tax contributions per year, with tax-free withdrawals that can be made at any time for any reason. 529 plans also would be modified, expanding the definition of qualifying expenses and allowing up to $10,000 in distributions to be used for repayment of qualified education loans. The estimated cost of these tax law changes is approximately $21 billion over 10 years.
H.R. 6756, American Innovation Act of 2018
H.R. 6756 aims to help new businesses by expanding the current start-up and organizational costs deductions. Currently, start-up and organizational costs each qualify for a $5,000 deduction; this bill would allow a combined deduction of up to $20,000 for both.
Under the law as written currently, net operating loss carry-forwards, net operating losses, general business credit carry-forwards, and general business credits are eliminated or limited if there is an ownership change. H.R. 6756 would allow new businesses that have a change in ownership to claim these tax breaks the same as if no ownership change occurred.
The estimated cost of these tax law changes is approximately $5.4 billion over 10 years.
While the House Republicans believe they are being responsive to their constituents with these bills, the total cost for all three over the next 10 years exceeds $657 billion. With a federal deficit growing increasingly fast, it’s not clear how the Senate will react to the bills now that all three bills have passed in the House.
General Business News October 2018
Common Errors and Oversights When Evaluating a Business to Buy
When it comes to selling a business, it’s never a bad thing to be too careful. In fact, according to Forbes’ contributor Richard Parker, 50 percent of business acquisitions fall apart during the “due diligence” phase, where many current and future obligations exist. With such a high rate of deals that fall through, what are the most common reasons that business acquisitions end up failing?
Learn About Business Obligations Pre-Purchase
One of the many reasons a business deal breaks down is due to either the seller not being transparent or the buyer discovering things about the business’s existing obligations, such as the level of debt or a full accounting of outstanding bills.
This brings up a larger concern of how to determine if a business is a good fit. First, generate many questions to ask. This includes finding out details about the business structure, the company’s outstanding bills, agreements and client contracts and how each of these items will be addressed. For example, if there’s a lease, will it be transferred and renewed as part of the business sale? Is the building’s owner on board and part of the contract to renew the lease after the sale and transfer has completed?
Another consideration, echoed by Parker, is to determine how many customers the business currently has and what the company will be doing to keep developing clients. Is the business on time with bills or are there vendors with outstanding invoices that might be holding back product, thus preventing existing customer orders from being fulfilled?
Parker uses the example of looking at a company and how the majority of its revenue comes from a single government contract. As long as the company has ongoing marketing and sales efforts to gain new clients to expand its client base when that contract ends, it can make reasonable budget and staffing projections depending on how fast new clients are acquired. However, if such efforts are not implemented, a lack of new clients can put a squeeze on future cash flow.
Other considerations include understanding how the new ownership will affect existing and future obligations. For example, have all existing debts and business correspondence been disclosed to the potential buyer? If there’s an indemnification clause in the purchase contract for the business, and the business is subject to collections from an unpaid vendor or is later sued, if the indemnification clause is not fully understood, the new owners might contest indemnifying the previous owner.
An additional consideration is to determine how the business’ ownership is structured and how it will impact unforeseen events. Depending on the business entity, creating a fair operating agreement that sets expectations for all owners can minimize many issues, especially for businesses with more than one partner.
One example of an important clause for business owners is how major decisions are made. Are these decisions made unanimously or are they made with a majority of partners? Without a clear set of expectations for how major decisions will be made, partners could walk away with hard feelings, looking to sell their ownership share unexpectedly.
Tip of the Month October 2018
6 Great Ways to Unplug and Feel Better
You’ve just lost your phone and you’re in full-on panic mode. When you locate said electronic device, all is well. You heave a sigh of relief. All of this begs the question: Why and how have we become so dependent on our phones? Though doing without a phone entirely is probably not realistic or in some cases necessary, here are a few ways to ramp off your addiction – and why unplugging is so important for your overall well-being.
- Don’t Take Your Phone to Bed – Research shows that blue light from the phone screen makes it hard to fall asleep. Wayne Conn, a sleep coordinator at Texoma Medical Center, claims that it wakes up the brain and causes it to be overstimulated, much the way exercising before going to bed prevents our bodies from relaxing. Idea: Put the phone down two hours before you retire for the evening, maybe in another room. If you need to make a call, use a land line. When you do this, chances are you’ll sleep better and wake up refreshed.
- Let Go of FOMO – FOMO is the acronym for “fear of missing out”. In fact, Larry Rosen, psychology professor and author of The Distracted Mind, told CNBC that most people check their phones every 15 minutes or less for fear of not being in the know about whatever local or world crisis might be in play. Truth is, if it’s that important, you’ll hear about it on TV, the radio or from a friend. Acquiescing to this phenomenon creates anxiety and interferes with your ability to focus. To avoid all this stress, let go and let live.
- Set Alarms to Wean Yourself Off – Relegate your phone checking to certain times, which might be after work or after dinner. Next, set alarms on your phone during these times so that you can take one deep dive into your phone, respond to emails and comment on social media. Better still, Rosen suggests a radical idea: tell friends and family that you might not be responding to messages as quickly as you used to. Talk about liberating! No longer will you be a slave to the world.
- Remove Distracting Apps from Your Phone – To avoid accidental time-sucks, remove apps that seem to lure you in and hold you hostage, such as social media sites and games. Instead, deploy apps for reading or learning a new language. If you really want to see who has had a new baby or been on a fabulous vacation, you can do it on your desk computer or laptop. The takeaway? Now when you’re interacting with your phone, you’ll be contributing to your mental health and personal growth, rather than taking away from it.
- Rely More on Smart Speakers – Step away from the screen. Give your thumbs a rest. Use your voice to do the heavy lifting with smart speakers like the Amazon Echo or Google’s Home Products. These blue light-free devices can answer virtually any question you have, as well as turn on music or a podcast. When you’re not glued to your phone, you’ll enjoy life a whole lot more.
- Try Replacement Therapy – Finally, instead of reaching for your phone, pick up a book. Talk to your coworker, spouse or neighbor. If we’re honest, human interactions far more satisfying than a tiny rectangular screen.