BUILD A STRONG BOARD

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A strong board of directors provides financial guidance to a company, develops long-term priorities and elects executives to run the operation. To accomplish these goals, directors need to meet frequently and take an objective look at how the business is being run.

Yet in family-owned companies, this is rarely the case. Here are some telling results from an American family business survey* of 1,143 firms:

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In addition, just 58% of the survey respondents thought their boards made an outstanding or good contribution -- and 25% reported they made no contribution to their companies at all.

Involvement in the operation of a company is critical. Family business boards need to plan successions, advise the senior generation, monitor the younger generation, keep shareholders informed, structure governance and keep an eye on the bottom line.

According to the survey, family boards tend to be small -- 87.5% have four or fewer directors with 90% including multiple family members.

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Of course, you don't want to keep relatives off the board, but you shouldn't limit the group to the family. Consider bringing in some outside expertise to ensure the business stays on track and that decisions aren't influenced by family relationships. Accountants and lawyers may have valuable experience to offer the board.

Some of the pitfalls of a family board include:

  • Secrecy -- no sharing of vital information.

  • Lack of understanding of the board's role.

  • Using outside directors only to advocate a family member's position.

  • Weak board management.

  • Poor selection of outside directors.

Stay objective when adding outside directors and look for people with specific expertise that will aid your company. For example:

1. A construction company could bring in directors with knowledge of financial, safety and union matters if it doesn't already possess that expertise among family board members.

2. A publishing enterprise might look for directors with retail, printing and electronic publishing expertise.

Anyone considering joining the board of a family-run business should consider the following dangers:

  • One relative or group may try to make pawns out of outsiders.

  • Family culture and dynamics can be difficult to understand.

  • Outsiders may be relegated to business-only decisions.

  • Issues such as succession, family governance and family councils may be difficult to comprehend.

One final note: The Sarbanes-Oxley Act increased litigation risks and the cost of directors' and officers' liability insurance increased as a result. Without this insurance, you probably won't be able to find outside directors to fill the positions. The law also tightens financial reporting standards, which affect smaller companies doing business with large publicly-traded companies and financial institutions. It's important to comply with the provisions of this law.

TEMP WORKERS NEED MOTIVATION TOO

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Temp employees don't need special attention, do they? Wrong!

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Here's a real life scenario that will rattle your peace of mind: One employer, a large insurance firm, hired a temporary worker to stuff 80,000 insurance certificates into envelopes. A short while later, the firm found thousands of the certificates junked in a freight elevator. It turns out the temp was bored working alone. She thought no one would notice if she cut her workload.

Most temporary workers aren't around your workplace long enough to be motivated by such traditional incentives as pay increases, promotions or company loyalty. You need to go the extra mile to spur these workers to do a good job. Here are some helpful hints:

Listen to temporary workers. Find out their needs, their preferred work environment and their work habits. After the incident mentioned above, the firm hired several temps to keep each other company. They seemed happier and the certificates -- every last one of them -- were mailed on time.

Educate temporary workers. You need to educate temps about your company culture and the work standards in your workplace.

Integrate temporary workers. When temps feel they're a part of your organization, they belong to a team which pulls together for a common goal. Encourage camaraderie by inviting temps to employee parties or asking them to join your softball team.

Link pay to performance. You hire temps to draft a report. Inform them that they will receive bonuses if the report is well-prepared and handed in by the target date of July 1.

Offer job references. A large number of temps want permanent jobs. Tell your temps that if they perform well, you will provide future employers with an excellent reference.

Provide opportunities for advancement. When job openings pop up at your firm, tell temps they will be considered for them. Make these jobs dependent on the temp's performance.



CHECK OUT THE MANY BENEFITS OF APPRENTICESHIPS

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What do European employers know that many American employers fail to appreciate? Answer: The value of apprenticeship programs. The title of the Harvard Business School (HBS) study says it all: "Room to Grow: Identifying New Frontiers for Apprenticeships." It points out that there were only about 410,000 active civilian apprenticeships in the United States a couple of years ago, compared to 23.4 million job postings that year. That's less than 2% of the total.

A big part of the problem, according to the study, is that in the United States, apprenticeships are common only in a handful of job categories — typically in the building trades and labor union-represented workers. Yet there's little to prevent employers from establishing them in many more fields. Specifically, according to the analysis, the number of "apprenticeship appropriate" job categories could be expanded from the 27 today to 74.

In Switzerland, vocational training is available in 240 job categories, not limited to technical fields. In Germany, the top three occupations for those graduating from vocational apprenticeship programs in 2016 were office management clerk, retail clerk and salesperson.

Tough-to-Fill Positions

Not only would expanding apprenticeship job categories "unlock higher-value careers" for workers, but "the occupations covered by those expanded opportunities are the ones employers find difficult to fill," according to the study.

This finding was echoed by an Executive Order issued last year by President Trump tasking the Department of Labor with finding ways to expand the availability of apprenticeship programs. "In today's rapidly changing economy, it is more important than ever to prepare workers to fill both existing and newly created jobs and to prepare workers for the jobs of the future," the Order states.

Apprenticeship Job Criteria

The job categories where apprenticeships currently predominate come under the headings of construction, extraction (for example, coal mining), installation, maintenance, repair and production jobs. These fields have two things in common: They necessitate having a college degree, and they "require an in-depth ability in one or two specific areas, rather a broad array of skills," according to the HBS study.

The study went on to identify further criteria for a broader set of occupations suitable for apprenticeship programs. Such jobs:

  • Aren't heavily licensed,

  • Require a relatively narrow cluster of skills,

  • Don't require a bachelor's degree,

  • Have above-average worker stability, and

  • Pay at least $15 per hour.

The study also subdivided them into two categories:

1. Expanders — jobs with educational requirements exclusively at the sub-bachelor's degree level.

2. Boosters — jobs "for which the educational requirements are relaxed," possibly requiring only some level of college education.

Although the "expander" category is dominated by manual labor jobs, it also encompasses many administrative positions such as medical secretaries and tax preparers. The "booster" group includes many more "office" jobs such as billing clerks, computer user support specialists, graphic designers, insurance underwriters, human resource specialists, purchasing agents and paralegals.

In Europe, most of the jobs in the "booster" category are filled by employees who have gone through apprenticeship programs or some other form of work-based vocational education.

"College Inflation"

One of the impediments to expanding the scope of apprenticeships is what the study deems "college inflation." This is the prevalence of college degree requirements for jobs that, in reality, don't really demand a college education, given the job's actual skill or knowledge requirements. The study notes that a "college for all" drive in the United States (which isn't present in Europe) has driven many people to obtain college degrees — and incur mountains of debt — without economic justification.

From the employer perspective, "Creating a pipeline of talent by providing practical training to apprentices could be an attractive proposition for employers caught in the trap of degree inflation," the study declares. "Instead of restricting their available applicant pool to college graduates — the portion of the population with the lowest unemployment rate and highest wage expectations — employers can widen their access to workers who are just as productive and far less likely to leave for a competitor."

Conversely, insisting on college graduates for jobs that could, with apprenticeship training, be performed without that diploma "brings tremendous costs" to employers. First, they generally wind up paying higher wages for college graduates. And second, they still incur the cost of training them.

Also, there's a misperception that the kinds of jobs that don't require a college degree lack advancement potential. That isn't necessarily the case, the study asserts, citing a job such as tech support. A front-line computer support specialist job is "the classic first step into an information technology career that can lead into management as well as advanced fields such as programming or cybersecurity."

Apprenticeships aren't without cost to employers, of course. There's the expense of the training itself. However, apprentices don't necessarily have to be paid during instructional periods, such as when they're in a classroom setting.

In addition, employers shouldn't expect to pay rock bottom wages to those who complete apprenticeships, though programs certified by the U.S. Department of Labor can lift federal minimum wage requirements. To prevent frustration and disappointment, give participants a clear idea of what kind of job and initial wages they can reasonably expect upon finishing the program.

Worth a Look

Whether an apprenticeship program makes sense for any given employer depends, of course, upon its unique needs. But the first step in making that assessment is recognizing that apprenticeships aren't just for future electricians and bricklayers.

BONUS DEPRECIATION FOR YOUR BUSINESS: LET'S REVIEW YOUR OPTIONS

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First-year bonus depreciation has been around for a while now. However, the Tax Cuts and Jobs Act (TCJA) set forth more-generous, but temporary, rules for 2018 through 2026. Recent IRS guidance gives you additional flexibility to fine-tune the bonus depreciation break to suit your specific business and personal tax circumstances. Here's what you need to know.

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Old Rules, New Rules

Under current law, for qualified property acquired and placed in service between September 28, 2017, and December 31, 2022, the TCJA increases the first-year bonus depreciation percentage to 100%. The end date for certain property with longer production periods and certain aircraft is December 31, 2023.

In addition, 100% deduction is now allowed for both new and used qualified property. For used property to be eligible for bonus depreciation, it can't have been used previously by the same taxpayer. In other words, it must be new to the taxpayer.

After 2023, bonus depreciation will still be available for both new and used qualified property, but the percentages will be reduced as follows:

  • 80% for property placed in service in calendar-year 2023,

  • 60% for property placed in service in calendar-year 2024,

  • 40% for property placed in service in calendar-year 2025, and

  • 20% for property placed in service in calendar-year 2026.

For property with longer production periods and certain aircraft, these percentage cutbacks are delayed by one year. For example, the 80% deduction rate will apply to such property that is placed in service in 2024.

Before the TCJA, the bonus depreciation rate was only 50%. And bonus depreciation was allowed only for new qualified property.

Qualified Property

To be eligible for bonus depreciation under the current rules, property generally must meet one of these descriptions:

  • Property with a depreciation period of 20 years or less,

  • Most computer software,

  • Qualified water utility property, or

  • Qualified film, television or live theatrical production property.

The 100% first-year bonus depreciation break can have a significant impact on depreciation deductions for "heavy" passenger vehicles, including heavy SUVs, pickups and vans, used over 50% for business.

To illustrate, suppose you spend $60,000 on a new heavy SUV in 2019 and use it 100% in your unincorporated small business. Thanks to the 100% first-year bonus depreciation deal, you can deduct the entire $60,000 on your 2019 return.

This break is available only for vehicles that have a manufacturer's Gross Vehicle Weight Rating (GVWR) above 6,000 pounds. Popular examples include the GMC Acadia, Ford Explorer, Jeep Grand Cherokee, Toyota 4Runner and many full-size pickups. A vehicle's GVWR is found on the manufacturer's label, typically located on the inside edge of the driver's side door where the door hinges meet the frame. (Don't expect dealer sales personnel to know which vehicles have GVWRs above 6,000 pounds. Check for yourself.)

Making or Revoking Bonus Depreciation Elections

For assets acquired after September 27, 2017, and placed in service during the tax year that includes September 28, 2017, taxpayers can elect to either:

  • Entirely forgo bonus depreciation, or

  • Claim 50% bonus depreciation (instead of 100%).

Taxpayers can also elect to entirely forgo bonus depreciation for later tax years, like your 2019 tax year. Making these elections takes the bonus depreciation write-off out of the affected tax year and increases "regular" depreciation deductions in later tax years. This makes sense if:

  • Your business has an expiring net operating loss (NOL) that you want to use up in the affected tax year, or

  • You expect your business income to be taxed at higher rates in later years (a reasonable assumption given the current political environment).

You can make these elections for one or more specific classes of property without affecting bonus depreciation deductions for other classes of property. "Classes of property" means property placed in service during the tax year with "regular" depreciation periods of:

  • 3, 5, 7, 10, 15 and 20 years,

  • Water utility property, and

  • Depreciable computer software.

Taxpayers that failed to make these elections for the tax year that included September 28, 2017 (calendar-year 2017 returns in most cases), can make late elections for a limited time. Taxpayers can also revoke prior-year bonus depreciation elections for a limited time.

Assistance Needed

A tax professional can help you file the appropriate tax forms to take first-year bonus depreciation, to elect alternative bonus depreciation treatment, or to make or revoke bonus depreciation deductions in a subsequent tax year. Contact your expert for more information.

B2B ADVERTISING: SELL THE STEAK

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There's an old saying in advertising: "Sell the sizzle, not the steak." Appeal to emotions, be entertaining and keep it short because no one has time to read anymore. The idea is that if your ads stand out for their sizzling originality, you'll get customers to eat more steak.

Many successful consumer campaigns are built on selling the sizzle. But in business to business (B2B) advertising, you're probably better off selling the steak. Sure, you can be creative and unique, but your main goal is to tell decision makers how your product or service will solve their problems.

Here are five tips to keep in mind for more successful B2B advertising:

1. Just say it. Companies are looking for ways to boost productivity, improve quality, save time, reduce expenses and increase sales. They won't waste time on a message if it doesn't explain quickly how they're going to benefit. If you can save them money, tell them how — and how much. If your company's quality is better than your competitors, tell them why. Or better yet, use customer testimonials. Real-life success stories go a long way toward credibility.

2. Don't be afraid to go long. If you can deliver a convincing message in a couple of sentences, do it. But if you're selling a complicated product or service, take as much space as you need to explain the benefits. Your sales letter might need two pages instead of one. Consider reducing the size of a photo to include more hard-hitting copy. White space and style are nice, but filling the pages with reasons to buy is even better. Don't be afraid to go into detail, but cut through the clutter with a message that targets your customer's needs and offers solutions.

3. Talk benefits, not features. Most advertisers spend too much time talking about the features of their products or services. Features describe your product, but benefits are the positive results that your customers derive after using your product. Chasing after prospects who can't use your products is expensive and wasteful. By highlighting the benefits, you help to "pre-qualify" the prospects so that a higher percentage of sales leads have a true need for your product.

4. Be repetitive and consistent. Once you decide on the right message and format, stick with it. Successful B2B campaigns require a long-term investment. In some cases, you get lucky and your first offer hits prospects at exactly the right time.

But more often, prospects will read your ad, decide it might be something they can use in the future and file it away in their memories. The next time they see the same message, they might still not buy, but they recognize your company. The third time they see it, they might request a catalog or CD. And so it goes, until one day, they have an urgent need.

Customers will eventually call you because your ads, letters, brochures, website and email marketing are repeatedly delivering a strong, solution-oriented message. Persistence pays off and a customer relationship is born.

5. Be creative, not cute. You don't have to take all the fun out of it. But if you can sell your benefits in a creative way without being silly, you have the best of both worlds.

A FAMILY FRIENDLY BENEFIT THAT PAYS A LITTLE DIVIDEND

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When you adopt a child, you could bring home more than a bundle of joy. You may also be in line for a valuable tax credit.

For 2019, a tax credit of up to $14,080 per special needs child can come in handy for parents facing the daunting costs of adoption (up from $13,810 in 2018). For other adoptions the credit is equal to the qualified adoption expenses, up to $14,080.

Experts estimate the entire process can set you back as much as $25,000. Here are the details of this tax break:

Qualifying expenses. The credit can be used for each child you adopt, in the United States or abroad. To be eligible, the IRS requires the expenses to be "reasonable and necessary" for adoptions of children under age 18. They include court costs, attorney fees and travel expenses.

Some expenses are not eligible. The IRS specifically excludes some outlays, such as those paid for a surrogate parenting arrangement and the costs incurred to adopt your spouse's child. And if you're remarried, you can't claim the credit for adopting the child of your new spouse.

The value of a credit. If you qualify, the adoption credit can reduce your tax liability on a dollar-for-dollar basis. This is much more valuable than a deduction, which only reduces the amount of income subject to tax. This credit phases out subject to the taxpayer's modified adjusted gross income (MAGI). The credit begins to phase out at MAGI of $211,160 and completely phases out when MAGI reaches $251,160.  (For 2018 the phase out range was $207,140 to $247,140.)

Double bonus.
 If you're fortunate enough to have an employer who pays for adoption expenses, some or all of money could be tax-free. You can get the benefits of both the tax credit and the income exclusion for the same child as long as they're not claimed for the same expenses.

For more information on the subject, consult with your tax adviser. You can also get a free copy of IRS Publication 968, Tax Benefits for Adoption by calling 1-800-829-3676 or visiting the IRS Web site at http://www.irs.gov/.

TO CAPITALIZE OR EXPENSE: HOW TO TREAT WEBSITE COSTS FOR TAX PURPOSES

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For most small businesses, having a website is a necessity. But what's the proper tax treatment of the costs to develop a website?

Unfortunately, the IRS hasn't yet released any official guidance on these costs. Therefore, you must extend the existing guidance on other subjects to the issue of website development costs. 

Depreciable Fixed Assets

The cost of hardware needed to operate a website falls under the standard rules for depreciable equipment. Similar rules apply to purchased off-the-shelf software.

Specifically, once these assets are up and running, you can deduct 100% of the cost in the first year they're placed in service, as long as that year is before 2023. This favorable treatment is allowed under the 100% first-year bonus depreciation break established by the Tax Cuts and Jobs Act (TCJA).

In later years, you can probably deduct 100% of these costs in the year the assets are placed in service under the Section 179 first-year depreciation deduction privilege. However, Sec. 179 deductions are subject to several limitations.

For tax years beginning in 2019, the maximum Sec. 179 deduction is $1.02 million, subject to a phaseout rule. Under the rule, the deduction is phased out if more than a specified amount of qualifying property is placed in service during the tax year. The threshold amount is $2.55 million for tax years beginning in 2019.

There's also a taxable income limit. Under that limit, your Sec. 179 deduction cannot exceed your business taxable income. In other words, Sec. 179 deductions can't create or increase an overall tax loss. However, any Sec. 179 deduction amount that you can't immediately deduct is carried forward and can be deducted in later years (to the extent permitted by the applicable dollar limit, the phaseout rule and the taxable income limit).

Important: Software license fees are treated differently from purchased software costs for tax purposes. Payments for leased or licensed software used for your website are currently deductible as ordinary and necessary business expenses under Sec. 162.

Internally Developed Software

If you take the position that your website is primarily for advertising, you can currently deduct internal website software development costs as an ordinary and necessary business expense.

An alternative position is that your software development costs represent currently deductible research and development costs under Sec. 174. To qualify for this treatment, the costs must be paid or incurred by December 31, 2022.

A more conservative approach would be to capitalize the costs of internally developed software. Then you would depreciate them over 36 months under Sec. 167(f).

Payments to Third Parties

Some companies take the easy way out. They hire third parties to set up and run their websites. Payments to such third parties should be currently deductible as ordinary and necessary business expenses.  

Expenses Incurred before Business Commences

Up to $5,000 of otherwise deductible expenses that are incurred before your business commences can generally be deducted in the year business commences. These so-called "start-up expenses" are covered by Sec. 195.

However, if your start-up expenses exceed $50,000, the $5,000 currently deductible limit starts to be chipped away. Above this amount, you must capitalize some or all of your start-up expenses and amortize them over 60 months, starting with the month that business commences.

Important: Start-up expenses can include website development costs. But they don't include costs that you treat as deductible research and development costs under Sec. 174. You can deduct those costs when they are paid or incurred, even if your business hasn't yet commenced.

Need Help?

Until the IRS issues specific guidance on deducting vs. capitalizing website development costs, you can apply existing guidance for other subjects. Your tax advisor will determine the appropriate treatment for these costs for federal income tax purposes. Contact your advisor if you have questions or want more information.  



KEEP A FIRM GRIP ON WORKPLACE STRIFE

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Running a family business can be rewarding all around, but you must balance personal commitment to relatives with the company's needs. Otherwise, you run the risk of damaging the bottom line and staff morale.

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You might feel pressured by blood ties to hire family members, and in some instances there is a good fit. In a best case scenario, the relative handles assignments and responsibilities flawlessly.

But what happens if you hire a relative who doesn't have the skills the company needs? Or perhaps a relative loafs on the job or feels entitled to special privileges. Although these situations aren't good for business and can demoralize the rest of your staff, family ties keep you from firing the culprit.

Here are a few steps you can take to help turn things around:

Train and counsel. Cultivate a talent that will contribute to the business. Let's say the relative is in management and has poor people skills but is a whiz at numbers. Offer some accounting training and move the employee into that end of the business.

Assign projects. Let the family member undertake tasks that can benefit the company, reduce negative contact with other staff members and provide an opportunity to develop skills you need.

Mentor. To gain skills, arrange for the relative to work with a non-family member who is a top producer.

The key is to transform an unenthusiastic or minimally skilled relative into a productive employee as quickly as possible. The sooner this is accomplished, the less likely you are to lose key employees and managers.

Nevertheless, you may still be plagued by a sense of nepotism among your non-family staff members. These employees are likely to leave if most promotions go to relatives. If you are experiencing high turnover, exit interviews can help determine if the root cause is a real or perceived feeling that your company's policies differ for relatives and outsiders.

A non-family member may never rise to the highest ranks in the company, but you can structure career paths that are attractive to outsiders and provide your business with the top-level staff you need.

Here are a few more proactive suggestions:

Examine your needs for executive and management talent. There may be several areas best filled by non-family members. Consider whether expansion would help you take advantage of family and non-family talent.

Make sure that salaries, benefits and incentives reflect the value of your top performers, regardless of blood ties.

Surveys show that compensation isn't the major issue when employees quit. More important are opportunities for advancement, that the person is making a contribution, involvement in management decisions and consistency of those decisions.

If you keep these ideas in mind, you increase the chances that both family and non-family staff will stay content and productive, leading to continued success for your business.

SPIN E-MAIL ADDRESSES INTO GOLD

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The Internet is one of the best devices your company has to target new customers and keep your existing clientele happy. But before you begin reaping the benefits of e-marketing, you must collect and manage a database of e-mail addresses.

This might seem easy at first glance, but the task can be overwhelming if it isn't handled correctly.

You start by collecting the e-mail addresses of every customer, prospective buyer, referral source and anyone else you want to be able to contact electronically. As you start entering the data, however, you'll discover the list doesn't stay current for long because people change their addresses by switching from one service provider or e-mail service to another.

But you can't afford not to keep your lists up to date. The success of e-marketing and sales promotions depends on your database of addresses.

Here are 10 pointers to help you build a solid list of e-mail contacts:

1. Centralize. Assign a specific person in your office to procure e-mail addresses and maintain the database.

2. Prioritize. Based on the number of current and potential customers, establish the number of addresses your business would like to obtain.

3. Solicit Ideas. Send a memo to staff members seeking ways to build the list. Have your e-mail manager get as many customer addresses as possible from your employees. These can be culled from their own e-mail programs, as well as business cards and letterheads.

4. Expand the search. Send a letter to customers, prospects and referral sources explaining what your firm is doing. Ask them to send their current e-mail addresses to you. Include instructions on how to e-mail the information or use a simple form they can fill out and mail back. Be sure to enclose a self-addressed, stamped envelope. In all your mailings, brochures, newsletters and other means of communication, include a response card to request e-mail addresses and any other pertinent information.

5. Fill in any gaps. During slow periods, telephone contacts whose addresses are still missing or out of date. Follow a simple script and try to obtain many addresses from one company at a time. Remember, there's no additional cost for sending more e-mails. Get more traction by sending to as many people as possible.

6. Turn to the pros. Consider hiring an outside telemarketing company to gather addresses. However, one drawback to these services is some of them have a minimum order of, say, 5,000 names.

7. Surf the net. Research websites to obtain addresses — especially from referral sources. Consider purchasing extraction software that automatically searches website pages for e-mail addresses.

8. Bolster procedures. Require staff members to routinely obtain e-mail addresses from prospects and new customers.

9. Add links to your site. If your company operates a website, include a collection system for gathering e-mail addresses and sending newsletters and announcements.

10. Head off trouble. Consider a piece of software that checks addresses before you send mass mailings. This is important since you don't want your ISP thinking you're sending spam if a lot of e-mails start bouncing. And when gathering addresses, keep in mind that e-mail going to free e-mail services is often caught in spam filters and never reaches the recipient. Whenever possible, it's better to get another e-mail address from contacts.

IS A NEW INDIVIDUAL HEALTH PLAN IN YOUR FUTURE?

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First the old news: Under the Affordable Care Act (ACA), employers with at least 50 employees (or full-time equivalents) are required to provide health benefits and pay for a good portion of the cost. And many smaller employers that aren't required to offer health coverage do so anyway. Why? They may do it to compete successfully for talented employees in today's low unemployment environment or out of genuine concern for the well-being of their workers. What few employers like, however, is being in the time-consuming and complex business of selecting and administering health plans.

And here's the new news: That employer sentiment is why many may be tempted by a radical liberalization of regulations governing health reimbursement arrangements (HRAs), which kicks in next year. Chances are many employers will need some time to digest the 500-plus pages of new HRA rules, so they won't make any big changes immediately. But it's a good idea to be prepared for changes in buying individual health coverage. 

Two HRA Categories 

The regulations deal with two HRA categories: "Excepted benefit" HRAs, and "individual coverage" HRAs (ICHRAs). The latter, as the name suggests, is the type that would enable an employer to give employees some money and then wish them good luck in using it, along with more of their own money to buy the coverage they need. Excepted benefit HRAs, which are already in existence, only subsidize employee spending on benefits like dental and vision services that aren't required by the ACA employer mandate. An employer subject to the employer mandate can't get out from under that obligation simply by helping you purchase such "excepted" benefits. Beginning next year, employers that already sponsor a traditional health plan can also contribute up to $1,800 annually per employee to an excepted benefit HRA. 

The bigger story is around the ICHRA. Previously, only small employers could offer them. Those were called "qualified small employer HRAs." The maximum amount that employers can funnel into an ICHRA this year is $5,150 for single coverage and $10,450 for family coverage. Under the new regulations, there are no caps on employer contributions, and both large and small employers can offer them. 

In fact, ICHRAs of employers with at least 50 employees are still subject to the same basic ACA rules as conventional health plans, including the breadth of coverage and satisfying affordability tests. 

Tax Benefits 
Also, if your employer has a "cafeteria" style plan that lets you park payroll-deducted money into it on a pre-tax basis, you can tap your cafeteria account to pay the difference between what your employer contributes to your ICHRA and the premium amounts. That keeps you from being taxed on any of the value of your health plan. (Note: This wouldn't be the case if you bought a health policy through an ACA "public exchange.") 

Employers are given considerable leeway in how to set up an ICHRA in terms of how much to contribute to employees. For example, the regulations allow contribution amounts to vary by employees' ages. Older people generally face higher premiums than younger ones when buying health coverage on the open market. This is also generally the case if they have ICHRAs. For that reason, employers can contribute up to three times as much to the oldest employee age bracket as they do to the youngest bracket that they establish. 
Along similar lines, employers can contribute varying amounts based on the number of dependents that employees have. Contribution distinctions can also be made by employee job classification. For example, an employer can contribute more to salaried employees' accounts than to hourly workers. 

However, the regulations do limit small employers from creating lots of different employee classes with only a handful of employees in each. The reason is that an employer can choose to only require some employee segments to get their health benefits via an ICHRA, and not others. The rules are designed to keep employers from creating small employee categories that would be dominated by groups with actual or expected higher health costs than others, and forcing those groups to go the ICHRA route. (That's known as "adverse selection.") 

Employer Flexibility 

However, an employer can let employees within a classification stay in the original health plan, but require newly hired employees who fall within the same classification to receive their health benefits through an ICHRA. 

Also, employees within each classification can't be given the choice of staying in a conventional health plan or opting for an ICHRA. Your employer must require that employees within each category be all in, or not offer it to them at all. 

What if you're an employee and are forced to take an ICHRA? What if you wind up not liking the coverage you can buy that way on the open market? The regulations include a requirement that your employer allow you, prior to your enrollment date, to opt out of participating in the ICHRA (and thus employer health coverage) entirely. That would make you eligible to participate in the ACA public exchange. 

Odds are, however, that if your employer is large enough to be covered by the ACA mandate, it wouldn't make economic sense for you to do that. That's because employers subject to the mandate face penalties if employees wind up getting their benefits via the public exchanges. In fact, that's the basic enforcement mechanism behind the employer mandate. 

Finally, if you're thinking you might just accumulate dollars in an ICHRA and not bother to actually buy insurance in the private marketplace, think again. Under the regulations, your employer is required to check up on you and make sure you do buy coverage. 

Health insurance can be a confusing topic, and it's not one where you want to risk choosing the wrong option. If you have questions, your employer's human resources advisor may be able to clear up any confusion. Employers should contact their employee benefits advisors with questions. 

INCENTIVE COMPENSATION: HOW TO STRIKE A PROPER BALANCE

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High profile financial scandals in today's business world pop up in the media regularly. Often at the root of such scandals are incentive compensation systems that went awry. The problem might be with the program's initial design or a loophole that participants discover and take advantage of. Even if a poorly designed incentive program doesn't run afoul of the law, it may cost its sponsors a bundle without delivering desired results. Or, it might really jump the tracks, as one foreign city government found out.

The phrase "perverse incentives" is used to describe an incentive that has unintended — and generally expensive — consequences. An illuminating example is the case of the municipal government of Hanoi when that city was combating a surge in its rat population. The city decided to pay its citizens a bounty for each rat they killed and turned in. The upshot: Hanoi residents found it much easier to breed rats than capture them in the wild and collected their awards with no net impact on the city's rat population. Now that's an expensive failure!

Common Hazards

Let's hope you don't have a rat problem. Every incentive to perform, it's said, is an incentive to cheat. Some people see the offer of an incentive as a challenge to find a way to get it without doing the work. Cheating isn't inevitable, however. Perhaps the most typical incentive pay problem occurs when an employee's bonus potential is too high relative to fixed compensation.

Many self-directed salespeople thrive on having a large part of their pay based on the revenue they generate. Yet most also crave financial stability and predictability. With fixed financial obligations like home mortgages, car loans and student debt to worry about, this is easy to understand.

So, depending on the performance metrics, an ambitious employee whose compensation primarily is based on commissions or bonuses could be motivated to game the system. Alternatively, an honest but lower-performing employee might fail to earn much and become frustrated, disengaged or unproductive.

Another common hazard of incentive compensation: The pressure-cooker atmosphere that leads to high employee turnover. This can happen when the incentive compensation potential of front-line managers is substantial and linked directly to the performance of employees they supervise. Such managers can be driven to go overboard in pressuring their subordinates to perform, causing many employees to quit. When that happens, department productivity suffers.

Focusing on the Achievable

In these scenarios, the aggressiveness of the goals is as critical as compensation that's at risk if the goals aren't met. If meeting the goals doesn't require heroic effort the hazards are reduced, of course. Deciding what's achievable can involve some subjective assessment initially, but history can become your guide over time if you're willing to adjust your expectations.

If it becomes apparent that you have overestimated what's actually achievable due to changing circumstances beyond employees' control, it can be highly de-motivational to them to know their extra efforts will not be rewarded. If so, your incentive plan may not only fail but backfire. The last thing you want is for employees to conclude that their extra efforts won't be rewarded. So, although you don't want to make it a habit, sometimes you need to modify the targets you've set, mid-course.

One way to avoid aiming too high or too low is to use a multi-tiered plan. Consider establishing a bonus formula that allows all employees to qualify for something if they meet a minimum performance threshold. For example, you might require that they achieve at least 25% — or even 50% — of the performance target before they earn a pro-rata bonus.

What about those perverse incentives mentioned earlier? Here's an example of how a well-intentioned incentive program that lacks proportion can fail. Not long ago, a large bank gave branch managers high targets for new account openings. Employees believed, with good reason, that if they didn't meet their quotas they'd lose their jobs.

Sales soared. However, it was later discovered that many of these sales were generated by managers opening accounts for customers without their knowledge or consent. The unintended consequence: a massive public relations fiasco for the bank, along with financial penalties and legal costs that far exceeded any revenue increases.

Intrinsic Motivation Matters

Aside from the obvious problems associated with an overly aggressive incentive program is the fact that such a plan pushes employees to perform because of extrinsic — rather than intrinsic — motivators. In other words, employees are driven by the prospect of a cash reward more than by the desire to surpass their own personal best or out of pride in a job well done.

Of course, there's nothing wrong with financial incentives as long as they don't override your company's values. Superlative employee performance ultimately breeds success for the entire organization. However, academic research suggests that intrinsic motivation is associated with greater creativity than extrinsic motivation.

Finally, whatever the incentive structure within your compensation plan, there's no substitute for careful monitoring of how employees respond to those incentives. Work continually to find a happy medium between too-modest and too-ambitious an incentive formula.

SUMMER LOVING? THINK ABOUT TAXES BEFORE YOU TIE THE KNOT

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For many couples, summer is the quintessential time to tie the knot. The weather is warm, the flowers are blooming and nature offers plentiful backdrops for photos. But there's more than the ceremony to consider when a couple merges their lives, including taxes and other financial issues.

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Though finances aren't necessarily a romantic topic, some issues are important to address before you say, "I do!" Let's start with how marriage changes your tax situation.

To File Jointly or Separately?

Your marital status at year end determines your tax filing options for the entire year. If you're married on or by December 31, you'll have two federal income tax filing choices for 2019:

  • File jointly with your spouse, or

  • Opt for "married filing separately" status and then file separate returns based on your income and your deductions and credits.

There are two reasons most married couples file jointly.

1. It's simpler. You only have to file one Form 1040, and you don't have to worry about figuring out which income, deduction and tax credit items belong to each spouse.

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2. It's often cheaper. The married filing separately status makes you ineligible for some potentially valuable federal income tax breaks, such as certain higher education credits and, generally, the child and dependent care credit. Therefore, filing two separate returns may result in a bigger combined tax bill than filing one joint return.

2. It's often cheaper. The married filing separately status makes you ineligible for some potentially valuable federal income tax breaks, such as certain higher education credits and, generally, the child and dependent care credit. Therefore, filing two separate returns may result in a bigger combined tax bill than filing one joint return.

Risks of Filing Jointly

Filing jointly isn't a sure win for one big reason: For years that you file joint federal income tax returns, you're generally "jointly and severally liable" for any underpayments, interest and penalties caused by your spouse's deliberate misdeeds or unintentional errors and omissions.

Joint-and-several liability means the IRS can come after you for the entire bill if collecting from your spouse proves to be difficult or impossible. The IRS can even come after you after you've divorced. 

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However, you may be able to claim an exemption from the joint-and-several-liability rule under the so-called "innocent spouse" provisions. To successfully qualify as an innocent spouse, you must prove that you:

  • Didn't know about your spouse's tax failings,

  • Had no reason to know, and

  • Didn't personally benefit.

If you file separately, you won't have liability for your spouse's tax misdeeds or errors. So, if you have doubts about a new spouse's financial ethics, the best policy may be to file separately.

Penalty vs. Bonus

You've probably heard about the federal income tax "penalty" that happens when a married joint-filing couple owes more federal income tax than if they had remained single. The reason? At higher income levels, the tax rate brackets for joint filers aren't twice as wide as the rate brackets for singles. This is still true under the Tax Cuts and Jobs Act (TCJA) for some high-income individuals in 2019. The marriage penalty is usually a relatively modest amount, so it's probably not a deal-breaker.

On the other hand, many married couples collect a federal income tax "bonus" from being married. If one spouse earns all or most of the income, it's likely that filing jointly will reduce your combined tax bill. For a high-income couple, the marriage bonus can amount to several thousand dollars a year. 

Important note: The preceding explanation of the marriage penalty and bonus is based on current tax law. Under prior law, the marriage penalty adversely affected more dual-income households. The revised tax rates and brackets under the TCJA are scheduled to expire in 2026, unless Congress passes legislation to extend them. So, even if you're not affected by the marriage penalty under current law, it may affect you when the individual tax rates and brackets revert to their pre-TCJA levels.

Home Sales

When people get married, they often need to combine two separate households before or after the big day. If you and your fiancé both own homes that have appreciated substantially in value, you may owe capital gains tax.

However, there's a $250,000 gain exclusion for single taxpayers who sell real property that was their principal residence for at least two years during the five-year period ending on the sale date. The gain exclusion increases to $500,000 for married taxpayers who file jointly.

Suppose you and your fiancé both own homes. You could both sell your respective homes before or after you get married. Assuming you've both lived in your respective homes for two of the last five years, you could both potentially claim the $250,000 gain exclusion. That's a combined federal-income-tax-free profit of up to $500,000.

Conversely, let's say you sell your home and move into your spouse's home. After you've both used that home as your principal residence for at least two years, you could sell it and claim the larger $500,000 joint-filer gain exclusion.

In other words, you could potentially exclude up to $250,000 of gain on the sale of your home. Then you could later claim a gain exclusion of up to $500,000 on the sale of the house that your spouse originally owned. With a little patience and some smart tax planning, you could potentially exclude a combined total gain of $750,000 on your home sales.

Check Withholding and Estimated Payments

Employees should check the amount of taxes that are being withheld from their paychecks anytime there's a change in personal circumstances. Marriage is one such situation.

Getting married not only can change your income level and tax bracket, but it also may affect whether you decide to itemize deductions or take the standard deduction for 2019. Blending your families also might qualify you for child-related deductions and credits that you weren't eligible for as a single taxpayer. So, it's important to perform a comprehensive review of your combined tax situation before year end.

If you withhold too much, you're effectively giving the IRS an interest-free loan to use your money until it's refunded after you file your 2019 return sometime next year. Conversely, if you withhold too little, you'll face a stiffer tax bill (and possibly even owe penalties and interest) when you file the return.

To adjust your withholding, request a new W-4 form from your employer, fill it out and then submit it. Any withholding change will show up in the next payroll calculation.

On the other hand, if you're self-employed or you report investment income or retirement account withdrawals, you should check whether your quarterly estimated payments will be enough to cover your tax liability for 2019.  

The due dates for the quarterly estimated payments for a tax year are:

  • April 15,

  • June 15,

  • September 15, and

  • January 15 of the following year.

These dates are adjusted for weekends and holidays. So, the next quarterly installment for income earned in 2019 is due Monday, September 16, 2019. If your year-to-date withholding hasn't been sufficient, consider paying more for the third and fourth quarters to cover the shortfall.

The IRS offers worksheets for calculating the "right" amount of withholding and estimated payments. But these worksheets are no substitute for having a face-to-face meeting with an experienced tax professional, especially for people with complicated tax situations. 

For More Information

Getting hitched may open up new tax risks and planning opportunities. It pays to be well informed. Contact your tax advisor for guidance on how getting married could change your tax situation in 2019.

UNDERSTANDING THE NEED FOR KEY EMPLOYEE INSURANCE

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Let's say your family company includes a great group of employees and business couldn't be better. You know that much of your success is due to one or two people with skills and personalities that are hard to match. Suppose they were injured and out of work for a while? Or worse, suppose they died unexpectedly? Would your company survive?

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When an owner or a key employee of a closely held business dies or becomes disabled, there are five separate groups that are concerned about the immediate financial health and future of the operation:

  • Employees who are anxious about the continuation of their jobs.

  • Creditors who are worried about the earning power of the business and its future ability to repay any outstanding debts.

  • Suppliers who fear losing a customer.

  • Customers who wonder about the ability of the business to continue furnishing its products and services. Will they need to look elsewhere to satisfy their needs?

  • Tax collectors may also be interested, but only to the extent that there are sufficient funds to pay various taxes, even if it means the ultimate sacrifice of the business.

One way to help soften the impact of these concerns is with key employee life and disability "buy out" insurance policies.

Typically, your business purchases a life insurance policy on a key employee, pays the premiums, and is the beneficiary in the event of the employee's death. As the owner of the policy, the business may surrender it, borrow against it, and use either the cash value or death benefits as it sees fit.

To determine how much insurance you need, it may be difficult putting a dollar value on a key employee's economic worth. Although there are no rules or formulas to follow, several possible methods to determine the insurance amount may be used. 

The appropriate level of coverage might be the cost of recruiting and training an adequate replacement. Alternatively, the insurance amount might be the key employee's annual salary times the number of years a newly hired replacement might take to reach a similar skill level. Finally, you might consider the key employee's value in terms of company profits. The level of insurance coverage might then be tied to any anticipated profit or loss.

Key Employee Disability Insurance

The death of a key employee isn't the only threat to your business. Suppose a key employee is injured, or becomes ill, and is out of work for an extended period. Disability insurance on such a key employee is another way you can protect your business against financial loss.

A critical part of key employee disability insurance policies is the definition of disability. Usually, these policies define it as the inability of an employee to perform his or her normal job duties due to injury or illness. As with life insurance, your business buys a disability insurance policy on the employee, pays the premiums, and is named the beneficiary. If the employee becomes disabled, the insurance coverage pays monthly disability benefits to your business. These benefits can equal a certain percentage of the key employee's monthly salary, up to either a maximum monthly limit or 100% of their salary. The benefits can be used to pay business operating expenses and cover the expenses of finding a temporary or permanent replacement for the key employee.

The policies typically offer elimination periods (the waiting period between the disability and when the benefits begin) ranging from 30 to 365 days. Depending on the policy, your business may receive benefits for 6 to 18 months, which would be long enough to allow the key employee to return to work or for the company to replace the person.

Planning ahead can prevent a family business from having to liquidate to raise cash and can assure families, employers, creditors, suppliers, and customers that the future of the business is not in jeopardy. By purchasing life and disability "buy out" insurance on owners and key employees, a business lets everyone know the financial condition of the operation will remain sound, no matter what happens.

LOW EMPLOYEE MORALE HAS HIGH COSTS

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Employee morale is a measurable, controllable expense. That's the position of Carol Hacker, author of "The High Cost of Low Morale." And according to Hacker, employers and workplace leaders "can beat the negativity that saps employees' energy."

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Employee morale involves the attitudes of individuals and groups toward their work, their environment, their managers, and the business or organization. This morale is not a single feeling, but a composite of feelings, sentiments and attitudes. So, why should an employer be concerned about employee morale? Hacker's response: "Because it's tied to profitability."

Consider the downside of low employee morale. The primary sign that a business or organization has a morale problem is the number of people leaving. High turnover is a sign that there most likely is also a morale problem. And along with the morale problem comes lower productivity, inefficiency, poor quality, lack of cooperation, bad attitudes, and a lot of stress generated for both managers and employees. In the worst cases of low morale, there can even be instances of sabotage.

Check out these eight problems that can undermine morale:

  • 1. A lack of orientation and training of new employees. "When you're bringing people in and they don't know what's expected, immediately you've got problems, and that can get worse," said Hacker.

    2. Insufficient opportunities for advancement for employees.

    3. Managers failing to praise and appreciate their people or show an interest in employees' ideas.

    4. Management not being honest with employees and not keeping them informed.

    5. Unfair promotion practices and management not promoting from within.

    6. Not addressing behavior and performance problems as they arise.

    7. Management not getting rid of the "bad apples."

    8. Actually getting rid of the "bad apples." Unfortunately, said Hacker, "if you fire someone, you fire their entire family. But there are times, for the sake of the business, that some people have to be moved out of the organization." Also, terminations can create morale problems for the remaining people in the organization. Explained Hacker: "Terminations are hard on morale when employees don't know the whole story."

Hacker offers these suggestions to help keep employee morale high:

  • Keep compensation competitive.

  • Look for other ways to reward people. For example, have a fun work environment, or give employees flexibility in scheduling their time.

  • Delegate whenever possible. "When you do, you let people know you believe in them. It gives employees a chance to grow and learn and develop."

  • Let people know that they count, that they're appreciated. You can do that with a simple thank-you or with other perks that are meaningful to them.

  • Learn to give feedback without causing defensiveness. You can turn someone off with a negative comment and never regain their support.

  • Promote from within first. It's a real morale-buster if you don't.

  • Celebrate success with a potluck, gift certificates or time off, for example.

  • Hire right.

  • Build fun into your organization.

  • Address problems as they arise.

It's easy to dismiss the feelings of your workforce when you are focused on trying to turn a profit. Just keep in mind that while you're not responsible for your employees' feelings, their attitudes towards their work are tied to productivity and profitability.

HEALTH PLAN NOTICES FOR PHYSICIAN REFERRALS

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Q.  Our group health plan has a gatekeeper feature that requires participants to coordinate their health care through a primary care provider. We understand that there is a special notice requirement if our plan has this feature. What is the notice, and when and how do we give it? 

A.  Group health plans that require designation of a primary care physician must provide a notice describing the plan's requirements and the related rights of participants and beneficiaries. As background, a group health plan that requires designation of a primary care physician must permit each participant or beneficiary to designate any available participating primary care physician.

For a child, it must permit designation of any available physician (allopathic or osteopathic) who specializes in pediatrics. Furthermore, a group health plan may not require preauthorization or referral (by the plan or any person, including a primary care physician) for a female participant or beneficiary seeking obstetrical or gynecological care from a participating provider who specializes in obstetrics or gynecology. Plans may include reasonable and appropriate geographic limitations when determining whether primary care providers are "available."

The required notice must be provided to each plan participant describing the plan's primary care physician requirement and the rights explained in the preceding paragraph. It must be provided whenever a summary plan description (SPD) or other similar description of plan benefits is provided to a participant. It is unclear what the phrase "similar description of plan benefits" means for this purpose. Cautious employers will want to assume an expansive meaning until this is clarified.

The agencies have provided model language that can be used to meet this notice requirement. It includes a mention of any automatic designation that may occur if a participant doesn't choose a primary care physician, as well as an explanation of how to obtain a list of participating primary care physicians.

ARE POP-UPS A FRESH MARKETING CONCEPT - OR MERELY A FAD?

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Pop-up retail stores, restaurants and events promise numerous benefits. They can be less expensive and more flexible to operate than traditional brick-and-mortar operations. And they may appeal to consumers who crave fun, memorable events. They're also great for seasonal retailers and online boutiques that want to expand or unload inventory.

But will the here-today, gone-tomorrow trend last? Here's what you should know before opening or investing in a pop-up shop.

Reinventing Pop-Ups

The concept of pop-ups has been around for decades. Think of ice cream trucks that cruise down suburban streets during the summer. And don't forget costume retailers that drop anchor in vacant strip malls in the fall, and flower kiosks that appear in train stations for forgetful spouses on Valentine's Day.

In the 21st century, however, the pop-up concept has transitioned. It's evolved from a seasonal sales model into a marketing tool to:

  • Test innovative consumer products and services,

  • Build awareness for established brands, and

  • Create buzz about trendy consumer "experiences."

Modern pop-ups — like nightclubs in vacant warehouses, food trucks at local breweries and vintage jewelry displays at boutique hotels — offer fun, lifestyle events that are typically spread via word-of-mouth and social media (rather than radio or print ads). They give people the opportunity to touch, taste or try products and services before making a purchase.

Building Popularity

The pop-up market is currently valued at roughly $50 billion. (See "Pop-Up Stores" below.) And it's expected to continue to grow as Millennials and Generation Z gain even more purchasing power. Younger generations have a different approach to shopping than previous generations. They tend to be more brand loyal, budget-conscious and linked by social media. And these characteristics lend themselves to today's pop-up model.

What makes a pop-up successful? Value drivers for pop-up shops include:

Costs. Countless brick-and-mortar stores have shuttered in recent years, often due to burdensome overhead costs and emerging competition from online stores. Temporary pop-up locations don't require long-term leases, costly build-outs or substantial inventory investments.

Pricing strategy. Often, a pop-up storefront allows customers to physically interact with the merchant or service provider, and then make purchases online. This distribution model requires minimal investment in inventory, which, in turn, helps pop-up merchants charge a lower price than traditional brick-and-mortar stores.

Conversely, the novelty of a pop-up concept may enable a merchant to charge a premium price. With a limited supply of inventory on hand, consumers may be willing to pay extra for impulse purchases at a pop-up location — or to be seen as trendsetters.

Location. It's important for pop-ups to identify their target market and understand its habits and needs. When and where will customers shop? In most cases, pop-ups need a visible space with significant foot traffic. But sometimes, a hidden location can create brand magic. For example, foodies might track a well-known food truck to its latest spot across town using Twitter or Instagram.

To maximize headcount, coordinate your pop-up's appearance based on favorable weather conditions and local events that will be attended by your target market. You also might consider joint venturing with another vendor who offers a complementary product or service. For example, an activewear clothier might share space with a smoothie vendor to help lower lease costs and leverage off each other's customer base.

Downsides of Pop-Ups

There are limits to the value of the pop-up concept — and, like anything trendy, the novelty may eventually wear off. Because it's hard to maintain a creative edge, many pop-up shops are used to test, grow or supplement an existing online or brick-and-mortar business.

Pop-ups also face capacity issues. That is, they're small and can serve a finite number of customers. To fully serve your target market's needs, you may need to open additional pop-up locations or settle down in a permanent location.

Ready to Join the Bandwagon?

If you're interested in opening or starting a pop-up shop, contact your financial advisors to evaluate your business plan, estimate costs and develop pricing strategies. An experienced professional can help you work through the logistics and maximize your venture's potential long-term value.

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WHAT IS SUBMITTED LEADERSHIP?

In a couple groups that I participate in, both have recently gone through studies on what it looks like to be a submitted leader. One of the groups was at Heartland Community Church in Olathe this past month. While I was honored to participate on a panel of other Kansas City business leaders in the video, some of their stories and perspectives served as a refreshing reminder to be intentional in my own growth in this area of leadership development.

For your business and current role, how might you define submitted leadership?

GAP INSURANCE FOR LEASED CARS

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One of the attractions of leasing a car is that it generally requires a much smaller upfront outlay of cash compared to what purchasing a car might require.

This preference to minimize an upfront cash payment may mean that some individuals may also roll into the lease payment other associated costs, including the capital-reduction amount (or down payment).

While the predictability of a known payment amount for a set period of time may be convenient, rolling up such costs into the lease payment may create a financial risk in the event that you experience a total loss from an accident or similar misfortune. In some cases, what you owe may exceed the value of the car and the amount of the reimbursement you receive. ¹

You can protect yourself against this potential risk by buying gap insurance, which is designed to cover the difference between what conventional auto insurance covers and what you owe at the time of the loss.

Gap insurance may be added to your existing auto policy or purchased separately.

How Much Gap Insurance Do I Need?

The gap between the value of the car and what you may owe is predicated on a number of variables, such as the depreciation of the car, the number of payments made and even the nature of the deal you negotiated. As you might have guessed, the relationship between these variables means that the amount of gap insurance you may need can vary over time.

To obtain adequate coverage, you should contact your insurance agent and work with him or her to determine the necessary coverage amount.

  1. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.

HOW TO MAKE THE TAX CODE WORK FOR YOU

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By April 20, 2018, 138 million taxpayers had dutifully filed their federal income tax returns.¹ And all of them made decisions about deductions and credits — whether they knew it or not.

When you take the time to learn more about how it works, you may be able to put the tax code to work for you. A good place to start is with two important tax concepts: credits and deductions.²

Credits

As tax credits are usually subtracted dollar for dollar from the actual tax liability, they potentially have greater leverage in reducing your tax burden than deductions. Tax credits typically have phase-out limits, so consider consulting a legal or tax professional for specific information regarding your individual situation.

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Here are a few tax credits that you may be eligible for:

  • The Child Tax Credit is a federal tax credit for families with dependent children under age 17. The maximum credit is $2,000 per qualifying child.³

  • The American Opportunity Credit provides a tax credit of up to $2,500 per eligible student for tuition costs for four years of post-high-school education.

  • Those who have to pay someone to care for a child (under 13) or other dependent may be able to claim a tax credit for those qualifying expenses. The Child and Dependent Care Credit provides up to $3,000 for one qualifying individual, or up to $6,000 for two or more qualifying individuals. 

Deductions

Deductions are subtracted from your income before your taxes are calculated, and thus may reduce the amount of money on which you are taxed and, by extension, your eventual tax liability. Like tax credits, deductions typically have phase-out limits, so consider consulting a legal or tax professionals for specific information regarding your individual situation.

Here are a few examples of deductions.

  • Under certain limitations, contributions made to qualifying charitable organizations are deductible. In addition to cash contributions, you potentially can deduct the fair market value of any property you donate. And you may be able to write off out-of-pocket costs incurred while doing work for a charity. 

  • If certain qualifications are met, you may be able to deduct the mortgage interest you pay on a loan secured for your primary or secondary residence. 

  • Amounts set aside for retirement through a qualified retirement plan, such as an Individual Retirement Account, may be deducted. The contribution limit is $6,000, and if you are age 50 or older, the limit is $7,000 in 2019 (up from $5,500 and $6,500 respectively in 2018). 

  • You may be able to deduct the amount of your medical and dental expenses that exceeds 10% of your adjusted gross income.¹

Understanding credits and deductions is a critical building block to making the tax code work for you. But remember, the information in this article is not intended as tax or legal advice. And it may not be used for the purpose of avoiding any federal tax penalties.


  1. Internal Revenue Statistics

  2. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

  3. Internal Revenue Service

  4. Internal Revenue Service

  5. Internal Revenue Service

  6. Internal Revenue Service

  7. Internal Revenue Service. The Tax Cuts and Jobs Act of 2017 allows individuals who are married filing jointly to deduct interest on up to $750,000 of mortgage debt incurred to buy or improve a first or second home. Single filers can deduct up to $375,000.

  8. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

  9. Internal Revenue Service


The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.

WHEN TO UPDATE YOUR ESTATE PLAN

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Estate planning isn't just for the rich and famous. Many people mistakenly think that they don't need an estate plan anymore because of the latest tax law changes. While it's true that the Tax Cuts and Jobs Act (TCJA) provides generous estate tax relief, even for well-to-do families, the need for estate planning has not been eliminated. There are still numerous reasons to develop a comprehensive estate plan and regularly update it.

How the Estate Tax Has Evolved

Several recent tax law changes, including certain provisions of the TCJA, may help you shelter all or a large portion of your estate from estate and gift tax.

At the turn of the century, the unified estate and gift tax exemption was a mere $675,000. It was increased to $1 million in 2002, while the top estate tax rate was 55%. Then legislation gradually increased the estate tax exemption to $5 million for 2011, indexed annually for inflation, and lowered the top estate tax rate to 35%. (There was a one-year moratorium on federal estate tax for people who died in 2010.)

Along the way, the unified estate and gift tax exemptions were severed and then reunified, as they remain under current law. Therefore, any amounts used to cover lifetime gifts erode the remaining estate tax shelter.

Notably, subsequent legislation also created and then preserved a "portability" provision. This allows the estate of a surviving spouse to use the unused portion of the deceased spouse's exemption. So, it effectively "doubled" the $5 million exemption for married couples to $10 million.

Starting in 2018, the TCJA officially doubled the estate exemption per individual from $5 million to $10 million, with annual indexing for inflation. For 2019, the exemption is $11.4 million for an individual or $22.8 million for a married couple. However, these provisions are scheduled to expire after 2025. For 2026 and thereafter, the law will revert to pre-2018 levels, unless Congress takes further action.

Why Estate Planning Still Matters

Given the dramatic increase in the unified estate and gift tax exemption over the last 20 years, there's a common misconception that federal estate planning is a concern of only the wealthiest individuals. But here are four valid reasons for people with estates below the unified exemption threshold to devise a plan — or revise an existing plan to take advantage of current tax law.  

1.     Family changes. Most mature adults have created a will. Some also have set up trusts to maximize each spouse's exemption and protect assets from creditors and spendthrift family members.

However, circumstances change over time. Is your old list of beneficiaries still complete and accurate? You may need to update your will and estate plan to reflect births and (unfortunately) deaths and divorces in the family.

Who's listed as the executor of your estate? The executor is the quarterback of your estate planning team. Maybe your children were minors when you originally drafted your plan, and now your grown children may be better suited to serve as executors than your aging parents.

Carefully select your executor and successor (to serve as a backup executor in case the appointed executor predeceases you or is otherwise unable to fulfill the duties). To prevent problems after you die, consider meeting with the successor to iron out any potential problems and discuss the challenges that must be met. Even if your first choice is still on board, you may periodically want to "check in" and review matters.

Your estate plan also may need an overhaul if you've divorced, especially if you've remarried and your new spouse has children of his or her own. Along the same lines, one or more of your children may have divorced, requiring adjustments to your estate plan. The need to update your plan could even extend to pets that need care if you should unexpectedly pass away.      

2.     Changes to assets and liabilities. It's a good idea to review your estate plan any time there's a significant change in the value of your estate, including the value of any business interests, real estate or securities you own. A major increase or decrease in the value of one asset could cause you to rethink how your holdings will be allocated among your beneficiaries. Similarly, the sale or purchase of an asset may require adjustments to your plan. 

3.     Change in residence. State law generally controls estate matters. Therefore, the state where you legally reside can make a big difference. The differences may range from the number of witnesses required to attest to a will to the minimum amount a spouse must inherit from an estate. Furthermore, the legal state of residence may affect other estate planning documents besides your will, such as a power of attorney, living will or advance medical directive.

If you're moving to another state, or you've already moved, meet with a local estate planning advisor to review your current plan and determine whether changes are needed. This is especially important when you have a substantial estate for tax purposes. Sometimes, an old home state may assert that a person didn't change his or her legal residence and continue to pursue state death tax obligations.

4.     Estate tax changesIf you haven't updated your estate plan since the TCJA passed, it's worth checking in with your estate planning advisor to ensure your plan reflects current tax law. The wealthiest individuals may still set up complex estate planning strategies to shield their estates from federal estate tax. But simple trusts may still be used to protect assets from creditors and guard against spendthrift family members.

Also, beware that the estate tax provisions of the TCJA are in effect only through 2025 — and there are no guarantees the current estate tax levels will remain in effect until then. Congress could change the law again before 2026 — or make it permanent.

Moreover, the federal tax law changes don't provide protection on the state level. So, it's important for your estate plan to take any applicable state death taxes into account.

Time to Update

Too often, well-intentioned taxpayers create an estate plan, including a will, and then stick it in a drawer or safe deposit box where it gathers dust. This can potentially leave a legacy of estate tax complications and frustrations for your family members when they can least afford it, financially and emotionally. To ensure your final wishes are kept and your assets are preserved, work with an estate planning professional to devise a flexible, comprehensive plan and then review it on a regular basis.