Newsletters

October 2023

Cope With New Corporate Reporting Rules
Requirements relating to beneficial owners

Under new reporting rules taking effect January 1, 2024, certain companies are required to provide information about their “beneficial owners” – those who ultimately control the operation – to the Financial Crimes Enforcement Network (FinCEN). The new requirements were imposed by the Corporate Transparency Act (CTA) that was passed in 2021.

Comparable reporting requirements already applied to many larger corporations, but this is the first time that some smaller firms will have to step up.

Background: The new CTA rules apply to a business entity that is a “reporting company” and is not specifically exempted. Reporting companies include any U.S. entity – such as a C corporation, S corporation or limited liability company (LLC) – and any privately-owned foreign entity registered to do business in a U.S. state.

There is a lengthy list of 23 exemptions ranging from charitable organizations to insurance companies to government units. One key exemption applies to a U.S.-based “large operating company” that employs more than 20 full-time employees and has more than $5 million in gross receipts or sales. Note: A company that subsequently meets these standards can file for an updated status.

Under the CTA, the entity must provide identifying information about its beneficial owners. A beneficial owner is defined as a person who, directly or indirectly, exercises “substantial control” over a reporting company or owns or controls at least 25% of the business. The following factors indicate substantial control of a reporting company.

• The individual is a senior officer of the company.
• The individual has authority over the appointment of certain senior officers or majority of the board of a company.
• The individual has substantial influence over the company’s important decisions.
• The individual has any other type of substantial control over the company.

The CTA also requires reporting companies created on or after January 1, 2024, to provide identifying information about “company applicants” responsible for the filings creating the company, such as legal counsel, as well as anyone who directed the filing to be made.

Depending on its date of formation, reporting companies have either 30 days or one year from the January 1, 2024, effective date to comply with the new reporting rules. If a company was created or registered prior to January 1, 2024, it has one year to file its initial reports. Companies created or registered on January 1, 2024 or thereafter will have 30 days upon receipt of their documents for initial filing.

Note: A reporting company has 30 days to file an updated report after any change relating to information it previously reported. Also, it must correct any inaccurate information in its reports within 30 days of becoming aware of the error.

The penalties for omissions or misstatements can be severe. Failing to comply with the new reporting rules could result in civil fines of $500 a day for as long as reports are missing or remain inaccurate. Such failures may also trigger criminal fines of up to $10,000 and a jail term of up to two years.

Practical advice: Prepare now for this new requirement taking effect in 2024. Once all the information is compiled, establish the processes for meeting the reporting rules. Rely on your professional advisors to lead the way.

Ten Top Money Ideas for 2024
Start planning ahead for next year

Are you ready to make some financial resolutions for 2024? Although every situation is different, here are ten money management ideas that might make sense for you.

1. Diversify. If volatility in the stock market has taught us anything, it is the need to diversify. Diversification means spreading out your investments over different asset classes as well as investing within those classes. Conversely, if your investment focus is extremely narrow, the risk of disaster is greater.

2. Consider asset allocation. This investment principle often works hand-in-hand with diversification. By assigning various percentages to the assets in your portfolio, you increase the likelihood of meeting your main objectives and addressing risk aversion.

3. Re-balance your portfolio. Even the best investment design can skew over time. This is a moving target that you must keep an eye on. For instance, if you have adopted an asset allocation plan, now is a good time to review it and make the necessary adjustments.

4. Be tax-efficient. As you become more proficient at investing, make sure you fully account for all the tax implications. Factor taxes into your investment decisions. Remember that it is what you keep after taxes, not how much you earn, that really matters.

5. Develop a budget. Spending more than you make is a common problem. It helps to draw up a monthly budget that takes all your expenses into account. Give yourself a little leeway – everyone is entitled to splurge occasionally – but stick close to the guidelines throughout 2024.

6. Reduce debt. Although some forms of debt may be perfectly acceptable, such as the mortgage on a home, you should do your best to reduce your other debt load, especially if you are paying interest at relatively high rates. In some cases, debt consolidation may be advisable.

7. Set aside emergency funds. The old axiom about saving for a rainy day is true. Squeeze some extra savings into the monthly budget even if you do not think it is critical. A sudden job loss or unexpected health issue can change things in a hurry.

8. Contribute to retirement plans. If you are already contributing to an employer plan like a 401(k), keep plugging away. In fact, where you can afford to, you might increase contributions for 2024. The money in your account continues to grow on a tax-deferred basis until it is withdrawn – usually, not until you retire.

9. Rely on IRAs. Qualified plan contributions may be supplemented by traditional and Roth IRAs. Because Roth IRAs offer future tax advantages, you may choose to convert IRA funds into a Roth this year and pay the resulting tax.

10. Do some estate planning. Finally, look forward even more. Fine-tune your estate plan by addressing the changing needs of your family. When possible, maximize the benefits for your heirs with a minimum of tax erosion. Your professional advisors can provide any assistance you may need.

Six Tax Deductions for Charitable Volunteers
Reap tax rewards for expenditures

If you help out your favorite charity, you do it out of the goodness of your heart – not for the tax breaks. But there is no reason you should not claim all the tax benefits you are entitled to if you itemize deductions. This can include a variety of out-of-pocket expenses incurred on behalf of the charity. Of course, the other usual rules for deducting charitable donations, including strict record-keeping requirements, still apply.

What sort of expenses are we talking about? Here are six common expenses that may be deducted by charitable volunteers.

1. Travel expenses: Generally, you can claim a charitable contribution deduction for travel for an organization as long as there is no significant element of personal pleasure, recreation or vacation in the travel. This includes the following:

• Air, rail and bus transportation;
• Expenses for your vehicle;
• Taxi fares and other transportation costs; and
• Meals and lodging.

Because these travel expenses are not business-related, they are not subject to the same limits as business expenses. For instance, you can normally deduct only 50% of the cost of qualified business meals.

If you use your own vehicle for driving on behalf of a charity, you may deduct your expenses based on detailed records or choose to use the IRS-approved flat rate. The current flat rate, which is set statutorily and is not indexed for inflation, is 14 cents per mile.

2. Phone/fax expenses: Specific charges for landline telephone calls, cellphone calls and faxes incurred for charitable purposes are tax-deductible. In addition, you may deduct the cost of installing a separate phone line used strictly for charity-related purposes.

3. Conventions: When you attend a convention as a charity’s designated representative, you may deduct unreimbursed travel expenses. This includes reasonable costs of meals and lodging at the convention.

4. Uniforms: The initial cost and maintenance of a uniform that is not “suitable for everyday wear” is deductible if used for performing charitable services (e.g., Boy Scout or Girl Scout uniforms for troop leaders).

5. Foreign exchange students: If you house a foreign exchange student, you may deduct up to $50 per month of expenses for each month the child attends high school. The student must reside in your home under a written agreement with a qualified charitable organization and cannot be related to you.

6. Underprivileged youths: You may deduct reasonable unreimbursed expenses paid to allow underprivileged youths to attend athletic events, movies or dinners if the youths are selected by a charitable organization as a means of reducing juvenile delinquency. But your own expenses are nondeductible in this case.

Finally, remember that detailed record-keeping is critical. Be prepared to prove your expenses in case the IRS ever challenges your deductions. Your professional tax advisors can provide more information.

How to Fix Your Business Budget
Steps for reviewing the process

In another article on personal “money ideas,” we talk about the need for sticking to a budget. But your small business should operate on a budget, too. And, if 2023 is not shaping up the way you had planned, it may be time to revisit matters, especially if you expect to see improvement in 2024.

Practical idea: Make an in-depth review of your budgeting process. Is it accomplishing all the objectives you hope to meet, including strategic planning, resource allocation and performance and compensation evaluations? If not, some changes may be required. To this end, following are several suggestions to consider.

• Become more dynamic. Important business decisions should depend on a realistic business plan. However, the traditional annual budget can quickly become obsolete when certain assumptions inevitably prove to be wrong. Move quickly to revise the budget when it is warranted.

For many firms, a quarterly review is no longer sufficient. When significant factors change—such as interest rates, fuel costs or direct competition—you may need to adapt on the fly. Build this flexibility into your budget.

• Allocate and react. Initial allocations are difficult, but once they are made, they do not have to be etched in stone. Just because more resources are needed does not necessarily mean you should not do it. Additional budget allocations may be allowed during the year.

When it is not feasible to complete a comprehensive review, you might ease some financial constraints. If you have good people in place, you need to trust them to make sound decisions without micromanaging the situation.

• Give perspective to performance evaluation. It usually does not make sense to judge worker performance based on target numbers and principles that have become outdated. Furthermore, basing pay on budgets that managers have set for themselves encourages them to lower expectations to provide a better chance of meeting their goals.

If possible, keep performance evaluations separate from the planning processes. Managers should have to account for how their units actually perform during the measurement period.

• Develop other metrics. Financial results do not have to be the only measuring sticks for business units and their managers. You might supplement the financial data with metrics specific to each segment, some of which are leading indicators of future financial performance. Depending on the operation, these could include attaining significant new clients or customers, success in research and development or improvements in production or customer satisfaction.

• Revise your assumptions. Frequently, budgets are defined by exceeding a threshold, so no bonuses may be paid if the goal is not achieved. This arrangement encourages managers who could be denied a bonus to manipulate the results. If your company shies away from this approach, there will be less temptation to “work the system” and greater emphasis on doing what is best for the company.

Final words: These principles may create an environment that is conducive to growth and sustained success. They will help managers make better decisions based on updated information. Of course, budgeting will still be time-consuming, but it should be time well-spent.

Tee Up This Tax Break

Do you own a vacation home near a golf course that will be hosting a pro tournament? You may be able to benefit from the “Masters tax break.”

Idea in action: Rent out the home to a golfing enthusiast. As long as the rental period lasts for less than 15 days, you do not have to report any taxable income to the IRS. But you cannot deduct any of your rental-related expenses, either.

This tax strategy became popular among homeowners in Augusta, Georgia when the iconic Masters tournament was being held (hence, the name). It also works for other sporting events, concerts, festivals, state fairs, etc. Consider the opportunities.

Facts and Figures
Timely points of particular interest

ERC Claims – Due to rising concerns about improper Employee Retention Credit (ERC) claims, the IRS has put a halt to processing these credits, at least through the end of the year. The ERC was designed to provide tax relief for businesses during the height of the pandemic, but scams by aggressive promoters have proliferated. The moratorium on ERC claims went into effect on September 14. Expect the IRS to provide more guidance in the near future.

Catch-Up Contributions – The IRS has announced an extension to the new requirement that catch-up contributions to a 401(k) plan made by certain high-income employees must be deposited in a Roth account. This provision in SECURE 2.0, which was scheduled to take effect in 2024, has been postponed to 2026. At the same time, the IRS clarified that plan 401(k) participants age 50 and older may continue to make catch-up contributions after 2023, regardless of income.

 

 

 

 

September 2023

Meet Your Estimated Tax Obligations
How to avoid underpayment penalties

Do you receive income other than regular wages during the year? Notably, you may be required to pay quarterly installments of “estimated tax” for this year, especially if you are self-employed or retired and living mainly on investment income.

The due date for the next installment—the third one for the 2023 tax year—is September 15, 2023. The last one for the 2023 tax year is January 16, 2024. Note: New legislation proposed in Congress would change the quarterly due dates to line up more evenly during the year.

Basic rules: Generally, you are required to pay annual income tax in quarterly installments or through payroll tax withholding or a combination of the two. The quarterly due dates for estimated tax payments under current law are as follows: April 15, June 15, September 15 and January 15 of the following year (or the following business day if the regular due date falls on a weekend or holiday). Thus, the due date for the fourth quarter of 2023 is moved to Tuesday, January 16, 2024 because Martin Luther King Jr. Day is on Monday, January 15.

If you do not pay the requisite amount of estimated tax during the year, you may be assessed an underpayment penalty, plus interest. However, you can avoid any tax problems for the year through any one of the following safe-harbor methods.

• Pay at least 90% of the current year’s tax liability. Thus, you will have to make a reasonable estimate of the tax you will owe this year.

• Pay at least 100% of the prior year’s tax liability or 110% if your adjusted gross income (AGI) for the prior year exceeded $150,000. This takes the guesswork out of the payment because you know the exact amount of your 2022 tax liability.

• Pay at least 90% of the current year’s “annualized income.” This method works well for certain individuals, such as independent contractors, who receive most or all of their income on a seasonal basis.

How much is the underpayment penalty? The IRS applies a specified percentage to compute the penalty amount for each quarter. For instance, the rate for underpayments in the third quarter of 2023 is 7%.

The IRS also provides taxpayers with some help in figuring out estimated tax liability by including a worksheet in the tax form instructions. But this can get somewhat complicated, so do not hesitate to ask for assistance from your professional tax advisors.

Under the new proposed legislation, the due date for each quarterly installment would be 15 days after the close of the quarter. Thus, each installment would be three months apart. In comparison, the current June 15 due date is only two months apart from the April 15 due date. We will watch out for new developments. In the meantime, here is some—

Practical advice: Sit down with an advisor to determine the best course of action for the rest of the year. This should take into account all the relevant factors for your situation.

Seven Ideas for Delegating Work
Practical advice for business owners
If you are like most small business owners, you have your fingers in practically every pie at your company. But the days of doing everything yourself are long gone (or they should be). This means delegating some work to other employees, especially those time-consuming jobs that are not your top priority.
Potential problem: Frequently, delegating work is easier said than done. The key is not to just make employees feel like the work is their own, but to actually give them ownership of the process. Although there is no absolute guarantee of success, the following seven steps are likely to increase the odds in your favor.

1. Set your agenda at the outset. You cannot expect your employees to be mind readers. Come to a complete understanding of what you hope to accomplish. Then put your plan in motion.
2. Spell out your vision clearly. Just because you finally know what you want does not mean that others do, too. Explain exactly what needs to be done. Instructions can be helpful, but you will need to allow some leeway.
3. Give the right jobs to the right people. Do not give out tasks to the first person who happens to be available. Assess the strengths, weaknesses and experience of your staff members and then match them to the tasks they are best suited for.
4. Set the bar high (but not too high). Not only should you outline your objectives, tell employees about your expectations. Usually, you do not want to overstate the expected quality of the work, but you should not understate it either.
5. Show your support. Display some trust in employees. Once you have made assignments, stand back and let your employees do their thing. Do not micro-manage or otherwise make a nuisance of yourself.
6. Allow for some flexibility. Are you one of those employers who says, “It’s my way or the highway”? As alluded to above, let people do things their own way. Give the room to put their own touches on the job.
7. Communicate! Delegating work does not mean abandoning any control over the process. Check in with employees to see how the work is going. This is not about standing over someone’s shoulder while they are at their work stations. But you might set mini-goals along the way and monitor progress through periodic reports.

The other important aspect of delegating work is that it will free you up for the most important items on your agenda. You should notice increased productivity and improved morale within the workplace if you let go a little. It will also pave the way for a more profitable future.

Serving Up a Cafeteria Plan
Offer menu of fringe benefits

Fringe benefits are valued by employees, but are often expensive for employers. Your small company may not be able to provide all the benefits you know that your employees want.

One potential solution is to use a “cafeteria plan.” As the name implies, it offers a menu of benefits for employees to choose from, thereby reducing the overall cost. If certain requirements are met, the benefits are tax-free to employees and tax-deductible by the company. It is a win-win.

Basic overview: Cafeteria plans are governed by Section 125 of the tax code. To qualify for favorable tax treatment, the plan must be in writing and maintained by an employer in accordance with the law and the applicable regulations. Assuming these requirements are met, participants receive the selected benefits on a pre-tax basis. Each participant can choose between a taxable benefit, like cash, and various tax-exempt benefits.

The tax-exempt benefits that are offered may include the following goodies.

• Accident and health benefits;
• Adoption assistance;
• Dependent care assistance;
• Flexible spending accounts (FSAs);
• Group-term life insurance coverage above $50,000; and
• Health Savings Accounts (HSAs).

The written plan must specifically describe all benefits and establish rules for eligibility and elections.
Not only are cafeteria plan benefits available to any eligible employee who chooses to participate in the plan, they may be extended to spouses and dependents of employees. In addition, former employees can be covered, but the plan cannot exist primarily for these individuals (e.g., a retired business owner).
With this type of arrangement, employees can save both income tax and payroll tax.

1. Income tax: Usually, amounts are deducted from the paychecks of employees on a pre-tax basis under a salary reduction agreement. Salary reduction contributions are not actually or constructively received by the participant, so they are exempt from federal income tax.
2. Payroll tax: Most qualified benefits under a cafeteria plan are not subject to FICA, FUTA, Medicare tax or income tax withholding. However, group-term life insurance above $50,000 of coverage is subject to FICA and Medicare tax, although not FUTA or income tax withholding, even if it is provided as a qualified benefit in a cafeteria plan. Adoption assistance benefits are also subject to FICA and Medicare tax as well as FUTA, but not income tax withholding.
Finally, the plan must allow all employees who worked at least 1,000 hours in the previous year to participate. However, an employer may choose to exclude employees who are:

• Under age 21 before the close of the tax year; or
• Have been employed less than one year by the employer.

Otherwise, each eligible employee is free to select the fringe benefits they desire, subject to the usual tax law limits and requirements.

Important: Special rules and restrictions may apply to certain business owners, such as partners in a partnership or owner-shareholders of an S corporation, as well as sole proprietors. Obtain professional guidance concerning your situation.

When You Strike It Rich
Avoid some common missteps

Have you suddenly hit the jackpot? For instance, you may have won the lottery, inherited a large sum of money, pocketed lawsuit damages, sold your home at a large gain, received a big retirement plan payout or cashed in on a major stock market winner. In any event, you now possess considerably more wealth than you did before.

Smart approach: Do not follow some examples like prizefighters that have squandered a million dollar purse or heirs who have lost the family fortune in ill advised schemes. For starters, you need a plan that follows sound money management principles. Here are several practical suggestions to keep in mind.

• Do not spend the money before you have it. All too often, a home sale that looks certain falls through, a huge jury award is reversed on appeal and so on. In other words, do not make any commitments you might regret before you actually have the cash in hand.

• Update your insurance. One of the first things you might do is adjust your insurance coverage to reflect your new found wealth. For instance, an umbrella policy that adds to your automobile and home insurance can be used to protect you from personal liability.

• Put your money to work right away. For instance, you can place your funds in an interest bearing account while you decide what to do next. Even if it earns a minimal amount, it is better than nothing.

• Avoid rash decisions. You might have the impulse to quit your job after you receive a windfall. However, it takes a substantial amount of investment income to replace a regular salary. For example, if you make $100,000 a year, it would take a $1 million windfall earning 10% annually to replace it. (These figures are purely hypothetical.) Likewise, do not rush out and buy a Rolls Royce or book a trip around the world without thinking things through.

• Pay attention to time limits. This is especially important if you are receiving a payout from a retirement plan. In essence, you have 60 days to decide whether to pay current tax on the distribution or defer it by rolling over the amount into an IRA. Consider all the ramifications.

• List your priorities. Your next move may depend on where the money is best served. Do you need to put away funds for a child’s college or grad school education? Would you like to live in a bigger home? Have you saved enough for retirement? The answers to these questions can help point you in the right direction.

Final advice: Fortunately, you do not have to overcome all these obstacles on your own. If you suddenly strike it rich, you will likely face investment options, tax consequences, financial decisions and other complications you have not encountered before. It may be advantageous to rely on your trusted professional advisors.

IRS to Go Paperless

In a new Fact Sheet (FS-2023-18, 8/8/23), the IRS has announced that it is close to going paperless.
The IRS still receives about 76 million paper tax returns and forms and 125 million pieces of correspondence, notice responses and non-tax forms each year. It also has more than one billion historical documents, which costs $40 million per year to store.
Thanks to Inflation Reduction Act (IRA) resources, the agency has made significant strides adopting new technology for scanning paper returns. As part of the next phase, it is launching an ambitious plan to ensure that taxpayers will be able to go paperless by the 2024 tax filing season. By 2025, the IRS expects to achieve paperless processing that digitizes all paper-filed returns when received.
We will continue to monitor new developments.

Facts and Figures
Timely points of particular interest

Knock, Knock:To reduce public confusion and enhance overall safety the IRS has announced that it will end most unannounced visits to taxpayers. The change reverses a decades-long practice by the agency. Previously, IRS revenue officers sought to collect unpaid taxes and resolve account balances during such calls. Effective immediately, unannounced visits will cease (except in a few unique circumstances) and will be replaced with mailed letters to schedule meetings.

Be Consistent: One of the hallmarks of good business management is consistency. If possible, be consistent with your treatment of people under similar circumstances. For instance, if you overlook the tardiness of one habitually late worker but not another, you are sending the wrong message. Similarly, it generally does not make sense to approve an early departure for a dental appointment but not for a school conference. Do not always go with your first reaction.

 

 

 

 

 

 

August 2023

Five Tax Breaks for Families
Tax-saving opportunities in 2023

The current tax law is relatively family-friendly. Just consider the following five tax breaks that are on the books right now.

1. Child Tax Credit: The Child Tax Credit (CTC) is a partially refundable tax credit available to parents with dependent children under age 17. For 2023, the CTC is $2,000 per qualifying child if your modified adjusted gross income (MAGI) is $200,000 or less for single filers; $400,000 for joint filers. The maximum refundable portion is $1,600.

If your MAGI exceeds the annual limits, the credit is reduced by $50 for each $1,000 above the threshold.

2. Dependent care credit: Not to be confused with the Child Tax Credit, the dependent care credit can be claimed for costs of caring for under-age-13 children while you (and your spouse, if married) work.

The credit for parents with an adjusted gross income (AGI) above $43,000 is 20% for the first $3,000 of qualified expenses for one child or $6,000 for two or more children. Thus, the maximum credit is $600 or $1,200, respectively. This credit may also be claimed for qualified care expenses for a dependent relative, such as an elderly parent.

3. Higher education credits: Generally, parents of children in college can choose between one of two higher education credits, subject to phase-outs.

• AOTC: The maximum annual American Opportunity Tax Credit (AOTC) of $2,500 is available for up to four years of study for each student in the family. For example, if you have two kids in college, the maximum AOTC is $5,000.

• LLC: In comparison, the maximum Lifetime Learning Credit (LLC) is $2,000. Also, unlike the AOTC, the LLC applies to each taxpayer. So, for two children in school, the maximum credit remains $2,000. On the plus side, the LLC is available for all years of study—not just four years.

Each credit is phased out. For 2023, the phase-out ranges are between $80,000 and $90,000 of MAGI for single filers; $160,000 and $180,000 for joint filers.

4. Student loan interest: Does your child have student loans for college? The tax law allows a deduction for payments of student loan interest up to an annual limit.

If certain requirements are met, the student can deduct the first $2,500 of interest paid for qualified expenses like tuition and fees. But this deduction is also phased out. For 2023, the phase-out begins at $75,000 of MAGI for single filers; $150,000 for joint filers.

The deduction, which is only available to someone legally obligated to repay the loan, is claimed above-the-line.

5. Adoption credit: For 2023, parents can claim a maximum credit of $15,950 for qualified expenses incurred to adopt an eligible child. An eligible child is one who is under age 18 or physically or mentally incapable of self-care.

The credit begins to phase out for taxpayers with a MAGI above $239,230. Once your MAGI reaches $279,230, your credit is zero.

Generally, the credit is available in the year that qualified expenses are paid or incurred. However, if the adoption is not finalized by the end of the year, the credit may be claimed in a subsequent year.

In summary: These are just five ways a family can save taxes in 2023. Discuss your circumstances with your professional tax advisor.

Seeking Cyber Security for Your firm
Steps to ward off dangerous invasions

Is your small business adequately protected from cyber attacks? Obviously, you are not at the same risk as vital government or military targets, but you should still adopt security measures and update those already in place. Your very livelihood could be at stake.

Just consider the latest statistics. Notably, the total damage caused to the business community by cyber attacks in 2022 was a staggering $6 trillion. It is expected to increase significantly in 2023. Do not think that you are immune.

Background: Essentially, cyber security is devoted to protecting the proprietary information of your firm from various online threats by hackers and other criminals. Because cyber crooks are becoming increasingly sophisticated, the threat is growing. With new and improving technology at their disposal, thieves have learned how to initiate automated attacks at reduced costs. Thus, keeping pace with defensive measures can pose a real challenge.

Cyber attacks take many forms, but here are several common elements to watch out for.

Malware: This is the name given to programs or files that can damage or invade computers and other devices. It includes intrusive methods such as worms, viruses, spyware and Trojan horses.

Ransomware: Ransomware is a version of malware that goes one step further by locking your system’s files, typically through encryption. As a result, the crook requires you to pay a “ransom” to decrypt the files and provide access.

Social engineering: As opposed to malware, social engineering is an attack launched through human interaction. Usually, a user is tricked or coerced into violating security procedures to make information available.

Phishing: This is a type of online fraud. In a common variation, you receive an email that looks like it was sent from a reputable and known source, often with a recognizable logo. The email asks you to click on a link. It enables the phisher to hook sensitive data like bank account or credit card logins.

How can you best protect your company? Unfortunately, there is no single proven method, nor does one size fit all. The best approach depends on your exact situation. Nevertheless, there are several practical suggestions you may follow.

• Be proactive instead of reactive. If you wait for cyber attacks to occur and then try to take action, it may be too late. Put a plan in place before an incident occurs.
• Do not assume that your current protection will continue to suffice. This is not a “one and done” situation. Keep security for all electronic devices—including computers, laptops, phones, tablets and servers–up to date. Change passwords regularly.
• Educate employees. They must know about all the risks and dangers. Warn them about clicking on links from sources that cannot be trusted. Emphasize security over expediency.
• Block cyber crooks through technological innovations. Unless you are an experienced professional, rely on security experts to handle the details. Do not try to be a hero!

Last step: There are many products and services to choose from. If a professional is not managing cyber security internally, seek recommendations from your business advisors.

Does a CRT Make Sense for You?
Benefits of estate planning device

The charitable remainder trust (CRT) has remained a viable estate planning option for decades. Now a new law adds an extra twist to CRTs for some donors to consider.

How it works: Briefly stated, you transfer appreciated property like a business interest to the CRT and designate a beneficiary to receive income from the trust for life or a period of years. For instance, you might name yourself or your spouse as the income beneficiary of the trust. The beneficiary pays tax on the amounts received from the trust. At the end of the term, the property goes to the charity named in the trust documents.

This can accomplish both long-term and short-term objectives. For instance:

• A donor who itemizes deductions can claim a current tax deduction for the value of the remainder interest that passes to the charity. The value of the donation is based on government tables.

• The donor may also avoid a potentially large capital gains tax on the sale of appreciated property. Currently, the maximum tax rate on long-term capital gains is 20% (15% for certain taxpayers).

• The designated beneficiary can rely on a steady stream of income from the CRT to sustain them in retirement.

• The CRT may be combined with a “wealth replacement trust” to achieve additional estate planning benefits.

Suppose the tax savings generated by the CRT fund a wealth replacement trust in whole or in part. The trust can then use the money to purchase life insurance to replace the wealth donated to charity. When all is said and done, your heirs come out even or ahead of where they would have been if you had not set up the CRT in the first place.

Although there are several variations, the two main types of charitable remainder trusts are CRATs (charitable remainder annuity trusts) and CRUTs (charitable remainder unitrusts). No matter which one you use, the income beneficiary must be entitled to an annual payment each year for life or for a period of no more than 20 years.

With a CRAT, the payment must be a fixed amount of at least 5% of the initial value of the trust property, while a CRUT requires payment of a fixed percentage (not less than 5%) of trust assets. In either event, a trust will not qualify as a CRT if the annual payout exceeds 50%. Also, the charity must receive at least 10% of the donated assets.

New tax incentive: An individual age 70½ or older can transfer tax-free up to $100,000 directly from an IRA to a charity tax-free. It counts as a required minimum distribution (RMD). Under the new SECURE 2.0 law, you may include in this technique a one-time gift up to $50,000 to a CRT or charitable gift annuity, beginning in 2023. This amount will be adjusted for inflation.

Finally, be aware that a CRT is irrevocable. In other words, you cannot change your mind and take your assets back. Also, there are fees for establishing and maintaining the trust.

Reminder: CRTs are not for everyone. Consult with your professional advisors concerning your situation.

Three Top Sources of Retirement Income
Will you have enough to live on?

Where is the income you need to sustain you though retirement going to come from? If you are like most people, there are three primary sources that may be able to sustain you.

1. Social Security benefits: Generally, the size of your retirement benefit is based on your earnings throughout your working years and the age when you retire. For instance, if you retire at age 62, you will receive only 75% of the full amount of retirement benefits available to you at full retirement age (FRA). The FRA for someone turning age 62 in 2023 is 67 years old.

You can obtain more details about your personal status from the Social Security Administration (SSA). The SSA will tell you what you will receive in Social Security benefits when you retire. Similarly, you can obtain an estimate of your spouse’s benefits, if you are married.

Note: If you continue to work during retirement, you may lose some of your Social Security benefits, based on the “earnings test.” For those attaining their FRA after 2023, the annual exempt amount is $21,240. You forfeit $1 for every $2 over this limit. For those attaining their FRA in 2023, the annual exempt amount is $56,520. You forfeit $1 for every $3 over this limit until you reach FRA.

2. Qualified retirement plans: One of the best ways to save for retirement is through a qualified retirement plan. Usually, the contributions accumulate earnings tax-deferred until the money is withdrawn. In addition, you can take advantage of favorable tax provisions for some distributions. These plans come in many different shapes and sizes. The list includes popular 401(k) plans, pension and profit-sharing plans and plans targeted to small businesses like SIMPLEs (Savings Incentive Match Plans for Employees) and SEPs (Simplified Employee Pensions).

Be aware that the exact rules and contribution limits vary from plan to plan. Obtain expert advice with respect to your situation.

3. Individual savings/investments: Assuming Social Security and retirement benefits are not enough— and there is a good chance they will not be—the balance of your retirement income may have to be supplied by savings and investments. For example, you may be able to feather a retirement nest egg by investing money in stocks and bonds, mutual funds, money market funds, annuities, real estate or other investment vehicles.

Do not overlook amounts you have stashed away in bank accounts and U.S. Savings Bonds. In addition, you may continue to receive income from existing business interests. You also may be able to tap into the cash value of a life insurance policy (with certain limitations).

Finally, if you sell your principal residence when you retire, you may benefit from a special tax exclusion. If certain requirements are met, the first $250,000 of profit may be excluded from federal income tax by a single filer or $500,000 by joint filers.

Practical advice: Do not put off saving for the future. The longer you wait, the harder it will be to secure a comfortable retirement.

Make It Your Mission

Much like a charitable organization, your company can benefit from a “business mission.” This is a statement, which can be as short as a few sentences, that captures the essence of your business and its objectives.

The mission statement can be critical to your company’s success. It signals to all the world—including your staff, customers, suppliers and the industry-wide community—what your company is all about. Your business advisors can help you put it in writing.

Facts and Figures
Timely points of particular interest

NTA Reports In: As mandated by law, National Taxpayer Advocate (NTA) Erin M. Collins has released a mid-year report to Congress. No surprise—the NTA is once again urging the IRS to upgrade its technology, even though tax-filing season went relatively smoothly. Notably, as of April 23, 2023, the IRS had received 1.2 million paper returns, down from 6.2 million the previous year. The NTA’s report also establishes objectives for the upcoming fiscal year. Stay tuned.

Making Your Pitch: Domingo German of the New York Yankees pitched the 24th perfect game in major league baseball history on June 28. What does it mean for the Dow Jones Industrials Average (DJIA)? According to Barron’s, the DJIA has been higher for the year following a perfect game 81% of the time, averaging almost a 13% return for that time. Caution: It is fun to play with the numbers, but rely on sound fundamentals for actual investments.