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The threat of a recession has persisted for over a year. With this uncertainty, many businesses may be considering layoffs. If you're seeing clues that your employer might slash jobs and you're worried about being on the firing line, it's smart to prepare. Here are five personal finance tips you can use … just in case. 1. Increase Savings The easiest way to build emergency savings is to curtail spending before you're laid off. Areas of nonessential costs include: Dining out, Buying gifts, and Outsourcing services that you can do yourself, such as housecleaning and yardwork. You also might delay plans for buying a new vehicle, upgrading electronics or replacing worn furniture. Consider temporarily halting or decreasing contributions to your employer-based retirement plan. However, think this decision through carefully, particularly if your employer matches contributions. If you're uncertain about this step, ask your financial advisor to run the numbers for you. 2. Weave a Safety Net Have you requested an extension on your credit card limit? Do you have more than one credit card? Do you have access to a home equity line of credit? It's important to apply for backup sources of credit in case your savings run out. The purpose isn't to run up debt, but to have avenues in place that you can use to cover essential and unexpected expenses. The best time to apply for a home equity line of credit or additional credit cards is while you have verifiable income — and while you aren't in a rush. The faster you need credit, the less time you'll have to shop around for lower interest rates. 3. Pay Down Existing Debt It's difficult, but not impossible, to accelerate payments on your current debts while building an emergency fund. To help achieve both objectives, consider picking up a side hustle, such as driving for a ride-share company. Dedicate that income toward paying off a car loan or credit card bills. Then the income from your day job, while it lasts, can be used to pay monthly expenses and bolster your rainy-day fund. If you're under the weight of student loan debts, you probably know that the Biden administration's plan for federal student loan forgiveness has hit legal headwinds. If the plan is ultimately approved, it could wipe out $10,000 in federal student loan debt for individuals making less than $125,000 annually ($250,000 per year if you're married). However, legal challenges are rarely resolved quickly. In February 2023, the U.S. Supreme Court will examine whether the loan forgiveness plan is constitutional. For now, the Biden administration has extended a pause in student loan repayment into 2023, pending the Supreme Court decision. This gives current loan holders a temporary reprieve. If you're facing a possible layoff, you may want to wait to make payments. If you're laid off, you may be able to defer student loan payments further. Your lender also might allow you to restructure any car or mortgage loans. 4. Use Existing Insurance and Other Employee Benefits Now While still employed, take advantage of any employer-provided insurance benefits. Make important doctor and dental appointments. The copays you'll have are likely to be lower than paying for these appointments without health insurance coverage. You could use COBRA benefits that allow you to stay on your former employer's insurance. (See "COBRA Basics" at right.) However, your cost is usually higher than the cost of coverage through your employer. Review other employer-provided benefits, such as dependent or health care flexible spending accounts (FSA). Do you have unclaimed funds in those accounts? File now for reimbursement of any existing expenses. Also, contact your employer's benefits program administrators to determine the deadlines for FSA reimbursements after you're laid off. 5. Inquire about 401(k) Loans Under current tax law, you have until the due date of your tax return to pay back a 401(k) loan taken from your employer's plan. Before the Tax Cuts and Jobs Act, you had to pay it back within 60 days of being laid off. If you don't pay back a 401(k) loan within the required time frame, you must pay taxes on the difference between your outstanding balance and any nondeductible contributions. Usually, an early withdrawal penalty also applies if you're under age 59½. Keep in Mind that Unemployment Compensation Is Taxable If you receive unemployment benefits, you generally must include the payments in your income when you file your federal income tax return. You should receive Form 1099-G, "Certain Government Payments," showing the amount of unemployment compensation paid to you during the year. (Most states also tax unemployment benefits but five states don't.) Softening the Blow Losing a job can be challenging and stressful. Having a plan to mitigate the adverse effects will help you stay afloat while looking for another opportunity. For more advice on preparing for and managing a layoff, call your financial advisor. He or she can help you cut expenses, apply for credit, renegotiate loans, navigate COBRA benefits and more. COBRA Basics Employees and their families who lose group health coverage due to layoffs can continue being covered by their former employer's group health plan, under the Consolidated Omnibus Budget Reconciliation Act (COBRA). Some states also have laws similar to COBRA. Typically, you must cover these benefits at your own expense, plus a 2% administrative charge. Many employees are unpleasantly surprised when they receive the full bill for COBRA benefits — it's usually much higher than the cost that's been withheld from their paychecks. If you think a layoff may be coming, ask your human resources department to estimate how much you'd pay for COBRA benefits. According to the U.S. Department of Labor's guidance on COBRA, medical care coverage includes: Inpatient and outpatient hospital care, Physician care, Surgery and other major medical benefits, Prescription drugs, and Dental and vision care. Benefits not included in COBRA are life insurance and disability coverage. Important: Not all employers are required to offer COBRA. For example, COBRA applies to all group health plans offered by private-sector employers with at least 20 employees or by state and local governments. However, it doesn't apply to plans sponsored by the federal government, churches and certain church-related institutions. In general, you should have enough savings to cover six to 12 months' worth of essential monthly expenses. If that sounds unrealistic in your situation, scale back your savings to two to three months of expenses to establish some level of financial security. It can also help you avoid falling deeper into debt. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

After months of negotiations, Congress finally passed the long-awaited Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0). This part of the omnibus funding package builds on the SECURE Act of 2019 and contains major changes in the required minimum distribution (RMD) rules and other retirement provisions. Here are five major taxpayer friendly changes that will kick in over the next few years. 1. Increased Starting Age for RMDs Traditional IRAs, individual retirement annuities, and accounts in employer-sponsored qualified retirement plans — such as 401(k) plans, profit-sharing plans, 403(b) plans and 457(b) plans — are generally subject to the required minimum distribution (RMD) rules. Old rules. Before SECURE 2.0, you had to start taking RMDs for the calendar year during which you turn age 72. However, you could postpone the deadline for taking your initial RMD until April 1 of the year following the year you turn age 72. The April 1 deadline is the required beginning date (RBD). Under an exception, the RBD for taking RMDs from an account with an employer-sponsored qualified retirement plan is April 1 of the year after the year you retire, as long as you're not a 5% owner of the employer. New rules. SECURE 2.0 increases the starting age for RMDs to: Age 73, starting in 2023, for individuals who attain age 72 in 2023 through 2032, Age 75, starting in 2033, for individuals who attain age 74 after 2032. Important: The favorable RMD starting age change doesn't affect people who turned 72 before 2023. For instance, if you turned 72 in 2022, you must take your initial RMD by no later than April 1, 2023, or face a possible IRS penalty. If you turned 72 before 2022, you must take your RMD for the 2023 calendar year by December 31, 2023, or face a possible penalty. The exception for individuals who are still working remains in place. 2. Reduced Penalty for Failure to Take RMDs Failure to comply with the RMD rules can potentially result in significant IRS penalties. Old rules. Before SECURE 2.0, if you failed to take your RMD for the year in question, the IRS could impose a 50% penalty on the shortfall. The shortfall equals the difference between the RMD amount for the year and the total withdrawals you took during that year, if any. New rules. SECURE 2.0 generally reduces the penalty for failure to take RMDs from 50% to 25%. In addition, if the failure to take an RMD is corrected within the correction window, the penalty is reduced from 25% to only 10%. During the correction window, you must also submit a Form 1040 that reflects the penalty. The correction window is defined as the period beginning on the date on which the penalty arises on the RMD shortfall and ending on the earliest of: The date the IRS mails a notice of deficiency for the penalty, The date the IRS assesses the penalty, or The last day of the second tax year after the tax year in which the penalty arises. This change is effective for tax years beginning after December 29, 2022. That means it kicks in for 2023 for the majority of individuals who use the calendar year for tax purposes. 3. Larger Catch-Up Contributions, Starting in 2025 Employer-sponsored 401(k), 403(b) and 457(b) plans can allow participants who are 50 or older to make additional salary reduction contributions (known as elective deferral contributions) to their accounts. These extra contributions for older participants are called catch-up contributions, and they're over-and-above the standard salary reduction contribution maximum ($22,500 for 2023, with periodic inflation adjustments for later years). Salary reduction catch-up contributions are also allowed for SIMPLE plans, above and beyond the standard contribution limit ($15,500 for 2023, with periodic inflation adjustments for later years). Current rules. For 2023, the maximum catch-up contribution to one of these employer-sponsored plans is $7,500 (with inflation adjustments for later years). For 2023, the maximum catch-up contribution for SIMPLE plans is $3,500 (with periodic inflation adjustments for later years). These inflation-adjusted amounts will remain in effect for the 2023 and 2024 tax years. New rules. Starting in 2025, apparently for participants who attain age 60 through 63 only, SECURE 2.0 increases the maximum catch-up contribution to the greater of: $10,000 or $5,000 for SIMPLE plans, or 150% of the standard 2024 catch-up limit or 150% of the 2025 standard catch-up limit for SIMPLE plans. Important: As of this writing, it isn't entirely clear how to calculate the increased catch-up limits and exactly who can benefit from them. The IRS is expected to issued guidance to clarify the rules. In addition, starting in 2025, participants whose prior-year wage income exceeds $145,000 (as adjusted for future inflation) will apparently be able to make catch-up contributions only to a company-sponsored designated Roth account, if their company offers this option. Such contributions won't reduce your taxable salary. If your company doesn't offer the designated Roth account option and your prior-year income exceeds $145,000 (as adjusted for inflation), you apparently won't be able to make any catch-up contribution. The IRS is also expected to issue guidance to clarify this provision of the new law. 4. Penalty-Free Withdrawals for Designated Emergency Expenses A 10% penalty potentially applies to early withdrawals made before age 59½ from tax-deferred retirement accounts, such as traditional IRAs and company-sponsored qualified retirement plan accounts. Old rules. There are a number of exceptions to the 10% penalty, including withdrawals taken from a company plan after separating from service at age 55 or older. Examples of other exceptions include: Annuity-like withdrawals (so-called substantially equal periodic payments), Withdrawals taken while disabled, Withdrawals taken from an IRA to pay qualified higher education expenses, and Withdrawals taken to pay medical expenses in excess of 7.5% of adjusted gross income. New rules. SECURE 2.0 retains the exceptions allowed under the old rules, while adding a new exception to the 10% penalty for early withdrawals to cover unforeseeable emergency expenses. Only one penalty-free withdrawal of up to $1,000 is allowed in any tax year. You have the option to recontribute the withdrawn amount within three years to get the money back into tax-deferred status. But no additional emergency-related withdrawals can be taken during the three-year repayment period unless repayment is made. 5. Retirement Plan Emergency Savings Accounts SECURE 2.0 contains another emergency-related retirement savings provision: emergency savings accounts. This all-new savings opportunity allows employers to offer non-highly compensated employees emergency savings accounts linked to their individual retirement plan accounts. Specifically, employers can automatically opt employees into these accounts with contributions limited to 3% of salary. The amount of an employee's account that's dedicated to this purpose is capped at $2,500 or a lower amount set by the employer. Contributions are after-tax (meaning they don't reduce your taxable salary). You can take withdrawals at least once per month. At separation from service, you can take your emergency savings account balance in cash or roll the balance over into an employer-sponsored designated Roth account or IRA. This change is effective for plan years after 2023. For More Information These five changes represent only the tip of the SECURE 2.0 iceberg. The new law contains many additional changes that will affect individuals and employers. If you have questions or want more information about how the law might affect you or your business, contact your tax or financial advisors. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

Debtors typically experience a feeling of relief when a creditor agrees to forgive their debt. But that feeling often is replaced by shock and confusion when they learn they owe taxes on so-called "cancellation of debt" (COD) income. Read on to learn the tax rules for COD income and how they might affect your tax situation. General Rule The IRS considers your debt canceled if it's forgiven or discharged for less than the full amount you owe. Debt cancellation can occur in a number of circumstances. For example, it's considered cancellation if a creditor gives up on collecting a debt you're obligated to pay. Cancellation also occurs when there's a foreclosure, repossession, voluntary transfer of property to the lender, abandonment of the property or a mortgage modification. The debt you don't end up on the hook for is treated as income for tax purposes. You generally must report it on your personal tax return. If it's a business debt, you should report it on the applicable tax schedule. The creditor may send you a Form 1099-C, "Cancellation of Debt," but you must report the canceled amount on your tax return for the year the cancellation occurred regardless of whether you receive such a form. Recourse vs. Non-recourse Debt If your debt was secured by property and the creditor takes the property in full or partial satisfaction of your debt, the IRS treats the transaction as a sale of the property to the creditor. The resulting tax treatment will turn on whether the debt was recourse or non-recourse. Debt for which you're personally liable is recourse debt. If you default and the surrender of the property doesn't fully satisfy the debt, the creditor can go after you for the balance. You're not personally liable for non-recourse debt, though, so the lender is entitled only to the property if you default. If you receive a Form 1099-C from a creditor, it should indicate if you were personally liable for the debt. With a recourse debt, the amount realized on the "sale" is the fair market value (FMV) of the property you surrender. Your taxable ordinary income from the cancellation is the amount by which the debt exceeds the FMV (assuming none of the exceptions or exclusions below applies). The difference between the FMV and your adjusted tax basis (usually your cost) will be gain or loss on the disposition of the property. How It Works For example, suppose you bought a vehicle for business use for $20,000, making a $2,000 down payment and signing a recourse note for the balance. You pay down an additional $4,000 on the debt before you're unable to make any more payments, leaving outstanding debt of $14,000 ($20,000 minus $2,000 down payment minus $4,000 debt payments). The dealer repossesses the vehicle, whose FMV has dropped to $11,000, and cancels the remaining $3,000 of debt ($14,000 minus $11,000). The $3,000 is COD income. You'll also have a $9,000 loss ($11,000 FMV minus $20,000 basis). With non-recourse debt, you realize the entire amount of the debt plus the amount of cash and the FMV of any property you received. You don't have any ordinary income from the cancellation, though. In the example above, if the note was non-recourse, you'd have a loss of $6,000 upon repossession ($14,000 realized on the remaining debt minus $20,000 basis). Exceptions and Exclusions The following amounts aren't treated as COD income: Amounts canceled as gifts, bequests, devises or inheritances, Certain qualified student loans canceled due to meeting work requirements, Certain student loan repayment assistance programs, Certain student loan discharges after December 31, 2020, and before January 1, 2026, Amounts of canceled debt that would be tax-deductible if you, as a cash-basis taxpayer, paid it, A qualified purchase price reduction given by the seller of property to you as the buyer, and Any amounts discharged from certain federal, private or educational student loans. By contrast, the following amounts constitute COD income — but are excluded from gross income for tax purposes: Debt canceled in a federal bankruptcy, Debt canceled to the extent you were insolvent at the time of cancellation, Canceled qualified farm debt, Canceled qualified real property business debt, and Canceled qualified principal residence debt that's discharged subject to an arrangement entered into and evidenced in writing before January 1, 2026 (up to $750,000, or $375,000 if married filing separately). The exclusions aren't as straightforward from a tax perspective as they might seem. If you excluded canceled debt, you generally must reduce certain tax attributes (including certain credits and carryovers, losses and carryovers, and basis) by the amount excluded. The qualified principal residence debt exclusion, however, requires only the reduction of your basis in the residence. Tread Carefully It's wise to consult with your CPA before you enter any debt forgiveness or relief arrangements. Understanding the tax implications in the context of your overall circumstances can reduce the odds of an unwelcome surprise. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

Is your business ready to tackle the challenges and opportunities that lie ahead in 2023? Financial statements show how a company has performed in the past. But historical data doesn't necessarily predict future performance, especially in an uncertain, volatile market. As part of your planning, it's important for management to prepare forecasted statements. Forecasts vs. Projections The terms "forecast" and "projection" are often used interchangeably. But there's a noteworthy distinction, according to AICPA Attestation Standards Section 301, Financial Forecasts and Projections : Forecast . Prospective financial statements that present, to the best of the responsible party's knowledge and belief, an entity's expected financial position, results of operations and cash flows. A financial forecast is based on the responsible party's assumptions reflecting the conditions it expects to exist and the course of action it expects to take. Projection . Prospective financial statements that present, to the best of the responsible party's knowledge and belief, given one or more hypothetical assumptions , an entity's expected financial position, results of operations, and cash flows. A financial projection is sometimes prepared to present one or more hypothetical courses of action for evaluation, as in response to a question such as, "What would happen if…?" In a nutshell, a forecast shows expected results based on the expected course of action, and a projection shows expected results based on various hypothetical situations that may or may not occur. Your company may issue projections — which offer less of a commitment — if it's uncertain whether performance targets will be met. Make Reasonable Assumptions The purpose of forecasting is to obtain the most realistic picture possible of a company's future performance for as far out as management can look. Forecasts provide important information that can be used to make decisions, such as: When working capital shortages are likely to take place — and whether the line of credit is sufficient to bridge cash flow gaps. How much inventory, including raw materials, parts and finished goods, the company should purchase each month. Whether the company has the right mix of employees to meet its operational goals — and how it should remedy any deficiencies (or excess capacity). Which fixed assets should be retired (or acquired). A forecast is typically organized using the same format as the company's financial statements: an income statement, balance sheet and cash flow statement. Most conclude with a statement of assumptions that underlie key numbers in the forecast. A detailed forecast of revenue drives many of these assumptions. Roll with the Punches Managers use forecasts in their annual budgeting and strategic decision-making processes. But many budgets and business plans are out of date before the end of the first quarter. That's because today's complex, dynamic marketplace is almost impossible to forecast with certainty. As a result, many companies have replaced traditional annual budgets with rolling 12-month forecasts that are adaptable and look beyond year end. Creating a meaningful rolling forecast necessitates ongoing comparisons between forecast and actual results. This enables management to unearth and respond to weaknesses in forecast assumptions and unexpected changes in the marketplace. For example, a retail store that suffers a data breach could experience an unexpected drop in revenue. If the company maintains a rolling forecast, it would be able to revise its plans for temporary inventory decreases, as well as technology and marketing cost increases related to remedying the breach. Consider External Market Conditions Almost all forecasts begin with historical financial results, but that's only a starting point. These days, you can't automatically assume current revenue and expenses will grow at a constant rate commensurate with inflation. Management needs to evaluate the marketplace for emerging external threats and opportunities. For example, health care providers need to anticipate how emerging government regulations, including the CDC and FDA guidance, will affect their future revenue and expenses. Examples of other external obstacles that management can't change, but may need to factor into forecasts, include rising energy costs, evolving weather patterns, and changes to tax and labor laws. On the other hand, changes in technology — including the growing popularity of social media and smart devices — may create marketing opportunities that proactive businesses can use to their advantage. Savvy managers watch how competitors are performing under the same market conditions. In an evolving market, the performance of competitors — especially market leaders — is often more meaningful than historical results. Evaluate Forecasting Risks Once you've developed your preliminary forecast for 2023, consider performing a sensitivity analysis to identify which components are most critical to your business's success (or failure). Sensitivity analysis starts with a base case scenario. Then assumptions are changed — one at a time — to see how the changes flow through the financial statements. An input is more "sensitive" and, therefore, has high forecasting risk if a small change in the assumption has a large effect on the bottom line (or asset values). If the most sensitive variables in your forecast are also the most unpredictable, you may need to monitor the situation closely to minimize problems. Team Effort Forecasts that employees perceive as dictatorial mandates are doomed to fail. Reliable ones are based on input from all functional areas, including finance, sales and marketing, operations and human resources. Cross-functional collaboration on forecasts can help you balance predicting demand with planning for supplies, catching errors and omissions, and achieving companywide buy-in. Getting input from your financial advisor helps, too. In addition to providing objective market data, experienced financial professionals understand financial reporting and offer fresh perspectives that can breathe new life into your company's budget or business plan. We are committed to being your most trusted Business Advisor. We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

A comprehensive benchmarking study can provide your business with a healthy start to the new year. By comparing your business's financial performance to competitors — or even itself over time — benchmarking can help identify trends, value drivers and potential risks. Here's a look at the components of a comprehensive benchmarking study and how various factors affect risk. Size The size of a business is conventionally measured in terms of market share, annual revenue or total assets. In general, small private companies are riskier than large public ones. Large businesses tend to have stronger internal controls, more professional management, more reliable financial reporting and more resources to weather economic downturns. But bigger isn't always better. Sometimes niche players earn higher profit margins because they specialize in one market segment. Businesses that deviate from their core market sometimes choose to divest noncore operations to improve performance. A recent example is General Electric's decision to divest its share of Baker Hughes, an oil field services company. The move was designed to strengthen GE's balance sheet and refocus on its traditional business operations. Growth Typically, growth is measured by the dollar and percentage change in revenue, profits or market share from year to year. Steady upward growth is ideal. But rapid growth can be just as perilous as a rapid decline. Companies that grow too fast have a voracious appetite for cash — and it's all too common for high-growth operations to take on more debt than their cash flow streams can support. Like all benchmarks, historic growth is relevant only to the extent that it demonstrates future trends. Companies with strong growth expectations almost always carry less risk (and higher value) than those with poor outlooks. Liquidity Liquid companies have sufficient current assets to meet their current obligations. Cash is obviously the most liquid asset, followed by marketable securities, receivables and inventory. Working capital — the difference between current assets and current liabilities — is one way to measure liquidity. Others include working capital as a percentage of total assets and the current ratio. (See "3 Types of Benchmarking Reports" at right for more on ratios.) A more rigorous benchmark is the acid (or quick) test, which excludes inventory and prepaid assets from the equation. Profitability Public companies focus on earnings per share, while private companies tend to look at profit margin and gross margin. Rather than focus on the top and bottom of the income statement (revenue and profits), it can be helpful to look at individual line items, such as: Material costs, Returns, Shipping, Utilities, Rent, Payroll, Owners' compensation, Travel and entertainment, Interest, and Depreciation expense. Comparisons usually require adjustments for nonrecurring items, discretionary spending and related-party transactions. When comparing companies with different tax structures, leverage or depreciation methods, it may be helpful to turn to earnings before interest, taxes, depreciation and amortization (EBITDA). Turnover Turnover ratios show how efficiently companies manage their assets. Total asset turnover (revenue divided by total assets) estimates how many dollars in revenue a company generates for every dollar invested in assets. In general, the more dollars earned, the less risky a business is. Turnover ratios also can be measured for each category of assets. Inventory and receivables turnover ratios are often calculated in terms of days. For example, the average collection period equals average receivables divided by annual revenue times 365 days. A collection period of 45 days indicates that the company takes an average of one and one-half months to collect invoices. Leverage A company's ratio of debt and equity also sheds light on risk. But leverage is a double-edged sword. Debt allows businesses to earn a return using other people's money. But debt load can spiral out of control if a business is paying an exorbitant interest rate and can't repay its obligations. As interest rates rise, companies with excessive amounts of variable-rate loans will incur higher interest expense than they did in previous periods. Another important metric is the interest coverage ratio — earnings before interest and taxes (EBIT) divided by interest expense. The latter ratio shows how many times EBIT will cover interest expense. Burden ratios are similar but incorporate principal repayment into the equation. Valuable Management Tool Market conditions have changed in recent years — and more changes are expected in the coming months. Business owners and managers can use a comprehensive benchmarking study as a strategic management tool to improve operating efficiency, build value and anticipate expected development in the marketplace. Contact your CPA to help you perform a benchmarking study on your 2023 financial statements. 3 Types of Benchmarking Reports There are various strategies you can use to analyze your company's financial performance. Here are three formats to consider: 1. Horizontal analysis. A good starting point is to put your company's financial statements side by side and compare them. A comparison of two or more years of financial data is known as horizontal analysis. Often changes are shown as a dollar amount and percentage. For example, if accounts receivable increased from $1 million in 2021 to $1.2 million in 2022, the difference is $200,000, or 20%. Horizontal analysis helps identify trends. 2. Vertical analysis. You can highlight changes with vertical (or common-size) analysis, which shows line items as a percentage of revenue or total assets. For example, a common-size income statement — which shows each line item as a percentage of revenue — explains how each dollar of revenue is distributed between expenses and profits. Changes in such statements over time — a combination of horizontal and vertical analysis — can highlight trends and operating inefficiencies. 3. Ratio analysis. Ratios depict relationships between various items on a company's financial statements. For example, profit margin equals net income divided by revenue. Ratios are typically used to benchmark a company against competitors (which may be bigger or smaller) or in comparison with industry averages. What's good or bad for a particular ratio depends on the industry in which your company operates. Contact your CPA for sources of comparative data, such as industry trade association and benchmarking publications. We are committed to being your most trusted Business Advisor.We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

Competition for top-notch workers can be fierce. Your business currently may be understaffed due to a number of factors — including the "Great Resignation" and "quiet quitting" where employees do the bare minimum before eventually leaving. A proven way to help attract and retain the cream of the crop is to expand or enhance your company's fringe benefits package. While salary is essential to current and prospective employees, don't discount the significance of fringe benefits. In fact, a whopping 92% of employees say that benefits are important to their overall job satisfaction, according to the Society of Human Resource Management (SHRM). Overview of the Tax Rules The term "fringe benefit" refers to a provision or payment to eligible employees that goes beyond regular wages and bonuses. Typically, fringes are comprised of goods, services or cash equivalents. Depending on the type of benefit, it may be available to salaried and hourly workers — including the CEO or business owner — and, in some cases, even independent contractors. As with other forms of compensation, fringe benefits are generally taxable to recipients. However, there are some special exceptions that may be both tax-exempt to the participating employees and tax-deductible by the business entity, subject to certain restrictions. Thus, an entire cottage industry has sprung up around the tax treatment of fringe benefits. Tax-Exempt Benefits The list of tax-exempt statutory fringe benefits has grown over the years. Here are some popular examples: Achievement awards. The tax law defines "achievement award" as an item of tangible personal property granted for either length of service or promoting safety. For a written qualified plan, the maximum tax-free award is $1,600, while the maximum for a nonqualified plan is $400. Athletic facilities. Employees can use an on-site athletic facility tax-free if the employer operates it. Such a facility may be available to employees, their spouses and dependents, as well as retired employees, including the company's founder. This category includes gymnasiums, tennis courts and swimming pools. Dependent care assistance. The first $5,000 of dependent care assistance paid by an employer under a written plan is tax-free to employees. To qualify, a dependent must be either 1) a child under age 13, or 2) a spouse or a relative who is physically or mentally incapable of self-care and lives in the employee's home. Educational assistance plans. A company can provide tax-free payments of up to $5,250 for college or graduate school tuition, books, fees and supplies through an educational assistance plan. The courses covered under the plan don't have to be related to the job, but courses involving sports, games or hobbies are covered only if the course is job-related or required as part of a degree program. Employee discounts. A company can provide tax-free discounts to employees on its products or services. For products, the discount percentage can't exceed the gross profit percentage of the price at which the product is offered to regular customers. For services, the discount percentage can't be more than 20% off the price at which the service is offered to regular customers. Group-term life insurance. This is usually a prized perk for highly paid executives, but only the first $50,000 of coverage is tax-free. The tax on any excess coverage is computed under an IRS table based on the insured's age. Health insurance. Premiums paid by an employer under a health insurance plan are tax-free to employees — and deductible by the employer — as long as the plan is open to the rank and file. Similarly, employer reimbursements for medical expenses are generally tax-free to employees, as are contributions to Health Savings Accounts (HSAs). Meals and eating facilities. Meals furnished to an employee for the employer's convenience are generally tax-free if they're provided on the business premises. This includes company-operated cafeterias and similar facilities. However, under the Tax Cuts and Jobs Act (TCJA), the employer's deduction is limited to 50% of the cost for 2018 through 2025. After 2025, no deduction will be allowed. Retirement plans. Usually, the benefits provided through qualified plans — such as pension, profit sharing, SEP and 401(k) plans — are exempt from current tax and can grow without any tax erosion until withdrawals are made. Contributions are subject to generous annual limits, including potential matching employer contributions, but strict nondiscrimination requirements must be met. Transportation benefits. Benefits for monthly transit, vanpooling and parking privileges may be excluded from tax, up to specific monthly limits. For 2023, the combined monthly limit for mass transit passes and vanpooling is $300, the same as the monthly limit for parking privileges. Caveat: Under a TCJA change, employers can no longer deduct these benefits. Working condition fringe benefits. This type of fringe benefit includes property or services provided to employees so they can do their jobs. For example, it includes the cost of traveling to visit business clients or attending a business conference. Detailed recordkeeping is required. Special Rules Although fringe benefits may be offered by all types of business entities, special rules may apply to partners in partnerships, members of limited liability companies (LLCs) taxed as partnerships and people who own at least 2% of an S corporation. Generally, fringe benefits paid to these business owners are taxable, with some limited exceptions. For instance, benefits from a dependent care assistance plan are available for S corporation owners, but the benefits for people who own at least 5% of the company's stock can't exceed 25% of the total amount. Similarly, an educational assistance plan can't provide more than 5% of the benefits to S corporation shareholder-employees. And certain di minimis benefits are completely tax-free to all employees. Finally, be aware of the so-called "family attribution" rules. Notably, family members of people who own 2% or more of an S corporation's stock — including spouses, children, grandchildren and parents — are considered shareholders. So you can't circumvent the fringe benefit rules by providing benefits to employees who are family members. Get It Right The tax rules related to fringe benefits are complex. Contact your tax professional to ensure that you're treating these benefits appropriately on your company's tax return and other year-end tax forms sent to employees, contractors and owners. Which Fringe Benefits Are Taxable? Here's a partial list of benefits that are taxable to employees under current law: Excessive mileage reimbursements, Gym and club memberships, Work clothing suitable for regular (non-work) wear, Cash awards and prizes (except for achievement award plans), Use of a company car for personal purposes, Personal use of other working condition fringe benefits, and Moving expense reimbursements (except for armed forces personnel). Important: Under the Tax Cuts and Jobs Act, employers must include job-related moving expense reimbursements as taxable income on employees' W-2s (except for active-duty members of the military) for 2018 through 2025. This provision is scheduled to expire in 2026, unless Congress extends it. Employers should understand all the rules and inform employees about the tax consequences. Contact your tax advisor for more information.But favorable tax treatment for fringe benefits isn't automatic. In addition, there are several potential twists and turns to consider. We are committed to being your most trusted Business Advisor.We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

In 2023, many states and localities will increase their minimum wage amounts. In some areas, the amounts paid to tipped employees may also increase and overtime salary thresholds may also change. This chart briefly details the changes that will kick in on New Year's Day or later in 2023. For more information about your situation, consult with your payroll advisor. State 2023 Changes (in effect on January 1, unless otherwise noted) Alaska The minimum wage increases from $10.34 per hour to $10.85 per hour. The state doesn't permit the use of a tip credit toward the minimum hourly wage. Arizona The minimum wage increases from $12.80 per hour to $13.85 per hour. An employer may take a tip credit of up to $3 per hour against the minimum wage rate so the cash minimum wage for tipped workers increases to $10.85 per hour in 2023. Local minimum wage changes. The City of Flagstaff minimum wage increases to $16.80 per hour ($14.80 per hour for tipped workers). The City of Tucson minimum wage increases to $13.85 per hour ($10.85 per hour for tipped workers). Tucson's minimum wage was scheduled to increase to $13.50. However, since the state minimum wage is greater than the scheduled increase, the city's minimum wage has been adjusted to align with the state increase. ​California ​The minimum wage rate increases to $15.50 per hour for all employers. The state doesn't permit the use of a tip credit toward the minimum hourly wage. Overtime salary thresholds. Computer software employees must be paid at least $112,065.20 annually ($53.80 per hour) to qualify for the overtime exemption. Licensed physicians and surgeons must be paid at least $97.99 hourly to qualify for the overtime exemption. Local minimum wage changes. Rates will increase in the following localities: Anaheim (for hospitality workers), Belmont, Burlingame, Cupertino, Daly City, East Palo Alto, El Cerrito, Foster City, Half Moon Bay, Hayward City, Long Beach, Los Altos, Menlo Park, Mountain View, Novato, Oakland, Palo Alto, Petaluma, Redwood City, Richmond, San Carlos, San Diego, San Jose, San Mateo, Santa Clara, Santa Rosa, Sonoma, South San Francisco, Sunnyvale, and West Hollywood. (The Inglewood minimum wage rate for healthcare workers, as approved by voters. won't take effect until January 1, 2024.) ​Colorado While the final Pay Calc (wage order) hasn't yet been issued, Colorado Governor Jared Polis announced that the minimum wage will increase from $12.56 to $13.65 per hour. The cash minimum wage for tipped workers will increase to $10.63 per hour ($3.02 per hour tip credit). The proposed Pay Calc indicates 2023 minimum wage increases for non-emancipated minors ($11.61 per hour) and agricultural range workers ($559.29 per week). Overtime salary thresholds. The proposed Pay Calc adjusts the salary thresholds for the overtime exemption for: 1) executive, administrative, or professionals (EAP) : $961.54 per week; 2) highly technical computer employees: $31.41 per hour or the EAP salary; 3) highly compensated employees: $112,500 annually and the EAP salary weekly. The Pay Calc hasn't been finalized yet. Agricultural workers. Beginning November 1, 2022, agricultural workers must be paid overtime for hours worked in excess of 60 hours per week. (This decreases to 54 hours in 2024.) Local minimum wage changes. The Denver minimum wage rate increases to $17.29 per hour. The cash minimum wage for tipped workers increases to $14.27 per hour ($3.02 per hour tip credit). ​Delaware ​The minimum wage increases to $11.75 per hour. The cash minimum wage rate for tipped workers will be $2.23 per hour. Employers may pay $11.25 per hour in 2023 to employees who are 18 years of age or older, during the first 90 consecutive calendar days of employment or employees under the age of 18. District of Columbia The current DC minimum wage rate is $16.10 per hour and remains in effect until June 30, 2023. The rate for tipped employees currently is $5.35 per hour but increases to $6 per hour on January 1, 2023, due to the passage of a ballot measure that increases the cash minimum wage for tipped workers until it's equal to the DC minimum wage by July 1, 2027. For the first 90 days of employment, minors, newly hired persons 18 years old or older, and students employed by institutions of higher education may be paid the federal minimum wage ($7.25 per hour). The minimum wage rate for workers at Reagan and Dulles airports (in Virginia) increases to $15 per hour. ​Illinois ​The minimum wage rate increases from $12 per hour to $13 per hour. The minimum wage for tipped workers increases to $7.80 per hour. The minimum wage for minors under 18 that work less than 650 hours per year is $10.50 per hour. Local minimum wage changes. The Chicago minimum wage rate isn't scheduled to increase until July 1, 2023. The Cook County minimum wage rates are the same as the state minimum wage rates. ​Maine The minimum wage rate increases from $12.75 per hour to $13.80 per hour. The cash minimum wage rate for tipped workers increases to $6.90 per hour. Local minimum wage changes. The Portland minimum wage increases to $14 per hour and $7 per hour for tipped workers who earn over $100 per month in tips. The Rockland minimum wage increases from $13 per hour to $14 per hour. The minimum wage for tipped workers who regularly receive more than $175 per month in tips increases to $7 per hour. Overtime salary thresholds. The minimum wage exemption threshold for executive, administrative and professional employees rises to $796.17 per week (currently $735.58), or $41,401 annually. Maryland The minimum wage rate for employers with 15 or more employees increases to $13.25 per hour and to $12.80 per hour for employers with 14 or fewer employees. The minimum wage for minors under the age of 18 is 85% of the state's minimum wage. Local minimum wage changes. The Montgomery County minimum wage rate increases to $14.50 per hour. The Howard County minimum wage increases to $15 per hour for employers with 15 or more employees and to $13.25 per hour for small employers. The wage for minors under 18 in Howard County is 85% of the county minimum wage. Prince George's County no longer has county minimum wage rates. Massachusetts The minimum wage rate increases from $14.25 per hour to $15 per hour. The cash minimum wage for tipped workers increases to $6.75 per hour. Michigan ​While there's a scheduled minimum wage rate of $10.10 per hour, a court has ruled that the adopt-and-amend strategy employed that increased the minimum wage incrementally until it reached $12 per hour in 2022 is unconstitutional. The judge ordered that the minimum wage change not be implemented any earlier than February 19, 2023. The cash minimum wage for tipped workers is 38% of the state minimum wage. ​Minnesota ​For large employers (gross volume of sales of $500,000 or more), the minimum wage increases from $10.33 per hour to $10.59 per hour. For small employers, the minimum wage increases from $8.42 per hour to $8.63 per hour. The state doesn't permit the use of a tip credit against the minimum wage. Local minimum wage changes . The minimum wage in St. Paul will be $15.19 per hour for macro businesses (10,000+ employees), beginning January 1, 2023. The following minimum wage rates increase, beginning July 1, 2023: 1) $15 for large businesses (101-10,000 employees); 2) $13 per hour for small business (6-100 employees); 3) $11.50 per hour for micro businesses (5 or fewer employees); and 4) $11.05 per hour for minors under age 18 for the 90 days of employment or a youth under age 20 in a city-approved Youth Training Program. The minimum wage for Minneapolis increases to $15.19 per hour for large businesses (100+ employees) and $14.50 per hour for small businesses. Missouri ​The minimum wage rate increases from $11.15 per hour to $12 per hour. The minimum wage for tipped workers increases to $6 per hour. Montana ​The minimum wage increases from $9.20 per hour to $9.95 per hour. Businesses not covered by the Fair Labor Standards Act (FLSA) with gross annual sales of $110,000 or less may pay $4 per hour. However, if an individual employee is producing or moving goods between states or otherwise covered by the FLSA, that employee must be paid the greater of either the federal minimum wage ($7.25 per hour) or Montana's minimum wage. The state doesn't permit the use of a tip credit. Farm workers under age 18 may be paid sub-minimum rates for 180 days (at least 50% of the minimum wage required). ​Nebraska ​The minimum wage rate increases from $9 per hour to $10.50 per hour. The minimum wage for tipped workers increases to $6 per hour. Sub-minimum wage rates apply to student learners and new hires under age 20. New Jersey ​The minimum wage rate increases from $12 per hour to $13 per hour for most employers. The rate increases to $12.70 per hour for seasonal and small employers with fewer than six employees. The rate increases to $11.70 per hour for agricultural employers. The wage for long-term care facility direct care staff members increases to $17 per hour. The cash minimum wage for tipped workers remains $5.13 per hour. Full-time students can be employed by the college or university in which they're enrolled at not less than 85% of the minimum hourly wage in effect. New Mexico The minimum wage rate increases from $11.50 per hour to $12 per hour. The tipped worker minimum wage is $3 per hour. Local minimum wage changes. The Albuquerque minimum wage increases to $12 per hour and $7.20 for tipped workers. The Las Cruces minimum wage increases to $12 per hour. The tipped worker rate is $4.78 per hour. The Santa Fe minimum wage is currently $12.95 per hour. The next scheduled increase will be effective March 1, 2023. The Bernalillo County minimum wage is superseded by the state minimum wage rate. ​New York The minimum wage rate remains $15 per hour in New York City, Long Island and Westchester County. The minimum wage increases from $13.20 per hour to $14.20 per hour for the remaining areas of NY state. The minimum wage for food service workers remains $10 per hour ($5 per hour tip credit) in New York City, Long Island and Westchester County, but increases to $9.45 per hour ($4.75 per hour tip credit) in the remainder of the state. The minimum wage for service workers who aren't in the food industry but are customarily tipped will remain $12.50 per hour ($2.50 per hour tip credit) in New York City, Long Island and Westchester County, but increases to $11.85 per hour ($2.35 per hour tip credit). The fast food minimum wage remains $15 per hour. A tip credit isn't permitted for fast food workers. The minimum wage for health care aides, effective October 1, 2022, is $17 per hour in New York City, Long Island and Westchester, and $15.20 per hour for the remainder of the state. Overtime salary thresholds. The minimum wage exemption threshold for executive and administrative employees for 2023 hasn't yet been announced. Note that there's no professional exemption from overtime. Agricultural workers. On September 30, 2022, the state Department of Labor Commissioner issued an order accepting the recommendation of the Farm Laborers Wage Board to lower the current 60-hour threshold. The proposed regulatory text would require agricultural workers to be paid overtime for hours worked in excess of 56 hours per week, beginning in 2024. Public comment on the proposed regulation closed on December 11, 2022. Ohio ​The minimum wage rate increases from $9.30 per hour to $10.10 per hour for employers with annual gross receipts of $371,000 or more. Employers with less than $371,000 in annual gross receipts may pay $7.25 per hour. The minimum wage for tipped workers increases to $5.05 per hour. Employees under age 16 may be paid the federal minimum wage rate of $7.25 per hour. Oregon ​The minimum wage won't increase until July 1, 2023. Agricultural workers. Beginning January 1, 2023, agricultural workers are required to be paid overtime for hours worked in excess of 55 hours per week. This decreases to 48 hours in 2025. ​Rhode Island The minimum wage rate increases from $12.25 per hour to $13 per hour. The minimum wage for tipped workers is $3.89 per hour. For full-time students under 19 working in certain nonprofit organizations, the minimum wage increases to $11.70 per hour (90% of the minimum wage). For 14 and 15-year-olds who work more than 24 hours per week, the minimum rate is $9.75 per hour (75% of the minimum wage). ​South Dakota ​The minimum wage rate increases from $9.95 per hour to $10.80 per hour. The minimum wage for tipped workers is $5.40 per hour. Any employee under age 20 years may be paid an opportunity wage of $4.25 an hour for the first 90 days of employment. Vermont The minimum wage rate increases from $12.55 per hour to $13.18 per hour. The minimum wage for tipped workers is $6.55 per hour. Virginia ​The minimum wage for workers at Reagan and Dulles airports increases to $15 per hour. The minimum wage rate increases from $11 per hour to $12 per hour. The cash minimum wage for tipped workers is $2.13 per hour. Virginia allows employers to take advantage of the federal opportunity wage, which specifies that new hires under 20 years of age may be paid $4.25 per hour for the first 90 calendar days after the date of hire. ​Washington The minimum wage rate increases from $14.49 per hour to $15.74 per hour. The state doesn't permit the use of a tip credit toward the minimum hourly wage. Minors between 14 and 15 years old may be paid $13.38 per hour (85% of the minimum wage) in 2023. Overtime salary thresholds. The salary threshold for the overtime exemption for executive, administrative, and professional workers increases to $1,101.80 per week ($57,293.60 annually) for small employers (up to 50 employees) and to $1,259.20 per week ($65,478.40 a year) for large employers (over 50 employees). The salary threshold for the exemption for computer professionals $55.09 per hour for employers of all sizes. Agricultural workers. Agricultural workers are required to be paid overtime for hours worked in excess of 48 hours per week (55 hours in 2022). This decreases to 40 hours in 2024. Local minimum wage changes. The Seattle minimum wage for large employers (501 or more employees) increases $18.69 per hour. For small employers (500 or fewer employees) who do pay at least $2.19 per hour toward the employee's medical benefits and/or where the employee does earn at least $2.19 per hour tips, the Seattle minimum wage increases to $16.50 per hour, otherwise the minimum wage rate of $18.69 per hour would apply. The SeaTac minimum wage for hospitality and transportation industry employees increases to $19.06 per hour. A minimum wage for Tukwila has been established by a voter-approved ballot measure, beginning July 1, 2023. Tukwila reported that the city is currently still codifying and performing an analysis. The city noted that it will publish the final rate per the legislation by the end of the year. Looking Further Ahead Here are some additional minimum wage increases scheduled to occur later in 2023 Connecticut. The minimum wage will increase to $15 per hour, effective June 1, 2023. The cash minimum wage is frozen at $6.38 per hour for hotel and restaurant staff and at $8.23 per hour for bartenders. Florida. The minimum wage will increase from $11 per hour to $12 per hour, beginning September 30, 2023. The cash minimum wage rate for tipped workers will increase on that date to $8.98 per hour ($3.02 per hour tip credit). Nevada. Currently, the minimum wage is $9.50 per hour with qualified health benefits and $10.50 per hour without health benefits. Beginning July 1, 2023, the minimum wage will increase to $10.25 per hour with qualified health benefits; $11.25 per hour without. Beginning January 1, 2024, the minimum wage is $12 per hour regardless of benefits, as approved by a ballot measure. Puerto Rico. The current minimum wage is $8.50 per hour. The hourly minimum wage is scheduled to increase beginning July 1, 2023, to $9.50. Tipped employees are entitled to the federal minimum wage in effect for such workers ($2.13 per hour), which with tips added to the federal minimum wage must be at least equal the Puerto Rico minimum wage of $9.50 per hour. Texas. The current minimum is $7.25 per hour and is only adjusted by legislative action. However, airport workers in Houston received a minimum wage increase of $14 per hour, beginning October 1, 2022. It further increases to $15 per hour, beginning October 1, 2023. We are committed to being your most trusted Business Advisor.We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

Is your company struggling to tackle all its accounting needs? Companies that have lost a CFO, outgrown their bookkeeper, changed their offerings or experienced high growth can have a hard time finding the right accounting expertise — at the right price — in today's tight labor market. Outsourcing is a possible solution. Here are eight benefits this option can provide your company and its bottom line. 1. Access to Top-Notch Expertise It can be challenging to recruit and retain talented professionals, especially for smaller businesses with limited resources. When you outsource, you have ready access to highly experienced accountants who are up to date on best practices. Outsourcing firms have qualified team members with expertise across the entire spectrum of accounting roles — from bookkeeper to CFO — as well as specialized niche knowledge for you to tap as needed. That means they're likely to perform your work correctly the first time, and in a cost-effective manner. 2. Access to the Latest Technology Outsourcing provides ready access to sophisticated, updated accounting and tax software and other technology tools. Smaller organizations frequently lag behind their larger competitors on the adoption of such tools, which might be cost-prohibitive until they've been on the market for a while. Reliance on outdated systems could put you at a disadvantage. Outsourcing firms can spread the costs of early adoption across multiple clients so you needn't wait for prices to drop. 3. Reduced Staffing Costs Business owners sometimes regard outsourcing as just another cost. It may be more accurate to view outsourcing as an opportunity to cut your accounting costs while maintaining the quality of the output. After all, staffing is often one of a company's largest expenses. By outsourcing your accounting function, you can avoid paying staffing-related expenses, including: Salaries, Benefits, Employment taxes, Unemployment benefits, and Training. Outsourcing may also allow you to avoid the high cost (and frustration) associated with recruiting and managing staff. While you still have to pay outsourcing firms, their charges are usually much lower than employing full-time staff. 4. The Ability to Scale Costs as Needed Many businesses have fluctuating accounting needs during the year. For instance, they might be busier at year-end and tax time or when pursuing a major capital investment project, such as a merger or public offering. Outsourcing allows you to pay only for what you need, when you need it. In effect, you can convert fixed staffing costs into variable outsourcing fees. With outsourcing you can dial your level of service up or down on demand. And you don't have to worry about keeping full-time accounting staff busy in slow times to head off layoffs — or scrambling to bring on new hires or pay overtime when the workload is heavier. 5. Smarter Resource Deployment Outsourcing frees up time for your management team to focus on growing the business through marketing, operations, networking and relationship building. In addition, lower-level accounting staff with extra bandwidth can be assigned to work in other areas that could use more manpower, such as procurement or customer service. This can translate to better service, increased customer satisfaction and higher profits. Moreover, you won't have to worry about critical accounting employees calling in sick, using leave, quitting or otherwise leaving a gap. 6. Enhanced Decision Making External accountants who work with multiple clients across industries obtain a higher level of business intelligence than those who have worked solely for one company. You can leverage this expertise to make better, more timely business decisions. Plus, outsourcing firms usually can answer your questions and provide analytics faster than in-house staff that have fewer resources available to them. 7. Reduced Exposure to Compliance Risk In-house accounting staff typically have their hands full keeping up with the day-to-day tasks, such as journal entries, invoicing, bill payment and account reconciliations. They often find it difficult to stay on top of the latest tax, accounting and regulatory requirements. Inadvertent mistakes can leave your company vulnerable to legal judgments, penalties, fines and unwelcome media attention. Outsourcing firms, on the other hand, closely monitor such developments and promptly respond by adjusting their processes and procedures. 8. Improved Fraud Prevention and Detection The Association of Certified Fraud Examiners estimates that organizations lose 5% of their revenue to employee fraud every year — and 12% of frauds occur in the accounting department. Financial reporting scams are the least common type of fraud, but also the costliest, with a median loss of nearly $600,000, compared to roughly $100,000 for asset misappropriation schemes. Using external accountants who aren't in a position to profit from financial misstatement cuts your risk of the fraud by company insiders. External accountants also are more likely than employees to immediately flag objectively suspicious activity, and they may have fewer opportunities to collude with others to commit fraud. Accurate, Timely Financial Reporting Is Critical Accounting isn't necessarily the most glamorous part of running a successful business, but it's essential. If you can't find or afford to hire well-qualified professionals to handle your financial reporting needs, it may be time to consider outsourcing as a temporary — or permanent — solution. Contact your external accountant to determine what's right for your situation. We are committed to being your most trusted Business Advisor.We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

Are you contemplating some significant improvements to your home? Whether it's adding a pool to assist with a medical condition, finishing a basement or installing energy-saving equipment, you may be in line for generous tax breaks under current law. Here are four potential building blocks. 1. Mortgage Interest Deductions If you have a mortgage on your home, through 2025 under the Tax Cuts and Jobs Act (TCJA), you're generally allowed to deduct interest on only up to $750,000 of mortgage debt incurred to buy or improve a first or second residence. This limit applies to "home acquisition indebtedness" incurred after December 15, 2017, with some limited exceptions. (For married individuals who file separately, the home acquisition indebtedness limit is $375,000 for 2018 through 2025.) Under pre-TCJA law, you could deduct interest on up to $1 million of home acquisition indebtedness (or $500,000 for those who use married filing separate status). The TCJA grandfathers in existing home mortgage debt under the old rules. That is, the new law doesn't affect home acquisition indebtedness of up to $1 million (or $500,000 for married-separate filers) that was taken out: Before December 16, 2017, or Under a binding contract that was in effect before December 16, 2017, so long as the home purchase closed before April 1, 2018. Under another grandfather provision, the previous home acquisition indebtedness limits of $1 million (or $500,000 for married-separate filers) continue to apply to home acquisition indebtedness that was taken out before December 16, 2017, and then refinanced during the period extending from December 16, 2017, through 2025. But the grandfather provision applies only to the extent that the initial principal balance of the new loan doesn't exceed the principal balance of the old loan at the time of the refinancing. In addition, for 2018 through 2025, the TCJA effectively limits the home equity interest deduction to debt that would qualify for the home mortgage interest deduction. (For married individuals who file separately, this limit is $50,000 for 2018 through 2025.) Under pre-TCJA law, interest was deductible on up to $100,000 of home equity debt used for any purpose, such as to pay off credit card debt or to buy a car. Home equity debt is the usual method of borrowing to finance home improvements if you don't have cash on hand to pay for them. Tax advantage: If you borrow money through a home equity loan or line of credit and use the proceeds for significant home improvements, the debt can be treated as an acquisition debt instead of a home equity debt, because it's incurred to "substantially improve" a qualified residence. Accordingly, you may add the mortgage interest to your deductible total if you itemize deductions. The IRS officially gave this technique its stamp of approval in IRS Release No. 2018-32. 2. Adjustment to Basis The home sale gain exclusion is one of the biggest and best tax breaks on the books. If you sell a home that you've owned and used as your principal residence at least two out of the last five years, you may exclude from tax up to $250,000 of gain ($500,000 for married people who file joint tax returns). To qualify for the larger $500,000 joint-filer exclusion, at least one spouse must pass the ownership test and both spouses must pass the use test. Your principal residence for the year is the place where you spend the majority of time during that year. In the past, the home sale gain exclusion frequently covered the full amount of gain, but the recent spike in housing prices in many areas could result in a portion of your gain being subject to tax. Fortunately, you can adjust your basis for calculating gain to reflect home improvements, thereby reducing (or even eliminating) any taxable gain. For example, say Carol and Mike bought a home for $200,000 shortly after they were married. In 2022, they sold the property for $800,000. Normally, this would generate a gain of $600,000 ($800,000 minus $200,000 of tax basis). And the excess $100,000 above the exclusion amount would be taxable ($600,000 minus $500,000). However, Carol and Mike made $150,000 in home improvements over the years. The tax code allows them to adjust their tax basis for the home improvements, so their adjusted tax basis is $350,000 ($200,000 plus $150,000). As a result, their gain on the sale is only $450,000 ($800,000 minus $350,000). This is less than the home sale gain exclusion of $500,000 for married couples who file joint returns, which means the entire gain is tax-free. Important: Keeping good records is essential. You must be able to back up your home improvement amounts with receipts or other documentation in case the IRS challenges them. 3. Medically Necessary Improvements If you itemize deductions in 2023, you can deduct qualified unreimbursed medical expenses above 7.5% of your adjusted gross income (AGI) for the year. For example, if your AGI is $100,000, your annual deduction equals any amount greater than $7,500 (7.5% of $100,000). If you spend $8,000 in qualified expenses, your annual deduction is limited to $500 ($8,000 minus $7,500). For this purpose, a qualified expense must be incurred primarily for the prevention or alleviation of a physical or mental defect or illness. On the other hand, an expense that's merely beneficial to your general health isn't deductible. Important: If you make a home improvement that's medically necessary, you can deduct the amount above the resulting increase in the home's value. For example, suppose you install an in-ground pool based on a physician's advice to accommodate swimming by a spouse with a heart condition. The pool costs $25,000 and increases your home's value by $15,000, so you can add $10,000 to your qualified medical expenses. This can increase an existing medical expense deduction (if you're already above the AGI threshold) — or it may be enough to put you over the AGI threshold for the year. When possible, try to bunch medical expenses in a tax year in which you expect to clear the annual AGI threshold. 4. Residential Energy Credits The new Inflation Reduction Act (IRA) enhances two tax credits for implementing energy-saving measures in your home. These changes are generally effective in 2023. Here's a brief overview. First, the IRA extends the "residential clean energy credit" through 2034. It was previously scheduled to expire after 2023. This credit is available for installing solar panels or other equipment to harness renewable energy sources like wind, geothermal, biomass or fuel cell energy. Besides the extension, the IRA also boosts the credit amount for 2023 to 30% from a 23% rate, in addition to other technical changes. Second, the IRA includes numerous revisions to the "energy efficient home improvement credit." Notably, it hikes the credit from 10% to 30%. It also replaces a lifetime credit limit of $500 with an annual dollar cap of $1,200 and imposes dollar caps for certain specific items. A special $2,000 limit applies to electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers. Get It Right Home improvements can provide sizable tax savings if you follow the IRS blueprint. But, beware: Nailing down the tax breaks isn't a do-it-yourself project. Contact your CPA for professional guidance. We are committed to being your most trusted Business Advisor.We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

The pandemic has changed workplace culture, probably forever. As events unfolded over the last few years, many employers shuttered their doors completely or scaled back to using only essential workers at their regular workplace. Remote workers became a commonplace occurrence rather than an unusual situation, even for traditional work-on-site businesses. Now that health conditions have generally improved, should your operation return to pre-pandemic business as usual? Some company leaders are advocating for a complete return while others are comfortable with a remote workforce. Still others prefer a hybrid. On one hand, traditionalists with "production paranoia" maintain that output suffers when employees work remotely and that there are substantial benefits to keeping all workers on the premises. On the other hand, some businesspeople see productivity rising with work-at-home employees and have even expressed concern that they're working too hard and may experience burnout. These two schools of thought appear to conflict with each other — but they actually share a common objective. Old School: Don't Trust Workers Traditionally, supervisors have been reluctant to allow employees to work from home mainly because they feared workers would be distracted or simply goof off. How could you be sure that they weren't watching TV, doing household chores or taking a nap? The problem was that the office couldn't monitor the work being performed at home. Now, however, it's possible to track keystrokes, mouse movements and onscreen activities to determine exactly what a worker is doing and when. Some jobs that aren't heavily connected to computer functions are more difficult to monitor but tracking other functions may be possible. Monitoring may seem like an acceptable compromise for some workers motivated to continue working from home. But many employees are likely to push back on monitoring as a form of surveillance and indication of distrust. Is there a better way? New School: Expect More from Workers A new wave of managers has embraced the concept of remote workers. In fact, some supervisors expect their remote workers to deliver even more than they did before the pandemic hit. After all, the reasoning goes, at-home workers no longer spend time commuting. Usually, their "commute" involves no more than walking from one room of their home to another room. So they have more time to devote to work. Also, workers aren't distracted by social interaction with coworkers. There's no one to chat with around the water cooler. They're not dissecting last night's big game or their favorite TV shows. Again, this leads to a greater focus on work — the ultimate goal of many managers. But it does create a different set of problems. Breaks from the daily grind are still necessary. Keeping employees in constant work mode while they're home — which means they're putting in even more hours than usual — isn't necessarily the answer, either. Find the Proper Balance A general desire for a greater work/life balance has largely driven the "Great Resignation." In the past two years, many workers have jumped ship when they felt dissatisfied with their work environment. How then can managers retain current employees and attract new talent? Consider these practical suggestions. Emphasize outcomes over input . Take a closer look at what's most important to your company. If you're usually more concerned about quality than quantity, don't place undue significance on productivity. Concentrate on the value you're getting from employees rather than on insisting workers remain at their desk every moment. Measure what means the most . Along the same lines, is it necessary to measure activity by monitoring an employee's keystrokes on their computer? You'll be better served by measuring the results stemming from employee activities while they're working from home. Check off goals achieved rather than the hours worked. Be flexible . There's a lot to be said about adopting a hybrid approach that suits the needs of your business. For example, if occasional face-to-face meetings are essential, you might schedule employees to work at the physical building location once or twice (or more) a month Communicate with employees . This discussion shouldn't be a one-way street. Ask your employees about their preferences. The answers may surprise you. For instance, employees may not want to work from home full time. Employee preferences may dovetail with a hybrid schedule you're proposing or encourage you to fine-tune your strategies. Schedule work breaks . This can be a great way to get employees to take a deep breath and then refocus on their work. It also enables workers to avoid distractions that can come at critical times. Use software to accommodate scheduling that benefits your company. Be judicious about meetings . Zoom, Teams and comparable videoconferencing programs have eliminated one of the main complaints that traditionalists had about remote work. They enable virtual face-to-face meetings with your staff. But that doesn't mean you have to overload on videoconference meetings. Gather your workforce together when it accomplishes specific goals, but be smart about holding meetings, just like you should when workers are on the premises. Use, but don't abuse, monitoring software . No one likes the idea that "Big Brother" is spying on them. Many workers cringe at the thought of their supervisors micromanaging them in this fashion. But certain software can be less intrusive and even welcome if it offers resources such as providing reminders and notifications. Customize Your Approach There are challenges ahead for employers that choose to use remote workers in some capacity going forward. You may have to tinker with arrangements to find the balance your company is seeking. However, if you're willing to remain flexible, you should be able to develop a solution that accommodates your businesses — and your employee's — needs. We are committed to being your most trusted Business Advisor.We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

Comprehensive financial statements prepared under U.S. Generally Accepted Accounting Principles (GAAP) include three reports: the balance sheet, income statement and statement of cash flows. Together these reports can be powerful diagnostic tools to help evaluate the financial well-being of a business. Moreover, by carefully analyzing them, you may be able to uncover potential money-management problems or even fraudulent activity. Balance Sheets Show Assets vs. Liabilities The balance sheet provides a snapshot of a company's financial health at a moment in time. One side shows the assets owned by the company, such as cash, accounts receivable and inventory. The other side contains liabilities or claims on the company's assets. Examples include accrued expenses, accounts payable and equipment loans. Current assets (such as receivables) mature within a year, while long-term assets (such as plant and equipment) have longer useful lives. Similarly, current liabilities (such as payables) come due within a year, while long-term liabilities are payment obligations that extend beyond the current year or operating cycle. Net worth or owners' equity is the extent to which assets exceed liabilities. Because the balance sheet must balance, assets must equal liabilities plus net worth. If the value of your company's liabilities exceeds the value of its assets, net worth will be negative. When benchmarking financial results over time or against competitors, there are a number of balance sheet ratios worth monitoring. Examples include: Growth in accounts receivable vs. the growth in revenue . If receivables are growing faster than the rate at which revenue is increasing, customers may be taking longer to pay. This might indicate that customers are running into financial trouble or finding quality issues with the products or services. Growth in inventory vs. the growth in revenue . When inventory levels increase at a faster rate than revenue, the company is producing products faster than they're being sold. This can tie up your cash. Moreover, the longer inventory remains unsold, the greater the likelihood it'll become obsolete. Growing companies often must invest in inventory and accounts receivable, so increases in these accounts don't always signal problems. However, increases in inventory or receivables should typically correlate to rising revenue. Current ratio . The ratio of current assets to current liabilities is used to gauge short-term liquidity. If this ratio falls below 1, the company may struggle to pay bills coming due. Some business experts believe a current ratio of less than 2:1 is problematic. But the optimal ratio varies depending on your industry, economic conditions and other factors. Income Statements Focus on Profits The income statement shows revenue, expenses and profits earned (or losses incurred) over a given period. A commonly used term when discussing income statements is "gross profit," or the income earned after subtracting the cost of goods sold from revenue. Cost of goods sold includes the cost of labor and materials required to make a product. Another important term is "net income," which is the income remaining after all expenses (including taxes) have been paid. Also reflected on the income statement are sales, general and administrative expenses (SG&A). These expenses reflect functions, such as marketing, that support a company's production of products or services. The ratio of SG&A costs to revenue tends to be relatively fixed, no matter how well your business is doing. If these costs constitute a rising percentage of revenue, business may be slowing down. The income statement can reveal other potential problems, too. It may show a decline in gross profits, which means production expenses are rising more quickly than revenue. Common causes of this include hiring more employees than you really need and doing an excessive proportion of low- or no-margin business. In today's business environment, many companies are reporting lower gross margins due to rising labor and materials costs — unless they've managed to pass along these cost increases to customers through higher prices. Cash Is King The statement of cash flows shows all the cash coming in and out of your company. For example, your company may have cash inflows from selling products or services, borrowing money and selling stock. Outflows may result from paying expenses, investing in capital equipment and repaying debt. Ideally, a company will derive enough cash from operations to cover its expenses. If not, it may need to borrow money or sell stock to survive. The statement of cash flows shows changes in balance sheet items from one accounting period to the next. It's organized into cash flows from three primary sources: Operations, Investing activities, and Financing activities. To complicate matters, noncash investing and financing transactions are reported at the bottom of the statement of cash flows. These transactions don't involve direct cash exchanges. For example, a machine that's purchased directly with loan proceeds would be reported here. Although this report may seem similar to an income statement, its focus is solely on cash . For instance, a product sale might appear on the income statement, even though the customer won't pay for it for another month. But the money from the sale won't appear as a cash inflow until it's collected. To remain in business, companies must continually generate cash to pay creditors, vendors and employees. So business owners must watch their statement of cash flows closely. We Can Help Financial statements tell a story about a company's financial performance. This information can be valuable for many purposes — whether you're evaluating the financial results of your own business or one that you're considering acquiring, lending to or investing in. Contact your financial advisor to get the most from these reports. An experienced professional can help you evaluate a company's financial health, including potential risks and areas of improvement. Footnote Disclosures Provide Critical Details Audited and reviewed financial statements are required to include footnote disclosures. In addition, companies that issue compiled financial statements often voluntarily disclose information to support their numerical results. Footnotes provide greater detail to line items on the financial statements and explain business operations, risk factors and external market conditions. This information is designed to help people who rely on the company's financial statements better understand its financial health. To get the most out of your financial statement review, read the footnotes carefully. Here are some disclosure topics that might warrant additional due diligence. Related-Party Transactions Companies may give preferential treatment to, or receive it from, related parties. This term refers to individuals or companies with the ability to influence one another's financial transactions. These transactions are often associated with small businesses. For example, a family business owner might lease space from her parents at below-market rental rates or pay above-market salaries to her son. But large companies can also engage in related-party transactions. For instance, an executive or board member may have an undisclosed financial interest in one of the company's suppliers. Footnotes should disclose all related parties with whom the company and its management team conduct business. It's important to critically evaluate related-party transactions to determine whether they're at "arm's length" — and whether significant risk factors exist. Accounting Method Changes A company's choice of accounting methods can shape its financial results. For instance, under the cash-basis method, companies report revenue only as it's received and expenses only as they're paid. Under the accrual method, income is recorded at the time of sale, regardless of when payment is received. And expenses are recorded only when goods or services are received. Companies must disclose changes in accounting methods, estimates, principles and practices if the change materially affects their financial statements. The disclosure should also explain the justification for a change in accounting principle or method, as well as the change's effect on their financial statements. The reason for a change should be valid, such as a regulatory mandate. Dishonest managers can use accounting changes in, for instance, depreciation or inventory reporting methods to manipulate financial results. Significant Events Footnotes also should disclose significant events that could materially impact future earnings or impair business value. Examples include the loss of a major customer, uninsured business interruption from a natural disaster or stricter regulatory oversight next year. Business owners and investors should stay atop industry trends to avoid being blindsided by emerging trends in the business environment. Interim financial reports can sometimes help catch undisclosed events early. Contingent Liabilities Footnotes may also reveal contingencies, such as pending litigation, an IRS inquiry, an environmental claim and uncertain tax positions. If significant, these items could impair a company's future performance and value. However, managers tend to downplay these issues, so you might need to read between the lines and ask questions to better understand the potential risks and expected losses. ESG Matters A broad range of environmental, social and governance (ESG) issues may affect a borrower's financial condition and performance. Examples include the size of the company's carbon footprint, efforts to replace fossil fuels with renewable energy sources, and overall use of natural resources, as well as workplace, health and safety, and consumer product safety risks. ESG reports aren't mandatory in the United States, but public companies increasingly are required by the Securities and Exchange Commission to disclose information related to such issues as climate change and the use of conflict minerals in their financial reports. Many private companies have joined the bandwagon to prove to lenders and other stakeholders that they're environmentally responsible, cost conscious and creditworthy. We are committed to being your most trusted Business Advisor.We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!

There's good news for owners and designers of commercial buildings that are energy efficient. In 2021, the energy-efficient commercial buildings deduction (also known as Section 179D) was made permanent, thanks to the Consolidated Appropriations Act. Now, the recently passed Inflation Reduction Act (IRA) has significantly changed the tax deduction again. The IRA boosts the potential value of the deduction and provides new avenues for architecture, engineering and construction firms to qualify. Here are the details. Existing Rules Before the changes brought by the IRA, the Sec. 179D deduction was generally restricted to the owners of commercial properties and residential properties having four stories or more. Government entities with qualifying buildings could assign their deductions to qualified designers, including: Architects, Engineers, Contractors, Environmental consultants, and Energy services providers. A qualified designer is one who creates technical specifications for the installation of energy-efficient commercial building property. Merely installing, repairing or maintaining such property isn't sufficient to qualify. To claim the deduction pre-IRA, a taxpayer had to show a 50% reduction in energy and power costs. The deduction amount was as much as 63 cents per square foot for each of three eligible systems: HVAC and hot water, Interior lighting, and The building envelope. The maximum deduction was $1.88 per square foot (adjusted for inflation). A partial deduction was allowed if the taxpayer couldn't demonstrate the required savings in all three systems. Whether full or partial, you could claim the deduction only once per property. IRA Changes Under the IRA, these requirements continue for the remainder of 2022, but 2023 will bring some big changes. For example, the qualification threshold falls to 25% energy savings, with a base deduction of 50 cents per square foot. While the base deduction might seem relatively low, a "bonus deduction" could hike the ultimate deduction dramatically. If a project satisfies prevailing wage and apprenticeship requirements, you'll be allowed to deduct up to $2.50 per square foot. And the deduction amount increases as the energy savings exceed 25% as follows: If you meet the labor requirements, the deduction rises by 10 cents for each percentage point of savings over 25%, up to 50%, resulting in a maximum deduction of $5 per square foot. If you don't qualify for the bonus, the deduction rises by 2 cents for each additional percentage point up to 50%, producing a maximum deduction of $1 per square foot. The IRA also changes the standard for calculating the amount of energy savings. The current rules apply the American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE) standard in effect two years before the start of construction. The IRA replaces that with the ASHRAE standard from four years prior to the completion of construction. The law eliminates the partial deduction but allows taxpayers to claim the full deduction more than once. It generally can be claimed every three tax years for subsequent energy-efficient improvements. The IRA also provides a new alternative deduction for renovation projects. Special Rules for Designers For designers, the most important change under the IRA is that all tax-exempt entities will be permitted to allocate their deductions, not just governmental entities. That means qualified designers that work on properties for a wide range of clients — including charities, religious institutions, nonprofit schools and universities, hospitals, and museums — can claim the deduction. Not surprisingly, it's easier for a building owner to claim the Sec. 179D deduction than a designer. But, with a deduction of up to $5 per square foot, it's certainly worth jumping through the additional hoops. For starters, a designer must obtain a Sec. 179D study that calculates the deduction amount. The study is conducted by a qualified third party who's a contractor or professional engineer licensed in the state where the property is located. IRS-approved energy software is used to model the energy performance of the property at issue and compare it against the applicable ASHRAE standard. The third-party will also make a site visit to the property to confirm that the property has met or will meet the energy-savings targets in the design plans and specifications. In addition, the third party must sign a certification to be included with the study. Among other things, the certification should state that the signer has examined the energy model and supports the allocation of the deduction to that particular designer. Designers also need to provide an allocation letter, signed by both the designer and an authorized representative of the entity allocating the deduction. The letter must include: The cost of the energy-efficient property, with labor, The date it's placed in service, and The amount of the Sec. 179D deduction allocated to the designer. The entity can allocate the entire credit to a single designer or make proportional allocations to multiple designers. It remains to be seen if different or additional information will be required when the deduction is allocated by a tax-exempt entity that isn't governmental. Valuable Cash Flow Tool With the Sec. 179D deduction, qualified builders and designers can reduce their tax bills and, in turn, improve their cash flow. Contact your tax advisor to help you make the most of this and other energy-efficiency tax incentives. We are committed to being your most trusted Business Advisor.We view every client like a partnership, and truly believe our success is a result of your success! We assist clients with accounting, tax preparation and financial advising in the Bryan and Navasota, Texas, area. Interested in working with us? Fill out a new client inquiry here. We love customer feedback! Please leave us a review here!