Turnaround acquisitions are risky growth opportunities for today’s companies

Turnaround acquisitions are risky growth opportunities for today’s companies

Turnaround acquisitions are risky growth opportunities for today’s companies

When it comes to growth, businesses have two broad options. First, there’s organic growth — that is, progress made through internal efforts such as boosting sales, expanding into other markets, innovating new products or services, and improving operational efficiency. Second, there’s inorganic growth, which is achieved through externally focused activities such as mergers and acquisitions (M&A), and strategic partnerships.

Organic growth is, without a doubt, imperative to the success of most companies. But occasionally, or more often if you pursue M&A proactively, you may encounter the opportunity to acquire a troubled business. Although “turnaround acquisitions” can yield considerable long-term rewards, acquiring a struggling concern poses greater risks than buying a financially sound company.

Due diligence

Generally, successful turnaround acquisitions begin by identifying a floundering business with hidden value, such as untapped market potential, poor (but replaceable) leadership or excessive (yet fixable) costs.

But be careful: You’ve got to fully understand the target company’s core business — specifically, its profit drivers and roadblocks — before you start drawing up a deal. If you rush into the acquisition or let emotions cloud your judgment, you could misjudge its financial condition and, ultimately, devise an ineffective course of rehabilitative action. This is why so many successful turnarounds are conducted by buyers in the same industry as the sellers or by investors, such as private equity firms, that specialize in particular types of companies.

During the due diligence phase, pinpoint the source(s) of your target’s distress. Common examples include excessive fixed costs, lack of skilled labor, decreased demand for its products or services, and overwhelming debt. Then, determine what, if any, corrective measures can be taken.

Don’t be surprised to find hidden liabilities, such as pending legal actions or outstanding tax liabilities. Then again, you also might find potential sources of value, such as unclaimed tax breaks or undervalued proprietary technologies.

Cash management

Another critical step in due diligence is identifying cash flows, both in and out. Determine what products or services drive revenue and which costs hinder profitability. Would it make sense to divest the business of unprofitable products or services, subsidiaries, divisions, or real estate?

Implementing a long-term cash-management plan based on reasonable forecasts is also critical. Revenue-generating and cost-cutting measures — such as eliminating excessive overtime pay, lowering utility bills, and collecting unbilled or overdue accounts receivable — can often be achieved following a thorough evaluation of accounting controls and procedures.

Reliable due diligence hinges on whether the target company’s accounting and financial reporting systems can produce the appropriate data. If these systems don’t accurately capture transactions and fully list assets and liabilities, you’ll likely encounter some unpleasant surprises and struggle to turn around the business.

Buyers vs. sellers

Parties to a business acquisition generally structure the deal as a sale of either assets or stock. Buyers usually prefer asset deals, which allow them to select the most desirable items from a target company’s balance sheet. In addition, buyers typically receive a step-up in basis on the acquired assets, which lowers future tax obligations. And they’re often able to negotiate new contracts, licenses, titles and permits.

On the other hand, sellers generally prefer to sell stock, not assets. Selling stock simplifies the deal, and tax obligations are usually lower for sellers. However, a stock sale may be riskier for the buyer because the struggling target business remains operational while the buyer takes on its debts and legal obligations. Buyers also inherit sellers’ existing depreciation schedules and tax basis in target companies’ assets.

Reasonable assurance

For any prospective turnaround acquisition, you’ve got to establish reasonable assurance that the return on investment will likely exceed the acquisition’s immediate costs and ongoing risks. We can help you gather and analyze the financial reporting and tax-related information associated with any prospective M&A transaction.


How your business can prepare for and respond to an IRS audit

How your business can prepare for and respond to an IRS audit

How your business can prepare for and respond to an IRS audit

The IRS has been increasing its audit efforts, focusing on large businesses and high-income individuals. By 2026, it plans to nearly triple its audit rates for large corporations with assets exceeding $250 million. Under these plans, partnerships with assets over $10 million will also see audit rates increase tenfold by 2026. This ramp-up in audits is part of the IRS’s broader strategy, funded by the Inflation Reduction Act, to target wealthier entities and high-dollar noncompliance.

The IRS doesn’t plan to increase audits for individuals making less than $400,000 annually. Small businesses are also unlikely to see a rise in audit rates in the near future, as the IRS is prioritizing more complex returns for higher-wealth entities. For example, the tax agency has announced that one focus area is taxpayers who personally use business aircraft. A business can deduct the cost of purchasing and using corporate planes, but personal trips, including vacation travel, aren’t deductible.

Preparation is key

The best way to survive an IRS audit is to prepare in advance. On an ongoing basis, you should systematically maintain documentation — invoices, bills, canceled checks, receipts, or other proof — for all items to be reported on your tax returns. Keep all records in one place.

It also helps to know what might catch the attention of the IRS. Certain types of tax return entries are known to involve inaccuracies, so they may lead to an audit. Some examples include:

  • Significant inconsistencies between tax returns filed in the past and your most current return,
  • Gross profit margin or expenses markedly different from those of other businesses in your industry, and
  • Miscalculated or unusually high deductions.

The IRS may question specific deductions because there are strict recordkeeping requirements associated with them — for example, auto and travel expense deductions. In addition, an owner-employee’s salary that’s much higher or lower than those at similar companies in his or her location may catch the IRS’s eye, especially if the business is structured as a corporation.

How to respond to an audit

If the IRS selects you for an audit, it will notify you by letter. Generally, the IRS doesn’t make initial contact by phone. But if there’s no response to the letter, the agency may follow up with a call.

Many audits simply request that you mail in receipts or other documentation to support certain deductions you’ve claimed. Only the strictest version, the field audit, requires a meeting with one or more IRS auditors. (Note: Ignore unsolicited emails or text messages about an audit. The IRS doesn’t contact people in this manner. These are scams.)

The tax agency doesn’t demand an immediate response to a mailed notice. The IRS will inform you of the discrepancies in question and give you time to prepare. Collect and organize all relevant income and expense records. If anything is missing, you’ll have to reconstruct the information as accurately as possible based on other documentation.

If you’re audited, our firm can help you:

  • Understand what the IRS is disputing (it’s not always clear),
  • Gather the specific documents and information needed, and
  • Respond to the auditor’s inquiries in the most effective manner.

The IRS usually has three years to conduct an audit, and it probably won’t begin until a year or more after you file a return. Stay calm if the IRS contacts you. Many audits are routine. By taking a meticulous, proactive approach to tracking, documenting and filing your company’s tax-related information, you’ll make an audit more manageable. It may even decrease the chances you’ll be chosen in the first place.


Is your money-losing activity a hobby or a business?

Is your money-losing activity a hobby or a business?

Is your money-losing activity a hobby or a business?

Let’s say you have an unincorporated sideline activity that you consider a business. Perhaps you offer photography services, create custom artwork or sell handmade items online. Will the IRS agree that your venture is a business, not a hobby? It’s an essential question for tax purposes.

If the expenses from an activity exceed the revenues, you have a net loss. You may think you can deduct that loss on your personal federal income tax return with no questions asked. Not so fast! The IRS often claims that money-losing sidelines are hobbies rather than businesses — and the federal income tax rules for hobbies aren’t in your favor.

TCJA made tax rules worse

Old rules: Before the TCJA rules kicked in in 2018, if an activity was deemed to be a not-for-profit hobby, you had to report all the revenue on your Form 1040. You could deduct hobby-related expenses, such as itemized deductions for allocable home mortgage interest and property taxes. Other hobby-related expenses — up to the amount of revenue from the hobby — could potentially be written off. You had to treat those other outlays as miscellaneous itemized expenses that you could only deduct to the extent they exceeded 2% of your adjusted gross income (AGI).

Current rules: For 2018 through 2025, the TCJA suspends write-offs for miscellaneous itemized deduction items previously subject to the 2%-of-AGI deduction threshold. That change wipes all deductions for hobby-related expenses, except for expenses you can write off in any event (such as itemized deductions for allocable mortgage interest and property taxes). So, under current law, you can’t deduct any hobby-related expenses. As was the case before the TCJA, you must still report 100% of hobby-related income on your Form 1040. So, you’ll be taxed on all the income even if the activity loses money.

Determine if your activity is a business

Now you understand why for-profit business status is more beneficial than hobby status. The next step is determining if your money-losing activity is a hobby or a business.

There are two statutory safe-harbor rules for determining if you have a for-profit business:

  • An activity is presumed to be a for-profit business if it produces positive taxable income in at least three out of every five years. You can deduct losses from the other years because they’re considered business losses.
  • A horse racing, breeding, training or showing activity is presumed to be a for-profit business if it produces positive taxable income in at least two out of every seven years.

If you don’t qualify for one of the safe-harbor rules, you may still be able to treat the activity as a for-profit business and rightfully deduct the losses. You must demonstrate an honest intent to make a profit. Here are some of the factors that can prove (or disprove) such intent:

  • You conduct the activity in a business-like manner by keeping good records.
  • You have expertise in the activity or hire advisers who do.
  • You spend enough time to help show the activity is a business.
  • There’s an expectation of asset appreciation.
  • You’ve had success in other ventures, which indicates business acumen.
  • The history and magnitude of income and losses from the activity help show it’s a business. Losses caused by unusual events are more justifiable than ongoing losses that only a hobbyist would endure.
  • If you’re wealthy, it may look like you can afford to absorb ongoing losses, which may indicate a hobby.
  • If the activity has elements of personal pleasure, it may appear to be a hobby.

Don’t be discouraged

On the bright side, the U.S. Tax Court has, over the years, concluded that a number of pleasurable activities could be classified as for-profit business ventures rather than tax-disfavored hobbies. We may be able to help you create documentation to prove that your money-losing activity is actually a for-profit business that hasn’t paid off yet.


Working capital management is critical to business success

Working capital management is critical to business success

Working capital management is critical to business success

Success in business is often measured in profitability — and that’s hard to argue with. However, liquidity is critical to reaching the point where a company can consistently turn a profit.

Even if you pile up sales to the sky, your bottom line won’t flourish unless you have the cash to fund operations to fulfill all those orders. The good news is there’s a tried-and-true way to stay liquid while you grow your company. It’s called working capital management.

Multifunctional metric

Working capital is a metric — current assets minus current liabilities — that’s traditionally used to measure liquidity. Essentially, it’s the amount of accessible cash you need to support short-term business operations. Regularly calculating working capital can help you and your leadership team answer questions such as:

  • Do we have enough current assets to cover current obligations?
  • How fast could we convert those assets to cash if we needed to?
  • What short-term assets are available for loan collateral?

Another way to evaluate liquidity is the working capital ratio: current assets divided by current liabilities. A healthy working capital ratio varies from industry to industry, but it’s generally considered to be 1.5 to 2. A ratio below 1.0 typically signals impending liquidity problems.

For yet another perspective on working capital, compare it to total assets and annual revenue. From this angle, working capital becomes a measure of efficiency.

Working capital requirement

The amount of working capital your company needs, known as its working capital requirement, depends on the costs of your sales cycle, operational expenses and current debt payments.

Fundamentally, you need enough working capital to finance the gap between payments from customers and payments to suppliers, vendors, lenders and others. To optimize your business’s working capital requirement, focus primarily on three key areas: 1) accounts receivable, 2) accounts payable and 3) inventory.

High liquidity generally equates with low credit risk. But having too much cash tied up in working capital may detract from important growth initiatives such as:

  • Expanding into new markets,
  • Buying better equipment or technology,
  • Launching new products or services, and
  • Paying down debt.

Failure to pursue capital investment opportunities can also compromise business value over the long run.

3 critical areas

The right approach to working capital management will obviously vary from company to company depending on factors such as size, industry, mission and market. However, as mentioned, there are three primary areas of the business to focus on:

1. Accounts receivable. The faster your company collects from customers, the more readily it can manage debt and capitalize on opportunities. Possible solutions include tighter credit policies, early bird discounts and collections-based sales compensation. Also, continuously improve your administrative processes to eliminate inefficiencies.

2. Accounts payable. From a working capital perspective, you generally want to delay paying bills as long as possible — particularly those from noncritical suppliers, vendors or other parties. One exception to this is when you can qualify for early bird discounts. Naturally, delaying payments should never drift into late payments or nonpayment, which can damage your business credit rating.

3. Inventory. If your company maintains inventory, recognize the challenge it presents to working capital management. Excessive inventory levels may dangerously reduce liquidity because of restocking, storage, obsolescence, insurance and security costs. Then again, insufficient inventory levels can frustrate customers and hurt sales. Be sure to give your inventory the “TLC” it deserves — including regular technology upgrades and strategic reconsideration of optimal levels.

The right balance

It isn’t easy to strike the right balance of maintaining enough liquidity to operate smoothly while also saving funds for capital investments and an emergency cash reserve. Our firm can help you assess precisely where your working capital stands and identify ways to manage it better.


Unlock your child’s potential by investing in a 529 plan

Unlock your child’s potential by investing in a 529 plan

Unlock your child’s potential by investing in a 529 plan

If you have a child or grandchild planning to attend college, you’ve probably heard about qualified tuition programs, also known as 529 plans. These plans, named for the Internal Revenue Code section that provides for them, allow prepayment of higher education costs on a tax-favored basis.

There are two types of programs:

  1. Prepaid plans, which allow you to buy tuition credits or certificates at present tuition rates, even though the beneficiary (child) won’t be starting college for some time; and
  2. Savings plans, which depend on the performance of the fund(s) you invest your contributions in.

Earnings build up tax-free

You don’t get a federal income tax deduction for 529 plan contributions, but the account earnings aren’t taxed while the funds are in the program. (Contributors are eligible for state tax deductions in some states.) You can change the beneficiary, or roll over the funds in the program to another plan for the same or a different beneficiary, without income tax consequences.

Distributions from the program are tax-free up to the amount of the student’s “qualified higher education expenses.” These include tuition (up to $10,000 for an elementary or secondary public, private or religious school), fees, books, supplies and required equipment. Reasonable room and board are also qualified expenses if the student is enrolled at least half time.

Tax-free distributions from a 529 plan can also be used to pay the principal or interest on a loan for qualified higher education expenses of the beneficiary or a sibling of the beneficiary.

What about distributions in excess of qualified expenses? They’re taxed to the beneficiary to the extent that they represent earnings on the account. The IRS will also impose a 10% penalty tax.

Your contributions to the qualified tuition program are treated as gifts to the student, but the contributions qualify for the gift tax exclusion ($18,000 in 2024, adjusted annually for inflation). Suppose your contributions in a year exceed the exclusion amount. In that case, you can elect to take the contributions into account ratably over five years starting with the year of the contributions. Thus, assuming you make no other gifts to that beneficiary, you could contribute up to $90,000 per beneficiary in 2024 without gift tax. (In that case, any additional contributions during the next four years would be subject to gift tax, except to the extent that the exclusion amount increases.) You and your spouse together could contribute $180,000 per beneficiary for 2024, subject to any contribution limits imposed by the plan.

Not all schools qualify

Eligible schools include colleges, universities, vocational schools or other postsecondary schools eligible to participate in a student aid program of the U.S. Department of Education. This includes nearly all accredited public, nonprofit and for-profit postsecondary institutions.

However, “qualified higher education expenses” also include expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school. A school should be able to tell you whether it qualifies.

Tax-smart education

A distribution from a qualified tuition program isn’t subject to gift tax, but a change in beneficiary or rollover to the account of a new beneficiary may be. Contact us with questions about tax-saving ways to save and pay for college.


How businesses can better retain their salespeople

How businesses can better retain their salespeople

How businesses can better retain their salespeople

The U.S. job market has largely stabilized since the historic disruption of the pandemic and the unusual fluctuations that followed. But the fact remains that employee retention is mission-critical for businesses. Retaining employees is still generally less expensive than finding and hiring new ones. And strong retention is one of the hallmarks of a healthy employer brand.

One role that’s been historically challenging to retain is salesperson. In many industries, sales departments have higher turnover rates than other departments. If this has been the case at your company, don’t give up hope. There are ways to address the challenge.

Lay out the welcome mat

For starters, don’t focus retention efforts only on current salespeople. Begin during hiring and ramp up with onboarding. A rushed, confusing or cold approach to hiring can get things off on the wrong foot. In such cases, new hires tend to enter the workplace cautiously or skeptically, with their eyes on the exit sign rather than the “upper floors” of a company.

Onboarding is also immensely important. Many salespeople tell horror stories of being shown to a cubicle with nothing but a telephone on the desk and told to “Get to it.” With so many people still working remotely, a new sales hire might not even get that much attention. Welcome new employees warmly, provide ample training, and perhaps give them a mentor to help them get comfortable with your business and its culture.

Incentivize your team

Even when hiring and onboarding go well, most employees will still consider a competitor’s job offer if the pay is right. So, to improve your chances of retaining top sales producers and their customers, consider financial incentives.

Offering retention bonuses and rewards for maintaining or increasing sales — in addition to existing compensation plans — can help. Make such incentives easy to understand and clearly achievable. Although interim bonus programs might be expensive in the near term, they can stabilize sales and prevent sharp declines.

When successful, a bonus program will help you generate more long-term revenue to offset the immediate costs. That said, financial incentives need to be carefully designed so they don’t adversely affect cash flow or leave your business vulnerable to fraud.

Give them a voice

Salespeople interact with customers and prospects in ways many other employees don’t. As a result, they may have some great ideas for capitalizing on your company’s strengths and shoring up its weaknesses.

Look into forming a sales leadership team to help evaluate the potential benefits and risks of goals proposed during strategic planning. The team should include two to four top sellers who are given some relief from their regular responsibilities so they can offer feedback and contribute ideas from their distinctive perspectives. The sales leadership team can also:

  • Serve as a clearinghouse for customer concerns and competitor strategies,
  • Collaborate with the marketing department to improve messaging about current or upcoming product or service offerings, and
  • Participate in developing new products or services based on customer feedback and demand.

Above all, giving your salespeople a voice in the strategic direction of the company can help them feel more invested in the success of the business and motivated to stay put.

Assume nothing

Business owners and their leadership teams should never assume they can’t solve the dilemma of high turnover in the sales department. The answer often lies in proactively investigating the problem and then taking appropriate steps to help salespeople feel more welcomed and appreciated. We can help your company calculate turnover rate, identify and track its hiring and employment costs, and assess the feasibility of financial incentives.


Advantages of keeping your business separate from its real estate

Advantages of keeping your business separate from its real estate

Advantages of keeping your business separate from its real estate

Does your business require real estate for its operations? Or do you hold property titled under your business’s name? It might be worth reconsidering this strategy. With long-term tax, liability and estate planning advantages, separating real estate ownership from the business may be a wise choice.

How taxes affect a sale

Businesses that are formed as C corporations treat real estate assets as they do equipment, inventory and other business assets. Any expenses related to owning the assets appear as ordinary expenses on their income statements and are generally tax deductible in the year they’re incurred.

However, when the business sells the real estate, the profits are taxed twice — at the corporate level and at the owner’s individual level when a distribution is made. Double taxation is avoidable, though. If ownership of the real estate is transferred to a pass-through entity instead, the profit upon sale will be taxed only at the individual level.

Safeguarding assets

Separating your business ownership from its real estate also provides an effective way to protect the real estate from creditors and other claimants. For example, if your business is sued and found liable, a plaintiff may go after all of its assets, including real estate held in its name. But plaintiffs can’t touch property owned by another entity.

The strategy also can pay off if your business is forced to file for bankruptcy. Creditors generally can’t recover real estate owned separately unless it’s been pledged as collateral for credit taken out by the business.

Estate planning implications

Separating real estate from a business may give you some estate planning options, too. For example, if the company is a family business but all members of the next generation aren’t interested in actively participating, separating property gives you an extra asset to distribute. You could bequest the business to one member and the real estate to another.

Handling the transaction

If you’re interested in this strategy, the business can transfer ownership of the real estate and then the transferee can lease it back to the company. Who should own the real estate? One option: The business owner can purchase the real estate from the business and hold title in his or her name. One concern though, is that it’s not only the property that’ll transfer to the owner but also any liabilities related to it.

In addition, any liability related to the property itself may inadvertently put the business at risk. If, for example, a client suffers an injury on the property and a lawsuit ensues, the property owner’s other assets (including the interest in the business) could be in jeopardy.

An alternative is to transfer the property to a separate legal entity formed to hold the title, typically a limited liability company (LLC) or limited liability partnership (LLP). With a pass-through structure, any expenses related to the real estate will flow through to your individual tax return and offset the rental income.

An LLC is more commonly used to transfer real estate. It’s simple to set up and requires only one member. LLPs require at least two partners and aren’t permitted in every state. Some states restrict them to certain types of businesses and impose other restrictions.

Tread carefully

It isn’t always advisable to separate the ownership of a business from its real estate. If it’s a valuable move, the right approach will depend on your individual circumstances. Contact us to help determine the best way to minimize your transfer costs and capital gains taxes while maximizing other potential benefits.


Can homeowners deduct seller-paid points as the real estate market improves?

Can homeowners deduct seller-paid points as the real estate market improves?

Can homeowners deduct seller-paid points as the real estate market improves?

The recent drop in interest rates has created a buzz in the real estate market. Potential homebuyers may now have an opportunity to attain their dreams of purchasing property. “The recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months,” said National Association of Realtors Chief Economist Lawrence Yun.

If you’re in the process of buying a home, or you just bought one, you may wonder if you can deduct mortgage points paid on your behalf by the seller. The answer is “yes,” subject to some significant limitations described below.

Basics of points

Points are upfront fees charged by a mortgage lender, expressed as a percentage of the loan principal. Points, which may be deductible if you itemize deductions, are usually the buyer’s obligation. However, a seller sometimes sweetens a deal by agreeing to pay the points on the buyer’s mortgage loan.

In most cases, points that a buyer pays are a deductible interest expense. And seller-paid points may also be deductible.

Suppose, for example, that you bought a home for $600,000. In connection with a $500,000 mortgage loan, your bank charged two points, or $10,000. The seller agreed to pay the points to close the sale.

You can deduct the $10,000 in the year of sale. The only disadvantage is that your tax basis is reduced to $590,000, which will mean more gain if — and when — you sell the home for more than that amount. But that may not happen until many years later, and the gain may not be taxable anyway. You may qualify for an exclusion of up to $250,000 ($500,000 for a married couple filing jointly) of gain on the sale of a principal residence.

Important limits

Some important limitations exist on the rule allowing a deduction for seller-paid points. The rule doesn’t apply to points that are:

  • Allocated to the part of a mortgage above $750,000 ($375,000 for marrieds filing separately) for tax years 2018 through 2025 (above $1 million for tax years before 2018 and after 2025);
  • On a loan used to improve (rather than buy) a home;
  • On a loan used to buy a vacation or second home, investment property or business property; and
  • Paid on a refinancing, or home equity loan or line of credit.

Tax aspects of the transaction

We can review with you in more detail whether the points in your home purchase are deductible, as well as discuss other tax aspects of your transaction.


Understanding your obligations: Does your business need to report employee health coverage?

Understanding your obligations: Does your business need to report employee health coverage?

Understanding your obligations: Does your business need to report employee health coverage?

Employee health coverage is a significant part of many companies’ benefits packages. However, the administrative responsibilities that accompany offering health insurance can be complex. One crucial aspect is understanding the reporting requirements of federal agencies such as the IRS. Does your business have to comply, and if so, what must you do? Here are some answers to questions you may have.

What is the number of employees before compliance is required?

The Affordable Care Act (ACA), enacted in 2010, introduced several employer responsibilities regarding health coverage. Certain employers with 50 or more full-time employees (called “applicable large employers” or ALEs) must use Forms 1094-C and 1095-C to report information about health coverage offers and enrollment for their employees.

Specifically, an ALE uses Form 1094-C to report each employee’s summary information and transmit Forms 1095-C to the IRS. A separate Form 1095-C is used to report information about each employee. In addition, Forms 1094-C and 1095-C are used to determine whether an employer owes payments under the employer shared responsibility provisions (sometimes referred to as the “employer mandate”).

Under the ACA mandate, an employer can be penalized if it doesn’t offer affordable minimum essential coverage that provides minimum value to substantially all full-time employees and their dependents. Form 1095-C is also used in determining employees’ eligibility for premium tax credits.

If an employer has fewer than 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer isn’t an ALE for the current year. That means the employer isn’t subject to the employer shared responsibility provisions or the information reporting requirements for the current year.

What information must be reported?

On Form 1095-C, ALEs must report the following for each employee who was a full-time employee for any month of the calendar year:

  • The employee’s name, Social Security number (SSN) and address,
  • The Employer Identification Number (EIN),
  • An employer contact person’s name and phone number,
  • A description of the offer of coverage (using a code provided in the instructions) and the months of coverage,
  • Each full-time employee’s share of the coverage cost under the lowest-cost, minimum-value plan offered by the employer, by calendar month, and
  • The applicable safe harbor (using one of the codes provided in the instructions) under the employer shared responsibility or employer mandate penalty.

What if we have a self-insured plan or a multi-employer plan?

If an ALE offers health coverage through a self-insured plan, the ALE must report additional information on Form 1095-C. For this purpose, a self-insured plan also includes one offering some enrollment options as insured arrangements and other options as self-insured.

Suppose an employer provides health coverage in another manner, such as through a multiemployer health plan. In that case, the insurance issuer or the plan sponsor making the coverage available will provide the information about health coverage to enrolled employees. An employer that provides employer-sponsored, self-insured health coverage but isn’t subject to the employer mandate isn’t required to file Forms 1094-C and 1095-C. Instead, the employer reports on Forms 1094-B and 1095-B for employees who enrolled in the employer-sponsored, self-insured health coverage.

On Form 1094-C, an employer can also indicate whether any eligibility certifications for relief from the employer mandate apply.

Be aware that these reporting requirements may be more complex if your business is a member of an aggregated ALE group or if the coverage is provided through a multiemployer plan.

What are the W-2 reporting requirements?

Employers also report certain information about health coverage on employees’ Forms W-2. But it’s not the same information as what’s reported on 1095-C. The information on either form doesn’t cause excludable employer-provided coverage to become taxable to employees. It’s for informational purposes only.

The above is a simplified explanation of the reporting requirements. Contact us with questions or for assistance in complying with the requirements.


IT strategy showdown: Enterprise architecture vs. Agile

IT strategy showdown: Enterprise architecture vs. Agile

IT strategy showdown: Enterprise architecture vs. Agile

Few, if any, companies can operate successfully today without the right information technology (IT) strategy. And as businesses grow, their IT needs and infrastructures become even more complex and costly.

This push and pull of managing growth while grappling with tech has brought two broad approaches to IT strategy to the forefront: enterprise architecture and Agile. Let’s look at both so you can contemplate where your company stands and whether an adjustment may be warranted.

Following a blueprint

As its name implies, enterprise architecture is a strategic philosophy that focuses on mindfully designing or adapting a companywide framework for choosing, implementing, operating and supporting technology.

Think of an architect drawing up a blueprint for a commercial building — every aspect of that structure will be thought through ahead of time to suit the size, operational needs and mission of the company. So it goes with enterprise architecture, which seeks to ensure every IT decision and move:

Aligns with the goals of the business. Everything done technologically flows from the company’s current goals as established through ongoing strategic planning. So, for example, no new software acquisitions or upgrades can occur without approval from the enterprise architecture unit, which can be a dedicated department or a special committee.

Complies with standardization and organization protocols. Businesses using enterprise architecture construct their IT systems to integrate seamlessly and follow stated rules for access, use, upgrades, cybersecurity and so forth. They also organize their systems to support digital transformation (digitalizing all areas of the business) and adapt relatively quickly to technological changes.

In some cases, complies with an established framework. There are various widely accepted enterprise architecture frameworks for companies that don’t wish to do it all themselves or would like a starting point. These include The Open Group Architecture Framework, the Zachman Framework and ArchiMate.

Being project-focused

Rather than being a top-down blueprint for IT strategy, Agile generally approaches business tech on a project-by-project basis. The idea is to be as nimble as possible. Some of its key features include:

  • Breaking up IT projects into small pieces (often called “sprints” or “iterations”),
  • Collaborating closely with customers (whether internal or external),
  • Using cross-functional teams, rather than only IT staff,
  • Focusing on continuous improvement during and after projects,
  • Emphasizing flexibility over strict protocols, and
  • Valuing interpersonal collaboration over processes and tools.

Like enterprise architecture, Agile also has different time-tested versions that many types of organizations have used. These include Scrum and Kanban.

Leaning one way or the other

Not too long ago, many large companies began leaning away from enterprise architecture and toward Agile. Some experts attribute this to increased reliance on cloud-based storage and software, which tends to decentralize IT infrastructure.

Earlier this year, however, market research firm Forrester released the results of a survey of 559 technology professionals worldwide in its Modern Technology Operations Survey, 2023 report. Of respondents who work for large enterprises, 55% said their organizations had an enterprise architecture unit. That’s an 8% increase from the 47% reported in the 2022 version.

Some experts believe the renewed emphasis on enterprise architecture could be a reaction to a couple potential downsides of relying largely or solely on Agile. That is, businesses running small, speedy IT projects with little to no oversight may encounter higher “technical debt” — the predicament of getting suboptimal project results that lead to costly downtime and rework. Companies may also suffer from “vendor sprawl,” a term that describes having too many software providers because Agile project teams act independently.

Managing the costs

To be clear, enterprise architecture and Agile aren’t mutually exclusive. Many companies use both approaches to some extent. Work with your leadership team and professional advisors to devise and execute your best IT strategy. We can help you quantify, track and manage your company’s technology costs.