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?
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?
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
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.
6 tax-free income opportunities
6 tax-free income opportunities
Believe it or not, there are ways to collect tax-free income and gains. Here are some of the best opportunities to put money in your pocket without current federal income tax implications:
- Roth IRAs offer tax-free income accumulation and withdrawals. Unlike withdrawals from traditional IRAs, qualified Roth IRA withdrawals are free from federal income tax. A qualified withdrawal is one that’s taken after you’ve reached age 59½ and had at least one Roth IRA open for over five years, or you are disabled or deceased. After your death, your heirs can take federal-income-tax-free qualified Roth IRA withdrawals, with proper planning.
- A large amount of profit from a home sale is tax-free. In one of the best tax-saving deals, an unmarried seller of a principal residence can exclude (pay no federal income tax on) up to $250,000 of gain, and a married joint-filing couple can exclude up to $500,000. That can be a big tax-saver, but you generally must pass certain tests to qualify. For example, you must have owned the property for at least two years during the five-year period ending on the sale date. And you must have used the property as a principal residence for at least two years during the same five-year period. Note: To be eligible 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.
- People with incomes below a certain amount can collect tax-free capital gains and dividends. The minimum federal income tax rate on long-term capital gains and qualified dividends is 0%. Surprisingly, you can have a pretty decent income and still be within the 0% bracket for long-term gains and dividends — based on your taxable income. Single taxpayers can have up to $47,025 in taxable income in 2024 and be in the 0% bracket. For married couples filing jointly, you can have up to $94,050 in taxable income in 2024.
- Gifts and inheritances receive tax-free treatment. If you receive a gift or inheritance, the amount generally isn’t taxable. However, if you’re given or inherit property that later produces income such as interest, dividends, or rent, the income is taxable to you. (There also may be tax implications for an individual who gives a gift.)
- In addition, if you inherit a capital gain asset like stock or mutual fund shares or real estate, the federal income tax basis of the asset is stepped up to its fair market value as of the date of your benefactor’s demise, or six months after that date if the estate executor so chooses. So, if you sell the inherited asset, you won’t owe any federal capital gains tax except on appreciation that occurs after the applicable date.
- Some small business stock gains are tax-free. A qualified small business corporation (QSBC) is a special category of corporation. Its stock can potentially qualify for federal-income-tax-free treatment when you sell for a gain after holding it for over five years. Ask us for details.
- You can pocket tax-free income from college savings accounts. Section 529 college savings plan accounts allow earnings to accumulate free of any federal income tax. And when the account beneficiary (typically your child or grandchild) reaches college age, tax-free withdrawals can be taken to cover higher education expenses.
- Alternatively, you can contribute up to $2,000 annually to a Coverdell Education Savings Account (CESA) set up for a beneficiary who hasn’t reached age 18. CESA earnings are allowed to accumulate free from federal income tax. Then, tax-free withdrawals can be taken to pay for the beneficiary’s college tuition, fees, books, supplies, and room and board. The catch: Your right to make CESA contributions is phased out between modified adjusted gross incomes of $95,000 and $110,000, or between $190,000 and $220,000 if you’re a married joint filer.
Advance planning may lead to better results
You may be able to collect federal-income-tax-free income and gains in several different ways, including some that aren’t explained here. For example, proceeds from a life insurance policy paid to you because of an insured person’s death generally aren’t taxable. So, don’t assume you’ll always owe taxes on income. Also, check with us before making significant transactions because advance planning could result in tax-free income or gains that would otherwise be taxable.
Businesses must stay on guard against invoice fraud
Businesses must stay on guard against invoice fraud
Fraud is a pernicious problem for companies of all shapes and sizes. One broad type of crime that seems to be thriving as of late is invoice fraud.
In the second quarter of 2024, accounts payable software provider Medius released the results of a survey of 1,533 senior finance executives in the United States and United Kingdom. Respondents reported that their teams had seen, on average, 13 cases of attempted invoice fraud and nine cases of successful invoice fraud in the preceding 12 months. The average per-incident loss in the United States was $133,000 — which adds up to about $1.2 million annually.
Typical schemes
Invoice fraud can be perpetrated in various ways. Among the most common varieties is fraudulent billing. In billing schemes, a real or fake vendor sends an invoice for goods or services that the business never received — and may not have ordered in the first place.
Overbilling schemes are similar. Your company may have received goods it ordered, but the vendor’s invoice is higher than agreed upon. Duplicate billing, on the other hand, is where a fraud perpetrator sends you the same invoice more than once, even though you’ve already paid.
Employees sometimes commit invoice fraud as well. This can happen when a manager approves payments for personal purchases. In other cases, a manager might create fictitious vendors, issue invoices from the fake vendors and approve the invoices for payment.
Such schemes generally are more successful when employees collude. For example, one perpetrator might work in receiving and the other in accounts payable. Or a receiving worker might collude with a vendor or other outside party.
Best practices
The good news is there are some best practices that businesses can follow to discourage would-be perpetrators and catch those who try to commit invoice fraud. These include:
Know with whom you’re doing business. Verify the identity of any new supplier or vendor before working with that entity. Research its ownership, operating history, registered address and customer reviews. Also, ask for references so you can contact other companies that can vouch for its legitimacy.
Follow a thorough approval process. Establish a firm “no rubber stamp” policy for invoices. Train accounts payable staff to review them for red flags, such as unexpected changes in the amounts due or unusual payment terms. Manual alterations to an invoice should require additional scrutiny, as should the first several invoices from new vendors.
Instruct employees to contact an issuing vendor if anything seems strange or inaccurate about its invoice. In cases where the response lacks credibility or raises additional concerns, your business should decline to pay until the matter is resolved.
Implement additional antifraud controls as well. For instance, before approving payment, accounts payable staff should confirm with your receiving department that goods were delivered and check invoices against previous ones from the same vendor to ensure there are no discrepancies. Also, you may want to require more than one person to approve certain invoices for payment — such as those at or above a specified amount.
Leverage technology. Automating your accounts payable process can help prevent and detect invoice fraud. And, as you might expect, artificial intelligence (AI) is having an impact here.
One AI-driven technology called optical character recognition (OCR) can scan and read invoices to verify that line items and charged amounts match those vendors quoted you per your company’s financial records. OCR minimizes employee intervention, hinders collusion and makes diverting payments to personal accounts harder.
Decisive action
As the aforementioned survey indicates, invoice fraud is likely widespread. Be sure to put policies and procedures in place to prevent it as well as to respond swiftly and decisively if you suspect wrongdoing. Our firm can help you assess your accounts payable processes for efficiency, completeness and security.
Is your home office a tax haven? Here are the rules for deductions
Is your home office a tax haven? Here are the rules for deductions
Working from home has become increasingly common. The U.S. Bureau of Labor Statistics (BLS) reports that about one out of five workers conducts business from home for pay. The numbers are even higher in certain occupational groups. About one in three people in management, professional and related occupations works from home.
Your status matters
If you work from a home office, you probably want to know: Can I get a tax deduction for the related expenses? It depends on whether you’re employed or in business for yourself.
Business owners working from home or entrepreneurs with home-based side gigs may qualify for valuable home office deductions. Conversely, employees can’t deduct home office expenses under current federal tax law.
To qualify for a deduction, you must use at least part of your home regularly and exclusively as either:
- Your principal place of business, or
- A place where you meet with customers, clients or patients in the ordinary course of business.
In addition, you may be able to claim deductions for maintaining a separate structure — such as a garage — where you store products or tools used solely for business purposes.
Notably, “regular and exclusive” use means consistently using a specific, identifiable area in your home for business. However, incidental or occasional personal use won’t necessarily disqualify you.
The reason employees are treated differently
Why don’t people who work remotely from home as employees get tax deductions right now? Previously, people who itemized deductions could claim home office expenses as miscellaneous deductions if the arrangement was for the convenience of their employers.
However, the Tax Cuts and Jobs Act suspended miscellaneous expense deductions for 2018 through 2025. So, employees currently get no tax benefit if they work from home. On the other hand, self-employed individuals still may qualify if they meet the tax law requirements.
Expenses can be direct or indirect
If you qualify, you can write off the total amount of your direct expenses and a proportionate amount of your indirect expenses based on the percentage of business use of your home.
Indirect expenses include:
- Mortgage interest,
- Property taxes,
- Utilities (electric, gas and water),
- Insurance,
- Exterior repairs and maintenance, and
- Depreciation or rent under IRS tables.
Note: Mortgage interest and property taxes may already be deductible if you itemize deductions. If you claim a portion of these expenses as home office expenses, the remainder is deductible on your personal tax return. But you can’t deduct the same amount twice — once as a home office expense and again as a personal deduction.
Figuring the deduction
Typically, the percentage of business use is determined by the square footage of your home office. For instance, if you have a 3,000 square-foot home and use a room with 300 square feet as your office, the applicable percentage is 10%. Alternatively, you may use any other reasonable method for determining this percentage, such as a percentage based on the number of comparably sized rooms in the home.
A simpler method
Keeping track of indirect expenses is time-consuming. Some taxpayers prefer to take advantage of a simplified method of deducting home office expenses. Instead of deducting actual expenses, you can claim a deduction equal to $5 per square foot for the area used as an office, up to a maximum of $1,500 for the year. Although this method takes less time than tracking actual expenses, it generally results in a significantly lower deduction.
The implications of a home sale
Keep in mind that if you claim home office deductions, you may be in for a tax surprise when you sell your home.
If you eventually sell your principal residence, you may qualify for a tax exclusion of up to $250,000 of gain for single filers ($500,000 for married couples who file jointly). But you must recapture the depreciation attributable to a home office after May 6, 1997.
Don’t hesitate to contact us. We can address questions about writing off home office expenses and the tax implications when you sell your home.
Help ensure your partnership or LLC complies with tax law
Help ensure your partnership or LLC complies with tax law
When drafting partnership and LLC operating agreements, various tax issues must be addressed. This is also true of multi-member LLCs that are treated as partnerships for tax purposes. Here are some critical issues to include in your agreement so your business remains in compliance with federal tax law.
Identify and describe guaranteed payments to partners
For income tax purposes, a guaranteed payment is one made by a partnership that’s: 1) to the partner acting in the capacity of a partner, 2) in exchange for services performed for the partnership or for the use of capital by the partnership, and 3) not dependent on partnership income.
Because special income tax rules apply to guaranteed payments, they should be identified and described in a partnership agreement. For instance:
- The partnership generally deducts guaranteed payments under its accounting method at the time they’re paid or accrued.
- If an individual partner receives a guaranteed payment, it’s treated as ordinary income — currently subject to a maximum income tax rate of 37%. The recipient partner must recognize a guaranteed payment as income in the partner’s tax year that includes the end of the partnership tax year in which the partnership deducted the payment. This is true even if the partner doesn’t receive the payment until after the end of his or her tax year.
Account for the tax basis from partnership liabilities
Under the partnership income taxation regime, a partner receives additional tax basis in his or her partnership interest from that partner’s share of the entity’s liabilities. This is a significant tax advantage because it allows a partner to deduct passed-through losses in excess of the partner’s actual investment in the partnership interest (subject to various income tax limitations such as the passive loss rules).
Different rules apply to recourse and nonrecourse liabilities to determine a partner’s share of the entity’s liabilities. Provisions in the partnership agreement can affect the classification of partnership liabilities as recourse or nonrecourse. It’s important to take this fact into account when drafting a partnership agreement.
Clarify how payments to retired partners are classified
Special income tax rules also apply to payments made in liquidation of a retired partner’s interest in a partnership. This includes any partner who exited the partnership for any reason.
In general, payments made in exchange for the retired partner’s share of partnership property are treated as ordinary partnership distributions. To the extent these payments exceed the partner’s tax basis in the partnership interest, the excess triggers taxable gain for the recipient partner.
All other payments made in liquidating a retired partner’s interest are either: 1) guaranteed payments if the amounts don’t depend on partnership income, or 2) ordinary distributive shares of partnership income if the amounts do depend on partnership income. These payments are generally subject to self-employment tax.
The partnership agreement should clarify how payments to retired partners are classified so the proper tax rules can be applied by both the partnership and recipient retired partners.
Consider other partnership agreement provisions
Since your partnership may have multiple partners, various issues can come into play. You’ll need a carefully drafted partnership agreement to handle potential issues even if you don’t expect them to arise. For instance, you may want to include:
- A partnership interest buy-sell agreement to cover partner exits.
- A noncompete agreement.
- How the partnership will handle the divorce, bankruptcy, or death of a partner. For instance, will the partnership buy out an interest that’s acquired by a partner’s ex-spouse in a divorce proceeding or inherited after a partner’s death? If so, how will the buyout payments be calculated and when will they be paid?
Minimize potential liabilities
Tax issues must be addressed when putting together a partnership deal. Contact us to be involved in the process.
Which leadership skills are essential to strategic planning?
Which leadership skills are essential to strategic planning?
To help ensure continued stability and profitability, businesses need to engage in some form of strategic planning. A recent survey by insurance giant Travelers drives home this point.
In its 2024 CFO Study: A Travelers Special Report, the insurer surveyed 610 chief financial officers (CFOs) from companies with 500 or more employees in various industries. One of the questions posed was: What are the most valuable skills needed by today’s CFOs?
One might assume their answers would relate to being able to crunch numbers or understand complex regulations. But the top skill, coming from 62% of respondents, was “Strategic planning for future company success and resiliency.”
5 critical skills
Along with being somewhat surprising, the survey result begs the question: Which leadership skills, specifically, are essential to strategic planning? Among the five most important are the ability to:
1. View the company realistically and aspirationally. Strategic planning starts with a grounded view of where the company currently stands and a shared vision for where it should go. You and your leadership team need accurate information — including properly prepared financial statements, tax returns and sales reports — to establish a common perception of the state of the business. And from there, you need to be able to reach a mutually agreed-upon vision for the future.
2. Analyze the industry and market — and foresee impending changes. Everyone should be up to speed on the state of your industry and market from the pertinent perspective. Your CFO, for example, needs to be able to report on key performance indicators that place your company’s financial status in the context of industry averages and explain how those metrics compare to competitors in your market.
What’s more, everyone needs to develop the ability to make reasonable, fact-based predictions on where the industry and market are headed. Not every prediction will come true, but you’ve got to be able to forecast effectively as a team.
3. Understand customers and anticipate their needs. Again, from every member’s distinctive perspective, your leadership team needs to know who your customers truly are. This is where your marketing executive can come into play, laying out all the key features and demographics of those who buy your products or services.
Then you’ve got to put in the teamwork to determine what your customers want now and, even more important, what they will want in the future. That latter point is perhaps the biggest challenge of strategic planning.
4. Recognize the capabilities and resources of the business. Your company can operate only within realistic limits. These include the size of its workforce, the skill level of employees, and the availability of resources such as liquidity, physical assets and up-to-date technology.
Every member of your leadership team needs to be on the same page about what your business can realistically do before you decide where you can realistically go. Having a balanced collective of voices — financial, operational and technological — is critical.
5. Communicate effectively. Many companies struggle with strategic planning, not because of a shortage of ideas, but because of a failure to communicate. Leaders who tend to “silo” themselves and the knowledge of their respective departments can be particularly inhibitive. There are also those whose behavior or communication style is simply counterproductive. Continually work on improving how you and your leadership team communicate.
Confident growth
So, does your leadership team have all the requisite skills to succeed at strategic planning? If not, there are certainly ways to upskill your key players through training and performance management. We can help your business gather the financial information it needs to plan for the future confidently and decisively.
Understanding the $7,500 federal tax credit for buying an electric vehicle
Understanding the $7,500 federal tax credit for buying an electric vehicle
Electric vehicles (EVs) have become increasingly popular. According to Kelley Blue Book estimates, the EV share of the vehicle market in the U.S. was 7.6% in 2023, up from 5.9% in 2022. To incentivize the purchase of EVs, there’s a federal tax credit of up to $7,500 for eligible vehicles.
The tax break for EVs and fuel cell vehicles is called the Clean Vehicle Tax Credit. The current version of the credit was created under the Inflation Reduction Act. Here are answers to some frequently asked questions.
Which vehicles qualify for the credit?
To qualify for the full $7,500, there are several requirements. For example:
- The vehicle must be a new plug-in electric or fuel cell vehicle.
- It must have a battery capacity of at least seven kilowatt hours.
- It must meet critical mineral and battery component requirements for vehicles placed in service on or after April 18, 2023. (If the vehicle meets only one of the two requirements, the buyer is eligible for a $3,750 credit.)
- The vehicle must undergo final assembly in North America and have a gross vehicle weight rating of less than 14,000 pounds.
- It must be purchased for personal use (not for resale) and must be primarily used in the United States.
Are the most expensive EVs eligible for the credit?
No. The vehicle’s manufacturer suggested retail price (MSRP) can’t exceed:
- $80,000 for vans, sport utility vehicles and pickup trucks, and
- $55,000 for other vehicles.
Are there income limits for the buyer?
Yes. To qualify for the new vehicle credit, your modified adjusted gross income (MAGI) can’t exceed $300,000 for married couples filing jointly, $225,000 for taxpayers filing as heads of households or $150,000 for other filers.
How is the credit claimed?
There are two ways. When we prepare your tax return, we’ll file Form 8936 with it. Alternatively, beginning in 2024, you can choose to transfer the credit to an eligible dealer when you buy a vehicle, which will effectively reduce the vehicle’s purchase price by the credit amount. If you don’t transfer the credit, it’s “nonrefundable” so you can’t get back more on the credit than you owe in taxes. And you can’t apply any excess credit to future tax years.
Does a used EV qualify for a tax credit?
Yes, but it’s not worth as much as the credit for new vehicle and the income limits are lower. Beginning January 1, 2023, if you buy a qualified used EV or fuel cell vehicle from a licensed dealer for $25,000 or less, you may be eligible for a credit of up to $4,000. Your MAGI can’t exceed $150,000 for married couples filing jointly, $112,500 for taxpayers filing as heads of households or $75,000 for other filers.
Check before you buy
If you’re interested in purchasing an EV, the tax credit can be a powerful incentive. But before you buy, make sure you meet all the eligibility requirements so you’re not disappointed. Many taxpayers and vehicles don’t qualify. Contact us for assistance.