Jayne Gest

To organize and carry out your household financial plan, you need to ensure finances are checked regularly and action is taken as needed.

“It’s easier to do these things in small bites. You don’t want to try and do a year’s worth of financial planning in one sitting. It can be too daunting, and then it never gets implemented,” says Geoffrey M. Zimmerman, CFP®, senior client advisor at Mosaic Financial Partners Inc.

Smart Business spoke with Zimmerman about executing personal financial planning.

What should a year of financial planning include?

January — Prepare a household net worth calculation that looks at all your assets against debts and liabilities. Compare last year’s statement to this year’s to see if you increased your household net worth. Also review your spending plan for the year as year-end reports become available.

Adjust your payroll elections to maximize contributions to employer retirement plans and/or executive top hat plans. For corporate executives, implement any exercise and hold strategies with incentive stock options.

February — Review your property and casualty insurance, such as homeowners and auto, especially if you made a major purchase last year. Your excess liability coverage needs to be adequate relative to both your current net worth and earnings potential.

March — Pull out old statements and clear out the deadwood. You’ll need to keep certain documents for tax purposes, like your cost basis on securities, but your advisers can suggest how long to retain documents.

It’s also time to look at your portfolio, and rebalance it if needed. According to Gobind Daryanani, in a 2008 Journal of Financial Planning article, if you look frequently and rebalance when an asset class has deviated from its target by 20 percent or more, you can pick up some additional returns.

April —Increase your Individual Retirement Account (IRA) contributions for the prior year before the tax-filing deadline. By funding your IRA now with $5,500 annually, $6,500 if you’re older than 50, funds are less prone to leak out of the ATM.

May — Update estate plan documents. Have there been changes affecting the people you have in place to act on your behalf? Were there changes in the tax laws, exemption amounts, your net worth or state of residence?

June — Time for a midyear review. Evaluate your placement of assets for tax efficiency, rebalance your portfolio and consider midyear tax loss harvesting in your after-tax accounts. If your non-IRA account has a security at a loss, you can sell it, take the loss and buy something similar but not identical. The losses can be used throughout the year or carried into the future.

July — Think about the future with your significant other, spouse or partner. Kick back, dream about what you and your family want, and jot down a few notes.

August — Check your Section 529 savings accounts for the kids and grandkids. If they aren’t set up yet, don’t wait; college isn’t getting cheaper. These plans allow contributions to be made to pay for post-high school education at a qualified institution, tax-free.

September — Pull out the notes on your future plans from July. Use it to update the financial plan, looking for necessary changes. Also, rebalance your portfolio.

October — With open enrollment, review employee benefit elections for medical, life, disability, vision, dental, etc. Also look at your outside insurance such as life and long-term care against current needs. Corporate executives with nonqualified deferred compensation plans need to elect salary deferral for the following year.

November — Begin year-end tax reviews to manage tax liability. It’s also a good time to finalize remaining charitable donations, including appreciated stock.

December — Do an end of year wrapup, such as annual gifting, financial portfolio rebalancing or tax-loss harvesting. IRA to Roth conversions must be done before Dec. 31. Also, go back to exercised incentive stock options and decide whether to do a disqualified position and sell that stock, or to hold it into the following year.  

Finally, take a look at this list and see how much you were able to complete this year. Were you able to do it all? Lift a cup of egg nog and celebrate. And, if you didn’t, then consider enlisting the help of a financial planner to help you stay on track.

Geoffrey M. Zimmerman, CFP®, is a senior client advisor at Mosaic Financial Partners Inc. Reach him at (415) 788-1952 or geoff@mosaicfp.com.

Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.

Corporate social responsibility is the duty of a corporation to create wealth by using means that avoid harm to, protect or enhance societal assets.

“Since the U.S. is a developed country, people are more sensitive about not only the quality of products but also the actions of the corporation,” says Ekin Alakent, an assistant professor in the Department of Management, College of Business and Economics, at California State University, East Bay. “This is even true for companies that do not act responsibly in other countries where the public does not have the opportunity to voice an opinion.”

For example, the negative reaction to Apple, Inc., which was criticized for working conditions at the Foxconn factory in China a few years ago.

So how do corporations counteract a negative image?

One strategy is to get involved in public policy, by investing in lobbying, establishing political action committees or making soft money contributions, to offset negative corporate social responsibility records.

Smart Business spoke with Alakent, who researched this topic, about her findings.

How are corporate social and corporate political strategies interrelated?

Both corporate social and political strategies are considered nonmarket strategies, which deal with a company’s engagement with society. Therefore, both strategies have uncertain outcomes, and it’s very difficult to measure their effect on profitability.

To further cloud the causality, smaller companies can indirectly benefit from the investment of a larger company in the same industry. They may also belong to a chamber of commerce that has political action committees to lobby on their behalf.

However, in most cases, companies use both strategies simultaneously.

Which companies are more likely to use political strategy to improve public opinion?

One consideration is what issues are relevant. If there’s an upcoming election and a proposed regulation that would increase business costs, that year a company might heavily invest in issue advocacy groups.

In addition, companies that have poor social responsibility records tend to spend more money on political strategies to offset their negative image in society, such as those in oil and tobacco. Other factors that increase political strategy spending are available resources, size, industry and the extent they depend on government subsidies or support. For example, sugar, energy and agriculture all spend a lot of money on political strategies because they are directly affected by public policy.

Businesses that are more visible, measured by their advertising, care more about their public image, and tend to spend more money on political strategies.

Are there negative side effects to using corporate political strategy?

There is that possibility. Companies that heavily invest in lobbying — and that data is available, who invests and how much, on the OpenSecrets.org database — can be perceived as buying politicians. But, overall, the effect of not investing in political strategy is much bigger.

Corporations tend to overwrite the possible negative image. In fact, businesses spend more money on lobbying than other political strategies.

What do you think business leaders can learn from your research?

An important implication is that political involvement can benefit organizations in many ways. It helps them pre-empt unwanted regulation that could significantly increase their operating costs and improve their public image.

Since both formal institutions, such as laws and regulations, and informal institutions, such as social groups and nonprofit organizations, influence companies, they need to engage with their social and political environment. Be active in shaping the rules of the game. Being proactive with nonmarket strategies can help companies have strong brand reputation and forestall costly legislation.

By using these strategies, businesses are actually investing in a safer, better-educated and healthier society. It shouldn’t only be about offsetting negative public image, greenwashing or having a window dressing. It’s in their best interest to invest in their communities and act responsibly.

Ekin Alakent is an assistant professor in the Department of Management, College of Business and Economics, at California State University, East Bay. Reach her at (510) 885-2076 or ekin.alakent@csueastbay.edu.

Insights Executive Education is brought to you by California State University, East Bay

Halal is the rules that influence consumption in the Muslim world, directed by the values and beliefs defined in the Quran. It refers to anything considered permissible and lawful.

The global halal market — food and non-food — is estimated to be in excess of $2.3 trillion, with the food sector alone reaching $700 billion annually, says Angelo A. Camillo, Ph.D., associate professor of strategic management in the School of Business at Woodbury University.

In Muslim countries, the halal industry is vital to societal development and economic growth. Global marketers also are strategically promoting the halal industry by targeting geographic clusters with large Muslim populations like France and Italy.

“The primary factor for the rapid expansion of halal is health related,” Camillo says. “Halal industries are emphasizing the sustainability, cleanliness and healthiness of their products.”

Smart Business spoke with Camillo about where this globalization is heading, and how business owners might get involved.

What kinds of products must be halal?

Halal impacts many products and services, although those that impact daily life most are food and beverage. In the Islamic religion, these products must be clean, pure and contaminant-free. For example, Muslims don’t consume pork byproducts, animals contaminated by intoxicants or killed prior to slaughter, or carnivorous animals or birds of prey. Many Muslims cannot take pain relievers manufactured with gelatin made from pigs’ feet and ears.

Some industries directly affected by halal guidelines are agricultural products (plants, animals and derivatives), chemical, health care, cosmetics, personal care, pharmaceutical and medical devices, and financial activities and business transactions.

How are halal products being globalized?

Halal food products produced and consumed locally may have a higher nutritional value, so halal businesses are emphasizing this over culture or religion. However, Islam is the main expansion driver — by 2030, the global Muslim population is expected to grow by 2.19 billion.

Halal producers often make their products on location, leaving insignificant carbon footprints without pesticides, fertilizers or genetically modified organisms. Despite this appeal, non-Muslim consumers may be reluctant to buy halal food products due to the religious implications — a halal-certified Muslim blesses slaughtered animals in the name of Allah.

Who are the industry players?

It’s difficult to obtain true data, as this industry is extremely fragmented. Malaysia appears to be developing as the major halal player, followed by Indonesia and Pakistan. Competition between businesses in these areas, as well as Singapore, New Zealand and Australia, is fierce.

In 2010, the size of the industry in the U.S. was approximately $13.1 billion, compared with Europe at $67 billion, and Asia at $416 billion, according to the Islamic Food and Nutrition Council of America. Many Muslims may be willing to buy strictly kosher meat products, processed according to kosher dietary laws, because that’s the closest thing they can find.

Halal is likely to grow as marketing raises awareness and links halal to sustainability and healthy choices. In the past two years Italy has exploded with halal food products. With a large Muslim population already supplying most of Europe’s organic food, it was a natural fit for companies in every sector to become halal-certified. But the road ahead is bumpy in the U.S. business landscape for halal industries. In addition to non-Muslims’ discomfort with religious implications, there is a lack of trust by Muslims regarding the safe production and distribution of U.S.-made halal products.

What’s the best market entry for U.S. companies?

There are opportunities for profit — as a case in point, Brazil has started producing halal food. Aside from product production, businesses along the supply chain can tap into this market in areas such as research and development, finance, marketing, support service, hospitality, life sciences, agro-based industries or food additives/enhancers manufacturing. However, the best entry for a U.S. company is overseas halal markets that produce products and services locally.

Angelo A. Camillo, Ph.D., is an associate professor of strategic management in the School of Business at Woodbury University. Reach him at (818) 394-3314 or angelo.camillo@woodbury.edu.

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To manage the risk of loss to commercial property, business owners can self-insure (absorbing any losses), transfer the risk to someone else or buy insurance. But not everyone is insurance savvy, understanding exactly how property is covered and what triggers coverage.

“When it comes to business building and personal property coverage, it’s important to have an insurance broker who takes you through the what ifs,” says David Oliver, senior vice president at Momentous Insurance Brokerage, Inc. “If the broker understands exactly what assets you have, what you do, how you do it and where you do it, you should have the proper coverage, insured for the right values.”

Smart Business spoke with Oliver about insuring for the correct perils, before it’s time to make a claim.

What types of business property insurance are available?

A named peril policy covers only specified perils; a basic or broad form policy will cover a longer list of specified perils; and special form covers anything that is not specifically limited or excluded. Most businesses start with a special form policy. Then, if it excludes something you want to cover, you can buy off the exclusion or have it added for an additional premium. Other times, you’ll need to buy a separate policy, such as a difference in conditions or builders risk policy, to cover that risk.

Usually a property policy covers direct physical loss or damage to the building and/or personal property at a certain named location(s). However, if you have a business where you’re moving around, touring or traveling, you can get an inland marine floater to cover property. This can be added as an endorsement to a business property policy or bought separately, and isn’t designated to one premises. It’s essentially floating, so you have coverage no matter where it goes. It also might have broader coverage, such as earthquake and flood.

What’s typically covered on property policies?

Sometimes, when you go to court, if a policy is silent on a particular peril, it may be deemed covered. Judges tend to lean in favor of the insured, especially in California.

It is critical to understand what your policy excludes. The policies are usually definitive when they tell you what’s not covered; they want you to know what the exclusions are. Where they may tend to be vague is in the area of what is covered. Basically, the policy covers actual, unintentional physical loss to the asset, such as if there’s a fire or something gets broken, vandalized or stolen.

How can business owners make sure they have the right coverage?

Read your policy carefully to understand what’s excluded, covered and not covered. Policies are complicated, so this is where a good broker helps. Make sure that whatever you think you’re buying the insurance for is actually covered. Usually, you can get a business personal property policy endorsed to cover excluded perils like earthquake sprinkler leakage, even though you can’t get full earthquake coverage.

When it comes to triggering coverage, insurers look for the proximate cause. If what directly caused the damage is covered, then you have a claim. You may not have earthquake insurance, but if an earthquake broke a gas main, which caused a fire, you’d have coverage for fire-damaged equipment. The policy needs to insure for the cost to repair, rebuild or replace something.

Many policies have a coinsurance clause. For example, if you have $1 million worth of property with an 80 percent coinsurance, that policy requires you have at least $800,000 in insurance. If you’re not insured to that percentage, your claim is reduced proportionally.

Another mistake may be not insuring for replacement cost, but actual cash value. So, if you bought something 10 years ago with an eight-year useful life, you may get next to nothing in actual cash value. Replacement cost allows you to replace it with like kind and quality, even if that’s more than what you originally paid. For example, a five-year-old specialty lighting fixture might be replaced with a newer model, costing more than the originally damaged, obsolete and no longer manufactured fixture.

These details are why having the right broker helping you take care of your property exposures will save you money in the long run.

David Oliver is senior vice president at Momentous Insurance Brokerage, Inc. Reach him at (818) 933-2297 or doliver@mmibi.com.

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The communication between independent auditors and audit committee members of public companies will change in 2014 with Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 16.
The PCAOB’s standard is effective for audits of fiscal years beginning after Dec. 15, 2012.

“There’s an emphasis on two-way communication and the timeliness of communication,” says Dale Jensen, partner-in-charge of the Public Company Audit Practice at Weaver. “These requirements should only help the audit committee better understand the audit process and the results.”

Smart Business spoke with Jensen about PCAOB Auditing Standard No. 16’s implementation and how it changes auditor responsibilities.

How will communication between auditors and audit committees change?

Generally, the standard seeks to create more effective and timely two-way communication between the auditor and audit committee, including sharing what discussions have occurred between the auditor and management during the audit. It standardizes what is communicated and when.

Part of the standard addresses the appointment and retention of auditors — general information relevant to the planning of the audit. Committee members need to understand what auditors will discuss with management prior to the auditor retention. Many public companies won’t see a change here if they are following best practices. But some concepts have been expanded, such as requiring auditors to ask the committee if they are aware of any matters relevant to the audit, including knowledge of possible law violations.

The standard also discusses the audit’s results. Auditors already were disclosing many of the required items, such as significant and critical accounting estimates, and significant and unusual transactions. Now, the auditor must also communicate:

  • Difficult or contentious matters about which they consulted with management.
  • Matters that resulted in a going concern consideration, how the matter was alleviated, and the effects on the financial statements and audit opinion.
  • Any departures from the standard report.

The auditor also must share the results with the audit committee before issuing an opinion on the financial statements. This provides committee members with the opportunity to gain an understanding and address questions with the auditors prior to the issuance of the opinion and Form 10-K filings with the Securities and Exchange Commission.

Does the standard specify what type of communication is required?

Some things must be in writing, such as engaging an auditor, but, overall, communication can be written or verbal.

Auditors can communicate the required items solely in writing. However, verbal communication can help committee members truly understand the nuances of what’s being reported. For example, auditors may share audit results over a conference call or at an in-person meeting. This opens up the dialog and creates an opportunity for the audit committee to ask questions to gain a better understanding of the audit process, specific findings, etc. The key here is to allow adequate time for the auditors and audit committee members to have these discussions and to work through any issues or questions that arise.

How much impact will the standard have?

Overall, the impact of this standard will be positive because it’s enhancing two-way communication between auditors and audit committees about matters of importance to the audit and the financial statements. How much impact it has will really depend on the company, what its issues are and how information has typically been communicated to the audit committee in the past.

Dale Jensen, CPA, CFE, is partner-in-charge of the Public Company Audit Practice at Weaver. Reach him at (800) 332-7952 or dale.jensen@weaver.com.

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Business owners today may understand that technology can be customized to streamline their internal processes. But exactly how that customization is realized may be unclear.

Software, platforms and applications evolve quickly, which can make finding the right technology intimidating. However, by partnering with the right solution provider, you can improve your current processes with technology that’s inherently scalable.

“Business owners are experts in their industry; they shouldn’t have to be experts on the technology solutions they bring into their company,” says Heather Stump, a business analyst and AIIM ECM Practitioner at Blue Technologies.

Smart Business spoke with Stump about available software, platforms and apps, and how to integrate them in your company.

In your experience, which software and platforms are the most useful?

The most prevalent office applications are the Microsoft Office programs, Word, Excel and Outlook. Other platforms integrate directly with these familiar interfaces to enhance them without replacing what employees currently use, or changing their day-to-day activities.

Imaging applications can be installed on your desktop or embedded in your multifunction printer, which can then:

  • Convert documents, such as PDFs and images, to a Word or Excel file on the fly.

  • Route documents throughout the enterprise to a shared folder, document management system or email account.

  • Name documents at the time of the scan to save time on the back end.

Many document management systems can integrate directly with Outlook or hardware devices. Employees can store and retrieve documents without leaving the familiar email interface, and multifunction devices can allow employees to search, retrieve and print documents directly from a device.

Organizations typically have an accounting and/or a customer relationship management system, such as Salesforce or SharePoint. These systems are vital to any business, but they do require supporting materials to be useful. Technology solutions integrate with these programs to provide a comprehensive view of all necessary data and documentation, such as emails and customer correspondence, eliminating the need to search through multiple systems and file cabinets, reducing the burden on employees.

What are some must-have apps?

Many employees already have a smartphone or tablet, so more businesses are implementing a bring-your-own-device strategy. Most mobile integrations are not device specific and fall into the document or print management categories.

The most well-known document management mobile apps such as Google Docs, Dropbox or SkyDrive allow users to store and retrieve documents. Other apps allow you to take photos or scan from your mobile device, and then upload to the cloud or existing document management repositories. Advanced solutions allow employees to interact with workflow off-site, which facilitates continuity and productivity.

Hardware manufacturers now offer print management apps, so you can print from anywhere, whether on- or off-site. The files are held in a print cloud. The user can then authenticate themselves at any networked device, see their print queue and release the jobs when they’re ready. This helps reduce costs and improve information security — people aren’t as likely to leave confidential documents sitting around.

How can businesses find a provider to maintain, assess and upgrade technology?

Do your research and trust your instincts. Meet with providers and look at a variety of software packages to get an idea of the distinctions. One tip, on the manufacturer’s side, is to see who is spending money on research and development; only innovators survive in the tech industry.

Your solution provider should be assessing the technology quarterly or semi-annually to help you learn new features and functionalities. In addition, manufacturers usually release at least one upgrade and a few minor software fixes every year. Make sure you understand what your provider includes in the yearly maintenance of software or platforms. With due diligence and the right provider to support your software and provide training, you’ll better understand the value of your purchase.

Heather Stump is a business analyst and AIIM ECM Practitioner at Blue Technologies. Reach her at (216) 271-4800 or hstump@btohio.com.

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Throughout 2013, companies expanded and took calculated risks, but the government’s actions — and its gridlock — continue to impact business leaders.

“There’s a lot going on within our midmarket client base that’s allowed them to expand their businesses, but the vast majority of our clients aren’t taking big financial risks because of the continued uncertainties,” says Tullus Miller, partner in charge of the San Francisco office of the accounting and business consulting firm Moss Adams LLP. “I hear a number of businesses talk about these issues.”

Smart Business spoke with Miller about the continuing concerns of companies, and how to be ready for 2014.

What are the top business concerns you’re hearing from CEOs and COOs?

Generally, there’s uncertainty about the economy and increased regulations, as well as concerns about the Affordable Care Act (ACA) and health care costs. Many companies are facing higher health insurance premiums and co-pays. If health insurance costs continue to rise, or the tax burden is too great because the ACA may have unintended consequences, some might consider options like health insurance captives.

Despite concerns surrounding tax and potential interest rate increases, the continued rancor between Congress and the White House, and a sluggish economy, there has been growth. Mergers and acquisitions, new operations opening in China and South America, capital market deals, initial public offerings, debt restructuring and private equity deals all have transpired in 2013. Businesses are taking financial risks, but on a smaller scale.

Looking ahead, what actions should business leaders consider?

Business leaders should look for more efficient tax solutions or structuring, such as tax deferral options. Arranging the deferral doesn’t avoid the tax — it just defers it to a different period or amortizes it. Another example is a better use of tax credits such as the California enterprise zone program, which has been revamped for 2014 and beyond.

Taxes have motivated some companies to open operations in more efficient tax states, such as Nevada or Texas, although workforce and client proximity factor in.

Organizations also are working on profitability improvement during slow growth periods, which relies primarily on being as efficient as possible — for example, by increasing accounts receivable terms to improve cash flow or initiating technology enhancements.

As the baby boomer generation ages, there are wealth transfer solutions and succession scenarios to consider for 2014 and beyond, which can create more efficient tax positions for wealthy families. High net worth individuals are limited in the amount of money they can transfer without being taxed. Wealth transfer strategies need to be considered well in advance of an individual’s retirement or transition out of the business.

What will higher interest rates mean, and how can businesses prepare?

The Federal Reserve has been buying $85 billion in bonds per month in an effort to keep rates low. Once the Fed decides to slow and then cease the buying program, interest rates could increase quickly. Putting inflation aside, as rates go up, so does the cost of borrowing, increasing the cost of doing business and the cost of goods and services. Consumers may have less discretionary income because they’re paying more interest on credit cards, student loans or home loans, if those have a variable rate.

Recent economic reports suggest that rates should stay down for 2014, possibly going up in 2015. Many companies have or are working on fixing debt, terming it out over a long period. Then, when rates rise, it won’t adversely affect their cost of borrowing.

Planning is very industry specific, but those who are ready will be much better off.

Tullus Miller is Partner in Charge, San Francisco, at Moss Adams LLP. Reach him at (415) 956-1500 or tullus.miller@mossadams.com.

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Your business may be the largest asset in your retirement portfolio, but converting it into an income resource for retirement takes planning to ensure it has value, even after you are no longer at the helm.

“It’s important to start with the end in mind. What are you trying to accomplish?” says Sabrina Lowell, CFP®, principal and COO at Mosaic Financial Partners.

Those using their business as a retirement asset need to decide if they want the business to continue independently after they retire, or if they want to sell it, she says. In either case, business owners must come up with the end game before figuring out how to get there.

Smart Business spoke with Lowell about being purposeful with business planning and recognizing how much lead time you need to accomplish your goals.

Why is it important to manage a business as a long-term asset?

If you’re looking to exit, whether through retirement or a sale, and you haven’t purposefully mapped out a plan in advance, your business may end up without as much value as you thought. Some things to consider are:

  • The health of your customer base. Is your client base aging with you? This can be a concern if there’s a sole owner, or even a few owners of a similar age.
  • Human capital. Do you have an aging set of employees? Have you been bringing in the next generation, mentoring employees as future leaders?
  • Product offerings and innovation. Are your products and/or services evolving and relevant to the current market?

What must a business owner consider when preparing for an exit?

When you’re clear about your objectives, decision-making becomes much easier. As a business owner, think about what your goals are for the business long term. The goals should be simple and concise so that they can be used to test alternative decisions that arise during the years an exit plan often takes to implement. These objectives are often qualitative, such as:

  • Sustain client service standards.
  • Take care of employees.
  • Maintain company culture and values.
  • Further the industry.

How can you keep long-term planning from falling to the bottom of a to-do list?

Be purposeful about setting time aside to say: ‘What is my vision and how am I going to implement that plan?’ on an ongoing basis. Like any transition, it’s not easy. The more you can set up systems to help support that effort, the better.

There’s no hard-and-fast rule for how much time is needed. There is usually more work on the front end, before the plan just requires maintenance. Important, but not necessarily urgent, strategic planning can often fall to the bottom of the daily ‘to-do’ list. Setting aside 30 minutes or an hour each day to focus on the business can make the process more approachable.

Where can a quality financial adviser help?

A financial adviser can help determine your number — how much you need to get out of the business for retirement. This may give you more flexibility when structuring your exit. Perhaps you get some payment upfront and an ongoing income stream, rather than just payment upfront.

Your adviser will help you discover what the transition is going to look like, and how to begin preparing. It’s always difficult to make decisions around an asset when you have a personal, emotional connection. A financial adviser has an arm’s length perspective that can help with both the numbers and personal side of a succession plan.

Sabrina Lowell, CFP®, is a principal and COO at Mosaic Financial Partners. Reach her at (415) 788-1952 or sabrina@mosaicfp.com.

Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.

Before year’s end, taxpayers need to talk with advisers about their personal tax situation — wages, interest income, dividend income, capital gains, pass-through income from a business and other deductions. This preliminary road map can be used to make appropriate decisions.

“Years ago, I went through a projection with a client. We didn’t move the needle on their taxes much, but the client’s wife said, ‘I feel so much better knowing in December exactly what’s going to happen in April,’” says Patricia Rubin, CPA, director of assurance services at SS&G.

By reflecting in December, taxpayers have time to plan ahead, she says.

Smart Business spoke with Rubin about maximizing year-end planning.

Alternative minimum tax (AMT) is always a big topic. How can you plan around it?

This year, Congress formalized and stabilized many AMT issues. You should do an annual calculation to determine whether AMT will apply to you. A taxpayer must calculate taxes using the regular method and then recalculate following AMT rules and pay the higher amount. AMT rules are similar to regular tax rules. However, under AMT certain items are not deductible in computing taxable income, such as state and local income taxes.

Certain taxpayers will find themselves in AMT every year, but 2014 could have different results as regular tax rates have increased.

How can you reduce taxes with year-end planning?

Donating appreciated stock to a charity is one option, and taxpayers can deduct this under either tax system. If you bought a share of stock for $1,000 that is now worth $10,000, the charity gets $10,000 and you don’t have to pay capital gains on the difference while also claiming a deduction for $10,000. There’s also charitable giving of cash and non-cash items. If you’re cleaning out your closet, make a list. You cannot deduct without specifics on the thrift shop value of donated items. You also can time payments of your state and local taxes — bunching them up and paying them in 2013, or deferring into 2014.

What are some new taxes this year?

These are a little harder to plan for, so consult with your adviser to understand if, and how, these taxes affect you. In addition to the higher tax rates, there is a new 3.8 percent Medicare tax on certain net investment income, as well as a 0.9 percent Medicare tax on earned income. Both of these new taxes apply only if the thresholds have been exceeded. The first year, you need to understand which items are subject to the tax.

In addition, there is a phase out of itemized deductions if your income exceeds the threshold amounts.

What year-end planning is available for a business owner working in the business?

The income of a business owner with an S Corporation, LLC or a partnership passes through to his or her individual return, making tax planning critical.

Make sure your retirement plan maximizes the value to you and your employees, to take advantage of planning opportunities. You can accrue what you’re going to fund into the plan in the current year and pay it next year.

Two depreciation items may be significant. Under Section 179 of the tax code, you can deduct purchases of property, plant and equipment up to $500,000. As the law stands, it drops down to $25,000 in 2014. Also, you still can get 50 percent bonus depreciation for new equipment, which is scheduled to sunset in 2014.

Other items to capture are a health insurance credit for those with less than 50 employees and a self-employed health insurance deduction, which might apply to a shareholder in a closely held company.

Overall, the promise of tax planning is to let you know what’s coming, properly plan for the appropriate deferral of income taxes and reduce your overall taxes. You may not have all three, but year-end tax planning always helps avoid surprises.

Patricia Rubin, CPA, is director of Assurance Services at SS&G. Reach her at (440) 248-8787 or PRubin@SSandG.com.

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Although some aspects of the Affordable Care Act remain uncertain, the act overall is driving the health care market to figure out ways to control costs and allow employers to continue to offer health plans, says Mark Haegele, director of sales and account management at HealthLink.

As a result, managed care companies are increasingly utilizing three tools —reference-based pricing, Domestic Centers of Excellence and narrow networks.

“Some of these concepts are still new, so an employer might tackle one thing at a time,” Haegele says. “Maybe you start with narrow networks, and then move into reference-based pricing or Domestic Centers of Excellence.”

Smart Business spoke to Haegele about how each strategy can drive down costs and the overutilization of health plans.

How does reference-based pricing work?

Within a managed care network, you identify facilities, procedures and/or services that have low costs and high quality, and then establish a plan design that drives plan members to them. If, for example, you’ve identified that

Provider A performs knee replacements for $5,000, then members who go to that provider have their costs covered at 100 percent. If a member goes to another more expensive provider, he or she is responsible for the difference. This schedule could cover a whole host of surgeries and procedures.

Reference-based pricing, which is cutting edge in both contracting and plan design, can have a major impact on costs.

What are Domestic Centers of Excellence?

With this model, you identify high-quality providers across the country to be the hub for a certain procedure type. For example, all transplants might go to the Mayo Clinic, while all knee, hip and shoulder replacements go to Mercy Springfield Missouri. The health plan promises to pay 100 percent for the procedure and the travel for the member and a caregiver, as opposed to just giving a deductible and coinsurance.

The value isn’t just with price points, but also aligning incentives. Providers are willing to offer preferred pricing based on the exclusivity and volume, and employers achieve savings on unit cost. In addition, unlike the traditional fee-for-service model, providers objectively review for appropriateness first. The contract includes a performance component to eliminate waste. So, Mercy, which performs 30 percent fewer back surgeries than the national average, keeps members from getting inappropriate surgeries.

Originally only used by large employers, this model has become more prevalent. Smaller employers can piggyback on either large employers or a managed care network that develops this for its entire block of business with specialized contracts.

How do narrow networks lower health costs?

Depending on your geography and population, you may be able to partner with your managed care network to customize your network. In a rural or smaller market, this may mean exclusively driving the members to one facility. In turn, typically the hospital will provide a better managed care contract.

You may get pushback from members who prefer one facility to another. The employer must convey that this is about looking at cost and quality to find the right facility, which then has an impact on premiums.
Narrow networks have been around for a while, but now managed care companies are starting to wire together narrow networks across a region to create a sub-network.

Can these strategies be used in conjunction with any type of health plan?

Although there is some overlap, you can use a combination of strategies, depending on your readiness for change. The difference is more of a degree of granularity — Domestic Centers of Excellence and reference-based pricing are broken down by procedures, while narrow networks are more geographic-centric.

Self-funded health insurance plans may use any of these tools. Fully insured carriers are now implementing narrow networks and referenced-based pricing. With the health exchanges, narrow networks should become more common as carriers look for ways to keep costs down.

Mark Haegele is director of sales and account management at HealthLink. Reach him at (314) 753-2100 or mark.haegele@healthlink.com.

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