Health care cost transparency is the ability of patients to learn how much a medical service or treatment costs, preferably before receiving the service or treatment. This is important because treatment and service costs vary widely from doctor to doctor and from facility to facility.
“In all my travels, with all the different hospitals I visit — hundreds of them — only one had the general charges of fees and services, like cost per day in the hospital, posted up on the wall. It just doesn’t exist today,” says Mark Haegele, director, sales and account management, at HealthLink.
“This system has made it difficult for people to get the information. We’re getting there, but a spotlight on transparency and the cost and options gives people a little more decision-making authority,” he says.
Smart Business spoke with Haegele about the shift toward transparency and helping employees shop for better health care prices.
Why do health care prices vary so much?
Physicians are just trying to diagnose you to help you get better. In addition, surgeons only get paid if they recommend surgery. So, cost doesn’t really weigh into whether patients get knee replacement surgery or are sent to therapy for six months.
If you go to a store and look for a refrigerator, one of the first things you try to figure out is the price. But if you go to the doctor, and you’re talking about getting your knee replaced, that conversation — if it ever comes up — comes up at the very end.
The average treatment for heart failure might vary by tens of thousands of dollars within the same city. A list of Medicare costs, released by the Centers for Medicare & Medicaid Services, found a difference of $21,000 to $46,000 in Denver, Colo., or $9,000 to $51,000 in Jackson, Miss.
Only some rate differences are because of health care’s complexity. If two people with the same insurance get a tonsillectomy at the same hospital, they still could have different doctors ordering different levels of anesthesia and pain medicine with different philosophies on hospital-stay length.
How does transparency lower costs?
As the government, media and patients push for reliable cost and quality information, it motivates the entire system to provide better care for less money. For example, according to the book “Unaccountable: What Hospitals Won’t Tell You and How Transparency Can Revolutionize Health Care,” the governor of New York mandated that hospitals publish their mortality rates for heart surgery. By the year following, hospitals started implementing quality metrics to reduce mortality, and the trend in the mortality rates dropped dramatically, which ultimately saved lives.
In another instance, a Thomson Reuters study of a Chicago employer found a cost variance of 125 percent for health insurance members receiving an MRI of the lower back without dye, with similar differences in diagnostic colonoscopies and knee arthroscopy procedures. If employees were given information to select providers at or below the median cost, it was estimated the company could save $83,000.
What can benefit administrators do to help facilitate transparency?
As a general rule we feel helpless, but there are some things benefit administrators can do to move costs. You’ve got to get information out to members, and then align incentives. The average member, once he or she meets the $2,000 out-of-pocket maximum, for example, doesn’t care if a hip replacement costs $5,300 or $223,000. They should — but most don’t make better purchasing decisions until it impacts them.
Under a self-funded health plan, you have more control over what you are able to publish and demonstrate to employees, as well as more ability to align incentives. But regardless, you need to start identifying costs of providers of key procedures to treat your health plan like an asset.
By putting together a best-in-class grid for your members, and then aligning incentives to ensure they use the lowest cost providers, such as giving a $200 gift card, you can empower your members and move the needle on health care cost.
Mark Haegele is director of sales and account management at HealthLink. Reach him at (314) 753-2100 or email@example.com.
Website: Visit the website to learn more about transparency and other key health care business trends.
Insights Health Care is brought to you by HealthLink
Business owners and corporate executives tend to overinvest in their businesses, often ending up with a large portion of their wealth at risk to the fortunes of one company. However difficult, these owners need to diversify their financial assets to better survive periods of stress. The rules of prudent investing tell us that any more than 10 percent of one’s wealth invested in any one company is too much.
“Diversifying is not natural to individuals so closely connected to one business, but it can be a serious risk to their underlying wealth and the financial health of their entire family,” says Nina M. Baranchuk, CFA, Senior Vice President and Chief Investment Officer at First Commonwealth Advisors.
Smart Business spoke with Baranchuk about how to structure portfolios to diversify or offset these concentrated risks.
Why do corporate executives or business owners need to diversify?
Even regular employees get a company paycheck and buy company stock in the 401(k) or the employee stock purchase plan, so the concentration risks for all employees can be severe. Senior executives often accumulate additional large holdings of company stock and options as part of their compensation.
A business owner’s company may also be a disproportionately large part of his or her portfolio as well. An owner bears the risk of the entity and any economic, competitive or regulatory forces that might impact it. Like putting all your chips on red, there are serious consequences to holding so much ‘concentrated’ wealth if things don’t go well. In addition, these holdings can be illiquid — there is no easy exit under times of stress.
How should business owners construct their passive investment portfolios?
In some cases, it may not be possible to diversify much. If an owner can take cash out of the business, he or she should work with a qualified portfolio adviser to ensure that all of his or her passive investments are built to complement or offset the risk. A qualified adviser can craft a portfolio that helps to mitigate your specific concentration risks and manage your overall exposures.
For example, a local Pittsburgh businessperson might be concentrated in a steel or metal fabrication business. So, he or she would share exposure to the fates of this or other industries as well their end markets in the U.S. or overseas. He or she also may have significant risks to things like geography, interest rates, significant product input costs, etc.
You can easily have issues of exposure based on subtle or indirect connections. Some risks to a firm are really in your supply chain or the financial health of a customer’s industry. Maybe you have one or two dominant clients that represent a large percentage of your revenue stream. Geographical risks loom large for some companies as well.
A portfolio built to offset these risks might exclude many other holdings in the industrial arena and overinvest in industries that often do well when industrials/metals do not — think consumer-purchase staples like food and household products or utilities.
What’s another example of offsetting your risk?
One family we worked with had made its wealth in the real estate business — owning everything from apartment complexes to high-rises. Our analytic work found that two good offsets for these holdings were private equity and financial stocks. Thus invested, whatever happens to interest rates, private equity and financials will react in opposition to the direction of real estate, counteracting one of its most impactful environmental factors.
What should executives consider?
While many executives have limited ability to divest their options or stock, they should certainly not invest their 401(k) in the company stock or buy additional shares. Remember that the executives at Enron and WorldCom went down together, along with their options, pensions, paychecks and other compensation.
In this world of heightened competitive and financial risks, no business is immune from potentially negative outcomes. We urge our clients to make sure they have done everything possible to ensure their family’s financial health by planning for worst-case scenarios.
Nina M. Baranchuk, CFA, is a senior vice president and chief investment officer at First Commonwealth Advisors. Reach her at (412) 690-4596 or firstname.lastname@example.org.
To learn more, call (855) ASK-4-FCA, or visit ask4fca.com.
Insights Wealth Management is brought to you by First Commonwealth Bank
The Family and Medical Leave Act (FMLA) entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons. However, should an employer fail to comply with the FMLA requirements, the employer could be subjecting itself to litigation and possibly fines from the Department of Labor.
“There are a lot of obligations on the employer. To the extent that you’re not aware of these, you should contact an attorney to make sure you’re following the strict requirements of the FMLA,” says Michael B. Dubin, a member at Semanoff Ormsby Greenberg & Torchia, LLC.
Smart Business spoke with Dubin about employer compliance with the FMLA.
What does the FMLA allow employees to do?
Eligible employees are entitled to 12 workweeks of unpaid leave in a 12-month period for:
- The birth of a child and to care for the newborn child.
- The placement with the employee of a child for adoption or foster care and to care for the newly placed child.
- To care for the employee’s spouse, child or parent who has a serious health condition.
- A serious health condition that makes the employee unable to perform the essential functions of his or her job.
- Any qualifying exigency arising out of the fact that the employee’s spouse, son, daughter or parent is a covered military member on ‘covered active duty;’ or 26 workweeks of leave during a single 12-month period to care for a servicemember with a serious injury or illness if the eligible employee is the servicemember’s spouse, child, parent or next of kin (military caregiver leave).
What employers are covered by FMLA?
The FMLA only applies to employers that meet certain criteria. A covered employer includes a private-sector employer with 50 or more employees in 20 or more workweeks in the current or preceding calendar year; and public agencies and public or private elementary or secondary schools, regardless of the number of employees.
What employees are eligible for FMLA leave?
Employees are eligible if they: have been employed by a covered employer for at least 12 months, which need not be consecutive; had at least 1,250 hours of service during the 12-month period immediately preceding the leave; and are employed at a worksite where the employer employs at least 50 employees within 75 miles.
Can an employee take intermittent leave?
Under certain circumstances, an employee may take FMLA leave on an intermittent or reduced schedule basis. That means an employee may take leave in separate blocks of time or by reducing the time worked each day or week for a single qualifying reason. When leave is needed for planned medical treatment, the employee must make a reasonable effort to schedule treatment so as to not unduly disrupt the employer’s operations. Employers must be careful to accurately track intermittent leave.
Can an employee be terminated at the conclusion of the 12-week leave?
Upon return from FMLA leave, an employee must be restored to his or her original job or to an equivalent job with equivalent pay, benefits, and other terms and conditions of employment. However, there is a limited exception for ‘key employees’ where reinstatement will cause ‘substantial and grievous economic injury.’
Many employer FMLA policies provide that if an employee fails to return to work at the conclusion of the 12-week leave, the employee will be deemed to have abandoned his or her job and/or will be automatically terminated. Employers are discouraged from maintaining this type of policy as it may be deemed a violation of an employee’s rights under the Americans with Disabilities Act (ADA). At the conclusion of an employee’s FMLA leave, employers should consider whether the employee will be able to perform the essential functions of the job with or without a reasonable accommodation (pursuant to the ADA), which may include additional time off following FMLA leave.
If confronted with an issue under FMLA, employers are cautioned to contact an attorney to ensure they are acting in conformity with the FMLA and avoiding the numerous pitfalls inherent in complying with the FMLA.
Michael B. Dubin is a member at Semanoff Ormsby Greenberg & Torchia, LLC?. Reach him at (215) 887-2658 or email@example.com.
Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC
Many owners of small and midsize businesses are aware of cloud technology and software as a service, but don’t understand its radical cost transformation. It’s no longer a technical curiosity but a competitive necessity.
“The cloud brings a tsunami of cost-effective IT to the small business’s front door,” says Kevin O’Toole, senior vice president and general manager of Business Solutions at Comcast Business Services. “But it does bring two challenges with it. You have to pick the right partners, adopt the right technology and have good support. And your competition is going to embrace these technologies, so if you don’t figure out how to embrace this your business will be at a competitive disadvantage.”
Smart Business spoke with O’Toole on what to know about software as a service.
Why are small and midsize businesses buying software in the cloud?
IT for small and midsize businesses used to be about scarcity. They couldn’t afford expensive servers and staff to maintain them. Now, the cloud allows everyone to buy applications and services on demand, as they need it. Instead of having a server that may or may not get backed up or upgraded, everything is housed in an industrial data center with strong security and software that is regularly patched.
Also, when you buy a server, you’re buying capacity for the future. But when you buy software from the cloud, you can get it on a per user basis, adding or taking off users as your company changes.
Overall, software as a service allows you to focus on your core business. The cloud can help you get customers and serve them more efficiently, help your back office run more productively and help keep your costs down.
What kind of software applications are businesses getting from the cloud?
Pretty much anything can be managed out of the cloud at this point. Business owners are getting messaging through a hosted email exchange service. They are buying data backup services and file sharing services. With conference services, literally a couple of minutes later you can be doing a conference from six different locations with video and screen sharing. Other applications being adopted are financial and human resources services.
What do businesses need to know upfront?
The biggest things to know are:
- There are a lot of providers out there, but you want to buy from providers you can trust. It’s actually not that hard to start a cloud company, but it is hard to run one well. Sorting through the clutter and having someone vet providers for you is very valuable. Make sure when you put your business information into someone’s hands, it’s someone you trust.
- Have insight on what you intend to do with the system, so you don’t implement one system only to find out you really wanted additional features in a larger system. Also, even though your overall financial costs are lower with the cloud, there are also adoption efforts to consider, such as training your employees.
- Try to buy services in an environment with great user management and support. For example, if you’re using five different cloud applications, you don’t want each employee to need five logins and passwords. From a support perspective, make sure you have a partner on the other end to help with any troubleshooting.
- While a Google search of any cloud-based application or service will give you many listings, it is important to work with someone who can sort through it all. Find someone to ask hard questions of the cloud provider and set the bar high on quality.
What do companies do if they have technical questions about cloud-based software?
Like any technology project, you will have support questions — things do go wrong and there is confusion. It goes back to how you bought your cloud service. You can go to the source and work directly with a software vendor to purchase, onboard and maintain business applications via the cloud. You may get great support, or your provider may not always answer the phone leaving you with a major problem that you can’t solve right away. By going through a cloud expert that has the technical know-how to answer questions and troubleshoot when necessary, you can maintain that focus on your core business while also making your business more effective with the cloud.
Kevin O’Toole is a senior vice president and general manager of Business Solutions at Comcast Business Services. Reach him at (855) 867-5010 or firstname.lastname@example.org.
Learn more about Comcast’s new online marketplace of business-grade cloud solutions with simple access and account management.
Insights Telecommunications is brought to you by Comcast Business
The Division of Corporation Finance, a part of the Securities and Exchange Commission, issued guidance on disclosure obligations related to cybersecurity risks and incidents a few years ago. Public companies aren’t yet required to disclose this information to shareholders, but they could be at some point, says Brittany Teare, IT advisory manager at Weaver.
“Right now, this is guidance that is in the best interest for your shareholders, but that will likely change. It could become a requirement sooner rather than later,” she says.
Smart Business spoke with Teare about the guidance and how businesses can measure and guard against cyberrisks.
What are the SEC reporting requirements for cybersecurity under this guidance?
The guidance expands upon the existing requirements that public companies follow, but there’s no mandatory piece yet that results in a direct impact if a company doesn’t disclose information.
Basically, the guidance states that if cybersecurity risks and cyber incidents have a material effect on your shareholders — if it could affect how financial information is reported — you have to report them.
How do you know when cybersecurity risks materially impact your company?
The guidance addresses some possible risks and whether they should be voluntarily reported to shareholders. If you don’t have cybersecurity controls around your key financial systems, for example, then the way you record or report your data can be easily manipulated or altered. Even if a cyber breach has not yet occurred, it is very likely.
Cybersecurity is a gray area. Employers typically know that network and perimeter security, access and change controls should be in place, but executives may not consider disclosing vulnerabilities. CEOs and CFOs typically look at balance sheets and see line items for hardware and other things they can touch, but it can be challenging to consider the ways a breach can happen.
How would you advise CEOs to quantify data and see vulnerabilities?
First, designate a person or group of people to be responsible for cybersecurity. They should not only understand SEC requirements and where they are potentially heading, but also must identify specific risks.
There is a central entry point in any network, so key people need to know where the sensitive data is because if an attacker gets there, it could add up to a huge loss. If the company does not store much sensitive information, an attack could impact its reputation, which is more difficult to value.
Another challenge is improving communication from the CIO or IT manager. Often, IT will say, ‘We need X dollars for new equipment, applications and hardware that are going to help make our organization more secure.’ When management hears this number, which can be millions in larger organizations, they want to know the ROI. However, IT personnel typically struggle to quantify that.
A CIO needs to be able to tell other executives, ‘If this firewall, application or system is not installed, a breach would cost us X dollars, or the company could lose X dollars per day,’ for example. Not everything can be quantified, but this gives CIOs a starting point.
What will protect your data and reputation?
Some key, high-level steps to consider are:
• Take inventory of the data systems and gain an understanding of where critical data is located. Then, work to ensure that there is an appropriate amount of security in those areas.
• Use complex, strong passwords to protect the network, systems and data, and regularly change them. Have the system lock out users after a certain number of failed attempts and log all such activity.
• Heavily monitor networks and systems. Check who is logging in and from where, who is successfully entering and who is failing. Then, set a baseline to understand any abnormalities.
• Use the principle of least privilege, especially for critical accounts and functions. This ensures that no single employee has all access; rather, access is tailored to the job function.
There is more companies can do. But by implementing key, basic controls, if a breach occurs, the business can more easily identify what happened and how.
Brittany Teare is IT advisory manager at Weaver. Reach her at (972) 448-9299 or email@example.com.
Website: More information about the SEC guidance.
Insights Accounting is brought to you by Weaver
As an in-law coming into a family business, you’re stepping into one of the hardest working environments imaginable. A family member is held to a higher standard than regular employees, but an in-law has to work even harder than a family member.
“It really takes someone with vision and purpose because there will be a lot of extra challenges,” says Ricci M. Victorio, CSP, CPCC, managing partner at the Mosaic Family Business Center.
If you lay the right groundwork, establish clear expectations, and work with an adviser familiar with the challenges that will occur, she says it can be a productive and joyous experience.
Smart Business spoke with Victorio about how in-laws can successfully enter the family business and thrive.
What challenges do in-laws face when coming into the family business?
The hardest thing to overcome is perception. It doesn’t matter if you have an MBA from Cambridge or a Ph.D. from Harvard. When it comes to in-laws, the fact that you married into the business downgrades any credentials in the eyes of non-family managers or employees. People will tend to judge you harshly, so be patient and don’t take it personally.
How can an in-law successfully enter into the business?
The position, pay scale and responsibility must match the in-law’s experience and education. Thrusting an unqualified in-law upon people, no matter how great he or she is, makes it a much harder road. For example, an in-law was a sales manager making six-figures who was downsized. Now, he’s in trouble financially, and the family is worried. The family can bring the in-law into the business, which might be in another industry, but he shouldn’t start as the head of the sales division. He needs to learn the business and earn his way up the corporate ladder. If parents are still concerned about the financial gap, they can consider gifting additional monies from outside of the business — to help until he earns his way up.
It can be helpful to have the in-law candidate interview with the executive management team to gain support.
How can in-laws overcome the assumption that they have the boss’s ear?
You can’t expect the employees to be your friends, because they are going to assume that anything they reveal will get back to the boss. It can feel isolating and you have to be above reproach. Stay professional and never assume to be the heir apparent.
Also, if you have a problem, resolve things through the proper chain of command. If you’re not reporting to your father-in-law, don’t go to him when you have an issue.
Remember when you come home and complain to your spouse about work that you’re talking about a family member. Your spouse may get defensive, run to whomever you’re complaining about or start disliking that person. Try to share more than just the bad days.
What documentation is needed to protect the business, and the in-law?
Families with a high net worth business typically will require a prenuptial agreement that protects the stock from leaving the family in the case of divorce or death of the blood relative. However, there are incentives such as restricted or phantom stock for high-performing managers, which can provide financial incentives that feel like ownership for growing the company.
It’s also critical to create family member employment and stock qualification policies. These policies define the benchmarks and requirements for all family members, whether an in-law or not, as to how they can become stockowners or hold key executive positions, clarifying the pathway and making family employees more accountable.
Why is having a succession coach valuable?
Engaging a coach who specializes in succession transitions to help employed family members can smooth the predictable challenges along the way. Family employees, including in-laws, need a safe place to talk, and guidance to strategize through the maze of issues that will occur. The coach also can facilitate a family business council, which provides a venue for family members to talk about business related topics, questions and issues that would normally feel inappropriate to bring up in a productive environment.
Ricci M. Victorio, CSP, CPCC, is a managing partner at the Mosaic Family Business Center. Reach her at (415) 788-1952 or firstname.lastname@example.org.
Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.
With a Google search, there are two sets of results — paid and organic.
Yi He, Ph.D., assistant professor in the Department of Marketing & Entrepreneurship, College of Business and Economics, at California State University, East Bay, says her advertising management students were surprised to see how many people click on the paid ads.
Her students participate in the Google Online Marketing Challenge, where they are given $250 to run a three-week online advertising campaign for a business or non-profit, which is developed using Google AdWords and Google+.
This type of search engine marketing (SEM) truly benefits small companies.
“For smaller companies, in the past, there was no way to compete in the conventional media with big companies. Now, they can differentiate themselves using SEM, just by spending their advertising dollars in a relatively cautious manner,” she says.
Smart Business spoke with He about why small companies are turning to SEM.
Why is SEM so important today?
Most Internet users don’t want to remember a website URL. Eighty-five to 90 percent of people are guided to websites by search engines, such as Google. Also, people usually just look at the first five or 10 search results, and many of those are advertisements. So, once you start running ads, you generate more ways to reach Internet users.
How are SEM and conventional advertising different?
With conventional advertising, print and broadcast, it’s hard to measure whether your ad campaign was effective. However, everything is measurable with SEM — you can calculate how much ROI is generated from every advertising dollar spent.
Conventional advertising also requires a specific set of skills. But a business owner can run a SEM campaign by opening a Google AdWords account and be up within minutes. It may not be a great campaign, but it’s not like creating a TV commercial.
How does SEM differ from Facebook ads?
With SEM, the only way to target ads is geographically. So, a San Jose restaurant owner can specify that he or she only wants the ad to show up for a ‘Thai food’ search in a 15-mile radius from the downtown San Jose area. Google doesn’t charge for the number of times the ad shows up, or the impression, but by cost-per-click. With Facebook display ads, ads can be targeted by age, gender, marital status, interests, education level, etc., and are charged by both the click and impression.
On average, of the 10,000 times a Facebook ad shows up, only five people click on it, because in a social environment you don’t want to be interrupted to buy something. With a search engine, people are looking for a solution to a problem. A search result, whether organic or paid, is like you’re in a retail store and someone offers a helpful recommendation. With Google’s marketing challenge, my students can get a click through rate (CTR) that is 100 times higher than the Facebook average.
Why is SEM more useful for small business?
Smaller businesses typically aren’t as visible on the organic results or with the extremely popular keywords. But they can run a SEM campaign to generate Internet traffic and increase visibility. There’s no entry barrier, too, so they can get started right away.
SEM also can help figure out demand. For example, one student ran two ad campaigns for a local Chinese restaurant and discovered that ‘Chinese dining’ was not popular in either impressions or CTR. However, ‘Chinese takeout’ led to more people clicking the restaurant’s website and calling, which increased takeout orders dramatically.
What ethical concerns come up with SEM?
We don’t know exactly what data companies have on consumers, and what they do with it. All impressions, clicks through and transactions can be tracked. For example, you might go to a website to look at a few items but not purchase anything, and over the next few days you see similar items on your Internet pages. In addition, some argue that precisely targeted results deprive people of the total available information.
Public policymakers have been pushing to protect consumer information with something like the ‘do not call’ list. A ‘do not track’ list would enable people to sign up to keep their Internet Protocol addresses from being recorded.
Yi He, Ph.D., assistant professor, Department of Marketing & Entrepreneurship, College of Business and Economics, at the California State University, East Bay. Reach her at (510) 885-3534 or email@example.com.
Insights Executive Education is brought to you by California State University, East Bay
Additional Medicare taxes went into effect Jan. 1, 2013, for high-income earners, but many may not consider these taxes until they start filing their 2013 returns — and writing the checks.
“You want to take the time to go through this now, and lay the groundwork, because the decisions you make will have ramifications for next year,” says Chris Paris, regional tax leader of the Greater Bay Area at Moss Adams LLP.
“We’re spending a considerable amount of time dealing with this. People are asking: How is this going to impact us? Is there anything we can do to structure around it?”
Smart Business spoke with Paris about the impact of these taxes and what you need to know.
What are the new Medicare surtaxes?
The Unearned Income Medicare Contributions Tax (UIMCT) is a 3.8 percent tax on net investment income for higher income individuals. The other surtax is a 0.9 percent tax increase on wages and self-employment earnings for higher income individuals, for a combined employer/employee tax rate of 3.8 percent.
The taxes are designed to help cover about half the cost of the Patient Protection and Affordable Care Act, passed in 2010.
How does the IRS define higher income individuals?
Both taxes apply to individuals that meet an income threshold of $200,000 or more, or those married and filing jointly that meet a threshold of $250,000 or more.
If a taxpayer earns wages in excess of $200,000, his or her employer is required to withhold the 0.9 percent, in addition to the 2.9 percent previously taken out (1.45 percent for the employer and 1.45 percent for the employee). However, the 3.8 percent on net investment income is a new type of tax that may take some by surprise.
What’s so unusual about the UIMCT?
This is the first time the government has taxed net investment income to pay for the cost of Medicare. Net investment income includes interest income, dividends, royalties, rental income, and income flowing through passive investments like private equity funds, hedge funds and venture capital funds.
Rental income is going to be a big factor because many higher income earners own a lot of real estate, don’t qualify as real estate professionals and will be subject to this tax. It also could impact middle market companies where the owner of the business owns the real estate, although there may be ways of grouping activities together to reduce the impact of the tax. Further guidance regarding these issues is anticipated in the final version of the tax regulations.
How can those affected by these taxes plan?
First, be cognizant of the fact that it’s happening, so you can factor it into your 2013 tax planning. Estimated taxes are usually based on what you owed the prior year, so your figures may now be too low.
Secondly, you can potentially reduce the impact of the UIMCT by recharacterizing passive income subject to the 3.8 percent tax to ‘Trade or Business’ income, which is not subject to the surtax. For example, an individual who owns multiple businesses or rental properties may be able to group the multiple activities into a single activity by making an election pursuant to Revenue Procedure 2010-13. However, the activities must also rise to the level of a trade or business, a requirement that currently lacks clarity in the proposed regulations. Further guidance may be provided when the final tax regulations are released. The grouping election is particularly attractive if you haven’t filed your 2012 extended return because you can put the IRS on notice now to be in a better position to potentially reduce the UIMCT next year.
Questions also remain about whether certain people qualify as a real estate professional — whose rental income may not be subject to the UIMCT— which is another reason to reach out to your advisers now.
In addition, it may be time to discuss choice of entity, how you operate your business. An LLC with two active owners in the maximum tax bracket could be looking at a combined 43.4 percent federal tax rate on income, whereas a C corporation has a maximum tax rate of 35 percent. However, any dividends from the C corporation would also be taxed, hence there could be double taxation. Further, tax consequences alone may not be enough of a reason to switch, and exit alternatives such as asset sales need to be considered.
Some taxpayers are exploring alternative investments, such as tax-exempt interest income like municipal securities, non-dividend paying equities in certain rapid growth companies, tax-deferred annuities and investments, as well as considering capital gain planning, loss harvesting, installment sales and more.
Whatever strategy you decide to undertake to help control what you pay, don’t wait to plan — or you may not have the most desirable result.
Chris Paris is Regional tax leader, Greater Bay Area, at Moss Adams. Reach him at (415) 677-8352 or firstname.lastname@example.org.
Insights Accounting & Consulting is brought to you by Moss Adams LLP.
Cloud computing is the use of applications that are housed on servers outside of a business’s location and accessed using the Internet. Instead of deploying servers internally and building a network infrastructure within their walls, companies contract with a cloud-computing provider that hosts the applications.
“Cloud computing is a key component of any company’s infrastructure these days, whether you’re Fortune 500 or a sole proprietorship,” says Eric Folkman, manager of managed services at Blue Technologies. “There’s a piece of it now that can fit pretty much any company. It wasn’t that way a few years ago, but the technology has progressed and the costs have come down so far that there’s something there for everybody.”
Smart Business spoke with Folkman about getting started with cloud computing.
Why should you look into utilizing the cloud to help your company?
Three simple reasons are:
- Financial benefits.
- Increased availability of data, whether for your employees or the public.
- Reducing your disaster risk with some form of backup.
What specifically can be taken to the cloud?
The ability to move applications to the cloud has exploded. It may sound cliché, but the better question might be: What can’t you take to the cloud?
Some applications are better than others in the cloud environment, such as email, financial systems, customer relationship management (CRM) systems, data backup and Microsoft Office-type products like Word and Excel. In addition, voice is gaining popularity, which works by routing your phones through the Internet. This can reduce your business phone bills and provide flexibility to telecom costs.
When is the right time to go to the cloud?
It depends on the situation, but anytime a company is considering a major change to its technology — whether a server upgrade or application change — that’s an appropriate time to consider the cloud.
Here’s a scenario I run across three or four times a week: A company is running an older, internal email server and decides to upgrade. It could spend tens of thousands of dollars on hardware, software licensing and implementation. The business gets an upgraded server but still has maintenance costs, security risks and the potential for downtime if something happens to the physical servers.
The alternative is to host email through the cloud. There’s no need to secure and maintain an internal server, and email is more accessible via the Internet. There’s also no disaster recovery component — you know the provider has mechanisms to keep your data safe. However, sometimes you have so many users going to the cloud that it doesn’t make sense, as opposed to doing it in-house, from a cost perspective.
What’s an easy way to get started?
Cloud-based data backup is a low-cost, low-risk way for a company to dip its toe in the water. Companies see savings quickly and don’t have to mess with tapes and the risk of someone (usually the receptionist) manually rotating tapes off-site. Although there are some configuration changes, it’s not a mission-critical application.
Email and a CRM, like salesforce.com, are two others to consider doing sooner rather than later with a quick payback.
How is the value of cloud usage measured?
Like any business process, do your homework and build a business case. Not every company is perfect for it, but it’s an option executives should at least look at. It can be difficult and cumbersome to figure out if you’re not familiar with IT and don’t understand all the pros and cons of the cloud environment. A little advice in the beginning could really help get you beyond the learning curve.
Once you’re using the cloud, many providers offer advanced reporting and monitoring tools, so if something goes wrong you can take corrective action. For instance, most backup providers offer a dashboard. You can see how many computers are backing up, how much from each, how long it takes, how many failed to back up, etc. You also want your cloud contracts to include flexibility to add services or make changes as needed.
Eric Folkman is manager of managed services at Blue Technologies. Reach him at (216) 271-4800 or email@example.com.
Blue Technologies offers further insight on this and other topics affecting businesses on its blog. Learn more by visiting www.btohio.com/news-resources.
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Whether you are looking to manage your own assets, control how your assets are distributed after your death, plan for incapacity or enable your business to continue uninterrupted should something happen to you, trusts can help you accomplish your estate planning goals. By establishing a trust, you ensure that the assets gathered during your life will not disappear because of the inexperience or inability of beneficiaries. A byproduct of that is the peace of mind that comes from knowing your loved ones will continue to be financially protected.
“One of the benefits of a trust is that it’s established based on the unique needs and objectives of the individual and the individual’s family, and tailored to meet those needs,” says Susan L. Nelson, CTFA, Senior Trust Executive and Senior Vice President at First Commonwealth Advisors.
Smart Business spoke with Nelson about the benefits and management of trusts.
What are the different types of trusts?
There are many types of trusts, the most basic being the revocable and irrevocable. The type of trust you use will depend on what you are trying to accomplish. A revocable trust, often referred to as a living trust, allows the individual establishing the trust to remain in control of the assets and allows them to change the beneficiary, the trustee, the trust terms and even end the trust. The grantor can use the trust for investment management, bill paying, tax planning and avoidance of probate. It can continue on in the event of incapacity, providing seamless financial management for the grantor, and can continue on after death for the benefit of others. Once the grantor dies, the trust becomes irrevocable.
An irrevocable trust is where the grantor gives complete control to an independent trustee who manages the assets for the grantor and beneficiaries. You cannot easily change or revoke this type of trust. It’s frequently used to minimize potential estate taxes by reducing the taxable estate of the grantor because the assets transferred to this trust, plus any future appreciation, are removed from the grantor’s gross estate. Additionally, property transferred through an irrevocable trust will avoid probate and may be protected from future creditors.
What are the benefits of trusts?
Some benefits are:
- Continuous financial management in the event of incapacity.
- Professional investment management.
- Financial privacy — a trust isn’t public like a will.
- Probate avoidance with no lapse in asset protection and investments — probate can take a year or more, depending on the complexity.
- Asset management for inheritances.
- Creditor protection for heirs. If a beneficiary is going through bankruptcy, money in the trust cannot be touched.
Trusts can provide lifetime financial protection for a surviving spouse or disabled child, an inheritance for children from an earlier marriage, can minimize estate taxes and provide a future legacy for charity. Trusts can be used in order to protect, preserve and transfer wealth for the benefit of individuals, families and organizations. While trusts can be used for myriad circumstances, they are not for everyone. Discuss the advantages and benefits of a trust for your situation with a financial adviser.
How should a trust be managed?
Every trust is based on your needs and objectives. When setting up the trust, determine what you’re trying to accomplish so you and your financial adviser can decide how to reach those objectives. One of the first things looked at are tax implications and how to reduce pain points. Providing for future beneficiaries should also be examined. After the trust is established, you’ll need to meet periodically to discuss the investment portfolio and life changes to be certain the trust still meets your needs.
Why choose a professional trustee?
Institutional fiduciaries are pros at what they do, have professionals on staff with years of experience, and are on the cutting edge of regulatory and tax law changes. They may be the best option for reliability, experience, responsiveness, neutrality and arms-length objectivity with beneficiaries, objective investment guidance, convenience and consistency over time. An institutional fiduciary doesn’t age or die.
Susan L. Nelson, CTFA, is a senior trust executive and senior vice president at First Commonwealth Advisors. Reach her at (724) 832-6062 or firstname.lastname@example.org.
Follow up: To learn more, call (855) ASK-4-FCA, or visit ask4fca.com.
Insights Wealth Management is brought to you by First Commonwealth Bank