Even with the proper insurance coverage, recovering from a disaster can be difficult for businesses that have not thoroughly prepared for the rebuilding process. Disaster plans and insurance money may not be enough to save a company that hasn’t tested its ability to address a crisis.
“Yes, there’s insurance to protect against a disaster, but what happens after the catastrophe occurs? It’s great to have a written plan in place, but if you don’t do a trial run or an audit of the plan, how do you know it’s going to work?” says Derek M. Hoch, president of Leverity Insurance Group.
Smart Business spoke with Hoch about the basics of disaster recovery and how insurance supplements the planning process.
What is often overlooked in terms of disaster planning?
Both business owners and key employees can become complacent because there is a plan in writing; they assume it will automatically work. Employees read the plan, understand their role, then over time there is no refresher about what they specifically need to do in that job function if a disaster were to occur.
From an insurance aspect, it’s easy enough to get monetary relief and rebuild if you insure the building structure and business personal property. What often gets overlooked is business interruption, or business income coverage. This is a major component in any businesses risk management program. It represents the economic loss, the potential loss of key employees, ongoing payroll and utility expenses, as well as any extra expenses that you normally wouldn’t have if the disaster didn’t occur. There are a lot of variables that business owners do not think about until after a disaster, and those costs are often overlooked and underinsured.
The problem with business interruption insurance is that it’s a difficult number to determine. There are business income worksheets and calculations that can be made, but it’s not a static number like replacing a building, which has a specific dollar amount.
What is necessary, once the written plan is in place?
Companies will put the plan in writing and explain it to employees, but never conduct a test because they don’t want the disruption to their business for a half or full day. A catastrophic event could occur at any moment. You may need to shut the business down in order to:
- Test the facilities.
- Make sure employees relay the proper information to the correct people or authorities.
- Confirm anything done off-site to back up systems is in place, and you’re not losing valuable information and data that would compromise the sustainability of the operation.
Companies don’t want to disrupt their businesses. What they don’t realize is that one day off to test their plan could potentially save them thousands or even millions of dollars.
Why is it vital to reopen quickly, and what can businesses do to speed up the process?
Unless you’re in a niche industry, planning for a disaster is vital because you will have competitors able to come in and supply your customers when you are shut down. This is the equivalent of business death, because the longer it takes, the more customers and employees will go elsewhere.
Your insurance broker/risk manager should sit down with you and — just as you do regarding the physical structure and assuring adequate coverage — walk you through the potential disasters that could happen and help formulate what necessary steps to take to ensure sustainability. It’s really a team approach, asking open-ended questions and letting the business owner talk about their business, so a plan can be instituted. This plan will complement the other forms of insurance coverage you purchase to protect the rest of your business.
You can try to prepare for everything, but having a plan in place and practicing it at least annually can help get you back up and running earlier in the event of a disaster. ●
Insights Business Insurance is brought to you by Leverity Insurance Group
As we emerge from the worst recession in memory, employers are cautiously rebuilding their workforces. Many long-term unemployed are starting to get interviews and offers, and some are seeing a new wrinkle: credit background checks.
Those checks might unearth financial problems that would cause an employer to reject a candidate. But beware of the Fair Credit Reporting Act (FCRA), the Consumer Credit Reporting Reform Act and additional state laws.
It is important to protect the company’s bank account by ensuring that access is limited to those who can be trusted. So how can you tell for sure? While there is no fail-safe guarantee, credit background checks can raise red flags early in the process.
“The wisest course for employers is to make the best hires they can, using all of the legitimate, nondiscriminatory information accessible to them within the law,” says Karen C. Lefton, a partner in the Labor & Employment group at Brouse McDowell.
Smart Business spoke with Lefton about her recommendations on conducting credit background checks.
What steps should a company take as it makes hiring decisions?
1) Get the candidate’s consent for the credit check in advance and in writing. Work with your attorney to create a clear consent form. It should state that the candidate acknowledges and agrees that the consumer-reporting agency will furnish a report to the employer, and that the employer intends to use the information for employment purposes.
2) Engage a reputable consumer-reporting agency, one well versed in the limitations of the FCRA, to conduct the review.
3) Provide the agency with reasonable criteria for its review, such as verification of the applicant’s Social Security number, balances totaling $2,000 or more that are at least 60 days past due, lack of credit, current garnishments on earnings, overdue child support or other outstanding collections of $2,000 or more.
4) Make sure the report is limited to the criteria sought. If the search turns up information that the employer should not know about — the candidate’s disabled child, for example — that information should be withheld to insulate the employer from any allegation of discrimination in the hiring process.
5) Before taking adverse action, provide the candidate with written notice that a copy of the report is available, as is a summary of his or her rights under the FCRA.
Keep in mind that errors occur. The ‘John Smith’ applying for a job may not be the same ‘John Smith’ with a horrendous credit history. Fairness requires that all candidates be given the opportunity to contest black marks. Only then can you ensure that hiring decisions are based on bona fide qualifications, or the lack there of. The hiring decision should be based largely on whether there is increased company risk, whether that risk is outweighed by the benefit of the candidate’s other credentials and the specific access his or her new position gives him or her to company funds.
Can credit checks be used as a basis to not hire or promote someone?
Yes, if you have followed the steps outlined. You are not required to hire a CFO mired in debt to collect your receivables or to pay your bills. Further, the FCRA does not distinguish between job candidates and current employees, meaning that consumer reports may be used to evaluate a person for promotion, reassignment or retention. But, again, employees must give conspicuous consent to the performance of credit checks.
What should be part of a background check, and does it vary by position?
Good credit and sound financial history are absolutely essential when an employee has access to money, whether yours or a customer’s. And don’t be lax because the sums aren’t huge. A local library employee, fired after $350,000 was discovered missing, goes on trial for aggravated theft later this month, accused of stealing nickels and dimes regularly over six years. Criminal background and driving records also might be relevant. A history of violence or criminal behavior are disqualifying for employees working in secluded areas with customers or in the customers’ homes. A bad driving record can knock out a delivery position candidate. Employers must be vigilant to avoid putting customers, co-workers or the public in peril due to bad hiring decisions. ●
Find out more about Brouse McDowell’s Labor & Employment law services.
Insights Legal Affairs is brought to you by Brouse McDowell
A few simple steps you can take now will pay dividends when tax time rolls around next April, says Steve Gross, CPA, a partner at Skoda Minotti.
“Start now as opposed to waiting until late December and rushing to accomplish your goals. There are some very simple strategies you can follow now to reap the benefits when tax time arrives,” Gross says.
Smart Business spoke with Gross about tax tips, including a credit that is scheduled to expire this year.
What are some basic things to consider to reduce tax liability?
A few things you might want to look at are:
- Charitable contributions. Make any donations before the end of the year — you can put the donation on a credit card, even if the card payment isn’t due until January 2014, and still list the deduction in 2013. If you aren’t an itemized taxpayer, you may consider accelerating your 2014 pledges, whether that is one or several, to reach the totals needed to itemize and take advantage of the deduction. This also applies to pass-through entities; if you’re an owner of a partnership or shareholder in an S corporation, donations are deducted as a separate line item.
Another opportunity to realize charitable contributions is to donate unused or unwanted — but still in usable condition — household items and clothing to a qualified charitable organization. By doing so, you’ll get a deduction for the fair market value.
- Estimated tax payments. While fourth quarter estimated federal and state taxes are not due until Jan. 15, you could pay the state estimate by Dec. 31 and get the deduction this year.
You may also consider accelerating payment for your real estate taxes. Some taxpayers who don’t itemize every year because they don’t have enough in deductions can pay the entire real estate tax bill for one full year in January, and then again in full in December of the same year. This may help you reach the limit to itemize.
- Capital gains and losses. If you’ve sold stocks and had capital gains, it might make sense to look at your portfolio for any loss positions you might want to sell to offset the gains. The capital gains tax increased from 15 to 20 percent in 2013, and gains may be subject to the 3.8 percent additional Medicare tax on excess passive income.
- Energy credits. The residential energy credit, which technically expired at the end of 2011, was reinstated through 2013 and provides up to 10 percent of qualified expenses, up to a $500 lifetime limit, for the installation of energy-saving exterior doors, windows or air conditioners.
- Business property. Under Section 179 of the tax code, you may elect to deduct the cost of qualified business property purchased and placed in service during the year. The maximum deduction allowed for 2012 was $500,000, subject to a phase-out for acquisitions above $2 million.
Under the American Taxpayer Relief Act of 2012 (ATRA), these limits are extended through 2013. Absent new legislation by Congress, the maximum allowance will plummet to $25,000 in 2014. The ATRA also preserves 50 percent bonus depreciation on any remaining cost of qualified property your business places in service this year.
The bonus depreciation tax break is generally scheduled to expire after 2013.
Are these things you should be reviewing every year?
Yes. In addition, pay careful attention to the fair market value of the non-cash charitable contributions. Many organizations provide guidelines for establishing the fair market value of used property.
Tax rates are not changing in 2014, but when there is a major change in rates, depending on which way they’re going, that might influence what you do in a particular year. Your tax adviser should be in-step with the changes in tax law and if they will affect you. It would be impossible for any taxpayer to fully understand the variety of scenarios, given the complexity of ‘if/then’ situations surrounding deductions. ●
Find out more about Skoda Minotti's tax planning and preparation.
Insights Accounting & Consulting is brought to you by Skoda Minotti
At first glance, dropping health insurance for employees and sending them to the exchanges sounds like a win for everyone. Companies can give raises to make up the difference for employees, who then buy insurance for less, and everyone saves money.
But that’s not the result when you factor in all of the numbers, says William F. Hutter, CEO of Sequent.
“Drop your health insurance and give employees the same money is the mantra we keep hearing. It is not a simple decision and should not be treated as such for middle-market companies,” Hutter says.
Smart Business spoke with Hutter about the costs associated with this decision, and its potential impact on your business.
Would companies rather not worry about health insurance because of its volatility?
Companies are tired of thinking about health insurance; it’s becoming another distraction away from their business. Of course, that’s just considering cost and not taking into account the cultural issues involved with the perception of whether you’re taking care of your employees.
For example, a client was advised that it could save money by sending everyone to the exchange and just giving employees raises. That has proven to be a fallacy. When you review all of the numbers, the savings are not there.
The company has 109 employees, and 79 are covered by the health plan. It has a high deductible, so the company contributes to a health reimbursement account (HRA) for employees.
Basic costs of the plan are:
- Total insurance premiums — $653,000.
- Company share — $522,400.
- Employees’ share — $130,600.
- Company HRA cost — $200,000.
- Total cost to company — $722,400.
Dropping insurance and giving those employees $7,500 in raises each — a total of $592,500 — would appear to save the company $129,900. But you have to consider the total cost impact, including deductible burden, taxes and penalties.
What are the tax implications under this scenario?
Because of the loss of the pre-tax deduction, employees and the company both pay more in taxes on the $592,500 in raises — $199,937 by employees and $73,395 by the company.
There’s also an Affordable Care Act (ACA) penalty of $114,000 the company would be required to pay because it would no longer be a health plan sponsor. And now the employees also are paying all of the plan deductible, so that’s another $158,000, assuming a $2,000 deductible.
When you consider all of those factors, the total cost is $779,894, or about $57,000 more to not offer health insurance. When shown the entire picture, the client was blown away.
Are there other variables to consider, even if dropping health insurance for employees made financial sense?
In addition to how it would be perceived by employees, there’s a concern about making a decision based on the short term. Organizations need to think more strategically, rather than looking just at how to fix a current problem.
No one knows how the exchanges are going to shake out. They are getting a tax subsidy for the first two years in the form of a $62 annual tax on every employee covered by an insurance carrier outside of the exchanges. In theory, that provides a pool of money carriers can draw on until the exchanges find their own balance regarding enrollees, costs and risks. That could result in a significant increase in premiums in two years when the subsidy goes away.
Also, you want to be cautious about dropping insurance and giving up the tax advantage of sponsoring a plan because it’s difficult to go back. That’s really the objective of the ACA — it’s a revenue enhancement bill rather than a health care bill. That goes back to the 2005 study by Sens. Max Baucus and Chuck Grassley, which flowed right into health care reform.
This analysis and case study is a dramatic illustration of how the changes written into health care reform are really about closing tax loopholes. Companies may be better off keeping the tax advantage of health care for themselves and their employees by providing access to predictable health care coverage. ●
Insights HR Outsourcing is brought to you by Sequent
Businesses in certain industries frequently overlook the Interest-Charge Domestic International Sales Corporation (IC-DISC) provisions of the tax code, which encourage U.S. manufacturing and exporting. The incentive essentially reduces the top federal tax rate on income from certain qualified goods and services from 39.6 percent to 20 percent.
“Because it is thought of as only a manufacturer’s incentive, many companies in certain eligible industries have never heard of the IC-DISC, or have summarily dismissed the incentive,” says Amit Mathur, CPA, director at WTP Advisors.
Rob MacKinlay, president of Cohen & Company, says, “Distributors, as well as industries that produce certain products and services, repeatedly overlook the IC-DISC. We have helped many of these companies realize that they are indeed eligible for the significant and easy-to-implement savings from this federal incentive that does not disrupt business operations whatsoever.”
Smart Business spoke with Mathur and some of the top accounting firms in the region about the IC-DISC and some of the industries that frequently miss, or underutilize, the valuable incentive.
Can distributors, brokers use an IC-DISC?
Distributors of U.S.-made products are eligible for IC-DISC benefits on those goods that are exported. Since many distributors have been told that they do not qualify for the ‘Domestic Production Activities’ deduction, which does indeed require manufacture by the taxpayer claiming the deduction, they have assumed that they aren’t eligible to use an IC-DISC.
“While the exported goods must be finished in the U.S., both the final manufacturer as well as the distributor that does the actual exporting are eligible to use the IC-DISC. Unfortunately, both parties often miss out on the opportunity,” says Jim Bowen, tax partner at Bober Markey Fedorovich.
Are architects and engineers entitled to claim savings under this provision?
Architectural and engineering services furnished in connection with foreign construction projects and facility expansions can qualify for IC-DISC benefits.
“Regardless where the architectural and engineering services are performed, and even if the project never comes to fruition, such services are eligible,” says Pete Chudyk, senior tax shareholder at Maloney + Novotny.
Can software firms save with the IC-DISC?
Licenses and sales of software programs used abroad, as well as in Canada and Mexico, may be eligible for IC-DISC benefits.
Mike Luxeder, tax director at Libman Goldstine Kopperman & Wolf says, “Software companies should examine where their products are ultimately used. The IRS recently clarified its position that software sales, licenses and royalties can indeed qualify for the IC-DISC.”
How might recyclers use the IC-DISC?
Recycled products, as long as they undergo the requisite amount of U.S. manufacturing and are ultimately exported, can be eligible for the IC-DISC. The IC-DISC tax regulations consider any product to be manufactured in the U.S. if at least 20 percent of the costs to produce the product are related to U.S. labor and factory burden. This includes labor related to destroying, cleaning and treating scrap or waste materials such as metals.
How can food producers and growers get the benefits of this tax provision?
Products that are ‘manufactured, produced, grown or extracted’ in the U.S., and are ultimately exported, are eligible for the IC-DISC. Ohio’s chief agricultural exports, such as soy and corn, are often missed. Raw, processed and semi-processed foods, livestock, pelts, etc., are also eligible.
Many farmers and ranchers, particularly those selling through certain cooperatives, are just now starting to realize the opportunity to participate in the tax savings from the IC-DISC.
If you’ve passed over the IC-DISC before because you’ve bought into the notion that this incentive is only for manufacturers and exporters, you may be losing money. There are many industries that can draw a benefit. However, it’s advisable that you contact a specialist to help your business navigate the complex rules. ●
Insights Tax Incentives is brought to you by WTP Advisors
In ruling that the Defense of Marriage Act (DOMA) was unconstitutional, the U.S. Supreme Court also created challenges for HR personnel in managing benefits related to employees in same-sex marriages.
“It’s great that the decision ensures equality and there will no longer be a disparate impact on employees’ spouses,” says Stephanie Martinez, PHR, Director of HR Services at Benefitdecisions, Inc. “But it does present additional challenges for HR.”
Smart Business spoke with Martinez about the ruling and its implications in administering employee benefits.
What was the Supreme Court ruling?
It struck down the DOMA definition of marriage as being between a man and a woman. Couples in same-sex marriages now have equal protection under federal law. The case also dealt with estate taxes.
Which states recognize same-sex marriages, and does the ruling affect other states?
Same-sex marriages are recognized in 13 states: California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington, as well as the District of Columbia.
While the ruling has little direct impact in states that do not recognize same-sex marriages, it does affect federal taxes, regardless of residence. The Treasury Department and IRS issued guidance that a ‘state of celebration’ approach will be used regarding treatment of same-sex couples for federal tax purposes, meaning the marriage will have federal tax recognition regardless of where a couple resides.
How are benefit plans changing?
The ruling is impacting benefits that are extended to spouses, ensuring same-sex couples are treated equally as compared to opposite-sex couples. If you don’t offer spousal benefits, there’s no requirement to do so as a result of the ruling.
You also don’t need to extend benefits to same-sex spouses if you have a self-insured wellness plan or are in a state that doesn’t recognize same-sex marriages. However, if you’re not extending that benefit to same-sex couples you could face legal challenges because it could be viewed as discriminatory.
If you offer a qualified retirement plan, it must treat the same-sex spouse as a spouse for purposes of satisfying federal tax laws. The plan must recognize valid same-sex marriages, even if the state they live in doesn’t recognize same-sex marriages.
Another change is that employees’ health plan contributions for same-sex spouses and children can now be done on a pre-tax basis. Also, they are eligible for COBRA continuation coverage.
In states that recognize same-sex marriage, the Family and Medical Leave Act (FMLA) extends to same-sex couples, giving them the right to take leave to care for their spouse.
Some questions that remain unanswered for HR representatives include whether same-sex spouses will be able to claim their benefits retroactively to the ruling’s effective date. There’s also a question as to whether past federal tax returns can be amended to claim refunds, and if same-sex couples will get their FICA taxes refunded.
What should employers be doing now in response to the DOMA ruling?
Private sector organizations in those 13 specific states should look at how benefit plans are communicated to employees. Make sure payroll taxes are handled correctly, that you’re collaborating with your health care insurance provider regarding COBRA coverage and that communications are modified to reflect necessary changes.
Pertinent policies for things like FMLA and COBRA will need to be updated in your employee handbook.
As an HR representative, it can be difficult from a legal standpoint to stay on top of all of the changes, and how those changes may impact your organization. One complication is that state definitions of terms like domestic partnerships are not clearly defined across the board. Civil unions and domestic partnerships are not normally affected by the DOMA ruling, but California law expanded the scope of domestic partnerships to include all the rights and responsibilities of a legal marriage.
Any effort to move forward with providing equal opportunity for all individuals is a step in the right direction. However, there are many things you need to pay attention to in order ensure everything is done lawfully. ●
Insights Employee Benefits is brought to you by Benefitdecisions, Inc.
Regulatory audits of retirement plans are on the rise — in number and scope — from both the Department of Labor (DOL) and the IRS.
“The DOL has hired hundreds of plan auditors and they are actively looking for violations. Trivial issues, or issues often overlooked in the past, are now being scrutinized during a regulatory audit,” says Mike Spickard, CEO and Chief Actuary at Tegrit Group. “The IRS or DOL will always find something during an audit; often, there are penalties, interest and some pain involved.”
Smart Business spoke with Spickard about avoiding regulatory audits, and what to do if that’s not possible.
Why has there been an uptick?
From the DOL’s perspective, the No. 1 trigger of a regulatory audit is a pattern of participant complaints. Additionally, the IRS and DOL have started to communicate with each other more frequently in the past four or five years. So, if the IRS tags you for an audit and auditors see problems within the DOL’s jurisdiction, you could be dealing with two audits.
How can plan sponsors avoid audits?
To prevent an audit, be an engaged plan sponsor. Know what’s going on with your plan and manage it as part of your corporate operations. Though a plan sponsor’s primary responsibility is running his or her business, it must be recognized that a retirement plan is both an asset and a liability, and needs to be managed as such.
Your plan must be amended if the law or your company changes. Everything needs to be up to date, and the plan administered pursuant to the terms of its document. At a minimum, have an annual review with all service providers, your recordkeeper, third-party administrator (TPA), financial advisors, etc., to ensure everyone is on the same page.
Further, it’s important to stay in tune with your employees. This enables you to deal with plan issues, real or perceived, before participants call the DOL.
What triggers a regulatory audit?
The IRS does not disclose how it selects plans for audits. Audits are partly random, but certain activities may raise flags, such as a late Form 5500 or negative publicity surrounding a troubled company. Certain Form 5500 responses also may trigger an audit. For example, one question on the form is: Did the plan have a fidelity bond in place throughout the plan year? A fidelity bond is required; a ‘no’ may indicate you don’t know what you’re doing, causing a response from the IRS.
What should you do if tapped for an audit?
When you get the initial audit notice, let all your service providers know. Often one service provider, usually the TPA, takes the lead. But it’s easier to respond if records are organized and information is readily available. Disorganization causes auditors to linger, which ultimately costs more.
The DOL or the IRS gives the sponsor, and its advisors, time to gather plan documents, amendments, payroll records, contribution reports, record-keeping reports, etc. Screen all necessary information, as well as any additional information that could be required later. Only give auditors what they ask for.
After the initial review, auditors decide if they want to do a deeper dive on specific issues, or expand the audit to additional years. If your service providers compare notes and plan, you can at least stay in step with the auditor, if not one step ahead.
Afterward, how can business owners thrive?
Pay attention to the audit findings, not only addressing problems throughout the audit, but also indications of future problems.
If you successfully defend an issue, the fact that an auditor challenged it is an opportunity to seek a better solution. For example, it was discovered during an audit that one small business mailed checks to its recordkeeper, delaying the deposit into participant accounts while the check was in transit. This delay isn’t necessarily a violation, but a better alternative would be an automated clearinghouse or wire transfer. Even in successful audits there are opportunities for improvement. ●
Mike Spickard is CEO, Chief Actuary at Tegrit Group. Reach him at (330) 644-2044 or email@example.com.
Insights Retirement Planning Services is brought to you by Tegrit Group
Your property manager offers not only convenience, but also cost stabilization and a link to finding creative ways to save money without sacrificing quality of service.
“A qualified property manager should be able to distinguish the needs of both the tenants and landlord to protect the asset — whether it’s office, industrial, retail or multi-family,” says Eliot Kijewski, SIOR, senior vice president at CRESCO.
Another benefit of having a professional property manager is that he or she serves as a singular point of contact for both the tenant and landlord, which allows the property owner to invest his or her time elsewhere.
“Our property management philosophy is to think like an owner to maximize asset value,” says Judy L. Simon, CPM, assistant vice president at Continental Realty.
Smart Business spoke with Kijewski and Simon about how to best utilize property management.
What services does a property manager typically provide?
Traditionally, a property manager’s duties fall under the categories of building operations, financial management and tenant relations. He or she helps keep costs consistent, using his or her contacts to shop out needed services, whether it’s snow removal, landscaping or cleaning services, to get the best price per square foot. The manager uses those same contacts to reach out to contractors and have them bid for tenant improvement work.
At the same time, the manager is a liaison between the tenant and landlord. Many tenants decide to move because poorly managed building issues interfere with their daily operations. An experienced property manager stops potential issues from becoming large problems, which helps with tenant retention. The property manager may be working for the landlord, but he or she must maintain a good relationship with the tenants.
Property owners should have at least 50,000 square feet of space for property management to be cost-effective. Then, you can tailor the services you want your property manager to deliver.
Beyond hiring contractors and dealing with tenants, how else can the property manager assist?
A quality property manager will help maximize how your dollars are spent by providing cost savings without losing quality. For example, a manager can help you decide where, or if, you should offer an extra service or two to make the property more attractive to tenants, such as move-in assistance or security. The manager also can find savings through energy management or sustainability programs, which benefit both the landlord and tenants.
He or she can help establish contracts with vendors, whether that’s purchasing carpet, salt, landscaping material, etc., as well as assist with capital budgeting. For instance, beyond getting three quotes for a roof repair, the manager can help you decide if you want a total replacement, patching, or to replace different sections each year, in which case you can allocate funds for each stage of the project rather than write one large check.
Does a property manager have a role in lease negotiations?
Not really, although property managers can assist with lease administration and reporting. However, it’s important to remember if a property is not managed well, it drives off prospective tenants. If they pull into a parking lot full of chuckholes that hasn’t recently been seal coated or stripped, they will assume their space is going to get the same poor attention.
The saying goes: The first impression is the only impression you get. Your property manager helps with that first impression. The manager may not have a direct impact on pricing and lease negotiations, but many times the property manager will hear about expansion/renewal needs during routine tenant visits. Their experience with and understanding of the building will also help you during negotiations. ●
CRESCO and Continental Realty have joined to offer full-service property management in the Cleveland market.
Insights Real Estate is brought to you by CRESCO
The bulk of the Affordable Care Act (ACA) will be implemented on Jan. 1, 2014. Even though large employers don’t necessarily need to go through the chess game of whether or not to offer insurance — pay or play — a number of new initiatives still come online.
The community rating rules, which limit how insurance carriers can classify small employer groups, the individual mandate and $8 billion insurer tax all will shape health care and premiums in the coming year.
“You’ve got to keep your eyes open, and continue to see what’s going on,” says Mark Haegele, director of sales and account management at HealthLink.
Smart Business spoke with Haegele about how to develop a year-end checklist of responsibilities related to health care reform.
What is the first thing an employer must do?
The ACA is not going away, so you must determine how the law applies to your business.
Let’s say you are contemplating offering in 2015 minimum essential coverage plans, ‘skinny plans,’ that just cover preventive care. Employers with 50 or more full-time equivalent employees may want to consider making this move in 2014, even though the employer-shared responsibility provision, or employer mandate, isn’t in effect. This prevents employees from getting subsidies and going through the new health care exchanges, or marketplaces, and then losing these funds in 2015 when you move over to a lower-level plan.
Consider any future health care changes, and how they will impact your employees for the next couple of years. You don’t want to aggravate staff and cause retention problems.
What’s important to know about your insurance?
Many people expect to see sharp spikes in health insurances costs and premiums after Jan. 1, 2014, which could be unsustainable. The $8 billion insurer tax, which likely will be passed onto employers in the form of premiums, is being calculated as a 4 to 6 percent increase. The community rating rules could drive premiums up by more than 60 percent if your insurance group is a young, healthy population. Out-of-pocket maximums have been limited to no higher than $6,350 for self-coverage and $12,700 for family coverage for most insurance.
The upcoming January 2014 health insurance renewals are the last to come into compliance before many large employers face fines. Consider where you are, and the steps it will take to come into compliance before your 2015 renewal.
Business executives need to analyze the costs and benefits of remaining with their current insurance plan or moving to self-funding, which has more freedom from regulations. Take the time to examine this regularly. No one is sure how the insurance market will react to ACA measures.
Beyond strategic decisions, what concrete actions need to be completed?
You need to make sure you sent out the notice to your employees about the new health care marketplaces, or exchanges, required as of Oct. 1, 2013. It’s a good idea to include this with your orientation materials to ensure all new employees are notified.
In addition, a Summary of Benefits and Coverage, an easy-to-understand summary of health care benefits, must be given to eligible participants at least 30 days before your plan year begins. Your insurer, health reimbursement arrangement provider or third-party administrator usually provides this.
Verify your employee-waiting period meets new requirements. A group health plan cannot make new employees wait more than 90 days for health insurance coverage as of Jan. 1, 2014.
Even though the employer mandate was delayed, large, fully insured employers should use 2014 as a trial year. Set up your tracking procedures for employee hours, especially those who work part time, so you can spot any problems. Because of the delay, the government will likely be less tolerant of any mistakes in 2015.
Health care compliance will continue to be a major concern for businesses. You need to make time to understand how the ACA will impact your company, even if it takes outside expertise to manage all your obligations. ●
Insights Health Care is brought to you by HealthLink
It’s wise to consider the tax implications of business and financial decisions as the year winds down. This year, many tax benefits from the American Taxpayer Relief Act of 2012 (ATRA), which was extended through 2013, and many Bush-era tax cuts will end. The tax law changes from ATRA extensions ending and the implementation of the Affordable Care Act (ACA) introduce layers of complexity.
“It’s difficult for anyone to keep track of everything that is expiring, let alone what’s new. There are more moving parts than I’ve seen in a long time,” says Cathy Goldsticker, CPA, partner, Tax Services at Brown Smith Wallace.
“You need to plan and do some projections so you don’t discover in April that you have unexpected taxes due or you didn’t take advantage of a departing tax write-off.”
Smart Business spoke with Goldsticker about strategies businesses and individuals can follow to reduce tax liabilities.
What effect does the ATRA have on 2013 taxes?
Many of the provisions enacted under President George W. Bush are set to expire. Although the tax brackets from the Bush tax cuts will remain in place and are now permanent, individuals with taxable incomes of $400,000 or more — $450,000 for married couples filing jointly — are subject to a top marginal tax rate of 39.6 percent instead of the 35 percent marginal rate. These individual tax rates also will affect the taxes of the owners of pass-through entities.
A business relief provision that is scheduled to expire is for the built-in gain tax that is created when converting your C corporation to an S corporation, but is imposed after a subsequent sale of corporate appreciated assets. The temporary rule has been that if you hold your S corporation and related assets for five years, built-in gain tax goes away. Starting next year, the waiting period is 10 years. For owners looking to sell assets or a company, that may expedite the impetus to sell before the end of 2013.
Also being eliminated are faster write-offs for depreciation. Under Section 179, companies were able to deduct $500,000 for equipment in year one assuming less than $2 million in assets was acquired during the year. That will revert to the previous limit of $25,000. Bonus depreciation, which allowed you to write-off half of qualified property, is being removed for common acquired depreciable items.
You should think about accelerating your planned purchases, but also consider what your future income levels might be. You could be taking away deductions from future years when it’s possible to get a bigger bang for your buck with higher tax rates.
On the personal side, this is the last year business owners will have a choice between deducting sales taxes or state income taxes because the sales tax option will be going away. This could be a lost state benefit for those paying Alternative Minimum Tax.
This also will be the final year that taxpayers ages 70½ and older can transfer up to $100,000 from an IRA to a charity and bypass having the IRA distribution included as income. That can be important if you’re trying to stay below the $400,000 level and avoid the 39.6 percent tax bracket.
How will taxes change as a result of the ACA?
There is a new 3.8 percent tax on investment income and 0.9 percent Medicare tax that applies to self employment income for high income earners. Careful planning could avoid the claws of this extra tax.
To avoid these taxes and receive more benefit from your writeoffs, you might want to bunch deductions that are subject to phase-outs based on income. Instead of paying expenses such as advisory fees, and tax planning and preparation fees in 2013 and 2014, you might see if you can pay them in the same year.
Do the expiring cuts mean it’s best to move up as many deductions as possible?
You can’t look at your taxes in a vacuum; you still need to consider the impact of all options to determine the best route. Among the many moving parts, we could still see extensions of some provisions.
You should take the facts as they currently stand and put together pro forma projections for the next several years. Do some tax calculations for these years to figure out what you’ll encounter from a cash-flow standpoint, as well as what you could do to reduce some of the current increases. ●
Request your free copy of our 2013 Year-End Tax Planning Guide.
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