administrator No Comments

Educational Assistance Programs Can Help Pay Workers’ Student Loans

Employers that offer educational assistance programs can also use those programs to help pay their employees’ student loans.

Though educational assistance programs have been available for many years, the option to use them to pay student loans is available only for payments made after March 27, 2020. Under current law, this option will be available until Dec. 31, 2025.

Traditionally, educational assistance programs have been used to pay for books, equipment, supplies, fees, tuition, and other education expenses for the employee. These programs can now also be used to pay principal and interest on an employee’s qualified education loans. Payments made directly to the lender, as well as those made to the employee, qualify. By law, tax-free benefits under an educational assistance program are limited to $5,250 per employee per year. Normally, assistance provided above that level is taxable as wages.

administrator No Comments

The Hidden Costs of Employee Turnover and How to Reduce Them

Is high employee turnover an issue in your company? If so, you may already realize how costly it is. It affects your bottom line and cuts into your profits. Or maybe, it’s so bad that it’s turning your profits into losses. The question is, are you doing everything you can to reduce the costs associated with the turnover?

The Costs

To control the costs, first, we must know what they are. Only then can we tackle them. Here’s a list of the most common costs associated with employee turnover.

1. Hiring costs

  •  Advertising costs
  • Time spent screening resumes, scheduling interviews, and interviewing candidates
  • Background check costs
  • Signing bonus, if any
  • Time spent setting up the new employees in payroll, IT, HR, completing forms, setting up equipment, generating badges, and more.

2. Training costs

  • Time spent training the new employee
  • Costs of any required training courses on safety, sexual harassment, timesheet, and other required onboarding training, etc.
  • Costs of mistakes made by new employees
  • Productivity losses while new employee gets up to speed
  • Extra supervisory costs monitoring new employee

3. Vacancy losses

  • Costs of overtime while other employees cover vacant shifts
  • Productivity losses while the job is vacant
  • Disruption of peers, including fears of them being next if it was an involuntary termination

 

How to Reduce Turnover Costs

Here are some ideas for reducing or avoiding these costs before they occur.

1. Create a positive culture. If your workplace is a positive, nurturing place to be, people may be more likely to stay. Create a place where employees can become good friends. That way, they are less likely to leave.

2. Review your pay package. Pay slightly more than your competitors. Or provide above-average benefits for your employees. Include perks that are less expensive, yet valuable to employees.

3. Consider overstaffing. This puts less pressure on all of your employees.

4. Automate and streamline your hiring process. This can keep hiring costs down when you do need to hire.

5. Create a healthy work environment. Listen to your employees and make sure their needs are being met so they can do the best job possible for your business. Provide them with the tools they need to do their job well.

6. Hire slow, fire fast. If you do have a worker who is dragging the entire team down, get rid of them fast.

7. Train your first-line supervisors and managers to be excellent bosses. People skills and supervisory skills do not normally come naturally but can be learned. Many voluntary terminations occur because people dislike their boss.

8. Be consistent with raises and performance reviews. Employees expect annual raises in most industries, even if it’s just a cost-of-living adjustment. Let employees know how they are doing on a regular basis, and formalize the process at least annually.

9. Conduct exit interviews. Find out why people are leaving by conducting exit interviews. You may have to dig deep to find out the real reason, as most people don’t want to burn their references. Take action if it’s something in your control.

10. Delegate projects. Keep the job interesting for employees by delegating low-risk projects that are fun for them to do.

11. Communicate purpose. Help employees understand the importance of the job they do, and help them connect to the deeper meaning of their job and its place in the world.

Many of these ideas have costs associated with them. Your accountant can help you do a cost-benefit analysis to determine the specific costs and if the benefits will outweigh the costs. Then you can create a plan to tackle and reduce the high, hidden costs of employee turnover in your business.

administrator No Comments

Understanding Goodwill in Accounting

You might know the word “goodwill” as the name of a local charity where you can drop off household items you no longer need. It might also be something that’s talked about at church. But in accounting circles, goodwill is something completely different.

Goodwill is an account on the balance sheet of certain businesses. It falls into the category of assets, and specifically, it’s an intangible asset. An intangible asset is something that is not physical. Examples of other intangible assets are copyrights, patents, and trademarks.

Goodwill arises when one company purchases another. When a company pays more for the company that it is acquiring, the difference is booked as goodwill. Goodwill represents the extra value that the acquisition provides for the purchasing company.

When one company buys another, the assets and liabilities of the acquired company are taken over by the purchasing company. They are recorded on the purchasing company’s books at their fair value. The balancing entry between the fair value of the assets and liabilities purchased and the purchase price is booked to the goodwill account.

What could lead a company to pay more for another company? Things that are not on the balance sheet but are valued could include a solid customer base, great employees, brand reputation, the company name and what it means, technology owned by the company, and a great reputation for customer service.

Normally, an intangible asset like goodwill would be amortized, but it is not. Amortization is when a portion of the asset is expensed each year. A patent, for example, is amortized over its useful life, not to exceed 20 years. Amortization is comparable to depreciation. Some physical assets are depreciated, while some intangible assets are amortized.

Before 2001, goodwill was amortized for up to 40 years, but the accounting rules have changed to something less arbitrary. Goodwill must be checked each year for “impairment.”

Goodwill impairment happens when the value of the acquisition declines after it has been purchased. One of the most famous impairments write-downs occurred right after this new accounting rule was implemented. In 2002, $54.2 billion in impairment costs was reported for the AOL Time Warner, Inc. merger.

More recently, in 2020, a few of the largest impairment write-downs included companies, such as Baker Hughes, Berkshire Hathaway, and ATT, due to the latter’s acquisition of DirecTV in earlier years. In 2022, impairment write-downs included Teladoc Health and Comcast. Covid-19 was in part responsible for a large number of impairment write-downs in recent years.

If impairment is required to be booked, the journal entry will look like this:

Debit Impairment Expense (increases expenses and therefore reduces profits)

Credit Goodwill (reduces the asset amount)

If your company has acquired other companies and you have a goodwill account on your balance sheet, you can work with your accountant to determine how to check for impairment and if you are required to correct your books.

administrator No Comments

Five Summertime Strategies for 2023

We’re six days away from the first day of summer, and a few weeks away from the midpoint of the year. It’s the perfect time for taking a strategy check in your business to see how you’re doing for the first half of 2023 as well as to plan something fun and productive for summertime.

Here are five business strategies to help you regroup, reassess, and rejuvenate your business halfway through 2023.

1. Celebrate Your Accomplishments

Take time to pat yourself on the back and congratulate the people around you for the goals you’ve reached and the efforts your team has made on your behalf. You might be shocked when you think about how far you’ve come. Maybe you’ve hired another team member and your team is the largest it’s ever been; perhaps you’ve reached record revenue goals; possibly you’ve solved a complex supply chain problem.

We all could use more praise and more celebrations in our lives. Perhaps you can organize a party, or if you are not the partying type, a quiet word individually with your team can go a long way, maybe more than you know.

2. Take a Vacation

If you’re feeling quite burned out, the best thing you can do is stop and take a breather. There’s nothing better to rekindle your creative juices than to get away from the business for a while. Summertime is when most people take a vacation, so if your business is not having its busy season, this might be a good time to go away, even if for a little while.

If you’re anxious about being away from your business, you’re not alone. In your annual planning process, plan for and block out your vacation way ahead of time. Book the reservations with no refunds several months in advance so that you won’t chicken out at the last minute. There is life beyond your business, and you will be a better business owner when you take regular breaks away.

3. Schedule a Mid-Year Review

How has your business fared for the first half of 2023 compared to the goals you set at the beginning of the year? Are you on track to reach your goals? Should you design a course correction or are you on track? Maybe you’re even ahead of plan!

You can make this process as informal or formal as you want. Some businesses hold retreats; you may simply need some quiet time on a weekend when all your family is busy doing something else.

4. Be Selective About the Projects You Start

Is your plate too full? Entrepreneurs that wear many hats would probably say “yes” to that question, so the next question is do you have to do it all at once? Ask yourself what you can afford to stop doing that doesn’t make sense. Is there a project or two that can wait? If so, decide to stop stressing about not getting it done and give yourself permission to put it on the back burner for now.

5. Play Big

Maybe you’re not playing big enough. You might be busy, but are you busy with the things that will take your business to the next level? Do the thing you’re afraid to say “yes” to; the thing that you know will transform your business and get you closer to your dreams.

If you’re putting off a project that you know will pay back handsomely, then shelve everything you’re working on and start on the one that will reap the most rewards. It could be a new product or service line, a new ad campaign, a new hire, a new joint venture, new financing, or even a new partner, which is very big indeed. You likely know what it is you need to do; your gut has been telling you for a while now. Just get it started, and it will then become easier.

Summertime is a great time to regroup, re-energize, and refresh your business. Try one of these five tips to spice up your summer as well as your business success.

administrator No Comments

Understanding the Tax Implications of Investment Income

Investment income refers to the money you make on various types of investments, such as stocks, bonds, mutual funds, real estate, and interest-bearing accounts. It can be categorized into two main types: ordinary income and capital gains.

Ordinary Income: Ordinary income from investments includes interest, dividends, and rental income. Let’s briefly explore each:

a) Interest: If you earn interest from investments like savings accounts, certificates of deposit (CDs), or bonds, that income is generally taxable. It is typically taxed at your ordinary income tax rates, which vary based on your income level.

b) Dividends: Dividends are a company’s earnings distributions to its shareholders. They can be classified as either qualified or non-qualified dividends. Qualified dividends, which meet specific criteria, are subject to lower tax rates similar to long-term capital gains. Non-qualified dividends are typically taxed at ordinary income tax rates.

c) Rental Income: If you invest in real estate and receive rental income, it is generally considered ordinary income and is subject to taxation at your applicable tax rates. However, you may be able to offset this income with eligible expenses, such as mortgage interest, property taxes, depreciation, and maintenance costs.

Capital Gains: Capital gains occur when you sell an investment for a profit. The taxable portion of capital gains can be further divided into short-term and long-term gains:

a) Short-Term Capital Gains: If you hold an investment for one year or less before selling it, any profit you make is considered a short-term capital gain. Short-term capital gains are taxed at your ordinary income tax rates.

b) Long-Term Capital Gains: Investments held for more than one year before being sold may qualify for long-term capital gains treatment. At the federal level, the tax rates for long-term capital gains are generally lower than ordinary income tax rates and vary based on your income level. At the state level, while a handful of states tax such gains at a lower rate than the state ordinary income tax rates, most states tax all income, regardless of type, at the same rate.

Net Investment Income Tax: In addition to regular income taxes, certain high-income individuals may be subject to the Net Investment Income Tax (NIIT). The NIIT is a 3.8% federal tax on the lesser of your net investment income or the excess of your modified adjusted gross income (MAGI) over a specific threshold:

· For single or head-of-household filers, the threshold is $200,000.

· For married couples filing jointly, the threshold is $250,000.

Net investment income includes interest, dividends, capital gains, rental income, royalties, and passive income from businesses. It is essential to consult with a tax professional to determine if you are subject to the NIIT and how it may impact your tax liability.

Strategies to Minimize Investment Income Taxes: While taxes are a necessary part of investing, there are strategies you can employ to minimize their impact:

1. Tax-Advantaged Accounts: Consider investing in tax-advantaged accounts like individual retirement accounts (IRAs), 401(k)s, or Health Savings Accounts (HSAs). These accounts offer tax benefits that can help reduce your overall tax liability.

2. Tax-Loss Harvesting: If you have investments that have decreased in value, you can sell them to offset capital gains from other investments. This strategy, known as tax-loss harvesting, can help reduce your taxable income.

3. Holding Periods: By holding investments for more than one year, you may qualify for the lower long-term capital gains tax rates.

Donating Stocks to Charity: By directly donating appreciated stock (that has been held long-term) to charity, you don’t have to recognize a taxable capital gain, but you can still receive a charitable contribution deduction for the fair market value of the stock (if you itemize deductions). This allows for a much greater tax benefit than if you sell the stock and then donate the funds, because you will pay capital gains tax on the gain from the sale!