April 27, 2017 | BY Yosef Klein, CPA
On April 26th, the White House released the Presidents tax reform plan. The plans goal and key feature include slashed corporate tax rates, flattened individual marginal income tax brackets, and the repeal of the estate and alternative minimum taxes.
What should you do now?
• Sit tight and wait. The plan was just released and has not yet been proposed in Congress and made its way thru the legislative process. There will be many changes and adjustment before the law is enacted.
• Keep yourself informed. Stay up to date with the changes as the proposals make their way thru the legislative process.
• The plan is a one-page sheet of bullet points headed “2017 Tax Reform for Economic Growth and American Jobs” and “The Biggest Individual and Business Tax Cut in American History.
• Most of the items on the plan closely follow the presidents campaign promises.
• In order to understand the proposal one needs to rely on various details that were released during the elections campaign.
How does this affect individuals?
• Currently, individuals are taxed seven graduated tiers of marginal rates: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The proposal replaces them with three tiers: 10%, 25%, and 35%
• Retains the deduction for:
o Home mortgage interest expense
• Elimination of the
o 3.8% net investment income tax.
o Alternative minimum tax.
o Estate tax.
o Medical expenses deduction
o Personal exemptions
o Most other deductions
How does this affect businesses
• Currently, C corporation are taxed at 35%, the proposal lowers the rate to 15%.
• Pass-through entities. It is expected that partnerships, S corporations and limited liability companies owners will also be taxed at the 15% for their share of income.
• Establish a territorial system of taxation, which generally would exclude from taxation foreign earned income.
• Impose a “one-time tax” on corporate earnings realized and held overseas.
• Eliminate “special interest” tax breaks.
April 27, 2017 | BY Paul Bonner
The White House on Wednesday issued President Donald Trump’s goals and key features for tax reform, including slashed corporate tax rates, flattened individual marginal income tax brackets, and repeal of the estate and alternative minimum taxes.
Trump outlined his proposals in a one-page sheet of bullet points headed “2017 Tax Reform for Economic Growth and American Jobs” and “The Biggest Individual and Business Tax Cut in American History.”
Speaking to reporters at the White House, Treasury Secretary Steven Mnuchin and Trump economic adviser Gary Cohn described the president’s priorities, but repeatedly rebuffed requests for details, saying those would be hammered out in negotiations with congressional leaders in the months ahead. Most of the policies hewed to those Trump put forth last fall on the campaign trail, most prominently, cutting the corporate income tax rate from its current 35% to 15% and extending it to passthrough entities, i.e., S corporations, partnerships, and entities taxed as partnerships.
For individuals, Trump would replace the current seven graduated tiers of marginal rates (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with three: 10%, 25%, and 35%—slightly broader than the 12%, 25%, and 33% he proposed last fall. Mnuchin and Cohn declined to say at what income levels those rates would apply. Trump also reiterated his call for repeal of the net investment income tax of 3.8% imposed on unearned income and gains of high-income taxpayers by the 2010 Patient Protection and Affordable Care Act, P.L. 111-148.
The proposal would double the standard deduction; however, it would limit itemized deductions to mortgage interest and charitable contributions. It would provide “tax relief for families with child and dependent care expenses,” but neither the document nor the officials said how that might differ from the current tax credit for child and dependent care expenses available under Sec. 21.
Trump had also previously proposed repealing the alternative minimum and estate taxes. The latter currently applies only to estates larger than $5.49 million per individual. As he has previously, Trump called for ending “tax breaks that mainly benefit the wealthiest taxpayers,” but did not provide details or examples. The proposal did not specifically address the tax treatment of carried interests, which are currently taxed at capital gain tax rates. Trump, along with many Democrats, has said in the past he favors curtailing this treatment.
For businesses, besides lowering the top tax rate to 15%, the proposal calls for a territorial system of taxation, which generally would exclude from taxation foreign earned income. It also would impose a “one-time tax” on corporate earnings realized and held overseas and on which tax is deferred, possibly the same as, or consistent with, a deemed repatriation tax that Trump has previously proposed at a 10% rate.
Absent from the proposal was any mention of a border-adjustment, or destination-based cash flow, tax, which has been a key feature of the congressional Republican “blueprint” for tax reform and that Trump has discussed as a possibility previously. The proposal, however, has been widely criticized as problematic for U.S. importers and others and likely to be challenged internationally under World Trade Organization rules.
The plan does not specifically mention passthrough entities, but when he was a candidate, Trump’s tax plan included a provision that would allow owners of passthrough entities to be taxed at the proposed 15% business rate. When asked if this would provide an incentive for individuals to form passthrough entities to avoid the higher individual tax rates, Mnuchin answered that “we will make sure that there are rules in place to make sure wealthy people can’t create passthroughs” to lower their taxes.
Mnuchin said the administration would like to “move as fast as we can and get this done this year.” Congressional leaders have expressed reservations about aspects of the proposal, notably, the depth of the cuts without specifically identified revenue offsets and prospects for their passage at the intersection of budget and procedural rules. Trump claimed during the presidential campaign that his plan was revenue-neutral; it would have to be, or the cuts would have to be temporary (typically ending within a 10-year budget window), for it to advance under the reconciliation process, by which the Senate can bypass a filibuster and pass the legislation with a bare majority instead of 60 votes. Mnuchin said the proposal would “pay for itself, with economic growth and with reduction of different deductions and closing loopholes.”
For more analysis, the following are two articles analyzing the president’s tax plan.
Likely Winners & Losers Under The Trump Tax Plan
by Kelly Phillips Erb
Devoid Of Details, Trump’s Latest Tax Plan Nothing But Empty Promises
by Tony Nitti
April 19, 2017 | BY Zacharia Waxler, Co-Managing Partner
Part I of II – The Importance of Employee Engagement
A CEO was asked how many people work in his company: “About half of them,” he responded.” It may be a joke, but in reality it can be a serious problem that a significant number of people had mentally “checked out.”
Quite clearly, CEOs and managers should be very concerned about a waste of time, effort and resources in their organizations. The reason is simple: If people are not engaged, how can these same leaders attain those business objectives that are critical to improving organizational performance?
What do we mean by employee engagement? How much does a lack of employee engagement cost an organization? What steps can leaders take to make employees want to give it their best? These and other questions are the focus of this article.
Do you, as a business owner or CEO, wake up in the morning excited to get out of bed and go to work? Are you excited to implement some new great ideas? Are you excited to meet your team and continue the project you’ve been working on the day before?
The real question is:
Are your employees just as excited as you are? Are they engaged in what they do?
What is employee engagement?
Employee engagement is about understanding one’s role in an organization, and being sighted and energized on where it fits in the organization’s purpose and objectives. Employee engagement is about having a clear understanding of how an organization is fulfilling its purpose and objectives, how it is changing to fulfil those better, and being given a voice in its journey to offer ideas and express views that are taken account of as decisions are made. Employee engagement is about being included fully as a member of the team, focused on clear goals, trusted and empowered, receiving regular and constructive feedback, supported in developing new skills, thanked and recognized for achievement. Employee engagement is about positive attitudes and behaviors leading to improved business outcomes, in a way that they trigger and reinforce one another. Employee engagement is about your employees feeling pride and loyalty working for our organization, being a great advocate of the organization to our clients, users and customers, going the extra mile to finish a piece of work. Employee engagement is about drawing on our employees’ knowledge and ideas to improve our products and services, and be innovative about how we work. Employee engagement is about drawing out a deeper commitment from our employees so fewer leave, sick absence reduces, accident rates decline, conflicts and grievances go down, productivity increases. And finally, Employee engagement is about organization actions that are consistent with the organization’s values. It is about kept promises, or an explanation as to why they cannot be kept.
In order to have an engaged employee we must have an engaged organization. Engaged organizations have strong and authentic values, with clear evidence of trust and fairness based on mutual respect, where two-way promises and commitments – between employers and employees – are understood and fulfilled.
Here are some facts that the Gallup Management Journal has published in a semi annual employment engagement index.
• Only 29% of employees are actively engaged in their jobs. These employees work with passion and feel a profound connection to their company. People that are actively engaged help move the organization forward.
• 54% of employees are not engaged. These employees have essentially “checked out,” sleepwalking through their workday and putting time – but not passion – into their work. These people embody what Jack Welch said several years ago. To paraphrase him: “Never mistake activity for accomplishment.”
• 17% of employees are actively disengaged. These employees are busy acting out their unhappiness, undermining what their engaged co-workers are trying to accomplish. Needless to say how detrimental this behavior is to the morale of the entire workforce.
Should business owners be concerned about these findings? It seems obvious that engaged employees are more productive than their disengaged counterparts. For example, a recent meta-analysis published in the Journal of Applied Psychology concluded that, “… employee satisfaction and engagement are related to meaningful business outcomes at a magnitude that is important to many organizations.”
A compelling question is this: How much more productive is an engaged workforce compared to a non-engaged workforce?
Several case studies shine some light on the practical significance of an engaged workforce. For example, New Century Financial Corporation, a U.S. specialty mortgage banking company, found that account executives in the wholesale division who were actively disengaged produced 28% less revenue than their colleagues who were engaged. Furthermore, those not engaged generated 23% less revenue than their engaged counterparts. Engaged employees also outperformed the not engaged and actively disengaged employees in other divisions. New Century Financial Corporation statistics also showed that employee engagement does not merely correlate with bottom line results – it drives results.
But what should leaders do, or consider doing, to increase the level of engagement among employees? I will let you think about it and we will discuss it in a future article.
April 18, 2017 | BY Yehuda Bunker, CPA
Small businesses (fewer than 100 employees) lose relatively more to employee fraud than larger business do. About 87% of embezzlers are first time offenders. Nearly every one is a trusted employee. That is (in 31 words) why you need to improve the internal controls at your business.
Segregation of duties is one of the most effective means of reducing employee fraud. You should separate the following responsibilities in each business process:
• Custody of assets
• Record keeping
In this article we discuss controls over the Cash Receipts business cycle.
The person who receives customer payments should record the payments either in a cash register, on a deposit slip, or in a receipts log. This person should not be able to record or authorize transactions in the accounts receivable ledger or customer accounts. In addition, this person should not be allowed to record cash transactions or prepare the bank reconciliation.
Adjustments and write-offs to customer accounts should be reviewed and approved by an employee who is not able to record these transactions. In addition, this person should not be allowed to reconcile the accounts receivable subsidiary ledger to the general ledger.
Employees responsible for recording adjustments to customer accounts should not process customer payments or prepare the bank deposit.
The bank accounts should be reconciled by someone who is not able to record cash receipts or disbursements. Bank reconciliations should be reviewed and approved by someone other than the preparer.
When duties cannot be segregated, compensating controls should be used. For example, two employees, working together, could receive and open customer payments and prepare the bank deposit.
Roth&Co is ready and willing to help you design and implement a better internal control system. For further discussion or a specific proposal, please reach out.
April 17, 2017 | BY Abraham Roth
Abraham Roth, Roth&Co’s Co-Managing Partner, discusses the benefits of business partnerships, and the importance of formal, legal agreements.