Want to motivate employees? Get back to basics!

Motivation. It’s a relatively simple word, but encouraging it among your employees can be a challenge. Maybe that’s because, fundamentally, enthusiasm must come from within. It’s not something you can implant in someone externally. For this reason, employers sometimes need to get back to the basics of employee motivation to identify the right ways to inspire their workforces.

Maslow’s hierarchy

Every employee has needs. Some just want to do a good job and go home happy. Others want to earn as much money as possible. Determining what will drive each person may boil down to figuring out what makes him or her tick as a human being.

Psychologist Abraham Maslow developed a “hierarchy of needs” for humanity. Those needs, as they apply to the workplace, are:

  1. Physiological: Being able to earn enough to acquire food, shelter, clothing and other survival necessities is usually an employee’s most basic need.
  2. Safety: Having a secure and non-threatening work environment, safe equipment and job security is the next most basic need.
  3. Social: Once physiological and safety needs are met, employees typically are looking to fulfill higher-level needs. The first of these is generally positive relationships with managers and coworkers and feeling like part of a team.
  4. Ego: Being recognized and rewarded for good performance is considered the next level of need.
  5. Self-actualization: At the top of the hierarchy of needs, when it comes to the workplace, is realizing dreams by using one’s talents and potential.

By figuring out where your employees are on the hierarchy of needs, you can determine the best ways to motivate them.

Team behavior

Let’s assume that your organization is meeting at least the two most basic levels of employee needs. That means it’s time to focus on the socialization level — making sure your employees feel a sense of belonging. First, use strategic communication (such as conferences and meetings) to share goals and performance information. Provide employees with feedback to make them feel they’re contributing to these goals and the organization’s success.

Team behavior should extend throughout the organization. Remind managers that excessive competition between employees defeats teamwork and may even damage customer service. Motivating employees to take initiative and challenge themselves achieves better results.

Let employees know they’re important team members. Something as simple as greeting people by name can make all the difference in the world. Also, be sure to thank individuals and departments for their hard work and reward their contributions.

Of course, employees need more than “hello’s” and “thank you’s.” Build on the positive work environment you’ve created through effective HR strategies, positive discipline, fair treatment and clearly defined policies. Augment these efforts with training and reward programs, fair appraisals, competitive pay, attractive benefits, and occasional team-building activities.

Consistent effort

It’s hard to pinpoint what will motivate every employee. But, by and large, employees want to take pride in their work, feel like they’re part of a team and receive positive recognition from management. For other ideas and information, please contact us.

© 2018

A refresher on major tax law changes for small-business owners

The dawning of 2019 means the 2018 income tax filing season will soon be upon us. After year end, it’s generally too late to take action to reduce 2018 taxes. Business owners may, therefore, want to shift their focus to assessing whether they’ll likely owe taxes or get a refund when they file their returns this spring, so they can plan accordingly.

With the biggest tax law changes in decades — under the Tax Cuts and Jobs Act (TCJA) — generally going into effect beginning in 2018, most businesses and their owners will be significantly impacted. So, refreshing yourself on the major changes is a good idea.

Taxation of pass-through entities

These changes generally affect owners of S corporations, partnerships and limited liability companies (LLCs) treated as partnerships, as well as sole proprietors:

  • Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%
  • A new 20% qualified business income deduction for eligible owners (the Section 199A deduction)
  • Changes to many other tax breaks for individuals that will impact owners’ overall tax liability

Taxation of corporations

These changes generally affect C corporations, personal service corporations (PSCs) and LLCs treated as C corporations:

  • Replacement of graduated corporate rates ranging from 15% to 35% with a flat corporate rate of 21%
  • Replacement of the flat PSC rate of 35% with a flat rate of 21%
  • Repeal of the 20% corporate alternative minimum tax (AMT)

Tax break positives

These changes generally apply to both pass-through entities and corporations:

  • Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets
  • Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
  • A new tax credit for employer-paid family and medical leave

Tax break negatives

These changes generally also apply to both pass-through entities and corporations:

  • A new disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
  • New limits on net operating loss (NOL) deductions
  • Elimination of the Section 199 deduction (not to be confused with the new Sec.199A deduction), which was for qualified domestic production activities and commonly referred to as the “manufacturers’ deduction”
  • A new rule limiting like-kind exchanges to real property that is not held primarily for sale (generally no more like-kind exchanges for personal property)
  • New limitations on deductions for certain employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation

Preparing for 2018 filing

Keep in mind that additional rules and limits apply to the rates and breaks covered here. Also, these are only some of the most significant and widely applicable TCJA changes; you and your business could be affected by other changes as well. Contact us to learn precisely how you might be affected and for help preparing for your 2018 tax return filing — and beginning to plan for 2019, too.

© 2018

You may be able to save more for retirement in 2019!

Retirement plan contribution limits are indexed for inflation, and many have gone up for 2019, giving you opportunities to increase your retirement savings:

  • Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans: $19,000 (up from $18,500)
  • Contributions to defined contribution plans: $56,000 (up from $55,000)
  • Contributions to SIMPLEs: $13,000 (up from $12,500)
  • Contributions to IRAs: $6,000 (up from $5,500)

One exception is catch-up contributions for taxpayers age 50 or older, which remain at the same levels as for 2018:

  • Catch-up contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans: $6,000
  • Catch-up contributions to SIMPLEs: $3,000
  • Catch-up contributions to IRAs: $1,000

Keep in mind that additional factors may affect how much you’re allowed to contribute (or how much your employer can contribute on your behalf). For example, income-based limits may reduce or eliminate your ability to make Roth IRA contributions or to make deductible traditional IRA contributions.

For more on how to make the most of your tax-advantaged retirement-saving opportunities in 2019, please contact us.

© 2018

6 Last-Minute Tax Moves for Your Business

Tax planning is a year-round activity, but there are still some year-end strategies you can use to lower your 2018 tax bill. Here are six last-minute tax moves business owners should consider:

Postpone invoices.

If your business uses the cash method of accounting, and it would benefit from deferring income to next year, wait until early 2019 to send invoices. Accrual-basis businesses can defer recognition of certain advance payments for products to be delivered or services to be provided next year.

Prepay expenses.

A cash-basis business may be able to reduce its 2018 taxes by prepaying certain expenses — such as lease payments, insurance premiums, utility bills, office supplies, and taxes — before the end of the year. Many expenses can be deducted up to 12 months in advance.

Buy equipment.

Take advantage of 100% bonus depreciation and Section 179 expensing to deduct the full cost of qualifying equipment or other fixed assets. Under the Tax Cuts and Jobs Act, bonus depreciation, like Sec. 179 expensing, is now available for both new and used assets. Keep in mind that, to deduct the expense on your 2018 return, the assets must be placed in service — not just purchased — by the end of the year.

Use credit cards.

What if you’d like to prepay expenses or buy equipment before the end of the year, but you don’t have the cash? Consider using your business credit card. Generally, expenses paid by credit card are deductible when charged, even if you don’t pay the credit card bill until next year.

Contribute to retirement plans.

If you’re self-employed or own a pass-through business — such as a partnership, limited liability company or S corporation — one of the best ways to reduce your 2018 tax bill is to increase deductible contributions to retirement plans. Usually, these contributions must be made by year-end. But certain plans — such as SEP IRAs — allow your business to make 2018 contributions up until its tax return due date (including extensions).

Qualify for the pass-through deduction.

If your business is a sole proprietorship or pass-through entity, you may qualify for the new pass-through deduction of up to 20% of qualified business income. But if your taxable income exceeds $157,500 ($315,000 for joint filers), certain limitations kick in that can reduce or even eliminate the deduction. One way to avoid these limitations is to reduce your income below the threshold — for example, by having your business increase its retirement plan contributions.

Most of these strategies are subject to various limitations and restrictions beyond what we’ve covered here, so please consult us before you implement them. We can also offer more ideas for reducing your taxes this year and next.

© 2018

Year-End Tax and Financial To-Do List for Individuals

With the dawn of 2019 on the near horizon, here’s a quick list of tax and financial to-dos you should address before 2018 ends:

Check your FSA balance.

If you have a Flexible Spending Account (FSA) for health care expenses, you need to incur qualifying expenses by December 31 to use up these funds or you’ll potentially lose them. (Some plans allow you to carry over up to $500 to the following year or give you a 2-1/2-month grace period to incur qualifying expenses.) Use expiring FSA funds to pay for eyeglasses, dental work or eligible drugs or health products.

Max out tax-advantaged savings.

Reduce your 2018 income by contributing to traditional IRAs, employer-sponsored retirement plans or Health Savings Accounts to the extent you’re eligible. (Certain vehicles, including traditional and SEP IRAs, allow you to deduct contributions on your 2018 return if they’re made by April 15, 2019.)

Take RMDs.

If you’ve reached age 70-1/2, you generally must take required minimum distributions (RMDs) from IRAs or qualified employer-sponsored retirement plans before the end of the year to avoid a 50% penalty. If you turned 70½ this year, you have until April 1, 2019, to take your first RMD. But keep in mind that, if you defer your first distribution, you’ll have to take two next year.

Consider a QCD.

If you’re 70-1/2 or older and charitably inclined, a qualified charitable distribution (QCD) allows you to transfer up to $100,000 tax-free directly from your IRA to a qualified charity and to apply the amount toward your RMD. This is a big advantage if you wouldn’t otherwise qualify for a charitable deduction (because you don’t itemize, for example).

Use it or lose it.

Make the most of annual limits that don’t carry over from year to year, even if doing so won’t provide an income tax deduction. For example, if gift and estate taxes are a concern, make annual exclusion gifts up to $15,000 per recipient. If you have a Coverdell Education Savings Account, contribute the maximum amount you’re allowed.

Contribute to a Sec. 529 plan.

Sec. 529 prepaid tuition or college savings plans aren’t subject to federal annual contribution limits and don’t provide a federal income tax deduction. But contributions may entitle you to a state income tax deduction (depending on your state and plan).

Review withholding.

The IRS cautions that people with more complex tax situations face the possibility of having their income taxes underwithheld due to changes under the Tax Cuts and Jobs Act. Use its withholding calculator (available at irs.gov) to review your situation. If it looks like you could face underpayment penalties, increase withholdings from your or your spouse’s wages for the remainder of the year. (Withholdings, unlike estimated tax payments, are treated as if they were paid evenly over the year.)

For assistance with these and other year-end planning ideas, please contact us.

© 2018

Cybersecurity Matters

Investors, lenders and other stakeholders have been vocal in recent years about pushing companies to provide more information in their financial reports about cybersecurity. Could your company do a better job disclosing cyberrisks and recent hacks?

Most public companies could do better, according to recent testimony during congressional hearings by Jay Clayton, Chairman of the Securities and Exchange Commission (SEC). Here are ways his agency is attempting to “refresh” the disclosure guidance.

Updating the guidance

The SEC doesn’t expect to overhaul its Disclosure Guidance: Topic No. 2, Cybersecurity. Rather, it plans to consider whether important information about cybersecurity should be disclosed to stakeholders within the context of the existing rules. For example, companies may need to beef up their management’s discussion and analysis (MD&A) and footnote disclosures to reflect potential cyberrisks and material financial implications of data breaches.

The current guidance on cybersecurity, which was published in 2011, doesn’t include a specific requirement for companies to disclose computer system intrusions. The SEC’s effort to update the guidance comes amid concerns that more public companies have been experiencing attacks to their computer systems, but their disclosures haven’t been timely or informative enough.

Changes in the works

Regulators in the SEC don’t know whether the update will be issued in the form of staff-level guidance or a regulatory release approved by the SEC’s commissioners. But they’ve decided to address two key areas in the update:

  • Financial reporting controls and procedures that identify and disclose cybersecurity threats in a timely manner, and
  • Corporate strategies and policies regarding cybersecurity prevention, detection, and breach response.

Many companies welcome additional guidance from the SEC, because it can be difficult to determine the appropriate time to disclose a hack into their systems.

On the one hand, companies feel a responsibility to share relevant information openly and honestly with stakeholders. On the other, they don’t want to prematurely disclose information about a breach before they know the extent of the damage or to release inaccurate information that later needs to be revised. Company insiders may also be working with law enforcement, in which case they don’t want to disclose information that could compromise the investigation.

Team approach

Regardless of whether your business is public or private, it’s important to assemble a team of professional advisors — including legal, insurance and financial experts — to identify risk factors and to handle breach response, measure the impact and mitigate potential losses. We can help you provide transparent and timely information to your stakeholders.

© 2018

Does Prepaying Property Taxes Make Sense Anymore?

Prepaying property taxes related to the current year but due the following year has long been one of the most popular and effective year-end tax-planning strategies. But does it still make sense in 2018?

The answer, for some people, is yes — accelerating this expense will increase their itemized deductions, reducing their tax bills. But for many, particularly those in high-tax states, changes made by the Tax Cuts and Jobs Act (TCJA) eliminate the benefits.

What’s changed?

The TCJA made two changes that affect the viability of this strategy. First, it nearly doubled the standard deduction to $24,000 for married couples filing jointly, $18,000 for heads of household, and $12,000 for singles and married couples filing separately, so fewer taxpayers will itemize. Second, it placed a $10,000 cap on state and local tax (SALT) deductions, including property taxes plus income or sales taxes.

For property tax prepayment to make sense, two things must happen:

1. You must itemize (that is, your itemized deductions must exceed the standard deduction), and

2. Your other SALT expenses for the year must be less than $10,000.

If you don’t itemize, or you’ve already used up your $10,000 limit (on income or sales taxes or on previous property tax installments), accelerating your next property tax installment will provide no benefit.

Example

Joe and Mary, a married couple filing jointly, have incurred $5,000 in state income taxes, $5,000 in property taxes, $18,000 in qualified mortgage interest, and $4,000 in charitable donations, for itemized deductions totaling $32,000. Their next installment of 2018 property taxes, $5,000, is due in the spring of 2019. They’ve already reached the $10,000 SALT limit, so prepaying property taxes won’t reduce their tax bill.

Now suppose they live in a state with no income tax. In that case, prepayment would potentially make sense because it would be within the SALT limit and would increase their 2018 itemized deductions.

Look before you leap

Before you prepay property taxes, review your situation carefully to be sure it will provide a tax benefit. And keep in mind that, just because prepayment will increase your 2018 itemized deductions, it doesn’t necessarily mean that’s the best strategy. For example, if you expect to be in a higher tax bracket in 2019, paying property taxes when due will likely produce a greater benefit over the two-year period.

For help determining whether prepaying property taxes makes sense for you this year, contact us. We can also suggest other year-end tips for reducing your taxes.

© 2018

Help Employees Take Flight with a Performance Management Pilot Program

Many years ago, “performance management” was a supervisor giving orders to an employee and the employee trying to follow them. But as the workplace has evolved and employers have sought to get a greater return on investment in human resources, the concept of performance management has become much more complex.

Today, performance management is a formal and multifaceted system for setting goals, soliciting feedback, generating documentation and ensuring accountability for productivity outcomes. As you might imagine, anything so intricate has a high risk of malfunction or even outright failure.

One way to guard against such disappointment — whether your organization is launching its initial performance management system or relaunching it after major renovations — is to conduct a pilot program.

People and time

Because employee trust and confidence help generate cooperation, the pilot program should start with employees and managers who believe in the benefits of change. This group can pinpoint problems and help improve the system. In short, they’re its champions. The performance management system, amended through their feedback, will be more likely to disarm the skeptical or those clinging to old performance-management styles.

Another critical aspect of a pilot program is time. Organizations often spend a substantial amount of it researching performance management, consulting with outside experts and designing the program. But then they rush to launch and the entire initiative ends up a confusing, disappointing struggle.

That’s why you should set aside a period of months, maybe even an entire year, to test the system with committed participants, analyzing their feedback and making adjustments.

Just one example

What sorts of problems might an organization discover during a pilot program? Let’s say fictitious Company X launches a performance management pilot program and almost immediately learns of a critical snag.

Namely, it realizes that its objective-setting form will likely be a major source of frustration for employees and their managers. The form is a means of documenting information such as annual objectives, individual development plans, and supervisors’ assessments. In other words, it’s intended to ensure employees are following the performance management system’s essential components.

Although some pilot-program members are comfortable with the form, others describe it as taking on a life of its own. The detractors say it’s too long, much of its wording is vague or confusing, and the design makes it hard to read.

On the bright side, the pilot program’s participants overwhelmingly embrace the new system’s fundamental principles. So, before rolling out the performance management program to everyone, Company X acts on these results by shortening, revising and redesigning the objective-setting form.

Their best work

Launching a performance management pilot program can truly help your employees take flight and do their best work. In addition to identifying minor design flaws, it can help the design team learn the underlying organizational barriers to performance management and continuous improvement. To discuss further, please contact us.

© 2018

Catch-up Retirement Plan Contributions can be Particularly Advantageous Post-TCJA

Will you be age 50 or older on December 31? Are you still working? Are you already contributing to your 401(k) plan or Savings Incentive Match Plan for Employees (SIMPLE) up to the regular annual limit? Then you may want to make “catch-up” contributions by the end of the year. Increasing your retirement plan contributions can be particularly advantageous if your itemized deductions for 2018 will be smaller than in the past because of changes under the Tax Cuts and Jobs Act (TCJA).

Catching up

Catch-up contributions are additional contributions beyond the regular annual limits that can be made to certain retirement accounts. They were designed to help taxpayers who didn’t save much for retirement earlier in their careers to “catch up.” But there’s no rule that limits catch-up contributions to such taxpayers.

So catch-up contributions can be a great option for anyone who is old enough to be eligible, has been maxing out their regular contribution limit and has sufficient earned income to contribute more. The contributions are generally pretax (except in the case of Roth accounts), so they can reduce your taxable income for the year.

More benefits now?

This additional reduction to taxable income might be especially beneficial in 2018 if in the past you had significant itemized deductions that now will be reduced or eliminated by the TCJA. For example, the TCJA eliminates miscellaneous itemized deductions subject to the 2% of adjusted gross income floor — such as unreimbursed employee expenses (including home-off expenses) and certain professional and investment fees.

If, say, in 2018 you have $5,000 of expenses that in the past would have qualified as miscellaneous itemized deductions, an additional $5,000 catch-up contribution can make up for the loss of those deductions. Plus, you benefit from adding to your retirement nest egg and potential tax-deferred growth.

Other deductions that are reduced or eliminated include state and local taxes, mortgage and home equity interest expenses, casualty and theft losses, and moving expenses. If these changes affect you, catch-up contributions can help make up for your reduced deductions.

2018 contribution limits

Under 2018 401(k) limits, if you’re age 50 or older and you have reached the $18,500 maximum limit for all employees, you can contribute an extra $6,000, for a total of $24,500. If your employer offers a SIMPLE instead, your regular contribution maxes out at $12,500 in 2018. If you’re 50 or older, you’re allowed to contribute an additional $3,000 — or $15,500 in total for the year.
But, check with your employer because, while most 401(k) plans and SIMPLEs offer catch-up contributions, not all do. Also, keep in mind that additional rules and limits apply.

Additional options

Catch-up contributions are also available for IRAs, but the deadline for 2018 contributions is later: April 15, 2019. And whether your traditional IRA contributions will be deductible depends on your income and whether you or your spouse participates in an employer-sponsored retirement plan. Please contact us for more information about catch-up contributions and other year-end tax planning strategies.

© 2018

Mutual funds: Handle with Care at Year End

As we approach the end of 2018, it’s a good idea to review the mutual fund holdings in your taxable accounts and take steps to avoid potential tax traps. Here are some tips.

Avoid surprise capital gains

Unlike with stocks, you can’t avoid capital gains on mutual funds simply by holding on to the shares. Near the end of the year, funds typically distribute all or most of their net realized capital gains to investors. If you hold mutual funds in taxable accounts, these gains will be taxable to you regardless of whether you receive them in cash or reinvest them in the fund.

For each fund, find out how large these distributions will be and get a breakdown of long-term vs. short-term gains. If the tax impact will be significant, consider strategies to offset the gain. For example, you could sell other investments at a loss.

Buyer beware

Avoid buying into a mutual fund shortly before it distributes capital gains and dividends for the year. There’s a common misconception that investing in a mutual fund just before the ex-dividend date (the date by which you must own shares to qualify for a distribution) is like getting free money.

In reality, the value of your shares is immediately reduced by the amount of the distribution. So you’ll owe taxes on the gain without actually making a profit.

Seller beware

If you plan to sell mutual fund shares that have appreciated in value, consider waiting until just after year end so you can defer the gain until 2019 — unless you expect to be subject to a higher rate next year. In that scenario, you’d likely be better off recognizing the gain and paying the tax this year.

When you do sell shares, keep in mind that, if you bought them over time, each block will have a different holding period and cost basis. To reduce your tax liability, it’s possible to select shares for sale that have higher cost bases and longer holding periods, thereby minimizing your gain (or maximizing your loss) and avoiding higher-taxed short-term gains.

Think beyond just taxes

Investment decisions shouldn’t be driven by tax considerations alone. For example, you need to keep in mind your overall financial goals and your risk tolerance.

But taxes are still an important factor to consider. Contact us to discuss these and other year-end strategies for minimizing the tax impact of your mutual fund holdings.

© 2018