Category: Dyersburg, TN

Auditors assess their clients’ risk factors when planning for next year’s financial statement audit. Likewise, proactive managers assess risks at year end. A so-called “SWOT” analysis can help frame that assessment.

Typically presented as a matrix, this analysis of strengths, weaknesses, opportunities and threats provides a logical framework for understanding how a business runs. It tells what you’re doing right (and wrong) and predicts what outside forces could impact cash flow in a positive (or negative) manner.

Internal factors

SWOT analysis starts by identifying strengths and weaknesses from the customer’s perspective. Strengths represent potential areas for boosting revenues and building value, including core competencies or competitive advantages. Examples might include a strong brand image, a loyal customer base or exceptional customer service.

It’s important to unearth the source of each strength. When strengths are largely tied to people, rather than the business itself, consider what might happen if a key person suddenly left the business. To offset key person risks, consider:

• Purchasing life insurance policies on key people,
• Initiating noncompete or buy-sell agreements, or
• Implementing a formal succession plan designed to transition management to the next generation.

Weaknesses represent potential risks and should be minimized or eliminated. They might include high employee turnover, weak internal controls, unreliable quality or a location with poor accessibility. Often weaknesses are evaluated relative to the company’s competitors.

Outside influences

The next part of a SWOT analysis looks externally at what’s happening in the industry, economy and regulatory environment. Opportunities are favorable external conditions that could increase revenues and value if the company acts on them before its competitors do.

Threats are unfavorable conditions that might prevent your company from achieving its goals. Threats might come from the economy, technological changes, competition and increased regulation. The idea is to watch for and minimize existing and potential threats.

Need help?

Contact us for help putting your company’s risk framework together. We can guide you on how to use SWOT analysis to evaluate 2017 financial results and plan for the future.

© 2017

The artificial intelligence (AI) revolution isn’t coming — it’s here. While AI’s potential for your company might not seem immediately obvious, this technology is capable of helping businesses of all shapes and sizes “get smart.”

AI generally refers to the use of computer systems to perform tasks commonly thought to require human intelligence. Examples include image perception, voice recognition, problem solving and decision making. AI includes machine learning, an iterative process where machines improve their performance over time based on examples and structured feedback rather than explicit programming.

3 applications to consider

Businesses can use AI to improve a variety of functions. Three specific applications to consider are:

1. Sales and marketing. You might already use a customer relationship management (CRM) system, but introducing AI to it can really put the pedal to the metal. AI can go much further — and much faster — than traditional CRM.

For example, AI is able to analyze buyer behavior and consumer sentiments across a range of media, including recorded phone conversations, email, social media and reviews. AI also can, in a relative blink of the eye, process consumer and market data from a far wider range of sources than previously thought possible. And it can automate the repetitive tasks that eat up your sales or marketing team’s time.

All of this results in quicker generation of qualified leads. With AI, you can deploy your sales force and marketing resources more efficiently and effectively, reducing your cost of customer acquisition along the way.

2. Customer service. Keeping customers satisfied is the key to retaining them. But customers don’t always tell you when they’re unhappy. AI can pick up on negative signals and find correlations to behavior in customer data, empowering you to save important relationships.

You can integrate AI into your customer support function, too. By leaving tasks such as classifying tickets and routing calls to AI, you’ll reduce wait times and free up representatives to focus on customers who need the human touch.

3. Competitive intelligence. Imagine knowing your competitors’ strategies and moves almost as well as your own. AI-based competitive analysis tools will track other companies’ activities across different channels, noting pricing and product changes and subtle shifts in messaging. They can highlight competitors’ strengths and weaknesses that will help you plot your own course.
The future is now

AI isn’t a fad; it’s becoming more and more entrenched in our business and personal lives. Companies that recognize this sea change and jump on board now can save time, cut costs and develop a clear competitive edge. We can assist you in determining how technology investments like AI should fit into your overall plans for investing in your business.

© 2017

Accelerating deductible expenses, such as property tax on your home, into the current year typically is a good idea. Why? It will defer tax, which usually is beneficial. Prepaying property tax may be especially beneficial this year, because proposed tax legislation might reduce or eliminate the benefit of the property tax deduction beginning in 2018.

Proposed changes

The initial version of the House tax bill would cap the property tax deduction for individuals at $10,000. The initial version of the Senate tax bill would eliminate the property tax deduction for individuals altogether.

In addition, tax rates under both bills would go down for many taxpayers, making deductions less valuable. And because the standard deduction would increase significantly under both bills, some taxpayers might no longer benefit from itemizing deductions.

2017 year-end planning

You can prepay (by December 31) property taxes that relate to 2017 but that are due in 2018 and deduct the payment on your 2017 return. But you generally can’t prepay property tax that relates to 2018 and deduct the payment on your 2017 return.

Prepaying property tax will in most cases be beneficial if the property tax deduction is eliminated beginning in 2018. But even if the property tax deduction is retained, prepaying could still be beneficial. Here’s why:

• If your property tax bill is very large, prepaying is likely a good idea in case the property tax deduction is capped beginning in 2018.
• If you could be subject to a lower tax rate in 2018 or won’t have enough itemized deductions overall in 2018 to exceed a higher standard deduction, prepaying is also likely tax-smart because a property tax deduction next year would have less or no benefit.

However, there are a few caveats:

• If you’re subject to the AMT in 2017, you won’t get any benefit from prepaying your property tax. And if the property tax deduction is retained for 2018, the prepayment could cost you a tax-saving opportunity next year.
• If your income is high enough that the income-based itemized deduction reduction applies to you, the tax benefit of a prepayment may be reduced.
• While the initial versions of both the House and Senate bills generally lower tax rates, some taxpayers might still end up being subject to higher tax rates in 2018, either because of tax law changes or simply because their income goes up next year. If you’re among them and the property tax deduction is retained, you may save more tax by holding off on paying property tax until it’s due next year.

It’s still uncertain what the final legislation will contain and whether it will be passed and signed into law this year. We can help you make the best decision based on tax law change developments and your specific situation.

© 2017

As the holiday season quickly approaches, gift giving will be top of mind. While gifts of electronics, toys and clothes are nice, making tax-free gifts of cash using your annual exclusion is beneficial for both you and your family.

Even in a potentially changing estate tax environment, making annual exclusion gifts before year end can still benefit your estate plan.

Understanding the annual exclusion

The 2017 gift tax annual exclusion allows you to give up to $14,000 per recipient tax-free without using up any of your $5.49 million lifetime gift tax exemption. If you and your spouse “split” the gift, you can give $28,000 per recipient. The gifts are also generally excluded from the generation-skipping transfer tax, which typically applies to transfers to grandchildren and others more than one generation below you.

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can also avoid gift and estate taxes.

Making gifts in 2017 and beyond

Be aware that time is running out to make annual exclusion gifts this year: December 31 is the deadline. It’s also important to know that next year the exclusion amount increases for the first time since 2013, to $15,000 ($30,000 for split gifts). And the inflation-adjusted gift and estate tax exemption is currently scheduled to increase to $5.6 million in 2018.

It’s also important to keep an eye on Congress. With both the U.S. House of Representatives and U.S. Senate now having released their tax reform bills, more details regarding the potential future of the estate tax have emerged. But what, if any, estate tax law changes are ultimately passed remains to be seen. Even if the estate tax is repealed, it likely won’t be permanent. And current proposals retain the gift tax. So making 2017 annual exclusion gifts can still be a tax-smart move.

In the meantime, we can help you determine how to make the most of your 2017 gift tax annual exclusion and keep you abreast of the latest regarding new estate tax laws.

© 2017

CPAs don’t just offer assurance services on historical financial results. They can also prepare prospective financial statements that predict how the company will perform in the future. This list of questions can help you make more meaningful assumptions for your forecasts and projections.

1. How far into the future do you want to plan?

Forecasting is generally more accurate in the short term. The longer the time period, the more likely it is that customer demand or market trends will change.

While quantitative methods, which rely on historical data, are typically the most accurate forecasting methods, they don’t work well for long-term predictions. If you’re planning to forecast over several years, try qualitative forecasting methods, which rely on expert opinions instead of company-specific data.

2. How steady is your demand?

Sales can fluctuate for a variety of reasons, including sales promotions and weather. For example, if you sell ice cream, chances are good your sales dip in the winter.

If demand for your products varies, consider forecasting with a quantitative method, such as time-series decomposition, which examines historical data and allows you to adjust for market trends, seasonal trends and business cycles. You also may want to use forecasting software, which allows you to plug other variables into the equation, such as individual customers’ short-term buying plans.

3. How much data do you have?

Quantitative forecasting techniques require varying amounts of historical information. For instance, you’ll need about three years of data to use exponential smoothing, a simple yet fairly accurate method that compares historical averages with current demand.

Want to forecast for something you don’t have data for, such as a new product? In that case, use qualitative forecasting or base your forecast on historical data for a similar product in your arsenal.

4. How do you fill your orders?

Unless you fill custom orders on demand, your forecast will need to establish optimal inventory levels of finished goods. Many companies use multiple forecasting methods to estimate peak inventory levels. It’s also important to consider inventory needs at the individual product level and local warehouse level, which will help you ensure speedy delivery.

If you’re forecasting demand for a wide variety of products, consider a relatively simple technique, such as exponential smoothing. If you offer only one or two key products, it’s probably worth your time and effort to perform a more complex, time-consuming forecast for each one, such as a statistical regression.

Plan to succeed

You may not have a crystal ball, but using the right forecasting techniques will help you gaze into your company’s future with greater accuracy. We can help you establish the forecasting practices that make sense for your business.

© 2017

Did you know that if you’re self-employed you may be able to set up a retirement plan that allows you to contribute much more than you can contribute to an IRA or even an employer-sponsored 401(k)? There’s still time to set up such a plan for 2017, and it generally isn’t hard to do. So whether you’re a “full-time” independent contractor or you’re employed but earn some self-employment income on the side, consider setting up one of the following types of retirement plans this year.

Profit-sharing plan

This is a defined contribution plan that allows discretionary employer contributions and flexibility in plan design. (As a self-employed person, you’re both the employer and the employee.) You can make deductible 2017 contributions as late as the due date of your 2017 tax return, including extensions — provided your plan exists on Dec. 31, 2017.

For 2017, the maximum contribution is 25% of your net earnings from self-employment, up to a $54,000 contribution. If you include a 401(k) arrangement in the plan, you might be able to contribute a higher percentage of your income. If you include such an arrangement and are age 50 or older, you may be able to contribute as much as $60,000.

Simplified Employee Pension (SEP)

This is a defined contribution plan that provides benefits similar to those of a profit-sharing plan. But you can establish a SEP in 2018 and still make deductible 2017 contributions as late as the due date of your 2017 income tax return, including extensions. In addition, a SEP is easy to administer.

For 2017, the maximum SEP contribution is 25% of your net earnings from self-employment, up to a $54,000 contribution.

Defined benefit plan

This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. The maximum annual benefit for 2017 is generally $215,000 or 100% of average earned income for the highest three consecutive years, if less.

Because it’s actuarially driven, the contribution needed to attain the projected future annual benefit may exceed the maximum contributions allowed by other plans, depending on your age and the desired benefit. You can make deductible 2017 defined benefit plan contributions until your return due date, provided your plan exists on Dec. 31, 2017.

More to think about

Additional rules and limits apply to these plans, and other types of plans are available. Also, keep in mind that things get more complicated — and more expensive — if you have employees. Why? Generally, they must be allowed to participate in the plan, provided they meet the qualification requirements. To learn more about retirement plans for the self-employed, contact us.

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On October 12, an executive order was signed that, among other things, seeks to expand Health Reimbursement Arrangements (HRAs). HRAs are just one type of tax-advantaged account you can provide your employees to help fund their health care expenses. Also available are Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). Which one should you include in your benefits package? Here’s a look at the similarities and differences:

HRA. An HRA is an employer-sponsored account that reimburses employees for medical expenses. Contributions are excluded from taxable income and there’s no government-set limit on their annual amount. But only you as the employer can contribute to an HRA; employees aren’t allowed to contribute.

Also, the Affordable Care Act puts some limits on how HRAs can be offered. The October 12 executive order directs the Secretaries of the Treasury, Labor, and Health and Human Services to consider proposing regs or revising guidance to “increase the usability of HRAs,” expand the ability of employers to offer HRAs to their employees, and “allow HRAs to be used in conjunction with nongroup coverage.”

HSA. If you provide employees a qualified high-deductible health plan (HDHP), you can also sponsor HSAs for them. Pretax contributions can be made by both you and the employee. The 2017 contribution limits (employer and employee combined) are $3,400 for self-only coverage and $6,750 for family coverage. The 2018 limits are $3,450 and $6,900, respectively. Plus, for employees age 55 or older, an additional $1,000 can be contributed.

The employee owns the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and employees can carry over a balance from year to year.

FSA. Regardless of whether you provide an HDHP, you can sponsor FSAs that allow employees to redirect pretax income up to a limit you set (not to exceed $2,600 in 2017 and expected to remain the same for 2018). You, as the employer, can make additional contributions, generally either by matching employer contributions up to 100% or by contributing up to $500. The plan pays or reimburses employees for qualified medical expenses.

What employees don’t use by the plan year’s end, they generally lose — though you can choose to have your plan allow employees to roll over up to $500 to the next year or give them a 2 1/2-month grace period to incur expenses to use up the previous year’s contribution. If employees have an HSA, their FSA must be limited to funding certain “permitted” expenses.

If you’d like to offer your employees a tax-advantaged way to fund health care costs but are unsure which type of account is best for your business and your employees, please contact us. We can provide the additional details you need to make a sound decision.

© 2017

If you own life insurance policies at your death, the proceeds will be included in your taxable estate. Ownership is usually determined by several factors, including who has the right to name the beneficiaries of the proceeds. The way around this problem is to not own the policies when you die. However, don’t automatically rule out your ownership either.

And it’s important to keep in mind the current uncertain future of the estate tax. If the estate tax is repealed (or if someone doesn’t have a large enough estate that estate taxes are a concern), then the inclusion of your policy in your estate is a nonissue. However, there may be nontax reasons for not owning the policy yourself.

Plus and minuses of different owners

To choose the best owner, consider why you want the insurance. Do you want to replace income? Provide liquidity? Or transfer wealth to your heirs? And how important are tax implications, flexibility, control, and cost and ease of administration? Let’s take a closer look at four types of owners:

1. You or your spouse. There are several nontax benefits to your ownership, primarily relating to flexibility and control. The biggest drawback is estate tax risk. Ownership by you or your spouse generally works best when your combined assets, including insurance, won’t place either of your estates into a taxable situation.

2. Your children. Ownership by your children works best when your primary goal is to pass wealth to them. On the plus side, proceeds aren’t subject to estate tax on your or your spouse’s death, and your children receive all of the proceeds tax-free. On the minus side, policy proceeds are paid to your children outright. This may not be in accordance with your estate plan objectives and may be especially problematic if a child has creditor problems.

3. Your business. Company ownership or sponsorship of insurance on your life can work well when you have cash flow concerns related to paying premiums. Company sponsorship can allow premiums to be paid in part or in whole by the business under a split-dollar arrangement. But if you’re the controlling shareholder of the company and the proceeds are payable to a beneficiary other than the business, the proceeds could be included in your estate for estate tax purposes.

4. An ILIT. A properly structured irrevocable life insurance trust (ILIT) could save you estate taxes on any insurance proceeds. The trust owns the policy and pays the premiums. When you die, the proceeds pass into the trust and aren’t included in your estate. The trust can be structured to provide benefits to your surviving spouse and/or other beneficiaries.

Contact us with any questions.

© 2017