First, full disclosure #1: “Non-digital” may not be a real word, but it’s my attempt to identify those businesses whose owners don’t rely on the Internet for their business and don’t think they’ll ever have to. Think: Blockbuster, Radio Shack, Borders, Polaroid, etc. Because they were huge they were a visible target, and they became obsolete in a couple decades by the power of technology. Because you’re not huge, it would be a mistake to think you’ll never be a target. Think of the little bookstore that used to be in your neighborhood. Thoughts for reflection on that idea is the subject of this post, as you contemplate your next strategic planning activity.
Next, full disclosure #2: This wisdom is not mine, but it’s the recent post of an entrepreneur that I interviewed many years ago for my newsletter, and who still has words of wisdom to share with every entrepreneur/business owner.
Finally, go to Dave Berkus’ latest post at his website and consider how this might touch you: https://berkonomics.com/?p=3850
In a recent California court case, a female employee was hired at 5% over her last salary with a prior employer, a starting wage policy the new employer followed for everyone. A while later the employee found that male workers doing similar work were paid more, likely because they had earned more at a prior job. So she sued her employer under the Equal Pay Act. And won. The court ruled that prior salary cannot be used to justify a wage differential, as it is not a legitimate, job-related factor.
Source: Rizo v. Yovino, per Fisher & Phillips LLP
Some years ago (over 10, actually) I wrote an article that bore the tongue-in-cheek title “Financial Training Isn’t for Everyone!” I was then typically traveling virtually every month speaking to business audiences nationwide on the value of financial education, and watching glazed eyes in many of my audiences, as some attendees recognized the need intellectually but not in their bones, as my wife would say. Many of them were there because someone said they should learn this stuff.
These days my workshops and coaching talks are mostly more intimate events for the management teams of clients for our CFO consulting practice. My belief is that the value is more easily felt when it’s seen as relevant to their company (for owners) and their job (for managers), and the participation is noticeably more enthusiastic.
In fact, two recent examples brought that home with particular emphasis.
The first came from the CFO of a client in Texas where I had been coaching several company executives, including their controller, on the strategic side of financial management. During a recent phone call the CFO told me that someone had proposed a spending project during a budget planning meeting, and someone else objected, saying “There’s always a ‘good reason’ to spend money, but that doesn’t mean we should spend it.” The controller jumped in with the observation: Isn’t that from Gene’s book? And in truth it is. I at that point reaffirmed my belief that the coaching had borne fruit and awakened some solid financial instincts.
The second example came from a California-based client whose young management team has been attending one of my workshops, this one developed specifically for their industry. We had covered in an earlier session some of the concepts of manufacturing cost accounting, things like shop rates, gross margins, optimum order quantities and such. Several weeks after that particular topic had been presented the team was discussing a particular customer project and the CEO told me that one of his managers enthusiastically quoted a line from one of my slides, and others recognized the principle as well. Needless to say, made my day! Again!
What’s the point? It’s not about what a great teacher I am. It’s about how relevant financial education tailored to the audience transforms listeners from glazed eyes to genuine learners. And genuine learners actually apply what they’ve learned – to the benefit of the company, the owners, and the managers’ careers. And yes, financial training IS for everyone. Everyone who wants to succeed, that is.
As always, I welcome your comments and suggestions for future topics.
The following VERY long post is compliments of Morningstar, which provided a good recap of the rates and due dates for 2018 and 2019 tax filers.
The year 2018 ushered in seismic tax-code changes that you’re likely to see reflected on your 2018 return: notably, the end of personal exemptions as well as higher standard deduction amounts that mean many fewer taxpayers are apt to benefit from itemizing their deductions than in the past.
As 2019 dawns, the changes to the tax code are far less remarkable–more evolutionary than revolutionary. Most of the changes amount to tweaks that reflect the effects of inflation in various provisions within the tax code.
Here are key tax-related dates and data points to have on your radar for the year ahead.
2019 Important Tax Facts for All Taxpayers
Income Tax Brackets: Seven tax brackets remain, but the specific parameters have changed, as follows:
- 10%: Single taxpayers with incomes between under $9,700; married couples filing jointly with incomes of less than $19,400.
• 12%: Single taxpayers with incomes between $9,700 and $39,475; married couples filing jointly with incomes between $19,400 and $78,950.
• 22%: Single taxpayers with incomes between $39,475 and $84,200; married couples filing jointly with incomes between $78,950 and $168,400.
• 24%: Single taxpayers with incomes between $84,200 and $160,725; married couples filing jointly with incomes between $168,400 and $321,450.
• 32%: Single taxpayers with incomes between $160,725 and $204,100; married couples filing jointly with incomes between $321,450 and $408,200.
• 35%: Single taxpayers with incomes between $204,100 and $510,300; married couples filing jointly with incomes between $408,200 and $612,350.
• 37%: Single taxpayers with incomes of $510,300 or more; married couples filing jointly with incomes of $612,350 or more.
AMT-Exempt Amounts: The exemption amounts for the alternative minimum tax are increasing slightly in 2019, to $71,700 for single filers and $111,700 for married couples filing jointly. The full exemptions are available to taxpayers with alternative minimum taxable incomes of less than $510,300 (single filers)/$1,020,600 (married couples filing jointly).
Estate/Gift Tax Exemption: This amount is increasing slightly, to $11.4 million per individual. The annual gift-tax exclusion amount stays the same at $15,000. (Note that annual gifts in excess of this amount do not automatically trigger any sort of gift tax, as discussed here. Most people won’t owe estate or gift taxes in their lifetimes under current tax laws.)
2018 Important Tax Facts for Investors
Qualified Dividend and Long-Term Capital Gains Rates: Three rates are still in place for dividends and long-term capital gains–0%, 15% and 20%–but they don’t map perfectly by tax bracket as they did in the past. Here are the parameters for each of the rates.
- 0%: Single taxpayers with incomes between $0 and $39,375; married couples filing jointly with incomes between $0 and $78,750.
- 15%: Single taxpayers with incomes between $39,375 and $434,550; married couples filing jointly with incomes between $78,750 and $488,850.
- 20%: Single taxpayers with incomes over $434,550; married couples filing jointly with incomes over $488,850.
Medicare Surtax: As in years past, an additional 3.8% Medicare surtax will apply to the lesser of net investment income or the excess of modified adjusted gross income over $200,000 for single taxpayers and $250,000 for married couples filing jointly.
IRA contribution limits (Roth or traditional): $6,000 under age 50/$7,000 over age 50.
Income limits for deductible IRA contribution, single filers or married couples filing jointly who aren’t covered by a retirement plan at work: None; fully deductible contribution.
Income limits for deductible IRA contribution, single filers covered by a retirement plan at work: Modified adjusted gross income under $64,000–fully deductible contribution; between $64,000 and $74,000–partially deductible contribution; more than $74,000–contribution not deductible.
Income limits for deductible IRA contribution, married couples filing jointly, if the spouse making the contribution is covered by a retirement plan at work:Modified adjusted gross income under $103,000–fully deductible contribution; between $103,000 and $123,000–partially deductible contribution; more than $123,000–contribution not deductible.
Income limits for deductible IRA contributions, married couples filing jointly, if the spouse making the contribution isn’t covered by a retirement plan at work but his/her spouse is: Modified adjusted gross income under $193,000–fully deductible contribution; between $193,000 and $203,000–partially deductible contribution; more than $203,000–contribution not deductible.
Income limits for nondeductible IRA contributions: None.
Income limits for IRA conversions: None, but note that the tax legislation that went into effect in 2018 eliminated the opportunity to recharacterize a Roth IRA as a traditional IRA, or vice versa.
Income limits for Roth IRA contribution, single filers: Modified adjusted gross income under $122,000–full Roth contribution; between $122,000 and $137,000–partial Roth contribution; more than $137,000–no Roth contribution.
Income limits for Roth IRA contribution, married couples filing jointly:Modified adjusted gross income under $193,000–full Roth contribution; between $193,000 and $203,000–partial Roth contribution; more than $203,000–no Roth contribution.
Contribution limits for 401(k), 403(b), 457 plan, or self-employed 401(k) (traditional or Roth): $19,000 under age 50; $25,000 for age 50 and older.
Total 401(k) contribution limits, including employer (pretax, Roth, aftertax) and employee contributions and forfeitures: $56,000 if under age 50; $62,000 if 50-plus.
Income limits for 401(k), 403(b), 457 plans: None, though annual compensation limits can come into play in certain situations.
SEP IRA contribution limit: The lesser of 25% of compensation or $56,000 ($62,000 for those 50-plus).
Saver’s Tax Credit, income limit, single filers: $32,000.
Saver’s Tax Credit, income limit, married couples filing jointly: $64,000.
Health savings account contribution limit, single contributor: $3,500 (under 55); $4,500 (over 55).
Health savings account contribution limit, family coverage: $7,000 (contributor under 55); $8,000 (contributor 55-plus).
High-deductible health plan minimum deductible, self-only coverage: $1,350.
High-deductible health plan minimum deductible, family coverage: $2,700.
High-deductible health plan out-of-pocket maximum, self-only coverage:$6,750.
High-deductible health plan out-of-pocket maximum, family coverage: $13,500.
Jan. 15: Estimated tax payments due for fourth quarter of 2018.
- Individual tax returns (or extension request forms) due for 2018 tax year.
- Estimated tax payments due for first quarter of 2019.
- Last day to contribute to IRA for 2018 tax year (2018 contribution limits: $5,500 under age 55; $6,500 for age 55 and above).
- Last day to contribute to health savings account for 2018 tax year (2018 contribution limits: $3,400 for single coverage, contributor under age 55; $4,400 for single coverage, contributor age 55 and above; $6,750 for family coverage, contributor under age 55; $7,750 for family coverage, contributor age 55 and above).
June 15: Estimated tax payments due for second quarter of 2019.
Sept. 15: Estimated tax payments due for third quarter of 2019.
Oct. 15: Individual tax returns due for taxpayers who received a six-month extension.
- Retirees age 70 1/2 and older must take required minimum distributions from traditional IRAs and 401(k)s; those RMDs are based on their balances at the end of 2018.
- Last date to make contributions to company retirement plans (401(k), 403(b), 457) for 2018 tax year.
We’ve been reading a lot about the aerospace industry lately – strong demand for product from airlines, defense, technology. Difficulty hiring enough qualified workers to fill the orders. What a former boss of mine would have called a high class problem. But there’s another side to this story that applies to the many small businesses in the aerospace industry. Here is one such real life story that is painfully representative of many companies in this space.
We have a long time client in the aerospace manufacturing industry. In business for over 40 years. Its co-owners were in their mid-50s when we started talking about an exit for them. Neither wanted to be working past age 65. The company was profitable and in a strong industry with lots of demand for product, even 10 years ago. But they had several challenges common to similar companies in the industry:
- Very high concentration of revenue from a single top tier manufacturer
- A long term contract that fixed prices for the term
- Constant pressure to lower costs, provide flexible delivery timetables, ensure repeatability, and maintain quality – a very challenging set of standards to meet consistently.
The owners enjoyed strong profits, producing products that they’d been making for years, almost like a recurring revenue model, and in our planning meetings agreed on a plan to build a bench of managers who could replace them when they sold the business and exited.
And then they delayed implementing the plan – for years. Meanwhile the large customer’s contract carried on, neared its contract term. And then we learned their contract had a unilateral extension provision with no changes in pricing despite rising costs – an extension that could be maintained indefinitely at the customer’s option. As costs grew, prices didn’t, profits shrunk. They’re now struggling to negotiate a better contract, without numerous profit-killing provisions, and facing the task of establishing a credible profit trend despite recent history.
And the owners are now in their early 60s. At this stage the recovery plan is…
- Push back to get a better contract with reasonable pricing and renegotiation provisions – and risk losing the business
- Re-establish an acceptable profitability pattern, assuming the first step works
- Find a buyer who understands the industry and is not put off by its unique challenges
- Support that buyer in the transition, including staying around a few years longer than planned.
If your industry has similarities and you’re well down in the supply chain, a lack of long term planning – and solid execution – is not a good strategy. Want to learn how to change that? Here’s my course on strategic planning:
In a recent presentation by an economist from the Federal Reserve Bank in San Francisco, I learned their carefully studied view of the economy over the next couple years, particularly as it impacts your ability to hire and keep good workers. The news was not great for companies looking to grow, but then it wasn’t surprising either. While the data and conclusions are national in scope, we think they are valid pretty much everywhere our clients do business. Here are a few highlights:
- Business will stay strong, continuing to exceed the historical trend rate for GDP growth.
- Inflation will rise slightly, getting to the 2% range over the next couple years.
- Employment will stay historically high, unemployment historically low.
That last one is the one I want you to focus on, because it affects your cost of labor. The presenter showed charts and statistics that demonstrate:
- Half of all businesses don’t have enough qualified job applicants.
- Over 1/3 of businesses raised worker compensation in the past quarter, with the result that average hourly wages are approaching 3% higher than they were one year ago.
- Another 20% are planning to increase worker compensation in the next quarter.
So, if you’re in that 50% of businesses with job openings you can’t fill with the kinds of people you want to attract, take a look at your average starting pay rates and see if they’re keeping up with your industry, your demographic area, and your desired hiring quality. It seems clear that waiting for the right time is going to be a losing strategy for the next few years. Instead look at ways to modify your cost structure or your pricing structure to enable you to get what you need. For example:
- Are your processes as efficient as they could be, both operations and administrative, or have you become satisfied with the status quo and given up on raising productivity?
- Is hiring underqualified people to fill open positions and letting them grow into the job really in the best interest of your bottom line?
- Are your customers really averse to modest price increases, or would they gladly pay more for an improvement in customer service, product quality, turnaround time, etc.?
- Does your financial and operational reporting system give you the information you need to even answer those questions?
If you’d like some support in answering any of these questions, the phone number is 888.788.6534 – Your CFO for Rent.
This note is for the personal tax planning of our clients and friends.
With the passage of the new tax law, the interest expense you pay on any home equity line of credit (“HELOC”) is no longer deductible on your federal return. However you can carry up to $750,000 in a first mortgage and still deduct all the interest paid on your first mortgage. Couple that with the rising trend of interest rates, including mortgage loan interest, and the message for this year’s tax planning might be this:
If your first mortgage and your HELOC combined are $750K or less, it may make sense to refinance now and roll that HELOC into a new first mortgage. You can even afford a bit of an increase in the new first mortgage rate if it is more than offset by the retained tax deduction for HELOC interest expense. An exception might be if your first mortgage interest rate is significantly lower than today’s available rates, and your HELOC balance is fairly low. Then you may be better off by just foregoing the HELOC deduction. The key calculation: your combined mortgage interest expense less your tax deduction before a refinance compared to that same number after a refinance.
As always, tax planning ideas like this one should always be discussed with your tax adviser who is familiar with your particular situation. We are not tax advisors, but we are Your CFO for Rent.
1. ICE job site inspection constraints – AB450
2. Applicant salary history questions banned – AB168
3. New gender recognition rules – SB179
4. Parental leave changes – SB63
5. Employee relief from retaliation punishment – SB306
6. Applicant criminal history ban – AB1008
7. Sexual harassment training – SB396
And you thought the minimum wage law was the only thing you had to worry about.
If you have any doubts about your compliance with these changes, typically applicable to all but the smallest businesses, contact your labor attorney. If you don’t have one, ask us for a referral. We are Your CFO for Rent.
Mark Olson, one of our seasoned CFO contractors and an experienced CPA, had a horrible experience recently when his ID was duplicated and used to defraud him out of thousands of dollars. How his long-time bank, Wells Fargo, dealt with it was so wrong and so inappropriate that he wrote about it for our blog. As Black Friday approaches and the holiday shopping season gets started in earnest, his situation needs to be known to the shopping public. Here, without any attempt to edit his words, is Mark’s story.
My Horrible Experience with Wells Fargo in Dealing with Credit Card Fraud and ID Theft – Will the Problem Improve or Only Get Worse?
As we now enter into the holiday season, I thought it was appropriate to share my horrible experience with recent credit card fraud and ID theft. I have been with Wells Fargo Bank for 19 years and I have several accounts with them, personal, business and brokerage. In October, I was notified by Wells Fargo’s fraud department of a suspicious transaction for a charge on my personal credit card for an amount in excess of $5,000 the day following the charge. I said that I didn’t make the transaction and Wells Fargo promptly removed the charge, cancelled my card and re-issued a new card. I thought nothing more of this and assumed that everything was fine. I then received a call from Wells Fargo’s fraud department and they asked me a few questions on a recorded line. The one question they asked was “Was I in possession of the credit card at the time of the fraudulent transaction?”. I responded “yes” and again, thought nothing of it and again assumed that everything was taken care of and this would forever disappear from my account. Wrong!
I received a letter in the mail stating that my fraud claim had been denied. I reviewed my credit card account and saw that Wells Fargo had put the charge back on my account. I had several conversations with Wells Fargo’s fraud department and they repeatedly said that, because I had possession of the credit card at the time of the charge, I was liable and they would not remove the charge. My credit card came with both an EMV chip and magnetic strip. Wells Fargo claims that the transaction had been conducted using the EMV Chip and PIN and therefore, since I had the card, I was the only person who could have performed the transaction. Wells Fargo said EMV chips are impossible to duplicate. Wells Fargo said I could submit a letter of reconsideration, which I did after I had conversations with the Target store where this happened and the Los Angeles Police Department. I discovered that the charge was for several gift cards at Target and that there was surveillance video of the transaction. I explained this in my reconsideration letter to Wells Fargo and also stated that I had filed a police report with the LAPD. I attached a copy of the police report. The LAPD told me that the bank would contact them and take over from there now that a police report had been filed. LAPD said, based upon past experience, they expected this charge to be removed from my account. My reconsideration was promptly denied by Wells Fargo. I later learned from LAPD, the bank never called them to discuss my case.
I again contacted Wells Fargo fraud and they gave me the same reason for denial and cited SEC regulations that prevented Wells Fargo from removing the charge from my account. They said that I could write a second letter for reconsideration offering new facts in the case. I then contacted the Target store again and spoke to Assets Protection. They said they had the surveillance video and had viewed it. They said they would release the video and the credit card sales receipt to a police officer. I contacted the local police department and arranged to meet with them the next day. The next day, we met with Target security and the Officer and Target security viewed the video and discovered the charge was conducted by either a Hispanic or African American male in his 20’s and that the card had been swiped and a signature was made on the electronic signature pad and ID was presented. I am in my early 60’s and Caucasian. This person obviously had a fraudulent duplicate card and fake ID. The local police officer has opened a new case. I composed, faxed and mailed my second letter of reconsideration with these facts to Wells Fargo Fraud Claims and copied several senior executives from Wells Fargo and Target Stores, elected officials and my credit reporting agencies. It will be very interesting to see how they respond.
Credit card fraud and ID theft are very serious crimes. As citizens, we have a responsibility to stand up and be strong against the perpetrators and those who are supposed to protect us. We have rights that are often trampled on. I see this problem only getting worse as there are more security breaches and continued lack of will by executives and government officials to stop this problem. For you bankers and retailers, please do the very best you can to help resolve these problems in the best interests of the victim and do everything you can to beef up your cyber security systems and credit card processing practices.
From Gene: Knowledge is power. Have a joyous and grateful Thanksgiving!
Every not-for-profit board I have been privileged to serve on had term limits in place when I left the board, if not so when I joined. That has been a strong position of mine for many years, and for good reasons, as my own experience amply demonstrated. The last board I led to change their policy in this area had been around for over 50 years, and still had some of the family members who had been instrumental in building the organization many years earlier.
The problem was that after so many years of defining policy and direction for the organization, they often considered their view the correct one and dissenting views as misguided. As they aged so did the vibrancy of the organization. Or, as a consultant quoted in the current issue of Nonprofit Business Advisor put it, “long-standing members are (frequently) too familiar with it and treat it like it’s their organization.” Our CEO maintained a solidly run organization that never ventured far from its roots. Strategic thinking revolved around doing a little more of what we’d been doing for 50 years.
By contrast, a regular requirement to invite new members to the board and make room for them by enacting mandatory exit of the “long-standing members” creates the opportunity for new ideas, new direction, new responses to an ever-changing world, especially when it comes to funding nonprofit services and re-inventing those services for today’s needs. Even if a board has room for new members but doesn’t remove the long-term members, those “old-timers” have great influence with the board and can often override new thinking simply by the influence on decision making that they’ve exercised over the years. In addition, potential directors with new ideas and new approaches will quickly tire of contending with the old guard every time an issue comes up. In my example the bond between the long-time members and the CEO was so strong that once the board transitioned to a more professional board, it was necessary to ask the CEO to retire in order to complete the transition to strategic thinking that ventured outside the box.
Today, according to a survey by accounting firm BDO, 26% of nonprofits with revenues over $25 million have total service durations of 10 or more years, including those with no term limits at all. Happily, only 6% of organizations below $25 million are similarly positioned.