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Disaster Victims may Qualify for Tax Relief … Including on Amended Returns
Victims of presidentially declared disasters in recent years who couldn’t previously claim a casualty loss deduction may now be able to claim a refund. Additional tax relief also might be available. Read on to learn more about the potential opportunities for victims of certain disasters.
Loosened restrictions for casualty losses
The tax relief comes via the Federal Disaster Tax Relief Act (FDTRA), which was signed into law by former President Biden in December 2024. Among other things, the law makes it easier to claim a deduction for qualified disaster-related personal casualty losses during a specific time period.
Previously, you could claim such a deduction only if you itemized your deductions. It was further limited by a $100 reduction per loss, and you were allowed to deduct only the amount of the loss that exceeded 10% of your adjusted gross income. The so-called 10% rule was applied after the $100 reduction.
Under the FDTRA, those restrictions no longer apply if you suffered a casualty loss attributable to a presidentially declared disaster (referred to as a “qualified disaster loss”) that began on or after December 28, 2019, and on or before December 12, 2024, and ended no later than January 11, 2025. (Note that this relief doesn’t apply to the 2025 California wildfires. See “Wildfire relief” below for information on other relief available to the victims of those and other more recent fires.)
In addition, the president must have made the disaster declaration between January 1, 2020, and February 10, 2025. The limit for such losses is that each separate casualty loss is deductible only after it exceeds $500.
Be aware that casualty losses are generally deductible in the year the loss is incurred. For example, if a qualified disaster occurred in 2022, but your insurance company didn’t deny your related claim until 2024, you’d deduct the loss for 2024. But you now have the option to deduct any loss attributable to a presidentially declared disaster in the tax year prior to the occurrence.
Wildfire relief
The FDTRA provides that “qualified wildfire relief payments” — including those made to Los Angeles County taxpayers affected by the 2025 California wildfires — can be excluded from gross income for tax purposes. It’s been estimated that this provision will return $512 million in taxes to wildfire victims. And it’ll protect payment recipients from losing certain income-based benefits, such as health insurance premium subsidies, Veterans Administration co-pay assistance and federal student aid.
The exclusion applies to any amount received by, or on behalf of, an individual as compensation for losses, expenses or damages, including for:
Additional living expenses,
Lost wages, other than compensation for lost wages paid by the employer which otherwise would have paid those wages,
Personal injury,
Death, and
Emotional distress.
The compensation must have been granted for a federally declared disaster that was declared after December 31, 2014, as the result of a forest or range fire. The payments must be received during tax years beginning after December 31, 2019, and before January 1, 2026. Compensation from insurance and other reimbursements doesn’t qualify for the exclusion.
The law prohibits double-dipping. You can’t claim a deduction or credit for any expense excluded from income under the provision. And, if you use excluded qualified payments to purchase or improve property, you may not increase your basis or adjusted basis in the property by the excluded amount.
The IRS is also providing some relief related to filing deadlines for individuals and households that reside or have a business in Los Angeles County and were affected by wildfires and straight-line winds that began on January 7, 2025. These taxpayers have until October 15, 2025, to file various federal individual and business tax returns and make tax payments.
The new deadline applies to individual income tax returns and payments normally due on April 15, 2025. This relief also applies to the 2024 estimated tax payment that was due on January 15, 2025, and estimated tax payments normally due on April 15, June 16, and September 15, 2025.
It also applies to:
Quarterly payroll and excise tax returns normally due on January 31, April 30, and July 31, 2025,
Calendar-year partnership and S corporation returns normally due on March 17, 2025,
Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025, and
Calendar-year tax-exempt organization returns normally due on May 15, 2025.
East Palestine train derailment relief
The FDTRA also extends relief to victims of the train derailment on February 3, 2023, in East Palestine, Ohio. “East Palestine Train Derailment Payments” can be excluded from gross income.
The payments include any amount received by, or on behalf of, an individual as derailment-related compensation for:
Loss,
Damages,
Expenses,
Loss in real property value,
Closing costs related to real property (including realtor commissions), and
Inconvenience (including access to real property).
The compensation must have come from a federal, state or local government agency, Norfolk Southern Railway, or any subsidiary, insurer or agent of Norfolk Southern Railway.
Next steps for taxpayers
If you’re claiming any of the benefits under the FDTRA for a tax year for which you’ve already filed a tax return without claiming the benefits, you’ll need to file an amended return. We can file your amended return electronically if you’re amending a return for the current or prior two tax periods.
You must file Form 1040-X, Amended U.S. Individual Income Tax Return, on paper to amend your return if 1) the amended return is for earlier years, or 2) your prior year return was originally filed on paper during the current processing year. If you file your amended return electronically, you can elect to have any refund directly deposited into a U.S. financial institution account. Contact FMD with any questions and to prepare an amended return for you.
ESOPs can Help Business Owners with Succession Planning
Devising and executing the right succession plan is challenging for most business owners. In worst-case scenarios, succession planning is left to chance until the last minute. Chaos, or at least much confusion and uncertainty, often follows.
The most foolproof way to make succession planning easier is to give yourself plenty of time to develop a plan that suits the intricacies of your situation and then gradually implement it. One vehicle that can help “slow your roll” into retirement or whatever your next stage of life may be is an employee stock ownership plan (ESOP).
Little by little
An ESOP is a type of qualified retirement plan that invests solely or mainly in your company’s stock. Because it’s qualified, an ESOP comes with tax advantages as long as you follow the federally enforced rules. These include requirements related to minimum coverage and contribution limits.
Generally, the company sets up an ESOP trust and funds the plan by contributing shares or cash to buy existing shares. Distributions to eligible participants are made in stock or cash. For closely held companies, employees who receive stock have the right to sell it back to the company — exercising “put options” or an “option to sell” — at fair market value during certain time windows.
Although an ESOP involves transferring ownership to employees, it’s different from a management or employee buyout. Unlike a buyout, an ESOP allows owners to cash out and transfer control little by little. During the transfer period, owners’ shares are held in the ESOP trust and voting rights on most issues other than mergers, dissolutions and other major transactions are exercised by the trustees, who may be officers or other company insiders.
Appraisals required
One big difference between ESOPs and other qualified retirement plans, such as 401(k)s, is mandated valuations. The Employee Retirement Income Security Act requires trustees to obtain appraisals by independent valuation professionals to support ESOP transactions. Specifically, an appraisal is needed when the ESOP initially acquires shares from the company’s owners and every year thereafter that the business contributes to the plan.
The fair market value of the sponsoring company’s stock is important because the U.S. Department of Labor specifically prohibits ESOPs from paying more than “adequate consideration” when investing in employer securities. In addition, because employees who receive ESOP shares typically have the right to sell them back to the company at fair market value, the ESOP provides a limited market for its shares.
Drawbacks to consider
An ESOP can play a helpful role in a well-designed succession plan with an appropriately long timeline. However, there are potential drawbacks to consider. You’ll incur costs and considerable responsibilities related to plan administration and compliance. Costs are also associated with annual stock valuations and the need to repurchase stock from employees who exercise put options.
Another potential disadvantage is that ESOPs are available only to corporations of either the C or S variety. Limited liability companies, partnerships and sole proprietorships must convert to one of these two entity types to establish an ESOP. Doing so will raise a variety of tax and financial issues.
In addition, it’s important to explore the potential negative impact of ESOP debt and other expenses on your financial statements and ability to qualify for loans.
Not a no-brainer
ESOPs have become fairly popular among small to midsize businesses. However, the decision to create, launch and administer one is far from a no-brainer. You’ll need to do a deep dive into all the details involved, discuss the concept with your leadership team and get professional advice. Contact FMD for help evaluating whether an ESOP would be a good fit for your business and succession plan.
What Happens if You and Your Siblings Inherit your Parents’ Home?
When estate planning, it’s common for parents to leave their primary residence or a vacation home to their children. While your parents’ wills or trusts may specify who gets what percentage of the home, typically, you and your siblings will receive equal shares in the property.
This can result in potential problems. For example, perhaps you and your siblings have different financial needs or can’t agree on what to do with the home. Let’s take a look at how to best approach the situation.
Determine what to do with the house
The first step is to sit down with your siblings and have an open, honest discussion about your wishes for handling the inherited home. Generally, the options are:
Keep the home and share it among family members,
Rent out the home and share the rental income,
Sell the home and divide the profits, or
Arrange for one sibling to buy out the others.
If you decide to share the home, have a written agreement drafted by your attorney that outlines rules regarding scheduling, allowable uses, and responsibility for maintenance and expenses. If you choose to sell the home or arrange a buyout, obtain a professional appraisal to avoid disputes over the home’s value.
Other considerations
If you rent out the home, determine how you’ll handle rent collection, maintenance and other rental activities. One option is to engage a property management company to handle the day-to-day management.
Another issue to consider is how the title to the property will be held. For example, if you and your siblings own the home as tenants in common, then your respective interests will pass to your heirs according to your individual estate plans. But if you hold the property as joint tenants, then when one sibling dies, the surviving siblings receive his or her share.
Keep in mind that each of the options described above has different tax implications. Contact FMD with questions.
Embrace the Future: Sales Forecasting for Businesses
So, how are sales looking for next year? It’s not a rhetorical question. Your business should be able to look ahead and accurately estimate how its future sales are shaping up. This practice is called sales forecasting, and doing it well is key to better managing your company’s financial performance.
Why it’s important
Formally defined, sales forecasting is a comprehensive process for estimating future revenue in a given period based on carefully chosen metrics and, often, human input.
The advantages of sales forecasts go far beyond simply establishing your sales team’s confidence level. Done properly, forecasts can help you and your leadership team set ambitious but achievable sales objectives in relation to broader strategic goals.
As a result, you can create more accurate budgets across the business and better allocate resources to ensure you’ll meet those objectives. In addition, sales forecasts often reveal strategic and operational risks before they become crises.
Quantitative vs. qualitative
Generally, two broad models are used for sales forecasting: quantitative and qualitative.
Quantitative forecasting involves gathering numerical data and applying statistical methods to generate revenue estimates. This usually starts with looking at historical sales results and identifying past trends. You can, for example, break down sales data by time periods, product or service lines, or regions to spot patterns and seasonal fluctuations.
Other internal business metrics also factor into quantitative forecasting. These may include:
Return on investment of marketing campaigns,
Measures related to productivity and staffing levels, and
Inventory metrics.
And the data points don’t stop there. Sales forecasts can incorporate additional quantitative information drawn from global, national and local economic indicators; industry and market trends; and consumer behavior.
Qualitative sales forecasting relies less on hard data and more on the input of pertinent parties inside and outside your company. Such parties include your executive leadership team, as well as members of your sales and marketing departments. However, you can also gather qualitative feedback from customer surveys, focus groups and consultants.
Most businesses combine the quantitative and qualitative models to arrive at an optimal sales forecasting process. Start-ups and companies with limited operating histories may need to rely largely on qualitative input.
Best practices
There’s no one-size-fits-all sales forecasting process. The right one depends on your business’s distinctive features, operational requirements and strategic goals. Nonetheless, certain best practices generally apply to all companies. These include:
Defining the time frame. Most businesses generate sales forecasts monthly or quarterly. Newer companies or small businesses may be able to get away with annual sales forecasts because they have less data to work with. As a company grows, however, it will likely need to perform sales forecasts more often.
Choosing data points carefully and consistently. Quantitative sales forecasts generally must measure the same things over time so you can compare, contrast and pick up trends. When using the qualitative model, you may add contributors as necessary and feasible, but be careful about information overload.
Finding the right analytical method. You can crunch the numbers in various ways. Trend analysis, for instance, is suitable for businesses with stable and sizable historical data. Regression analysis can help you understand relationships between variables, such as marketing budget and sales. There are other approaches to consider as well.
Leveraging technology. You may be able to use software you already own to generate sales forecasts. For example, many customer relationship management platforms offer reporting functions that can help with forecasting. There’s also dedicated sales forecasting software available. Artificial intelligence is having a major positive impact on these products.
Continuous improvement
If your company is already generating sales forecasts, give yourself some credit. However, remember that you must continuously improve your current process to refine its accuracy, adapt to changes and incorporate evolving best practices. FMD can help you create a sales forecasting process or improve the one you have in place.
How to Evaluate and Undertake a Business Transformation
Many industries have undergone monumental changes over the last decade or so. Broadly, there are two ways to adapt to the associated challenges: slowly or quickly.
Although there’s much to be said about small, measured responses to economic change, some companies might want to undertake a more urgent, large-scale revision of their operations. This is called a “business transformation” and, under the right circumstances, it can be a prudent move.
Defining the concept
A business transformation is a strategically planned modification of how all or part of a company operates. In its broadest form, a transformation might change the very mission of the business. For example, a financial consulting firm might become a software provider. However, there are other more subtle variations, including:
Digital transformation (implementing new technologies to digitalize every business function),
Operational transformation (streamlining workflows or revising processes to change operations fundamentally), and
Structural transformation (altering the leadership structure or reorganizing departments/units).
The overarching goal of any transformation is to boost the company’s financial performance by increasing efficiencies, improving customer service, seizing greater market share or entering a new market.
Making the call
Choosing to undertake a business transformation of any kind is a major decision. Before making the call, you and your leadership team must evaluate your company’s market position and identify what’s inhibiting growth and possibly even leading toward a downturn. Common indicators that a transformation may be needed include:
Declining revenues with little to no projections of upswings,
Outdated processes that are creating errors and upsetting customers,
Intensifying competition that will be difficult or impossible to counter, and
Shifts in customer expectations or demand that call for substantive changes.
To decide whether a business transformation is appropriate, you must conduct due diligence through measures such as analyzing financial data and market trends, gathering customer feedback, and obtaining the counsel of professional advisors.
5 general steps to follow
So, let’s say you do your due diligence and decide to move forward with a business transformation. Generally, companies follow five steps:
1. Set a clearly worded objective. The more specific you are in describing how you intend to transform your business, the more likely you are to accomplish that objective. Set aside the time and exercise the patience needed to find specificity and consensus with your leadership team, key employees and professional advisors.
2. Forecast the financial, legal and operational impacts. You must paint a realistic picture of how the big change will likely affect the business during and after the transformation. This is another step in which your professional advisors are critical. With their help, generate financial forecasts related to expenses and revenue changes, identify potential compliance risks and so forth.
3. Map out the road ahead. With a clear vision in mind and a wealth of information in hand, create a detailed roadmap to the transformation. A phased approach is typically best. Define milestones and align performance metrics to each phase. In addition, develop contingency plans in case you wander off course.
4. Communicate with stakeholders. Devise a communication strategy that addresses all key stakeholders — including employees, independent contractors, customers, vendors, suppliers, investors and lenders. Tailor the strategy to each audience, promoting transparency and encouraging buy-in.
5. Monitor progress and adapt as necessary. To increase your odds of success, you and your leadership team need to “stay on it.” Track metrics, allocate time to discussing progress, and be ready to overcome internal and external challenges.
Bold move
Business transformations are difficult to achieve. Insufficient planning, lack of financial oversight and employee resistance can derail efforts. Meanwhile, the necessary investments may strain cash flow. Worst of all, if you fail, you’ll have squandered all those resources.
On a more positive note, a successful business transformation can be a bold and powerful move toward achieving substantial growth and resilience. If you’re considering one, FMD can help you evaluate the concept and undertake the appropriate financial analyses.
Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies
The Treasury Department announced on March 2, 2025 that, with respect to the Corporate Transparency Act, not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either. The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only. Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.
“This is a victory for common sense,” said U.S. Secretary of the Treasury Scott Bessent. “Today’s action is part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations, in particular for small businesses that are the backbone of the American economy.”
Contributing to a Roth 401(k) Plan may Help Achieve Estate Planning Goals
When it comes to your 401(k) plan, you may have a choice to make regarding contributions. Should you make contributions on a pre-tax (traditional) basis or on an after-tax (Roth) basis? The right answer depends on your current and expected future tax circumstances as well as your estate planning goals.
Traditional vs. Roth 401(k)s
The main difference between a traditional and a Roth 401(k) plan is essentially the same as the difference between a traditional and a Roth IRA: the way they’re taxed. Contributions to a traditional 401(k) are made with pre-tax dollars — that is, they’re deductible. Funds grow on a tax-deferred basis and both contributions and earnings are taxable when they’re withdrawn. Contributions to a Roth 401(k) plan are made with after-tax dollars — that is, they’re nondeductible. But qualified withdrawals of both contributions and earnings are tax-free. Plus, you can participate in a Roth 401(k) plan regardless of your income.
Salary deferral limits for traditional and Roth 401(k) plans are the same: for 2024, $23,000 plus an additional $7,500 in catch-up contributions if you’ll be 50 or older by the end of the year. The limits on combined employee and employer contributions are $69,000 and $76,500, respectively (up to 100% of compensation).
Distribution rules for traditional and Roth 401(k) plans are also similar. Penalty-free withdrawals (tax- and penalty-free withdrawals for Roth plans) are available when you reach age 59½, die or become disabled (with limited exceptions). In addition, for a Roth 401(k), the account must have been open for at least five years.
Another important difference between the two types of plans is that traditional 401(k) accounts are subject to required minimum distribution (RMD) rules when you reach a certain age. Specifically, age 73 for those who turn 72 this year or after, increasing to age 75 for those who reach that milestone after 2032. For Roth 401(k) accounts, RMDs aren’t required beginning in 2024.
From a tax perspective, with a Roth 401(k) you pay tax at the time of your contributions, while traditional 401(k) funds are taxed when you withdraw them. Mathematically speaking, that means the best choice depends on whether you expect to be in a higher or lower tax bracket after you retire.
If you’re a high earner and expect to be in a lower bracket when you retire, you’re better off with the upfront tax break offered by a traditional 401(k). If you expect to be in a higher tax bracket in retirement (for example, if you’re early in your career and expect your income to grow substantially in the future, or you believe Congress will raise taxes down the road), then consider a Roth plan and pay the tax now.
Estate planning factors
Taxes during your lifetime aren’t the only factor, however. It’s also important to consider the estate planning implications. The elimination of RMDs for Roth 401(k)s makes them a powerful estate planning tool. So long as you don’t need the funds for living expenses, you can leave them in the account, growing on a tax-free basis, for life. And if the account is at least five years old, your heirs will be able to withdraw the funds tax-free.
With a traditional 401(k), the RMD rules will force you to draw down the account, regardless of whether you need the funds, leaving less for your heirs. Plus, withdrawals by your heirs will be taxable.
It may be in Your Best Interest to File a Gift Tax Return
If you’ve given a significant financial gift to a family member, you may wonder whether you’re required to file a gift tax return. Even if no tax is due, filing Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, can be a smart decision. Indeed, a timely filed gift tax return that meets the IRS’s adequate disclosure requirements starts the clock on the statute of limitations. This year, the deadline to file a 2024 gift tax return is April 15 (October 15 if you file for an extension).
Three-year time limit
Generally, the IRS has three years to challenge the value of a transaction for gift tax purposes or to assert that a nongift was, in fact, a partial gift. But unless the transaction is adequately disclosed, there’s no time limit for reviewing it and assessing additional gift tax. That means the IRS can collect unpaid gift taxes — plus penalties and interest — years or even decades later.
Some may hesitate to file a gift tax return disclosing a non-gift transaction for fear of attracting IRS scrutiny. However, a carefully prepared gift tax return can be the best insurance against unpleasant tax surprises in the future.
Defining adequate disclosure
When you file a timely gift tax return that meets the adequate disclosure requirements, the IRS has only three years in which to challenge the gift’s valuation. To meet these requirements, a return must include:
A description of the transferred property and any consideration received,
The identity of, and the relationship between, the transferor and each transferee,
The trust’s tax identification number and a brief description of its terms (or a copy of the trust instrument) if property is transferred to a trust,
Either a detailed description of the method used to value the transferred property or a qualified appraisal,
A statement describing any position taken that’s contrary to any proposed, temporary or final tax regulations or revenue rulings published at the time of the transfer, and
An explanation as to why transfers reported as nongifts aren’t gifts.
Additional requirements apply to transfers of interests in a corporation, partnership (including a limited liability company) or trust to a member of the transferor’s family. In addition to the above, adequate disclosure requires:
A description of the transactions, including a description of the transferred and retained interests and the methods used to value each,
The identity of, and relationship between, the transferor, transferee, all other persons participating in the transactions, and all parties related to the transferor holding an equity interest in any entity involved in the transaction, and
A detailed description (including all actuarial factors and discount rates) of the method used (if any) to determine the amount of the gift, including, for equity interests that aren’t actively traded, the financial and other data used to determine value.
Financial data generally includes balance sheets and statements of net earnings, operating results, and dividends paid for each of the preceding five years.
Gain peace of mind
Certain gifts, such as those involving trusts, real estate or business interests, should always be reported to the IRS to establish clear tax treatment. Filing a return creates a paper trail, reducing the risk of disputes later.
Even if a gift tax return isn’t strictly required, filing one can provide peace of mind and strategic estate tax advantages. Contact FMD with any questions.
Companies can Shine a Light on Financial Uncertainty with Flash Reports
Managing the financial performance of your business may sometimes seem like steering a ship through treacherous waters. Perhaps your voyage goes smoothly for a while until, quite suddenly, you hit a concerning dip or abrupt swell — either of which creates considerable operational pressure.
Your financial statements should provide keen insights into how your company is performing and where it’s headed. However, you probably generate them only monthly, quarterly or annually. That leaves lots of time in between when you may be sailing through a fog of uncertainty. Creating flash reports is one way to shine a light on the situation.
Take a snapshot
A flash report is a brief summary of a business’s current financial performance based on a few carefully selected metrics. The word “flash” is meant to evoke a camera taking a snapshot of key figures, such as cash balances, receivables aging, collections and payroll.
During seasonal peaks or when undertaking a turnaround, some companies create daily flash reports to track key activities such as sales, shipments and deposits. Otherwise, businesses generally create weekly or monthly reports, depending on their needs.
Flash reports should be as simple as possible. Those that take longer than an hour to prepare or take up more than one page are likely too complex. Flash reports should also be comparative — that is, they need to note significant trends or budgetary deviations that may call for corrective action.
Including graphs or tables can help nonfinancial staff who receive the reports, such as marketing and operations managers, read them more easily.
Use as directed
Flash reports can help you and your leadership team better catch and respond to financial performance developments that demand your attention. However, they have limitations.
First and foremost, flash reports provide a rough measure of financial performance within a short period. Therefore, they may not give a completely accurate picture of where your business stands. It’s common for items such as cash balances and collections to ebb and flow throughout the month, depending on billing cycles. So, you and your fellow report users must guard against overreaction.
Because of their “quick and dirty” nature, flash reports are best used for internal purposes only. Most companies don’t share them with investors, creditors or franchisors unless required under a bankruptcy or franchise agreement.
The risk is real: If shared flash reports deviate from what’s subsequently reported on your financial statements, stakeholders may wonder whether you’re:
Exaggerating financial performance,
Running into serious problems, or
Mismanaging your financial reporting.
That said, some lenders may ask for flash reports if a borrower fails to meet liquidity, profitability or leverage covenants. Should you decide to share reports for any reason, consider adding a disclaimer that the results are preliminary, may contain errors or omissions, and haven’t been prepared in accordance with U.S. Generally Accepted Accounting Principles (if you normally do so).
Get the info you need
Although you can probably find some flash report templates online, proceed cautiously. It’s imperative to design yours to provide the most relevant data for your company in the most readable format for your users. You may also need to occasionally revise the content and look of reports to keep up with changes to your business. Contact FMD for help developing flash reports, evaluating your current ones or improving any aspect of your financial reporting.
Choosing the Right Sales Compensation Model for Your Business
A strong sales team is the driving force of most small to midsize businesses. Strong revenue streams are hard to come by without skilled and engaged salespeople.
But what motivates these valued employees? First and foremost, equitable and enticing compensation. And therein lies a challenge for many companies: Choosing the right sales compensation model isn’t easy and may call for regular reevaluation. Let’s review some of the most popular models and note a recent trend.
Straight salary (or hourly wages)
The simplest way to pay sales staff is to offer a “straight salary,” meaning no commissions or other incentives are involved. (Some businesses may pay hourly wages instead, though this generally occurs only in a retail environment.)
The straight salary model’s advantage is that it’s easy for the company to administer and keeps payroll expenses predictable. It also provides financial stability for employees. The approach tends to work best in industries with long sales cycles and for particularly collaborative sales teams.
As you may have guessed, the downside is that it offers no financial incentive for salespeople to go beyond the status quo. This can result in flat sales and difficulty drawing new customers.
Commission only
Quite the opposite is the commission-only model. Here, sales team members earn income as a predetermined percentage of sales revenue. There are various ways to do this, but the bottom line is that staffers are compensated purely through sales wins; they don’t receive salaries.
The advantage is that they’re strongly motivated to succeed — one could even say it’s a “do or die” approach. This model often suits start-ups or businesses looking for quick growth without a big payroll budget. The risk for companies is that commission-only positions tend to have high turnover rates because salespeople lack income stability and may change jobs frequently.
Salary plus commission
Traditionally, this has been among the most popular compensation models. It combines the stability of a salary with the financial incentive of commissions. Generally, the salary will be relatively lower because sales staffers can make up the difference through the commissions.
For the business, this model may reduce turnover while still helping motivate employees. Its chief downsides are that salaries add to payroll expenses, and there’s a relatively high degree of administrative complexity involved in tracking and calculating commissions.
Salary plus performance-based incentives (hybrid)
If you’re interested in “what’s hot” in sales compensation, look no further. This model is often called “hybrid” because it combines a salary with various performance-based incentives tailored to the company’s needs.
Just last month, cloud-based sales software provider Xactly released the results of its annual Sales Compensation Report. Of 160 companies surveyed, 62% identified performance-based pay structures for sales reps as the biggest factor driving changes to sales compensation.
Like “base salary plus commission,” a hybrid model offers employees income stability — but it allows them to earn much more through multiple incentives. For businesses, the model may strengthen employee retention while motivating sales team members to meet targeted strategic objectives, such as increasing market share or driving top-line growth.
Companies have a wide variety of performance-based incentives to choose from, including:
Financial bonuses for acquiring new customers or expanding into new territories,
Profit-sharing plans that tie additional compensation to the company’s overall success, and
Long-term incentives, such as stock options, restricted stock units and performance shares.
However, it’s critical to design a hybrid model carefully. One major risk is becoming “a victim of your own success” — that is, running into cash flow problems because you must pay salespeople substantial amounts for earning the incentives offered.
No pressure
If your sales compensation model works well, don’t feel pressured to change it just to keep up with the Joneses. However, as your business grows, you may want to adjust or revise it to sustain or, better yet, increase that growth. FMD can help you evaluate your current model and make necessary adjustments that fit your company’s needs and budget.
Businesses have Options for Technology Leadership Positions
To say that technology continues to affect how businesses operate and interact with customers and prospects would be an understatement. According to the Business Software Market Size report issued by market researchers Mordor Intelligence, the global market size for commercial software is projected to reach $650 million this year and $1.10 trillion by 2029.
And that’s just software. Companies must also contend with technological issues such as hardware, skilled labor, strategy and cybersecurity. Just one of the resulting demands that this pressure is putting on businesses is a keen need for tech leadership.
If your company has grown to the point where it could use an executive-level employee with specialized knowledge of and laser focus on technology issues, you have plenty of options.
Positions to consider
Here are some of the most widely used position titles for technology executives:
Chief Information Officer (CIO). This person is typically responsible for managing a company’s internal IT infrastructure and operations. In fact, an easy way to remember the purpose of this position is to replace the word “Information” with “Internal.” A CIO’s job is to oversee the purchase, implementation and proper use of technological systems and products that will maximize the efficiency and productivity of the business.
Chief Technology Officer (CTO). In contrast to a CIO, a CTO focuses on external processes — specifically with customers and vendors. This person usually oversees the development and eventual production of technological products or services that will meet customer needs and increase revenue. The position demands the ability to live on the cutting edge by doing constant research into tech trends while also being highly collaborative with employees and vendors.
Chief Digital Officer (CDO). For some companies, the CIO and/or CTO are so busy with their respective job duties that they’re unable to look very far ahead. This is where a CDO typically comes into play. The primary purpose of this position is to spot new markets, channels or even business models that the company can target, explore and perhaps eventually profit from. So, while a CIO looks internally and a CTO looks externally, a CDO’s gaze is set on a more distant horizon.
Chief Artificial Intelligence Officer (CAIO). Did you really think you were going to make it through a technology article without reading about AI? Yes, more and more businesses are taking on executives whose primary responsibility is to create the company’s overall AI strategy and ensure it:
Aligns with the business’s overall strategic goals, and
Enhances the company’s digital transformation, which many businesses are continuing to undergo as they adapt to new technologies.
CAIOs are also typically responsible for understanding the global and national regulatory environments regarding AI, as well as ensuring the business uses AI ethically.
Big decision
Adding an executive-level position to your company is clearly a big decision. Along with making a sizable outlay for compensation and benefits, you’ll likely spend considerable time and resources on the search and onboarding processes. So be sure to discuss the matter thoroughly with your existing leadership team and professional advisors. FMD can help you identify and project all the costs involved.
Single and Child-Free? Here’s Why Estate Planning is Still Crucial
Even if you’re single and have no children, having an estate plan helps ensure your final wishes are clearly documented and respected. Estate planning isn’t solely about passing assets on to direct descendants; it’s about taking control of your future.
Without a formal estate plan, state laws will determine how your assets are distributed, and those default decisions might not align with your values or desires. Whether they’re your financial investments or personal assets, a comprehensive estate plan allows you to specify exactly who should receive what, be they close friends, extended family or even charitable organizations.
Without a will, who’ll receive your assets?
It’s critical for single people to execute a will that specifies how and to whom their assets should be distributed when they die. Although certain types of assets can pass to your intended recipient(s) through beneficiary designations, absent a will, many types of assets will pass through the laws of intestate succession.
Those laws vary from state to state but generally provide for assets to go to the deceased person’s spouse or children. For example, the law might provide that if someone dies intestate, half of the estate goes to his or her spouse and half goes to the children. However, if you’re single with no children, these laws set out rules for distributing your assets to your closest relatives, such as your parents or siblings. Or, if you have no living relatives, your assets may go to the state.
By preparing a will, you can ensure your assets are distributed according to your wishes, whether that’s to family, friends or charitable organizations.
Who’ll handle your finances if you become incapacitated?
Consider signing a durable power of attorney that appoints someone you trust to manage your investments, pay bills, file tax returns and otherwise make financial decisions should you become incapacitated. Although the law varies from state to state, typically, without a power of attorney, a court will appoint someone to make those decisions on your behalf. Not only will you have no say in who the court appoints, but the process can be costly and time consuming.
Who’ll make medical decisions on your behalf?
You should prepare a living will, a health care directive (also known as a medical power of attorney) or both. This will ensure your wishes regarding medical care — particularly resuscitation and other lifesaving measures — will be carried out in the event you’re incapacitated. These documents can also appoint someone you trust to make medical decisions that aren’t expressly addressed.
Without such instructions, the laws in some states allow a spouse, children or other “surrogates” to make those decisions. In the absence of a suitable surrogate, or in states without such a law, medical decisions are generally left to the judgment of health care professionals or court-appointed guardians.
What strategies should you use to reduce gift and estate taxes?
When it comes to taxes, married couples have some big advantages. For example, they can use both of their federal gift and estate tax exemptions (currently, $13.99 million per person) to transfer assets to their loved ones tax-free. Also, the marital deduction allows spouses to transfer an unlimited amount of property to each other — either during life or at death — without triggering immediate gift or estate tax liabilities.
For single people with substantial estates, it’s important to consider employing trusts and other estate planning techniques to avoid, or at least defer, gift and estate taxes.
Form your plan
Finally, planning ahead can help avoid potential complications in the future. Unexpected events can lead to family disputes if there’s no clear guidance on how your affairs should be handled.
With an estate plan, your personal wishes are followed precisely, ensuring that your legacy — whether it includes contributions to a cause you believe in or support for a family member — is preserved exactly as you intend. Contact FMD if you’re single, without children and have no estate plan. We can help draft one that’s best suited for you.
Business Owner? A Buy-Sell Agreement Should be Part of Your Estate Plan
If you hold an interest in a business that’s closely held or family owned, a buy-sell agreement should be a component of your estate plan. The agreement provides for the orderly disposition of each owner’s interest after a “triggering event,” such as death, disability, divorce, termination of employment or withdrawal from the business.
A buy-sell agreement accomplishes this by permitting or requiring the company or the remaining owners to purchase the departing owner’s interest. Often, life insurance is used to fund the buyout. And because circumstances frequently change, reviewing your buy-sell agreement periodically is important to ensure that it continues to meet your needs.
Valuation provision must be current
It’s essential to revisit the agreement’s valuation provision — the mechanism for setting the purchase price for an owner’s interest — to ensure that it reflects the business’s current value. A pressing reason to do this sooner rather than later is because, absent congressional action, the federal gift and estate tax exemption is scheduled to be halved beginning in 2026.
As you review your agreement, pay close attention to the valuation provision. Generally, a valuation provision follows one of three approaches when a triggering event occurs:
Independent appraisal by one or more business valuation experts,
Formulas, such as book value or a multiple of earnings or revenues as of a specified date, or
Negotiated price.
Independent appraisals almost always produce the most accurate valuations. Formulas tend to become less reliable over time as circumstances change and may lead to over- or underpayments if earnings have fluctuated substantially since the valuation date.
A negotiated price can be a good approach in theory, but expecting owners to reach an agreement under stressful, potentially adversarial conditions is asking a lot. One potential solution is to use a negotiated price but provide for an independent appraisal in the event the parties fail to agree on a price within a specified period.
“Redemption” vs. “cross-purchase” agreement
The type of buy-sell agreement you use can have significant tax and estate planning implications. Generally, the choices are structured either as “redemption” or “cross-purchase” agreements. A redemption agreement permits or requires the company to purchase a departing owner’s interest, while a cross-purchase agreement permits or requires the remaining owners to make the purchase.
A disadvantage of cross-purchase agreements is that they can be cumbersome, especially if there are many owners. For example, if life insurance is used to fund the purchase of a departing owner’s shares, each owner will have to purchase an insurance policy on the lives of each of the other owners. Note that redemption agreements may trigger a variety of unwelcome tax consequences.
A versatile document
A buy-sell agreement can provide several significant benefits, including keeping ownership and control within your family, creating a market for otherwise unmarketable interests, and providing liquidity to pay estate tax and other expenses. In some cases, a buy-sell agreement can even establish the value of an ownership interest for estate tax purposes. FMD can work with you to design a buy-sell agreement that helps preserve the value of your business for your family.
5 Steps to Creating a Pay Transparency Strategy
Today’s job seekers and employees have grown accustomed to having an incredible amount of information at their fingertips. As a result, many businesses find that failing to adequately disclose certain things negatively impacts their relationships with these parties.
Take pay transparency, for example. This is the practice, or lack thereof, of a company openly sharing its compensation philosophy, policies and procedures with job candidates, employees and even the public. It typically means disclosing pay ranges or rates for specific positions, as well as clearly explaining how raises, bonuses and commissions are determined.
You’re not alone if your business has yet to formalize or articulate its pay transparency strategy. In its 2024 Global Pay Transparency Report, released in January of this year, global consultancy Mercer reported that only 19% of U.S. companies have a pay transparency strategy. Here are five general steps to creating one:
1. Conduct a payroll audit. Over time, your company may have developed a relatively complex compensation structure and payroll system. By meticulously evaluating and identifying all related expenditures under a formal audit, you can determine what information you need to share and which data points should remain confidential.
You may also catch inconsistencies and disparities that need to be addressed. Ultimately, an audit can provide the raw data you need to understand whether and how your company’s compensation aligns with the roles and responsibilities of each position.
2. Define or refine compensation criteria. To be transparent about pay, your business needs clear and consistent criteria for how it arrived — and will arrive — at compensation-related decisions. If such criteria are already in place, you may need to refine the language used to describe them. Again, your objective is to clearly explain to job candidates and employees how your company makes pay decisions so you can reduce or eliminate any perception of bias or unfairness.
3. Develop a communications “substrategy.” Under your broader pay transparency strategy, your company must have a comprehensive substrategy for communicating about compensation with job candidates, employees and, if you so choose, the public. There are many ways to go about this, and the details will depend on your company’s size, industry, mission and other factors. However, common aspects of a communications substrategy include:
Providing written guidelines explaining your compensation philosophy and structure,
Supplementing those guidelines with an internal FAQs document,
Holding companywide or department-specific Q&A sessions, and
Using digital platforms to share updates and issue reminders.
4. Train and rely on supervisors. Your people managers must be the frontline champions and communicators of your pay transparency strategy. Unfortunately, many companies struggle with this. In the aforementioned Mercer report, 37% of U.S. companies identified managers’ inability to explain compensation programs as their biggest challenge in this area.
Naturally, it all begins with training. Once you’ve defined or refined your compensation criteria and developed a communications substrategy, invest the time and resources into educating supervisors (and higher-level managers) about them. These individuals need to become experts who can discuss your business’s compensation philosophy, policies, procedures and decisions. And it’s critical that their messaging be accurate and consistent to prevent misunderstandings and misinformation.
5. Get input from professional advisors. Before you roll out a formal pay transparency strategy, ask for input from external parties. Doing so is especially important for small businesses that may have only a few voices involved in the planning process.
For example, a qualified employment attorney can help ensure your strategy is legally compliant and limit your potential exposure to lawsuits. And don’t forget FMD — we’d be happy to assist you in conducting a payroll audit, identifying all compensation-related expenses and aligning your strategy with your business objectives.
A Power of Appointment Can Provide Estate Planning Flexibility
A difficult aspect of planning your estate is taking into account your family members’ needs after your death. Indeed, after you’re gone, events may transpire that you hadn’t anticipated or couldn’t have reasonably foreseen.
While there’s no way to predict the future, you can supplement your estate plan with a trust provision that provides a designated beneficiary a power of appointment over some or all of the trust’s property. This trusted person will have the discretion to change distributions from the trust or even add or subtract beneficiaries.
Adding flexibility
Assuming the holder of your power of appointment fulfills the duties properly, he or she can make informed decisions when all the facts are known. This can create more flexibility within your estate plan.
Typically, the trust will designate a surviving spouse or an adult child as the holder of the power of appointment. After you die, the holder has authority to make changes consistent with the language contained in the power of appointment clause. This may include the ability to revise beneficiaries. For instance, if you give your spouse this power, he or she can later decide if your grandchildren are capable of managing property on their own or if the property should be transferred to a trust managed by a professional trustee.
Detailing types of powers
If you take this approach, there are two types of powers of appointment:
“General” power of appointment. This allows the holder of the power to appoint the property for the benefit of anyone, including him- or herself, his or her estate or the estate’s creditors. The property is usually included in a trust but may be given to the holder outright. Also, this power of appointment can be transferred to another person.
“Limited” or “special” power of appointment. Here, the person holding the power of appointment can give the property to a select group of people who’ve specifically been identified by the deceased. For example, it might provide that a surviving spouse can give property to surviving children, as he or she chooses, but not to anyone else. Thus, this power is more restrictive than a general power of appointment.
Whether you should use a general or limited power of appointment depends on your circumstances and expectations.
Understanding the tax impact
The resulting tax impact may also affect the decision to use a general or limited power of appointment. The rules are complicated, but property subject to a general power of appointment is typically included in the taxable estate of the designated holder of the power. However, property included in the deceased’s estate receives a step-up in basis to fair market value on the date of death. Therefore, your heirs can sell property that was covered by a general power of appointment with little or no income tax consequences.
In contrast, property covered by a limited power isn’t included in the holder’s estate. However, the new heirs inherit the property with a carryover basis and no step-up in basis. So, if the heirs sell appreciated property, they face a potentially high capital gains tax.
Your final decision requires an in-depth analysis of your tax and financial situation by your estate tax advisor. Contact FMD with any questions.
Do You Have the Right Amount of Life Insurance Coverage?
Life insurance plays a vital role in your estate plan because its proceeds can provide for your family in the event of your untimely death. And for wealthier families, life insurance proceeds can cover any estate tax liability not covered by the current $13.99 million federal gift and estate tax exemption.
But when was the last time you reviewed your policy? The amount of life insurance that’s right for you depends on your circumstances, so it’s critical to regularly review your life insurance policy.
Reevaluating your policy
Life insurance isn’t a one-size-fits-all solution. Milestones such as marriage, having children, buying a home or starting a business bring new financial responsibilities. A policy purchased years ago may no longer protect your loved ones adequately.
Conversely, you may be over-insured, paying for coverage you no longer need. For example, if your children are financially independent or you’ve paid off significant debts, your coverage requirements might decrease.
The right amount of insurance depends on your family’s current and expected future income and expenses, as well as the amount of income your family would lose in the event of your untimely death.
On the other hand, health care expenses for you and your spouse may increase. When you retire, you’ll no longer have a salary, but you may have new sources of income, such as retirement plans and Social Security. You may or may not have paid off your mortgage, student loans or other debts. And you may or may not have accumulated sufficient wealth to provide for your family.
When you sit down to reevaluate your life insurance policy, consider the:
Coverage amount. Is your policy sufficient to cover current expenses, future obligations and debts?
Policy type. Term life insurance can be cost-effective for temporary needs, while whole life or universal policies may offer long-term benefits such as cash value accumulation.
Beneficiaries. Ensure your policy lists the correct beneficiaries, especially after a major life event such as marriage, divorce or the birth of a child.
Premiums. Are you paying a competitive rate? Shopping around or converting an old policy could save money.
While reviewing your policy, keep in mind your broader financial plan. How does your policy currently fit within your overall strategy, including tax implications, estate planning and business succession planning?
Turn to us for help
Taking the time to reassess your life insurance needs is an investment in your family’s financial security. Contact FMD to ensure your coverage aligns with your current and future estate planning goals.
5 Questions Single Parents Should Ask About their Estate Plans
In many respects, estate planning for single parents is similar to that of families with two parents. Parents want to provide for their children’s care and financial needs after they’re gone. However, when only one parent is involved, certain aspects of an estate plan demand special attention. If you’re a single parent, here are five questions you should ask your advisor:
1. Are my will and other estate planning documents up to date? If you haven’t reviewed your estate plan recently, talk with your advisor to be sure it reflects your current circumstances. The last thing you want is a probate court to decide your children’s future.
2. Have I selected an appropriate guardian? Does your estate plan designate a suitable, willing guardian to care for your children if the other parent is unavailable to take custody of them in the event you become incapacitated or die suddenly? Will the guardian need financial assistance to raise your kids and provide for their education? If not, you might want to preserve your wealth in a trust until your children are grown.
3. Have I established a trust for my children? Trust planning is one of the most effective ways to provide for your children. Trust assets are managed by a trusted individual or corporate trustee, and you specify when and under what circumstances funds should be distributed to your kids. A trust is critical if you have minor children. Without one, your assets may come under the control of your former spouse or a court-appointed administrator.
4. What if I become incapacitated? As a single parent, it’s important for your estate plan to include a living will, advance directive or health care power of attorney to specify your health care preferences if you become incapacitated and to designate someone to make medical decisions on your behalf. You should also have a revocable living trust or durable power of attorney that provides for the management of your finances in the event you’re unable to do so.
5. Can the other parent help? If your spouse (or ex-spouse) is alive, is he or she willing to help care for your children or provide financial resources? If your spouse (or ex-spouse) is deceased, does his or her estate plan provide any financial assistance for your children?
If you’ve recently become a single parent, contact FMD. We’d be happy to help review and, if necessary, revise your estate plan.
Are Your Employees Suffering from Retirement Plan Leakage?
Today’s small to midsize businesses are often urged to help employees improve their financial wellness. And for good reason: Financially struggling workers tend to have higher stress and anxiety levels. They may be less productive and more prone to errors. Some might even decide to commit fraud.
One hallmark of an employee facing serious financial trouble is “retirement plan leakage.” This term refers to the withdrawal of account funds before retirement age for reasons other than retirement. If your company sponsors a qualified plan, such as a 401(k), be sure you’re at least aware of this risk — and strongly consider taking steps to address it.
Potential dangers
Some business owners might say, “If my plan participants want to blow their retirement savings, that’s not my problem.” And there’s no denying that your employees are free to manage their finances any way they choose.
However, retirement plan leakage does raise potential dangers for your company. For starters, it may lead to higher plan expenses. Fees are often determined on a per-account or per-participant basis. When a plan loses funds to leakage, total assets and individual account sizes shrink, which hurts administrative efficiency and raises costs.
More broadly, as mentioned, employees taking pre-retirement withdrawals generally indicates they’re facing unusual financial challenges. This can lead to all the negative consequences we mentioned above — and others.
For example, workers who raid their accounts may be unable to retire when they reach retirement age. So, they might stick around longer but be less engaged, helpful and collaborative. Employees not near retirement age may take on second jobs or “side gigs” that distract them from their duties. And it’s unfortunately worth repeating: Motivation to commit fraud likely increases.
Mitigation measures
Perhaps the most important thing business owners can do to limit leakage is educate and remind employees about how pre-retirement withdrawals diminish their accounts and can delay their anticipated retirement dates. While you’re at it, provide broader financial education to help workers better manage living expenses, amass savings, and minimize or avoid the need for early withdrawals.
In addition, one recent and relevant development to keep in mind is the introduction of “pension-linked” emergency savings accounts (PLESAs) under the SECURE 2.0 law. Employers that sponsor certain defined contribution plans, including 401(k)s, can offer these accounts to employees who aren’t highly compensated per the IRS definition. Additional rules and limits apply, but PLESAs can serve as “firewalls” to protect participants from having to raid their retirement accounts when crises happen.
Some companies launch their own emergency loan programs, with funds repayable through payroll deductions. Others have revised their plan designs to reduce the number of situations in which participants can take out hardship withdrawals or loans.
Pernicious problem
It’s probably impossible to eliminate leakage from every one of your participants’ accounts. However, awareness — both on your part and those participants’ — is critical to limiting the damage that this pernicious problem can cause. FMD can help you identify and evaluate all the costs associated with your qualified retirement plan, as well as other fringe benefits you sponsor.
President Trump’s tax plan: What proposals are being discussed in Washington?
President Trump and the Republican Congress plan to act swiftly to make broad changes to the United States — including its federal tax system. Congress is already working on legislation that would extend and expand provisions of the sweeping Tax Cuts and Jobs Act (TCJA), as well as incorporate some of Trump’s tax-related campaign promises.
To that end, GOP lawmakers in the U.S. House of Representatives have compiled a 50-page document that identifies potential avenues they may take, as well as how much these tax and other fiscal changes would cost or save. Here’s a preview of potential changes that might be on the horizon.
Big plans
The TCJA is the signature tax legislation from Trump’s first term in office, and it cut income tax rates for many taxpayers. Some provisions — including the majority affecting individuals — are slated to expire at the end of 2025. The nonpartisan Congressional Budget Office estimates that extending the temporary TCJA provisions would cost $4.6 trillion over 10 years. For context, the federal debt currently rings in at more than $35 trillion, and the budget deficit is $711 billion.
In addition to supporting the continuation of the TCJA, the president has pushed to reduce the 21% corporate tax rate to 20% or 15%, with the goal of generating growth. He also supports eliminating the 15% corporate alternative minimum tax imposed by the Inflation Reduction Act (IRA), signed into law during the previous administration. It applies only to the largest C corporations.
Regarding tax cuts for individuals beyond TCJA extensions, Trump has expressed that he’s in favor of:
Eliminating the estate tax (which currently applies only to estates worth more than $13.99 million),
Repealing or raising the $10,000 cap on the deduction for state and local taxes,
Creating a deduction for auto loan interest, and
Eliminating income taxes on tips, overtime, and Social Security benefits.
Finally, he wants to cut IRS funding, which would reduce expenditures but also reduce revenues. Without offsets, these plans would drive up the deficit significantly.
Possible offsets
The House GOP document outlines numerous possibilities beyond just spending reductions to pay for these tax cuts. For example, tariffs — a major plank in Trump’s campaign platform — may play a role.
The GOP document suggests a 10% across-the-board import tariff. Trump, however, has discussed and imposed various tariff amounts, depending on the exporting country. The 25% tariffs on Canadian and Mexican products, which were imposed earlier, have been paused until March 4. An additional 10% tariff on Chinese imports took effect on February 4.
In addition, Trump said tariffs on goods from other countries, including the 27-member European Union, could happen soon. While he maintains that those countries will pay the tariffs, it’s generally the U.S. importer of record that’s responsible for paying tariffs. Economists generally agree that at least part of the cost would then be passed on to consumers.
The House GOP document also examines generating savings through changes to various tax breaks. Here are some of the options:
The mortgage interest deduction. Suggestions include eliminating the deduction or lowering the current $750,000 limit to $500,000.
Head of household status. The document looks at eliminating this status, which provides a higher standard deduction and certain other tax benefits to unmarried taxpayers with children compared to single filers.
The child and dependent care tax credit. The document considers eliminating the credit for qualified child and dependent care expenses.
Renewable energy tax credits. The IRA created or expanded various tax credits encouraging renewable energy use, including tax credits for electric vehicles and residential clean energy improvements, such as solar panels and heat pumps. The GOP has proposed changes ranging from a full repeal of the IRA to more limited deductions.
Employer-provided benefits. Revenue could be raised by eliminating taxable income exclusions for transportation benefits and on-site gyms.
Health insurance subsidies. Premium tax credits are currently available for households with income above 400% of the federal poverty line (the amounts phase out as income increases). Revenue could be raised by limiting such subsidies to the “most needy Americans.”
Education-related breaks are also being assessed. The House GOP document looks at how much revenue could be generated by eliminating credits for qualified education expenses, the deduction for student loan interest, and federal income-driven repayment plans. The GOP is also weighing the elimination of interest subsidies for federal loans while borrowers are still in school and imposing taxes on scholarships and fellowships, which currently are exempt.
The hurdles
Republican lawmakers plan on passing tax legislation using the reconciliation process, which requires only a simple majority in both houses of Congress. However, the GOP holds the majority in the House by only three votes.
That gives potential holdouts within their own caucus a lot of leverage. For example, deficit hawks might oppose certain proposals, while centrist members may prove reluctant to eliminate popular tax breaks and programs.
Republican representatives of all stripes are likely to oppose moves that would hurt industries in their districts, such as the reduction or elimination of certain clean energy incentives. And, of course, lobbyists will make their voices heard.
Stay tuned
The GOP hopes to enact tax legislation within President Trump’s first 100 days in office, but that may be challenging. We’ll keep you apprised of important developments.
A Revocable Trust Can be a Versatile Tool in Your Estate Plan
A revocable trust (sometimes referred to as a “living trust”) is a popular estate planning tool that allows you to manage your assets during your lifetime and ensure a smooth transfer of those assets to your family after your death. Plus, trust assets bypass the probate process, which can save time, reduce costs and maintain privacy. However, like any legal instrument, a revocable trust has certain disadvantages.
A revocable trust in action
A revocable trust’s premise is relatively simple. You establish the trust, transfer assets to it (essentially funding it), and name a trustee to handle administrative matters. You can name yourself as trustee or choose a professional to handle the job. Regardless of who you choose, name a successor trustee who can take over the reins if required.
If you designate yourself as the trust’s initial beneficiary, you’re entitled to receive income from the trust for your lifetime. You should also designate secondary beneficiaries, such as your spouse and children, who are entitled to receive the remaining assets after the trust terminates.
Added flexibility
One of the primary benefits of a revocable trust is its flexibility. As the grantor, you retain control over the trust and can change its terms, add or remove assets, or even dissolve it at any time during your life. This control makes it a flexible tool for adapting to changing life circumstances, such as new family members, changes in financial status, or shifts in your estate planning goals.
For many people, the main reason for using a revocable trust — and sometimes the only one that really matters — is that the trust’s assets avoid probate. Probate is the process of settling an estate and passing the legal title of ownership of assets to heirs specified in a will. Depending on applicable state law, probate can be costly and time-consuming. The process is also open to the public, which can be a major detriment if you treasure your privacy.
Assets passing through a revocable trust aren’t subject to probate. This gives you control to decide who in the family gets what without all the trappings of a will. Along with the flexibility, it keeps your personal arrangements away from prying eyes.
Potential drawbacks
One of the most notable drawbacks of a revocable trust is the upfront cost and effort involved in setting one up. Drafting a revocable trust requires the assistance of an attorney. You’ll also need to retitle your assets under the name of the trust, which can be time-consuming and may incur fees.
Another limitation is that a revocable trust doesn’t provide asset protection from creditors or lawsuits during your lifetime. Because the trust is revocable, its assets are still considered your property and are thus subject to claims against you.
Finally, despite a common misconception, revocable living trusts don’t provide direct tax benefits. The assets are included in your taxable estate and dispositions of trust property can result in tax liability. You must report the income tax that’s due, including capital gains on sales of assets, on your personal tax return.
Right for you?
For many individuals, a revocable trust can be an invaluable part of their estate plans, offering flexibility, privacy, and efficiency. However, it’s not a one-size-fits-all solution. Before deciding, weigh the benefits and drawbacks in the context of your unique financial situation and estate planning goals. Contact the FMD team with questions regarding a revocable trust. Be sure to consult with an estate planning attorney to draft your revocable trust.