March 27, 2018

Building Your Company’s Intellectual Capital to Increase Value

Looking at the value of a business, it’s the intangible assets that account for most of the value, not the tangible machines, buildings and other hard assets. Those intangible assets are the sum the company’s intellectual capital which can be broken down into four categories: human, customer, structural and social capital.

What is intellectual capital? In The Wealth of Knowledge, Thomas A. Stewart’s states “Simply put, knowledge assets are talent, skills, know-how, know-what and relationships – and the machines and networks that embody them – that can be used to create wealth.” He further noted, “Because knowledge has become the single most important factor of production, managing intellectual assets has become the simple most important task of business.” Below we dive deeper into the four categories of intellectual capital.

Human Capital

Human capital is a measure of the talent of your team. If you have really strong, developed talent, not only will someone place a high value on that, your business likely does not depend on you, and only you, to be successful.

Developing human capital should be your number one priority. It is also likely your number one headache. Jim Collins, author of Good to Great and Built to Last, emphasized the importance of the power of human capital. Collins coined the metaphor by comparing business to a bus and the leader as the bus driver. Get the right people before you start down the path, and your human capital will improve your direction by figuring out who sits where and where the company should be heading.

Customer Capital

Strong customer capital is a measure of the company’s relationship with customers. How strong are your relationships with customers? Are these relationships deep, long-term and contractual? Are the relationships delivered in a consistent, reliable, recurring fashion? Are you integral to your customers’ success because the products/services you offer are unique? Most of all, are these relationships transferable?

Everything starts with the customer and getting a clear picture of that customer. In fact, how the business interacts with customers is more important that what it sells. You can make your relationships so entangled that your customers cannot live without you!

Structural Capital

Structural capital is the business’ infrastructure. It comprises the systems and tools that augment the customer and human capital on which your company is built. It has two purposes. First, it takes what exists inside your brain and turns it into a transferable form. These are your best practices that can be purchased and repurposed.

The second purpose is to capture the knowledge assets in the company, converting that mental process into company property and make it transferable. What enables your team to do the things that make them so special, allows them to meet and exceed customer expectations, and enables them to build and sustain lasting and recurring relationships?

The knowledge needs to be documented and transferable, such that someone else can learn from you and apply it. Making this knowledge company property ensures that when you talent walks out the door at night, the knowledge they house doesn’t walk out the door with them.

Social Capital

Finally, and maybe most importantly in today’s tech world, is social capital. Social media represents your culture, your brand, the way your team works, the rhythm of the day-to-day operations and communications, and the way you interact with customers. Be careful, positive social media can go a long way, but negative social media can go a lot further.  How much more memorable is a bad media post than a good one?

When you have built and packaged your intellectual capital, your business has replaced you, which is a good thing. It’s not about you anymore; it’s about the business. Your business now becomes the project versus the products or services you sell.

Contact an Anders advisor to learn how to implement a successful business transition strategy for you and your business or learn more about our Business Transition Planning Services.

For additional reading, check out Chris Snider’s book, Walking to Destiny – 11 Actions an Owner Must Take to Rapidly Grow Value and Unlock Wealth.

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March 26, 2018

Tax Cuts and Jobs Act Provisions Impacting Individuals

The House and Senate have voted and passed tax reform legislation, and President Trump has signed into law. Now that tax reform is definite, below we have highlighted some of the major provisions impacting individuals. Read the corporate tax provisions.

Revised 4/9/18

Individual Tax Brackets (Expire after December 31, 2025)

  • 10% for taxable incomes up to $9,525 for individuals and $19,050 for married couples
  • 12% for taxable incomes up to $38,700 for individuals and $77,400 for married couples
  • 22% for taxable incomes up to $82,500 for individuals and $165,000 for married couples
  • 24% for taxable incomes up to $157,500 for individuals and $315,000 for married couples
  • 32% for taxable incomes up to $200,000 for individuals and $400,000 for married couples
  • 35% for taxable incomes up to $500,000 for individuals and $600,000 for married couples
  • 37% for taxable incomes above the 35% threshold for both individuals and married couples

Business Tax Rates

  • Corporate tax rate reduced from 35% to 21%
  • Pass-through companies allowed a 20% deduction on domestic qualifying business income not to exceed 50% of wage income for higher-income taxpayers, but not for specified service businesses, not including architects and engineers and smaller specified service businesses. Alternatively, for the higher income taxpayers, the deduction applies to 25% of wage income plus 2.5% of the unadjusted cost of depreciable tangible assets. Contact an Anders advisor for more information on the many moving parts within this provision

Standard Deduction and Exemptions

  • Raises from $6,350 to $12,000 for individuals
  • Raises from $12,700 to $24,000 for married couples
  • Personal exemptions are eliminated

Itemized Deductions

  • Preserves medical expenses, but most others are repealed. Repeals all 2% floor itemized deductions. Casualty losses only allowed for presidentially declared disasters under section 401
  • Mortgage interest deduction and charitable deduction are preserved, but with slight modifications
  • The limitation on overall itemized deductions allowable is eliminated. There are no longer any phase-outs
  • The limitations on cash contributions to public charities and certain private foundations are increased to 60% of AGI from 50%

Mortgage Interest Deduction

State and Local Tax Deductions

  • Aggregate state real property and income tax (or sales tax) expense deductions for purposes of itemizing will be allowed a cap of $10,000
  • State and Local property taxes paid in carrying on a trade or business continue to be fully deductible

Family and Child Tax Credits

  • A new credit for non-child dependents introduced at $500
  • Child Tax Credit increases to $2,000, with $1,400 of it now being refundable and phasing out at $400,000 of income (MFJ)

Alternative Minimum Tax

  • Individual AMT remains on the books, but with a higher exemption and phase-out amount

Retirement Account Changes

  • Re-characterization from a Roth to traditional IRA contribution is allowed. However, if you convert a traditional to a Roth, you cannot in effect unwind this conversion under the new law

Estate and Gift Tax

  • No repeal
  • Increases exemption for an individual from $5.49 million to $11.18 million, indexed for inflation after 2011. A married individual could effectively transfer $22.36 million as both are allowed this exemption
  • Step-up in basis for property passing to heirs at death remains in place

Other Individual Tax Changes of Note

  • Alimony is no longer deductible by the payor and no longer income to the payee for divorce agreements entered into or modified in 2019 or after
  • Moving expense deductions eliminated
  • Employee unreimbursed business deductions eliminated
  • Many employer-provided benefits to an employee can no longer excluded from income. These include fringe benefits such as employee achievement awards, transportation, commuting and qualified moving expenses

Contact an Anders advisor with questions on how tax reform will affect you or your business. Read the tax reform changes for businesses.

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March 26, 2018

Tax Cuts and Jobs Act Provisions Impacting Businesses

The House and Senate have voted and passed tax reform legislation, and President Trump has signed into law. Now that tax reform is definite, we have highlighted some of the major provisions impacting businesses. Read the individual tax provisions.

Revised 12/21/17

Business Tax Rates

  • Corporate tax rate from 35% to 21%
  • Pass-through companies allowed a 20% deduction on domestic qualifying business income not to exceed 50% of wage income for higher-income taxpayers, but not for specified service businesses, not including architects and engineers and smaller specified service businesses. Alternatively, for the higher-income taxpayers, the deduction applies to 25% of wage income plus 2.5% of the unadjusted cost of depreciable tangible assets. Contact an Anders advisor for more information on the many moving parts within this provision

Increased Expensing and Section 179

  • Immediately expense 100% of qualifying property placed in service after September 27, 2017 and before January 1, 2023
  • Repeal of “original use” requirement for newly acquired property to qualify. Additional depreciation allowed if it was “first use” of the taxpayer. In other words, used property now qualifies for bonus depreciation
  • Section 179 expensing increased to $1,000,000 and phase-out amount increased to $2,500,000
  • Section 179 qualifying property also includes improvements to non-residential property such as roofs, heating, ventilation, fire alarm/security systems and air-conditioning property
  • Increased depreciation limits for listed property under section 280F. For listed property, such as certain vehicles not taking bonus depreciation, the maximum deduction per year is increased to $10,000 in year 1, $16,000 in year 2, $9,600 in year 3, and $5,760 in year 4 and on. Computers are removed from the definition of listed property
  • Certain farming equipment allowed a recovery period of 5 years, instead of 7. The 150% declining balance method is no longer required for this equipment and farmers could use the 200% declining balance method

Qualified Improvement Property

  • Definitions for qualified leasehold improvement, qualified restaurant and qualified retail improvement property are eliminated. The replacement is a single definition for qualified improvement property
  • All qualified improvement property is allowed a recovery period of 15 years. The depreciation method is under MACRS and eligible for section 179 expensing

Accounting Methods and Recognition of Income

  • Cash method of accounting allowed for corporations and partnerships with a corporate partner as long as gross receipts are $25 million or less, indexed for inflation. The exceptions to the accrual method remains for personal service corporations, partnerships without C-Corp partners, and other pass-through entities
  • Businesses with average gross receipts of $25 million or less are allowed the cash method of accounting even with inventories and could use the method for inventory accounting reflected on their books. In addition, they are exempt under current UNICAP rules
  • The $10 million average gross receipts exception for the percentage of completion method for accounting for long-term contracts increased to $25 million
  • A taxpayer has to recognize income no later than the taxable year in which such income is taken into account as income on an Applicable Financial Statement, as defined in legislation. This could possibly modify the current “Constructive Receipt” and “All Events Test” doctrines for certain companies

Limitation on Net Interest Expense

  • Businesses are subject to a disallowance of net interest expense in excess of 30% of adjusted taxable income as defined in legislation, EBITDA for first 4 years and then EBIT thereafter
  • The carryforward of disallowed net interest expense is indefinite
  • An exemption to these rules is allowed for businesses with average gross receipts under $25 million. Real Property Trades or Businesses are also exempt

Net Operating Loss Deductions

  • Allowed only to the extent of 80% of taxable income
  • All carrybacks generally repealed, with some exceptions
  • NOLs generated effectively after the provision are allowed to be carried forward indefinitely

Like-Kind Exchanges

  • Like-kind exchanges are only allowed for real property

Alternative Minimum Tax

  • AMT is eliminated for C-Corporations, but remains for individuals. The individual exemption is increased

Meals and Entertainment Expenses

  • No deduction allowed for entertainment expenses including, but not limited to, such items as amusement or recreation, facilities or membership dues
  • Qualifying business meals and beverages only allowed a deduction with the 50% limit remaining in place, and this limitation is expanded to employee meals. Employee meals will be fully non-deductible beginning in 2026

Miscellaneous Business Credits Repealed/Modified

  • The Orphan Drug Credit rate reduced from 50% to 25%
  • Repeals the 10% credit for pre-1936 buildings with respects to the Rehabilitation Credit. It retains the 20% credit for qualified rehabilitation expenditures, but with various modifications
  • Introduces a new Employer Credit for Paid Family and Medical Leave credit
  • Most other general business and energy credits are preserved

Bonds

  • Interest on newly issued Advance Funding Bonds (AFB) is no longer tax-exempt
  • Tax credit bonds can no longer be issued

Executive Compensation

  • The exceptions to the $1 million deduction limitation for compensation to covered employees are eliminated. These exceptions under the current law are commissions, performance-based comp (including stock options), payments to the tax-qualified retirement plan, and amounts excludable from the executive’s gross income.  Covered Employees include the CEO, the CFO and the three highest-paid employees

Other Corporate Tax Changes of Note

  • Deduction for lobbying expenses with respects to the legislation of local governing bodies is eliminated
  • The Domestic Production Activities Deduction (DPAD) is eliminated
  • Gain or loss from the disposition of a self-created patent is ordinary rather than capital
  • Technical termination rules of partnerships are eliminated. There is no longer a requirement for a short year return to be filed if ownership changed by more than 50% in a tax year
  • Specific tax law changes to the Insurance Industry, which includes but is not limited to Net Operating Losses and the computation of reserves
  • Various proposals to specific industries such as beverages and spirits. Contact an Anders advisor with questions regarding specific industries

Contact an Anders advisor with questions on how tax reform will affect you or your business. Read the tax reform changes for individuals.

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March 22, 2018

Five Signs It’s Time to Outsource Your Accounting

Handling accounting functions internally can be a daunting task that requires a lot of resources. From payroll to accounts payable, accounts receivable and inventory, these operations can become too much for a business to successfully perform in-house. How do you know if your company is ready or needs to outsource accounting functions? Below are five signs it’s time to seek an outsourced option.

1) You can’t focus on the business

Becoming too tied up in the day-to-day accounting processes of your company is a big red flag that business owners need to watch. Your focus should be on strategic business goals and operations, not on receipts and daily accounting tasks. Outsourcing allows you to get back to growing your business.

2) Your books are a mess

Being trapped by mounds of invoices and receipts is a sure sign that your books are a mess, but there are other lesser known symptoms. If you’re unable to pull a Profit and Loss Statement on demand; if you’re doing double entries of transactions, or if you are way behind on updating your accounting system, it’s time to seek help.

3) You’re lacking the staff and resources

Paying to hire, train and maintain quality accounting staff requires a large amount of time, money and human resources. Outsourcing your accounting processes can give you access to top professionals without the money and responsibility of managing internal staff.

4) Your company is growing and adding locations

Growing and expanding your company requires additional staff and integration of processes and controls for multiple locations. Outsourcing accounting processes offers the flexibility of scaling your accounting up or down as needed.

5) You’re missing back office support

A lack of back office support to carry out tasks such as payroll, accounts receivables and payables, customer invoicing and collections can quickly become overwhelming. While many businesses can’t justify the price tag of today’s technologies and accounting platforms, outsourcing is a way to gain access to expensive technology infrastructure investments.

Learn more about Anders Outsourced Accounting Services, or contact an Anders advisor to find out how your company can benefit.

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March 20, 2018

When and How to Hold Real Estate in an IRA

Individual Retirement Accounts (IRAs) can legally hold real estate under certain conditions, which sounds like a great idea to many people. It’s important to understand when it’s right to make this kind of investment and the requirements that go along with it.

Talk to Your Custodian

The custodian that holds your IRA funds has rules that must be followed to ensure that you don’t run into trouble with your IRA. Always discuss the limitations of your IRA investments with your custodian first to see what is available to you. If you do have the ability to invest your funds in real estate, the next hurdle will be to avoid prohibited transactions. IRA funds are tax deferred, until a prohibited transaction occurs, which can make the funds fully taxable.

Ensure Your IRA is Self-Directed

For an IRA to hold real estate, it must be a self-directed IRA. Typical IRAs are not self-directed and are limited to stocks, bonds, mutual funds, and CDs as the investment options. An IRA can easily be moved to a custodian that offers “self-directed” as an option. Self-directed IRAs allow the owner more control over the investments and adds more options such as real estate, notes, and tax lien certificates to the list.

Know the Restrictions

Once an IRA is self-directed, there are several more requirements and rules for investing in real estate. Many people have the initial thought that they can purchase a vacation home with their IRA funds and it’s a win-win situation. Unfortunately, this would be a prohibited transaction. Here are some of the basic rules regarding real estate in an IRA:

  • Property Taxes, Mortgage Interest, Depreciation, and other deductions related to the real estate cannot be taken on the owner’s tax return
  • The real estate is owned by the IRA, so all expenses and repairs related to the property must be paid with IRA funds
  • You cannot work on the property yourself, you must hire a contractor to do any repairs. If you wish to rent out the property, you must hire a property manager to oversee the tenants
  • You or your relatives cannot occupy the property. The real estate cannot be bought or sold to or from yourself or any family members

The main point to remember is that the investment must be an arm’s length transaction and cannot be used for personal benefit. If any rule is broken, the full value of the IRA can become fully taxable and an additional 10% penalty may be assessed depending on your age.

Is it Right for You?

So, when is it right to hold real estate in an IRA? It’s smart to invest in real estate with IRA funds when you have some prior experience investing in real estate. People can often earn nice returns through buying and flipping real estate or just accumulating rental properties and having a management company oversee the properties. Conducting the IRA in this way can be a great way to accumulate wealth, but it is not for everyone, and it must be done carefully.

If you are interested in moving forward with investing in real estate with your IRA funds, contact an Anders advisor to advise and help with compliance requirements. Learn more about the pros and cons of holding real estate in an IRA.

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March 15, 2018

Uncovered Personal Property Tax Savings for Short-Term Rental Equipment

By facilitating discussions between the Missouri Assessors office and our client, we were able to support that $6.5 Million of short-term rental equipment is and should continue to be exempt from the state’s ad valorem or personal property taxes.

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March 14, 2018

Anders Startup Client Spotlight on Sunstation USA

Each month, we offer our startup clients the opportunity to share their story and showcase their business in our Startup Newsletter. This month’s featured emerging company is the community sunscreen dispenser startup, Sunstation USA.

Name and company

Ross Donaldson of Sunstation USA

When did you start your business?

I built my first sunscreen dispenser prototype in the Sping of 2016 and officially launched the company in the Fall of 2016.

What inspired you to start your business?

My family loves to spend a lot of time outdoors, but we’re always forgetting our sunscreen.  My wife has a background in public health and prevention, and one day after we all got burnt, she said, “you know, there’s hand sanitizer dispensers everywhere, why aren’t there sunscreen dispensers?”  That was it.  A simple solution to the #1 diagnosed cancer in the US.

What city are you based in?

Sunstation USA is proudly based in St. Louis, MO.

What is your product or service?

Sunstation USA is your #1 resource for community sunscreen dispensers.  We work with communities, businesses, and organizations to provide free access to our sunscreen dispensers.

What sets your product or service apart from the competition?

The alternative is remembering every single day to apply sunscreen.  Only 30% of the US wears sunscreen, so we saw a huge problem and an easy solution.  Our sunscreen dispensers are touch-free and easy to use.  They provide 100% all-natural, Eco-friendly, SPF-30 broad spectrum sunscreen, everywhere under the sun!

What is the best business advice you ever received?

Build relationships.  A great product, technology, or idea will only go as far as the relationships you build along the way.

Is there anything else you would like to share about your business?

Sunstation USA is a proud Capital Innovators and Arch Grants recipient.

What is your favorite thing to do outside of work?

I absolutely love to travel and experience different cultures.  It’s important to remember that MY world isn’t THE world.

If people want to learn more about your startup, where should they go?

https://www.sunstationusa.com/

 


If you would like your startup company to be considered for an Anders Startup Client Spotlight, please complete our questionnaire.

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March 13, 2018

How Startups Can Save on State Tax for R&D Expenses in Missouri and Illinois

Now that research & development (R&D) tax credits can be used to offset payroll tax liability, startup companies may be able to save big on their federal tax liability. While R&D credits are a federally-funded credit program, most states also offer incentives for performing research & development.

Each state is different, but below we discuss incentives available in Missouri and Illinois.

Missouri R&D Tax Exemption

Missouri offers a sales tax exemption for R&D purchases made within the state. Any materials, equipment, machinery, chemicals and energy sources that are used for research and development can be exempt. This exemption applies to state sales tax only, so local sales taxes would still be due on each purchase. This is a great exemption to take advantage of in addition to the federal credit.

Illinois R&D Credit

Illinois has its own R&D credit, similar to the federal R&D credit.  It’s an income tax credit equal to 6.5% of R&D expenditures that exceed the ‘base amount’. Qualifying expenditures include wages, supplies and contract research purchased within the state. The credit had previously expired, but Illinois lawmakers retroactively reinstated it.

If you have R&D expenditures in any other state, contact an Anders advisor to see what other incentives may be available. Learn how startups can also benefit from the federal R&D tax credit.

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March 12, 2018

Anders Named Firm to Watch and a Top Midwest Firm by Accounting Today

Anders has been named to Accounting Today’s “Beyond the Top 100: Firms to Watch” list for the sixth year in a row, and to the “Top Firms: The Midwest” list for the thirteenth consecutive year.

The lists appear in a special supplement to the March 2018 edition of Accounting Today. Anders is ranked #17 in a total list of 46 Firms to Watch. The Leading Edge Alliance (LEA) is well-represented with 13 member firms recognized on the Top 100 list and 10 more named Firms to Watch, the most of any alliance. Anders revenues totaled $32 million in 2017, with those on the Top 100 List starting at $40 million and upwards.

Anders also ranked #9 on the Top Midwest Firms list for the second consecutive year. This list includes 21 firms in Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota. Four LEA firms are represented on the Top Midwest Firms list.

Download the Accounting Today Top 100 Firms and Regional Leaders supplement.

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March 8, 2018

Anders Named Best Place to Work for Second Consecutive Year

Anders has been named the 2018 Best Place to Work in the Large Employer Category by the St. Louis Business Journal. This is the second year in a row that Anders has been ranked #1 in the Large Employer Category, made up of 10 companies with 100-249 local employees.

Out of over 200 nominations, the Best Places to Work award finalists include 47 local companies, grouped by size to determine the most employee-friendly workplaces in St. Louis. This is the fourth consecutive year Anders has made the finalist list.

St. Louis companies and their employees completed surveys administered by Quantum Workplace, which used its own algorithm to measure communication, management structure, benefits, teamwork and several other factors at each firm. The companies were grouped by size and ranked to determine the most employee-friendly workplaces in St. Louis.

View the full list of 2018 Best Places to Work and read the spotlight on Anders.

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