August 29, 2018

Adulting 201: Understanding Your Healthcare Provider and Plan Options

Understanding the basics of your health insurance plan can help you make smarter financial decisions. Once you understand how your health insurance plan works and what it covers, you need to know where you can go to get treatment. Not every plan allows you to go wherever you want for a service, and doing so may end up costing you more than expected.

In-network vs. Out-of-network

In-network: Refers to physicians and providers that deliver patient services covered under the insurance plan. Generally the cheapest option because insurance companies have negotiated lower rates with these providers.

Out-of-network: Refers to physicians and providers not covered under your insurance plan. Usually more expensive because providers have not negotiated lower rates with your insurer.

Types of Health Insurance Plans

Most of determining where you can go for service depends on the type of plan you have. Do you have an HMO, EPO, PPO, or POS?

HMO (Health Maintenance Organization)

  • Must select a primary care physician (PCP)
  • Only allowed to receive covered treatment from physicians and specialists in-network
  • Must receive a referral by the PCP before seeing a specialist
  • Visiting a provider out-of-network will result in paying all expenses without help from insurance

EPO (Exclusive Provider Organization)

  • Similar to an HMO, but do not need to appoint a PCP or get a referral for a specialist
  • Only allowed to receive covered treatment from physicians and specialists in-network
  • Visiting a provider out-of-network will result in paying all expenses without help from insurance

PPO (Preferred Provider Organization)

  • Similar to an EPO with the difference relating to visiting a provider out-of-network
  • PPOs cover a portion of out-of-network costs; EPOs do not cover them at all
  • In-network costs are still the cheapest option under a PPO

POS (Point of Service Plans)

  • A blend of an HMO and PPO
  • A PCP must be appointed
  • Must receive a referral by the PCP before seeing a specialist
  • A PCP can refer you to a provider that is out-of-network. The costs will be higher than in-network, but still covered at a discounted rate similar to a PPO plan.

As you can see, there is a lot of overlap among the four plans but each has its own distinction. Make sure you understand the plan you have to ensure you are paying the least amount possible for your medical services. Also, make sure your emergency fund, HSA/FSA savings and financial budget are all adjusted accordingly in the event you need a medical service.

Stay tuned for part 3 of the blog series on understanding your EOB and medical bill.

Learn more in our health insurance blog series:
Adulting 200: Understanding Your Health Insurance Coverage

This post is part of our Adulting blog series. Contact your employer for questions specific to your health insurance coverage.

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August 28, 2018

Section 1202 Stock: Potentially Huge Tax Savings for Startup Companies

When starting a new business, many people ask which type of legal entity they should setup the company as. Currently, most professionals in the field say startup businesses should be setup using a Limited Liability Company (LLC). While in many cases this is a great choice, there are some instances where other entity options could potentially be more beneficial. To determine this, the company must decide their overall plan with the company.

What is your startup’s end goal?

Many people start companies because they have a great idea for a solution, but they do not think much about their end goal for the company. If their plan is to scale, grow, and then sell their company at a gain, these businesses should consider setting their company up as a C-Corporation in order to take advantage of 1202 Stock.  They might ultimately start as an LLC, but C-Corporation should at least be in the discussion.

Is 1202 Stock right for your startup?

Qualified Small Business Stock (QSBS), also known as 1202 Stock, gets its name from Section 1202 of the tax code. This section of the tax code allows for partial or full exclusion of gain from the sale of qualified stock. In order for the stock to be Qualified, it has to meet the following requirements:

  1. The stock must be issued by a corporation that is a small business corporation, a domestic C corporation with cash and other assets totaling $50M or less.
  2. The shareholder must acquire the stock in its original issue in exchange for money, property, or as composition. It cannot be purchased from a secondary market.
  3. The stock is issued by a C-Corporation that has at least 80% of the value of the corporation’s assets are used in a qualified trade or business and the corporation.
  4. The stock must be held for a minimum of five years.

There are a few industries that the tax code specifically states do not qualify as 1202 stock. Review these with your advisory team before making your entity decision.

What is the exclusion amount for 1202 Stock?

The amount of the exclusion can be quite significant for most taxpayers.  Under current law, the gain eligible for exclusion is the greater of $10 million, reduced by any prior gains excluded for the stock being sold, or 10 times the taxpayer’s basis in the stock that is sold.  For taxpayer’s with a large basis in their stock, they could end up being able to exclude over $10 million in gains.

The acquisition date is also taken into consideration when determining the exclusion amount the taxpayer is receiving.

  • If stock is acquired on or before February 17, 2009, the taxpayer may receive a 50%
  • If stock is acquired on February 18, 2009 and before September 28, 2010, the taxpayer may receive a 75%
  • If stock is acquired on or after September 28, 2010 the taxpayer may exclude 100% of the gain from gross income.

Please keep in mind, the five year holding period still applies regardless of when the stock was acquired.  Additionally, depending on when the stock was acquired, there could be Alternative Minimum Tax adjustments required for the excluded gain.

1202 Stock Example

Facts:

  1. The company is a C-Corporation that was founded on January 1, 2011, and the founder currently has a basis of $100 in her shares.
  2. On February 1, 2018, the founder sold her shares for $10,000,100.
  3. The total gain on the sale of her shares is $10,000,000.

Assuming this C-Corporation meets all of the qualifications for section 1202 Stock, this $10,000,000 gain would be completely excluded from income and result in $0 tax. This would be $2,000,000 in tax savings by structuring the entity as a C-Corporation instead of another entity type. 

As can be seen from this example, proper planning for the entity type when the company is founded can lead to huge tax savings down the road.

While the tax savings are potentially powerful as a C-Corporation, there are other factors that should be considered before making the decision to become a C-Corporation or an LLC.  Additionally, LLCs that convert to C-Corporation may also be eligible for this benefit.  Please contact an Anders advisor for guidance on which entity would be best for the future of the company.

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August 21, 2018

Tax Reform for Businesses: Qualified Business Income Deduction

The new Qualified Business Income (QBI) deduction is an area of tax reform that may affect how some business owners structure their entities. This new deduction puts flow-through businesses on a level playing field with C Corporations. In its simplest form, the QBI deduction is equal to 20% of earned income from sole proprietorships, S corporations and partnerships. This general rule applies to single filers with taxable income below $157,500 and married taxpayers with taxable income below $315,000.

When taxable income exceeds these thresholds, the QBI deduction is limited to the lesser of:

  • 20% of taxable income less net capital gains, or

The greater of:

  • 50% of the taxpayer’s allocable portion of W-2 wages deducted by the business, or
  • 25% of the taxpayer’s allocable portion of W-2 wages deducted by the business plus 2.5% of the taxpayer’s allocable portion of unadjusted basis of the businesses income producing property

The QBI deduction phases out for service businesses when taxable income is between $157,500 – 207,500 for single filers and $315,000 – $415,000 for married taxpayers.  Service businesses include healthcare, law, consulting, athletics, financial services and brokerage services.

Subject to these rules, all flow-throughs are all eligible for the QBI deduction, however, the deduction varies under nearly identical circumstances based on entity type.  Below we go into detail about the differences of the QBI deduction for various entities using the same basic fact pattern.

Fact pattern 1:

In 2018, an architecture business, which is not considered a personal service business, with one owner generates $500,000 of QBI.   The business has no outside employees and no substantial fixed assets.  The business owner has total taxable income of $550,000.

Sole Proprietorship

Because the proprietor’s taxable income exceeds $315,000, the QBI deduction is limited to the lesser of 20% of QBI ($100,000) or 50% of W-2 wages ($0).  As a sole proprietor, the taxpayer cannot pay herself a wage and self-employment income is not considered wages for purposes of the QBI deduction.  As a result, the proprietor gets a $0 QBI deduction.

S Corporation

As an S Corporation, the business owner is required to pay herself a reasonable salary.  On the other hand, there’s a natural incentive to keep wages as low as possible to save on payroll taxes.  For purposes of this example, assume the business owner pays herself a salary of $130,000 leaving $370,000 of K-1 income (QBI).

The QBI deduction is again limited to the lesser of 20% of QBI ($74,000) or 50% of W-2 wages ($65,000).  The result is a $65,000 QBI deduction which equates to roughly $22,750 ($65,000 x 35%) in federal tax savings.

Partnership

In a partnership setting, of course, you’d need another owner.  For purposes of this example, let’s assume the proprietor’s spouse owns a 1% interest in the business.  Because partnerships can’t pay their partners a wage in accordance with IRS rules, there are no wages to pass the 50% limitation and the taxpayer gets a $0 QBI deduction similar to if she were a sole proprietor.

It’s important to note the result doesn’t change if the partnership pays its partners a guaranteed payment.  The guaranteed payment is not considered wages for purposes of calculating the QBI deduction.  Furthermore, the guaranteed payment isn’t even considered QBI for the taxpayer.

Conclusion

Everyone should rush out to file an election to be taxed as an S Corporation, right? Not so fast. Let’s change the fact pattern slightly and see how the pendulum swings.

 

Fact Pattern 2:

In 2018, an architecture business, again not a personal service business, with one owner generates $500,000 of QBI.   The business still has no substantial fixed assets, but it does pay $250,000 of wages to outside employees.  The business owner has total taxable income of $550,000.

Sole Proprietorship

Because the proprietor’s taxable income exceeds $315,000, the QBI deduction is limited to the lesser of 20% of QBI ($100,000) or 50% of W-2 wages ($125,000).  In this scenario, the proprietor gets a $100,000 QBI deduction worth approximately $35,000 ($100,000 x 35%) in federal tax savings.

S Corporation

Assuming the same breakdown of $130,000 in proprietor wages and $370,000 of K-1 income (QBI) as discussed previously, the QBI deduction is limited to the lesser of 20% of QBI ($74,000) or 50% of W-2 wages (($250,000 + $130,000) x 50% = $190,000).  The result is a $74,000 QBI deduction which equates to roughly $25,900 ($74,000 x 35%) in federal tax savings.

Partnership

Partnerships can effectively put themselves in the same position from a QBI deduction standpoint as a Sole proprietor or an S Corporation depending on whether they choose to pay themselves a draw or a guaranteed payment.

If the partner takes a draw, QBI is $500,000 and the QBI deduction is $100,000 just like it is for a sole proprietor.

If the partners takes a $130,000 guaranteed payment, QBI is $370,000 and the QBI deduction is limited to $74,000 similar to the S Corporation Scenario.

Conclusion

Under this fact pattern, the greater QBI deduction goes to those being taxed as sole proprietor or a partnership.

Please note there are many factors beyond the QBI deduction to consider when determining the appropriate entity structure for your business, but hopefully these examples speak to the added complexity associated with entity selection under our new tax law.

Before selecting an entity structure or changing what’s already in place, taxpayers should do a detailed analysis of the pros and cons of each possible scenario. Contact an Anders advisor with questions on how QBI will affect your business, or learn more about tax reform changes in our Tax Reform Resource Center.

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August 17, 2018

Reverse Audits for Government Contractors

There is a great opportunity for government contractors to save on sales or use taxes paid for consumables used on government contracts. The U.S. Government is not subject to sales/use tax, however, government contractors typically pay tax on their consumable purchases. Government contractors may be paying tax on many of their overhead purchases needlessly.

Sales Tax Savings

Everything from raw materials to office supplies used to make government contracted items can be exempt from a certain amount of sales/use tax. This is due to certain title passing clauses in the government contracts. For example, a contractor may be paying 100% of the percentage of sales tax on items they need only pay 20%.

Resale Exemption

Federal Acquisition Regulations (FAR) govern the US Government’s purchases, and these regulations are strictly followed. Many federal contracts outline a resale exemption for a title transfer of contractor-acquired property. There are specific clauses in a contract that have been accepted by state tax authorities to establish an exemption for the contractor. This information can easily be overlooked. The clause numbers vary, depending on the type of contract whether it be a fixed price, cost reimbursement, etc.

In many states, “title transfer” is equivalent to “sale”, and therefore is a purchase for resale by the contractor. Transfer of possession is not always necessary for the resale exemption to apply. The exemption applies to many items depending on the state. Though the process can be complicated and cumbersome, Anders has the expertise to determine quickly if this opportunity is right for you.

Lower Sales/Use Tax, Bigger Competitive Advantage

The Anders State and Local Tax Services Group can help government contractors make sense of their contract to determine their resale exemption. Our sales and use tax advisors evaluate overhead purchases to redeem sales/use tax paid, generally going back 3-4 years. The top government contractors take advantage of this opportunity and can factor the savings into their bids, therefore outbidding contractors who are unaware of the opportunity, or who do not take advantage of it.

Many contractors are also unaware that they can also be reimbursed by the federal government for the cost to acquire the refund as it reduces the cost the federal government pays.

Anders has the in-house legal expertise to pursue these refunds, and can do so on a contingency basis. We offer valuable insights on a wide range of issues that impact the growth and visibility of your organization. Contact an Anders advisor to learn more about a reverse audit for your business, or learn more about Anders State and Local Tax Services.

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August 15, 2018

Adulting 200: Understanding Your Health Insurance Coverage

Whether you are going to the doctor for the first time on a new health insurance plan, or going because you have caught the flu, you don’t want to be dissecting the details of your plan in the doctor’s office last minute or receive a large bill later. To help you comprehend your health insurance plan to make smarter financial decisions, we have a 4-part blog series on the basics of health insurance. In this first post, we will discuss understanding your health coverage.

Understanding Your Coverage

To better project your out of pocket health expenses, you need to know how your health insurance plan works and what it pays for. Whether you have individual coverage through the marketplace or group coverage through your employer, all plans are made up of the same components. Your plan might have all or only some of the below:

  1. Premium: The amount you pay to have health coverage. Most people pay monthly, have it automatically deducted from their payroll, or their workplace pays it for them.
  2. Deductible: The amount of money you pay before your insurance begins paying. Deductibles are usually round amounts like $1,000 or $2,000 per year. Generally, the lower your deductible, the higher your premium.
  3. Co-insurance: The amount of money you still owe once you have reached your deductible. Co-insurance is usually a percentage of the total bill. If your co-insurance is set at 20% and the bill comes to $100, you still owe $20. With co-insurance, even if you have hit your deductible for the year you are still responsible to pay the co-insurance percentage.
  4. Co-pay: The amount you pay at the time of a service. Most often, co-payments are standardized by your plan. For example, your co-pay might be $25 each time you see a physician or $50 each time you see a specialist.
  5. Out-of-pocket maximum: The maximum amount of money you pay for deductibles and co-insurance charges in a given year before your insurance company starts paying for all covered expenses. If your out-of-pocket maximum is $3,000, the MOST you will pay in a given year, including co-insurance, is $3,000.

Take a look at your personal policy to see which components you have and the amounts you are responsible for paying in the event of a medical service. Knowing this will allow you to boost your emergency fund to cover your out-of-pocket maximum, keep track of your receipts for a potential tax deduction, or pay for your expenses with a pre-tax savings plan option like an HSA or FSA.

This post is part of our Adulting blog series. Contact your employer for questions specific to your health insurance coverage.

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August 14, 2018

Tax Reform for Individuals: 529 Plans for Primary and Secondary Education

Qualified tuition plans, commonly known as 529 plans, have been expanded under the Tax Cuts and Jobs Act. More taxpayers can take advantage of saving for elementary and secondary education expenses tax-free. Below we outline the benefits of 529 plans and how to take advantage of the new law.

Tax Savings of 529 Plans

A 529 plan is a tax-advantaged savings plan that allows families to invest for future education costs. Earnings on the contributions build up tax-free as long as the funds are used for qualified higher education expenses at an eligible educational institution. Many states, including Missouri, allow for a tax deduction for contributions to a 529 plan. Currently Missouri allows for an $8,000 deduction for single filers and a $16,000 deduction for married filing joint filers.

Previous Law

Under the previous tax code, eligible educational institutions only included post-secondary education such as colleges and universities.

New Law

Under the Tax Cuts and Jobs Act, 529 plans are available for Kindergarten through 12th grade expenses, in addition to post-secondary education. Distributions for elementary or secondary school are limited to $10,000 per beneficiary per year. There are no annual limits for post-secondary education expenses. If a child attends a public, private or religious school that charges tuition, the child can take distributions from the 529 plan to cover these expenses up to the annual limit. These distributions, including earnings, are tax-free. This is a great way to help cut education costs.

Visit our Tax Reform Resource Center for videos, blog posts and resources on how tax reform will impact you, your family and your business. Contact an Anders advisor with questions on how the new tax law will affect you.

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August 7, 2018

Tax Reform Resources for Navigating the New Tax Plan

Anders is continually monitoring the 2017 Tax Cuts and Jobs Act to determine how it will affect individuals, businesses and organizations. Our tax experts are closely studying the new law and its impact on a variety of industries and created a Tax Reform Resource Center to help taxpayers understand these changes.

This new, all-in-one resource is meant to help you navigate the new tax code. The resource center features videos highlighting important changes for individuals and businesses, industry-specific outlines, and blog posts addressing specific areas of the new tax law. These resources will help you make important decisions to adapt to the impacts and help minimize your tax burden in 2018 and the future.

Check out our Tax Reform Resource Center.

We will add more information as it becomes available, and we encourage you to check back for updates.

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August 7, 2018

11 Tips to Maximize Value of Missouri Historic Tax Credits

With the recent cuts to the Missouri Historic Tax Credit program from $140 million to $90 million annually, it is more important than ever to make the most of these credits for redeveloping commercial and residential historic property. Once you determine that your project is eligible for the Missouri Historic Tax Credit Program, check out these tips to maximize the savings.

How to make the most of Missouri Historic Tax Credits

1) Project record keeping

Whether you choose to organize your records electronically or in a shoe box, keeping track of all of the documentation relating to your historic project is vital. Extensive record keeping minimizes the chances of missing out on credits due to missing or incomplete documentation.

2) Project expense tracking

To go along with project record keeping, expense tracking is the next step. Keeping your receipts and bank statements in order is important, but summarizing these expenses in the proper format will save a lot of time and money. Program guidelines require project expenses to be in an Excel file called an EXP-Form. This Excel file must be properly formatted with the correct columns and rows and be in an order that is easily reviewed.

Meeting with your CPA before your project begins to obtain a copy of the EXP-Form in its correct format allows you to update the spreadsheet as your project progresses. Delivering a complete and accurate EXP-Form to your CPA will save a lot of money on billed hourly time in professional fees. If you deliver the EXP-Form in electronic format that follows the order of what’s in your file box, the reviewer can easily do some minor cleanup and review the project efficiently.

3) Not all invoices are created equal

Detail is extremely important on project invoices. Your CPA will need this detail for an audit, the DED will need this detail in a compilation or audit, and it’s particularly important for your historic project. Detail helps when allocating costs that are inside and outside of the footprint of the historic structure, for example:

Plumbing

  • The connections between the street and the house are technically outside of the footprint, and are therefore non-qualified
  • However, the connections inside of the footprint are qualified
  • If the plumber is knocking it all out at once, request detail for each part of the project so your CPA (or the DED) can make a clear distinction on the audit
  • The more detailed the cost certification is, the less likely you are to get DED review questions

All contractors must be properly registered to do business in the state. The state can disallow expenses if a contractor is not up to date on their state filings or registered to do business. We can assure you the state will vet each contractor and if they are not registered it’s your responsibility to go back to the contractor and have them update their state information. This is a nightmare because it creates a lot of work on the contractors end and they likely will not do it. Be sure to verify with your contractors BEFORE you begin work that they are properly registered.

4) Know your beginning and ending dates

Plan around your project beginning and ending dates. Apply as early as possible, and make sure no hard costs, including demo, are done prior to application date. Set a project completion date and stop all hard costs on this date, if possible. Soft costs are allowable before and after application and completion dates.

We have seen too many developers get in a hurry to start renovating their homes or rental properties. However, some big costs can come at the outset of the project, and the DED is hard and fast on disallowing those expenses for historic tax credits.

5) Cash is not king

Cash payments will be disallowed. This rule is explicitly stated multiple times in the final guidelines. Our professionals have extensive experience with historic tax credit projects and we can fight for you on a lot of issues with the state, but if you pay for something in cash there is nothing we can do.

Why are cash payments disallowed? If you think about the whole process and why you have to save invoices and produce bank statements and check copies you’ll notice that the DED needs to have a trail that they can review.  If you pay for something in cash, it does not show up on a bank statement other than saying ATM or bank withdrawal, and there is no proof that you actually paid who you said you paid.  Since the DED cannot verify this payment with a supporting document, they will throw it out.

6) Accrued expenses

Accrued expenses are expenses that have been incurred or will be incurred but not yet paid. An example of an accrued expense is the CPA fee you pay. You will most likely not pay the CPA until their work is complete, so their fee must be accrued on the spreadsheet so that you can receive credits for the expense although it has not been paid yet.

The developer fee can also be accrued but only up to 90% of it. One thing to keep in mind is that soft costs, such as CPA fees, cannot be accrued unless there is a contractual document in place. Accrued expenses must be paid within 6 months of final completion for soft costs and within 6 years for developer fees. Accrued expenses must be clearly noted on the EXP-Form.

7) Look past the obvious expenses

Some eligible expenses in an HTC project are often overlooked. As long as detail is provided to DED, the expenses below can be eligible:

  • Construction Utilities
  • Construction Loan Interest
  • Real Estate Taxes
  • Solar Costs

8) Additional credit programs

Don’t forget about the Federal Historic Tax Credit program, which offers a 20% credit for redeveloping historic property built before 1936. Tax reform did change this credit by requiring it to be taken over five years, instead of when the project was placed in service. There are also other restrictions on the federal credit that may limit its applicability to state historic projects, but it is still well worth the time to investigate this potential, valuable program.

9) Don’t forget Neighborhood Preservation Act credits

Some historic renovation projects may also qualify for the Missouri Neighborhood Preservation Act (NPA) tax credit program. This program has various credit categories which offer either a 25% or 35% credit for qualifying rehabilitation projects. The NPA program also applies to some new construction projects, which would be eligible for a 15% credit for qualifying costs. It is important to note that new NPA projects would not qualify for the historic tax credit program. This is another valuable tax credit program that is worth investigating to determine if your historic renovation project is eligible.

10) Run the break-even analysis

Is the juice worth the squeeze? Perform a break-even analysis to determine the level of cost to make the credit process worth it.

11) First time advice

If it’s your first time, or even if you are a seasoned developer, a professional consultant can be worth their weight in gold. The guidance and expertise they provide can pay for itself in the additional credits earned. Talk to your project CPA early and often to make sure you are taking advantage of their expertise. Also keep in mind that a little upfront consulting can save a ton of money on the backend on cleanup and data entry fees.

Contact an Anders advisor to find out how to make the most of tax credits for your next construction project, or learn more about Anders Construction Services.

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August 7, 2018

What to do When You Think Your Trash is Really Treasure

An occasional “spring cleaning” is something that we all have done, whether it’s in April or August. Every now and then, you’ll stumble upon something that you never knew you had. Maybe it belonged to your grandfather, and looks old and possibly valuable. Once you have the inclination that it may be valuable, what do you do next?

Valuation

The first thing you are going to want to do is get a rough idea of the value of the object. This is where things can get tricky. You can go on the internet and search for like kind items, however, unless you know the exact model, make, era, etc. of the object you can mislead yourself, and there is nothing worse than believing you have something worth $10,000 and then finding out it’s only worth $100 once it has been correctly identified.

You could take it to a local shop that specializes in the object. The problem with this solution is that these shops are run by people in the industry who may be a potential buyer, and this presents a conflict of interest. You could also reach out to a third-party authenticator or expert who will give you a valuation. This may cost you a little bit more in upfront cost, but it will give you a clearer idea of what exactly you have and that is invaluable moving forward.

Storage

Once you have received a ballpark estimate on the object(s), it’s time to store it properly. I will preface this statement by saying there are always exceptions, but generally you will want to limit the item’s exposure to sunlight and humidity. Both of these factors can drastically affect the quality of the item. In the majority of cases a sturdy storage bin that is both some level of UV light and water resistant will work just fine. If the item is small, presumed to be fairly valuable, and you are worried about the possibility of theft, then a safety deposit box maybe the best option. Failing both of these options, a sturdy clean drawer and a ziplock bag will work just fine until a more permanent solution can be found.

Decision

Now that the item is safely stored you have a decision to make. Do you keep it as a family heirloom? Do you wish to keep it, but would like an official valuation for insurance purposes? Or maybe you want to sell the item. The first option requires nothing more than keeping the item safe. The second option requires having an expert use their expertise and knowledge of the market to provide an estimate of what the item is worth. The third option presents you with more decisions to make. You can sell the object privately, which can be risky if you are not typically involved in the market. You can also sell the item in an auction. This is more than likely your best bet at receiving the most for your item. Auction houses have large groups of buyers that watch every one of their sales, which allows for the maximum amount of people to see your object and have a chance to bid on it. The downside could be that the object sells below what you believe it was worth, but if you have an expert give you an honest and accurate estimate this is unlikely.

In this scenario, it’s best to be patient and think about all of your decisions. Rarely will an object decrease dramatically in price in the matter of a few weeks or months. The Anders Sports, Arts & Entertainment team can help with memorabilia valuation and auction representation. Contact an Anders advisor to learn more.

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August 2, 2018

Startups, Business Licenses and Permits: A Necessary Combination for Success

This summer, the new trend has been the colorful yellow and lime bikes all across the country in urban-downtown areas, parks and neighborhoods creating an inexpensive, fun way to transport or tour these cities. Creating a new buzz, “Bird” scooters recently made a quick glimpse into many downtowns across the country, before being quickly taken away in St. Louis due to the company overlooking one very important step in their launch.

These scooters are designed to give commuters an easy way to zip around the city, ideally within a mile of their intended destination. Bird Scooters can be used through an app and cost $1 to begin riding plus 15 cents per minute thereafter. The scooters can reach a max speed of 15 mph and remain charged for 15 miles. CEO & Founder of Bird, Travis VanderZanden created his, “SOS Pledge”(Save Our Sidewalks Pledge) to reduce car trips – especially 40% of trips under two miles – reducing traffic, congestion and greenhouse gas emissions. They will also remit $1 per vehicle per day to city governments to build and promote more bike lanes, and safe riding.

While their intent was good, they did not obtain the appropriate business license required by St. Louis to legally operate their business in the city. This lead to them having to take a temporary leave of absence. All new businesses in the city are required to register to do business in the city.

Check City and State Requirements

Which brings up a very important bit of homework for all startups, and not just bike and scooter sharing services. When creating a business entity, depending on where you are going to do business, the state or city may require you to have specific registrations or permits. Many businesses do not realize that these exist, but it is critical for the success of the business to be aware of these as they can impact a startup’s ability to do business in a city or state.

Bird Scooter is a prime example of what could happen to your startup if you do not obtain the required licenses, permits, and/or registrations for the city and state you would like to do business in.  Make sure to research the locations of where you would like to do business to determine the required licenses, permits and/or registrations.  This way, when the new product is finalized and ready to showcase to the paying public, you won’t have a roadblock to success.

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