Business Consulting

The IRS has announced the official mileage rates for 2016.   The IRS mileage rates for 2016 for the use of a vehicle are:

• 54 Cents per mile for business use down from 5 cents in 2015.
• 19 cents per mile for medical reasons or moving purposes down from 23 cents in 2015.
• 14 cents per mile for charitable purposes which is the same rate as in 2015.

We hope this information is helpful. If you would like more details about these changes or any other aspect of the new law, please do not hesitate to call Greg Gandy or Michael McDevitt at our office at 719-579-9090.

BiggsKofford is extremely selective when reviewing possible partnerships with other businesses. Because of this, when we find a fit, we know the quality of service and care for clients will closely match our firm values.

ADP seeks and negotiates partnerships with best-of-breed organizations to bring added value to our joint clients and to increase operating efficiencies. ADP’s Channel Alliance program partners with various types of companies to best address the needs of specific industries. Each partnership is created for synergy, value and new levels of success.

Although ADP offers much more than Affordable Care Act reporting help, if you are seeking assistance navigating ACA reporting, view their ACA Reporting Requirements Infographic to learn more about how they can help your business thrive. Click here to view your responsibilities as an employer before and after with ADP.

For questions about the BiggsKofford/ADP partnership, call us at 719-579-9090.

BiggsKofford, one of the leading certified public accounting and business consulting firms in Colorado, announced today the promotion of Austin Buckett, ACA, to Director. Buckett joins Chris Blees, Kurt Kofford, Greg Gandy, Greg Papineau, Michael McDevitt and Deborah Helton on the team of Directors.

Before joining the BiggsKofford team, Buckett gained over 11 years of accounting experience working with clients in a variety of industries. He specializes in mergers, acquisitions, transactional support services and financial consulting. Graduating from Alton College in Hampshire, England, he holds an Association of Chartered Accountants designation and is a Certified Merger & Acquisition Advisor.

Buckett joined BiggsKofford in 2005 and worked as a mergers and acquisitions supervisor for the certified public accounting firm. In 2006, he was promoted to Manager and continued to dedicate his hard work and leadership skills to the firm.

“Austin consistently looks for ways to add value to our clients and to help them,” said Chris Blees, Managing Partner. “His experience has moved the firm and our clients forward, which is a great asset for everyone.”

Founded in 1982, Colorado Springs-based BiggsKofford currently employs more than 25 professionals. BiggsKofford offers integrated business solutions, including tax, accounting, merger and acquisitions consulting, business valuation and litigation support.

BiggsKofford has expanded its services to meet the changing needs of over 500 business owners and entrepreneurs in Colorado’s Front Range.

Media, contact Jenn Watton at (719) 579-9090 for more information.

Although all the effects of the Affordable Care Act (ACA) are still unclear, it’s likely that health insurance costs will continue to increase in the future. Business owners may require greater health plan contributions from participating employees. In addition, this health care law already has made it more difficult for individuals to deduct medical outlays: For most taxpayers, only expenses over 10% of adjusted gross income (AGI) are tax deductible, versus a 7.5% hurdle under prior law. (The 7.5% rule remains in place through 2016 for individuals 65 and older and their spouses.)

In this environment, business owners stand to benefit substantially by offering a health flexible spending account (health FSA). These plans allow employees to set aside up to $2,500 per year that they can use to pay for health care expenses with pretax dollars.

Example 1: XYZ Corp. offers a health FSA to its employees. Harvey James, who works there, puts $2,400 into the plan at the beginning of the year. Each month, $200 will be withheld from Harvey’s paychecks, and he’ll owe no income tax on those amounts.

Going forward, Harvey can be reimbursed for his qualified medical expenses that are not covered by his health plan at XYZ. Possible examples include health insurance deductibles, copayments, dental treatments, eyeglasses, eye surgery, and prescription drugs. Such reimbursements are not considered taxable income. Thus, Harvey will pay those medical bills with pretax rather than after-tax dollars.

Health FSAs and the Affordable Care Act

Under the ACA, there are limitations on an employer offering a health FSA to their employees. Standalone health FSAs can only be offered to provide limited scope dental and vision benefits. An employer can only offer a health FSA that provides more than limited scope dental and vision benefits to employees if the employer also offers group major medical health coverage to the employees.

Additionally, an employer can make contributions to an employee’s health FSA. However, under the ACA, the maximum employer contribution the plan can offer is $500 or up to a dollar-for-dollar match of the employee’s salary reduction contribution.

Ultimately, these additional new rules can affect whether an employer can offer a health FSA and the amount of any optional employer match; our office can provide guidance for your specific situation.

Employer Benefits

A health FSA’s benefits to participating employees are clear. What will the business owner receive in return? Chiefly, the same advantages that come from offering any desirable employee benefit. Recruiting may be strengthened, employee retention might increase, and workers’ improved morale can make your company more productive.

There’s even a tax benefit for employers, too. When Harvey James reduces his taxable income from, say, $75,000 to $72,600 by contributing $2,400 to a health FSA, he also reduces the amount subject to Social Security and Medicare withholding by $2,400. Similarly, XYZ Corp. won’t pay its share of Social Security or Medicare tax on that $2,400 going into the health FSA.

Counting the Costs

However, drawbacks to offering an FSA to employees do exist. The plan, including reimbursements for eligible expenses, must be managed. Many companies save headaches by hiring a third-party administrator to handle a health FSA, but there will be a cost for such services.

In addition, companies offering health FSAs to employees should have enough cash to handle a large demand for reimbursement, especially early in the year.

Example 2: Kate Logan also works for XYZ and she chooses to contribute $1,800 to her health FSA at the beginning of the year: $150 a month, or $75 per each semimonthly paycheck. Just after her first contribution of the year, Kate submits paperwork for a $1,000 dental procedure. XYZ might not have trouble coming up with $1,000 for Kate, but there could be a problem if several employees seek large reimbursements after making small health FSA contributions.

Using It, Losing It

Employers also should be sure that employees are well aware of all the implications of health FSA participation. For years, these plans have been “use it or lose it.” Any unused amounts would be forfeited at year end.

Example 3: Mark Nash participated in an FSA offered by XYZ several years ago. He contributed $2,000 but spent only $1,600 during the year. The unspent $400 went back to XYZ.

In 2005, the rules changed. Now, if the FSA permits, participants have until mid-March of the following year to use up any excess. If XYZ had adopted this optional grace period, Mark Nash would have had an extra 2½ months to spend that leftover $400 on qualified medical costs.

Yet another change occurred in late 2013—a $500 option. Under this provision, FSA plans can be amended to allow each employee a carryover of up to $500, from one year to the next. Plans with this $500 carryover provision cannot allow a grace period as well. If your company now has an FSA with this optional grace period, it will have to amend the FSA to eliminate the grace period in order to add the $500 carryover provision. Our office can help with the necessary paperwork.

In addition to explaining all the rules on possible forfeitures, employers offering an FSA should be sure their employees know about a possible impact on Social Security benefits. As mentioned, FSA contributions aren’t subject to Social Security; those contributions aren’t included in official compensation, for Social Security purposes. Employees should know that reduced compensation today might reduce Social Security benefits tomorrow. Companies that spell out all the FSA implications to workers may reduce misunderstandings and future compla

For regular C corporations, “reasonable compensation” can be a troublesome tax issue. The IRS doesn’t want shareholder executives to inflate their deductible salaries while minimizing the corporation’s nondeductible dividend payouts.

For S corporation owners, the opposite is true. If owner employees take what the IRS considers “unreasonably low” compensation, the IRS may recast the earnings to reflect higher payroll taxes, along with interest and penalties.

One Pocket to Pick

Eligible corporations that elect S status avoid corporate income taxes. Instead, all income flows through to the shareholders’ personal tax returns.

Example 1: Ivan Nelson owns a plumbing supply firm structured as an S corporation. Ivan’s salary is $250,000 a year while the company’s profits are $400,000. The $650,000 total is reported on Ivan’s personal tax return.

In 2015, Ivan pays 12.4% as the employer and employee shares of Social Security tax on $118,500 of earnings. He also pays 2.9% Medicare tax on his $250,000 of salary. As a result of recent tax legislation, Ivan—who is not married—owes an additional 0.9% Medicare tax on $50,000, the amount over the $200,000 earnings threshold (the threshold is $250,000 on a joint tax return). Altogether, Ivan pays well over $20,000 in these payroll taxes.

Going Low

Often, S corporation owners have a great deal of leeway in determining their salary and any bonus. Holding down these earnings may reduce payroll taxes.

Example 2: Jenny Maxwell owns an electrical supply firm across the street from Ivan’s business. Jenny’s company also is an S corporation. She reports the same $650,000 of income from the business but Jenny classes only $75,000 as salary and $575,000 as profits from the business. Thus, she pays thousands of dollars less than Ivan pays for Social Security and Medicare taxes.

Proving Your Payout

As mentioned, the IRS might target S corporation owners suspected of lowballing earned income. Therefore, all S corporation shareholders should take steps to justify the reasonableness of their compensation.

If you own an S corporation, consider spelling out your salary level in your corporate minutes. Where possible, give examples and quote industry statistics that show your compensation is in line with the amounts paid to executives at similar firms.

Other explanations also might help. Depending on the situation, you might say that business is slow, in the current economy, so the minutes will report that you are keeping your salary low to provide working capital for the company. If your business is young, the minutes could explain that you’re holding fixed costs down, so the company can grow, but you expect to earn more in the future. In still another scenario, you might say that you are nearing retirement and making an effort to rely more on valued employees, so a modest level of earnings reflects the actual work you’re now contributing.

As illustrated above, holding down S corporation compensation can result in sizable payroll tax savings. Our office can help you establish a reasonable, tax-efficient plan for your salary and bonus.

 Calculating Coverage

Beyond compensation, health insurance also may affect the payroll tax paid by an S corporation owner. Special rules apply to anyone owning more than 2% of the company’s stock.

If the company has a health plan and pays some or all of the costs for coverage of such a so-called “2% shareholder,” the payments will be reported to the IRS as taxable income. However, that amount will not be subject to payroll taxes, including those for Medicare and Social Security. The company can take a deduction for these payments, effectively reducing corporate profits passed through as taxable income for the shareholder.

In addition, the S corporation shareholder may be able to deduct the premiums paid by the company—this deduction can be taken on page 1 of his or her personal tax return, which may provide other tax benefits. However, such an “above-the- line” deduction cannot be taken in any month when the shareholder or spouse is eligible to participate in another employer-sponsored health plan. Also, this deduction can’t exceed the amount of the shareholder’s earned income for the year.

This can be a complicated issue, especially if your state law prevents a corporation from buying group health insurance for a single employee. If you own an S corporation, our office can help you decide the best way to hold down payroll tax as well as income tax from your he

Deborah Helton Director Send Email View Full Bio

Austin Buckett Manager Send Email View Full Bio

What would you say if I could get you a 500 percent return on your money over the next two years with little to no risk?  Sound too good to be true?  Unfortunately, it is but that doesn’t stop thousands of investors in losing money in bad investments every year.

Early-stage investment in companies used to be reserved for the wealthy industry players, however in recent years it has become more common for mainstream investors to find early-stage investment opportunities.  As a result, we are seeing more clients come to us for advice on investing in small privately held companies ranging from startups to existing businesses.  The potential upsides from these investments can be very large and can become very intriguing for investors looking to outperform the public markets.  However, in most cases the rewards still do not represent the risks being undertaken in a private investment. Remember, while private investments may have become easier to find, the underlying risks of those investments has not changed.

While there are stories of massive returns on small investments, they are few and far between and usually the result of good timing and excellent execution.  But if an investment opportunity is touting great returns from the get-go then the likelihood is it’s either a scam (think Pyramid, Ponzi, etc) or just a very bad idea.  Either way, the investor will be the one losing out.

So where does that leave the mainstream investor?  Should they stay away from private company investments altogether and potentially miss a home run opportunity or can they also participate?

The answer is yes, provided they have their wits about them and can objectively assess an opportunity.

So how do you find out about investment opportunities in the private markets?  Below is a summary of the typical ways to find an opportunity:

• Sourced through an investment group – This is by far the best way to source private investments; they typically require an investor to meet certain wealth and income levels (making sure you can afford to lose your investment without going broke) and they will typically vet any opportunities so only real deals are presented.
• Presented by a professional – Typically these are presented to clients by wealth managers or other professionals such as lawyers or CPAs. The quality of these opportunities varies greatly. A good professional will ensure sufficient due diligence is done prior to making a presentation and that the guidelines set by the SEC are followed. In order to assess if this is a good opportunity always seek a second opinion, make sure the presenter has done suitable due diligence and understand the financial (if any) relationship between the presenter and the opportunity (i.e. do they get commission if you invest? If so, is it clearly stated up front?)
• Presented by a friend or family member – This can result in great opportunities as you have an early look at something before other investors, but it also comes with an emotional tie that may sway an investor into doing a risky deal. Care and attention need to be taken here to ensure the opportunity is objectively assessed.
• Online crowdfunding (i.e. Kickstarter) – Generally high risk as most opportunities are ‘ideas’, however, the investment levels can be very low. Many product-based investments will just return you a copy of the product not an actual share of the company so the upside is limited if they are successful. There are some property-related opportunities in this space that can be somewhat interesting. This is still an evolving concept and the requirement for good due diligence is firmly in the hands of the investor at this time.

So once you find an opportunity what then?  Below are 10 questions to ask yourself when presented with an investment opportunity:

1. Has the lead operator(s) been successful in the past in the same or similar industry?
2. What is the industry? How big of an impact can the business have? For example, software generally has much higher upside than a restaurant as the customer base is likely to be much larger.
3. Is there a well-documented investment presentation that includes discussion around the market, competitors (and how the company will differentiate itself) and significant risks associated with the company?
4. Does the company in question have a thought out and documented business plan and strategy to execute on its objectives?
5. What stage is the company in and does the value represent this stage? For example, is the company an idea/concept or does it have a proven product with supporting revenues and customers?
6. How and when will your investment start to return profits and/or principal? What is the annual return on your investment and how does this compare with your other investments? For reference, a private investment in a small company should command annual returns of 25 to 35 percent due to the level of risk typically taken on.
7. What is the risk of failure? Are the investors in any way obligated to provide additional funding and/or will there be saleable assets in the event the business fails to recoup some of your investment?
8. Do the presented financial projections use aggressive or conservative assumptions? For example, in the case of a restaurant what is the average expected spend per customer and the number of customers per night and how does this compare to industry norms?
9. Can you afford to lose the money you plan to invest?
10. How do you exit your investment? Is there a clear plan to realize a return to all investors and is this reasonable?

Once you have identified a good opportunity and it ticks all the right boxes, it is critical to hire a professional with experience in private company investments to make sure your interests are protected and the necessary legal paperwork is completed.  A good advisor will ensure:

• The financial presentations use reasonable assumptions.
• All legal documents are reviewed to ensure you are protected and that any shareholder, member or note agreements are drafted suitably and in line with any presentations made.
• You fully understand your commitment going forward (i.e. will you be contacted for additional funds down the road or will the company likely have a need to bring in additional investors at a later stage).
• Any proprietary knowledge or technology is owned by the company and included in the investment.

Finally, below are red flags that should make you run fast in the opposite direction:

• The opportunity does not come with a thought-out business model and strategy.
• Financial presentations use best case scenarios only.
• There is no contingency plan if things do not occur as planned.
• The opportunity is in a low performing industry or has stiff competition in place (i.e. very limited upside).
• The person presenting the opportunity has a history of poor performance or ‘excuses’ for prior failures.
• The opportunity requires you to commit and sign on the spot or in a short window that does not allow for sufficient due diligence.
• The person presenting insists on representing your interests and is against you utilizing an independent professional to help in your analysis.

Overall, private company investments can provide significant returns to investors but they also carry significantly increased risks.  So if you have enough wealth to stomach a small percentage being invested in high risk / high return investments then investing in private companies may be something to consider.  Just remember to be diligent and careful in your approach and always get a second opinion from an unrelated party.

Austin Buckett, ACA, CM&AA, is a Manager at BiggsKofford Capital and specializes in helping clients acquire, grow and exit their businesses as a licensed investment banker within Mergers and Acquisition arm of the company.

Deborah Helton, CPA, is a Director at BiggsKofford, CPAs, a Colorado Springs-based accounting and consulting firm, and a member of the National CPA Health Care Advisors Association. Mrs. Helton specializes in assisting physicians align their goals with simple tax strategies and business coaching to eliminate surprises and assess risk.

(PlasticSurgeryPractice.com InDepth By Gregory Michael Dell, Esq)

Beware the “medical occupation” definition of total disability

A well-known insurer recently introduced the “Medical Occupation” definition of disability to the marketplace. While the “Medical Occupation” definition appears to be an innovative method to sell physicians a new long-term disability product, I still think there is nothing better than an “Own-Occupation” definition of disability.

Physicians are researchers by nature, and when supplied with enough information they will make informed, educated decisions that will allow them to sleep comfortably. So listen to the arguments, do your homework, and don’t take the purchase of disability insurance lightly. Your entire financial future may one day depend on it.

As a plastic surgeon, you have probably been told that you should make sure that you purchase an insurance policy with a true “Own-Occupation” or “Own Specialty” definition of disability for the entire benefit period (to age 65 or longer).

Now, this well-known disability insurance company is challenging this “conventional wisdom”—but should it be?

THE “OWN-OCCUPATION” DEFINITION OF TOTAL DISABILITY

A disability insurance policy with a true “Own- Occupation” definition of total disability typically states that you are totally disabled if solely due to injury or sickness you are not able to perform the “material and substantial” duties of your occupation.

Some companies will even state that if you have limited your occupation to the performance of the material and substantial duties of a single medical specialty, that specialty will be deemed to be your occupation.

Translation: If due to injury or sickness you cannot perform your duties as a plastic surgeon, and provided your predisability practice was solely limited to the duties of that specialty, then you would be considered totally disabled—even if you decide to work in another occupation or medical specialty.

THE “MEDICAL OCCUPATION” DEFINITION OF TOTAL DISABILITY

Northwestern Mutual Life is heavily marketing the “Medical Occupation” definition of total disability. The argument for this definition of total disability compared to the true “Own-Occupation” definition of total disability is that plastic surgeons have nonsurgical patient care duties in addition to performing surgery.

The company selling the “Medical Occupation” definition of total disability believes that the “Own-Occupation” definition requires a plastic surgeon to be unable to perform all of their surgical and nonsurgical duties in order to be considered totally disabled. So, this argument says that since most doctors will not satisfy the “Own- Occupation” definition of total disability, the “Medical Occupation” definition may provide greater clarity and flexibility at the time of claim.

The “Medical Occupation” definition of total disability states that if more than 50% of your time was spent providing direct patient care and services and you are unable to perform the principal procedures of your procedure based, board-certifiable medical specialty, you have the flexibility to continue working and receive benefits proportionate to your loss of income or to stop working entirely and receive your full monthly benefit.

Can a surgeon be deemed “totally disabled” if he is unable to operate? There is no black letter law that defines the material and substantial duties of an individual’s occupation. Courts have used various tests to determine if an insured’s occupational duties are material and substantial versus incidental or peripheral.

Whether or not a certain occupational duty is material depends on the duty’s importance to that profession, the amount of time the duty consumes, and its qualitative importance to the professional mission.

A duty will be deemed material when it is so important that an inability to complete the duty equates to the insured being unable to practice his or her “regular occupation.”

In Dowdle v Nat’l Life Ins Co, the court addressed the issue of whether a surgeon is entitled to total disability benefits under the terms of his disability policy where he is unable to perform surgery but able to conduct office consultations and perform other nonsurgical tasks.

In this case, John A. Dowdle, Jr, MD, purchased a long-term disability policy with an “Own-Occupation” definition of disability. On his application for coverage, Dowdle identified his occupation as an orthopedic surgeon and listed his specific duties as seeing patients, performing surgery, reading x-rays, interpreting data, and promoting referrals.

Prior to his disability he worked 50 to 60 hours per week, plus call duties. In an average week, Dowdle devoted 5 half-days to surgery and 5 half-days to office consultations, seeing 15 to 20 patients in each half-day session.

In all, surgery and surgery related care comprised 85% of his practice. In addition to his orthopedic practice, Dowdle performed on average seven independent medical evaluations (IMEs) per week for a company he cofounded. He devoted an average of 1 1/2 hours to an IME: a half-hour for discussion and examination and 1 hour for review of medical records and preparation of the report.

Dowdle often completed IMEs at his home during evening hours, as these were not part of his normal duties as an orthopedic surgeon.

Years later, Dowdle suffered injuries, including a closed head injury and a right calcaneal fracture, when the private aircraft he was piloting crashed shortly after takeoff. As a result of the injuries, he was unable to stand at an operating table for an extended period of time. Thus, he could not perform orthopedic surgery.

He filed a claim for total disability and was awarded benefits. Months later, he resumed performing office visits and working 6 half-days per week, as an independent contractor seeing 15 to 20 patients during each half-day session. Dowdle also resumed performing IMEs for the independent company he cofounded.

Dowdle admitted that he could not perform orthopedic surgery and, instead, if surgery was needed he referred patients to two of his partners. He argued that he was totally disabled because he could no longer perform surgery—the main duty of an orthopedic surgeon. His disability carrier argued that he was not totally disabled because he could still care for patients with spinal injuries and illnesses and manage their rehabilitation and injections, as he had done previously.

Agreeing with Dowdle, the court held that he was entitled to total disability benefits and stated that the duties of office consultation and nonsurgical tasks are manifestly secondary or supplementary tasks incident to the primary function of an orthopedic surgeon.

The court also noted that a determination of total disability does not require a state of absolute helplessness or inability to perform any task relating to one’s employment.

HOW IT DIFFERS

Under the “Medical Occupation” definition of disability, Dowdle would have had to either discontinue his work as an orthopedic surgeon—along with any other gainful employment— or continue working and earn less than 20% of his predisability earnings in order to qualify to receive his full disability benefit.

With a true “Own-Occupation” definition of disability, Dowdle had the ability to continue working and earn unlimited income, so long as his disability rendered him “unable to perform with reasonable continuity the substantial and material acts necessary to pursue his or her occupation in the usual and customary way.”

It is also important to note that while

Dowdle v Nat’l Life Ins Co is widely accepted  in the 8th Circuit, and similar outcomes have occurred in other jurisdictions, the legal interpretation of an “Own-Occupation” definition of disability varies in different courts throughout the country.

References

1. ”Procedure-based” means more than 50% of medical charges come from performing surgical interventions and non-surgical invasive interventions.

2. Lasser v Reliance Standard Life Ins Co, 146 F Supp 2d 619, 636 (DNJ 2001), judgment aff’d, 344 F3d 381 (3d Cir 2003).

3. Dowdle v National Life Ins Co, 407 F3d 967 (8th Cir 2005).

4. California Settlement Agreement between UNUM and the California Department of Insurance.

(AICPA, By Kenneth Marks; Published August 2014)

For many Baby Boomers who are considering selling their companies in the coming years, a disappointing reality awaits: Their business is not  worth what they thought. Even in today’s hot merger and acquisition market, a  significant valuation gap exists between what many owners believe their  business is worth and what potential buyers are likely to pay.

This  gap has widened in recent years for a number of reasons.

• First, low interest rates and moderate expected returns from  stocks and bonds have led owners to need greater proceeds from a sale, driving  their value ambitions higher.

• Second, at a time when smart companies are investing in  growth and renewal, many owners have tightened their operational belts and  extracted cash. While this business strategy has short-term benefits, owners who  restrict their growth and pay themselves at the expense of losing competitive  ground can diminish the future value and opportunity of the enterprise.

• Third, some businesses fail to generate economic returns in  excess of their true cost of capital. While this concept can seem academic, it  is the basic concept of value creation. While gaps have always existed between  what sellers want and what buyers are willing to pay, the current gap for  middle-market companies is wider than ever. Let’s focus on how to bridge it.

Back to basics

No  matter how strategic the buyer, all valuations eventually boil down to expected  future cash flow. The value of that cash flow is determined by its absolute  level, the risk of achieving the projected amount, and its growth rate coupled  with the future investment required to sustain it. In the traditional sales  process, buyers start by analyzing historical EBITDA as a proxy for cash  flow.

Bridging the gap

To  bridge the valuation gap, a company must shift the conversation from historical  financials to strategic value. It must demonstrate that it is acting on a  credible, forward-looking growth plan that can be leveraged by the buyer. A  company that can articulate and defend its potential, forecast its performance  into the future, and support that forecast with facts, trends, and action steps  can create a strong position from which to lead negotiations.

To establish a sound, strategic  approach for a sale, consider these two principles:

• Know  thyself. Analyzing  and executing a successful exit strategy requires a hard look in the mirror. A company  must examine its business model and its relevance to the future. A deep understanding of a company’s value to the  market—including both customers and investors—allows the business owner to put  into place value-creating strategies that offer potential buyers a vision and a  plan for their investment. Remember, a buyer is an investor. Being able to  articulate and defend a growth strategy to a buyer means you must do your  homework and create well defined initiatives that serve as a road map for  continued growth in cash flow and relevance in the marketplace. Demonstrate  your company’s ability to forecast and manage its growth with empirical data  from existing customers and projects. Buyers often interpret predictability as less  risk and, therefore, higher value. The more accurately you can forecast your  business in revenues, margins, and EBITDA and the more clearly you can understand  and control the earnings drivers, the more successfully you can position your  business for a sale on your terms.

• Know  thy place. Business owners who want to get more for their company  spend time developing solutions that add value to the market segment in which  they operate. They establish a deep sense of the market space and understand who  their competitors are, how their business models work, where they make money,  and where they don’t. They scrutinize data from market research and understand  the competitive landscape and trends. A clear read on how your business fits into the marketplace and how  your growth and strategy will transpire can also widen the pool of  possible “right” buyers. As opposed to a shotgun approach in a broad auction, studying  the defined industry segments that surround your business helps to identify outlying  candidates who may, in the end, see the most value.
  In one example, a niche grading and landscaping firm  took time to understand how each of its competitors engaged with the market and  to explore companies in tangential market segments. By doing so, it found a  strategic buyer that wanted to enter its market segment; a direct competitor  would not have perceived near the value or paid as much. In today’s  environment, a company is wise to optimize its strategic position by exploring partnerships  and alliances that validate its significance to the market, increase its growth  prospects, block competitors, or secure access to certain customers, supply, or  geographies.

Historical  financials validate a business’s ability to be profitable and management’s  ability to operate. By making a strong case for the company’s strategic value,  you give a potential buyer the basis to formulate and pay additional consideration.  By shifting the perspective and discussion from historical numbers to future cash  flow and growth opportunities, you create a productive way to structure a  transaction and monetize the intrinsic value of your business. More important,  you build potential value that a buyer can leverage to realize gains beyond the  near-term numbers.

(The Gazette, By Rich Laden; Published March 3, 2014)

One of Colorado Springs’ oldest and most recognizable auto dealership groups  has changed hands – but won’t change its familiar name.

The Red Noland Auto Group, which N.B. “Red” Noland founded in 1974, has been  purchased by Mike Jorgensen and Thom Buckley, the auto group’s top executives  who have been operating Noland’s dealerships for 15 years.

The purchase includes Red Noland Cadillac, Red Noland Infiniti, Jaguar-Land  Rover Colorado Springs, Red Noland Pre-Owned Center and Red Noland Collision  Center.

Terms of the deal weren’t disclosed, but it also includes the auto group’s  roughly 15 acres in the Motor City auto park, along Motor City Drive, on  Colorado Springs’ west side.

Noland, Jorgensen and Buckley completed the deal at the end of last month,  which marked exactly 40 years since Noland came to Colorado Springs and, along  with a Dallas partner, bought what was then called Silver State Cadillac. At the  time, Noland had been with the Cadillac division of General Motors for 25 years,  worked as a Cadillac zone manager in Dallas and become familiar with Colorado  after spending time in the state skiing and flying gliders

BiggsKofford assisted both parties in reaching an agreement, and was glad to be a part of the significant transaction. We wish Red Noland continued success in the years ahead.

To read more, see the full article from the Gazette, here.

(NewsOK; Published February 11, 2014)
 

The earnings gap between young adults with and without bachelor’s degrees has stretched to its widest level in nearly half a century. It’s a sign of the growing value of a college education despite rising tuition costs, according to an analysis of census data released Tuesday.

Young adults with just a high-school diploma earned 62 percent of the typical salary of college graduates. That’s down from 81 percent in 1965, the earliest year for which comparable data are available.

The analysis by the Pew Research Center shows the increasing economic difficulties for young adults who lack a bachelor’s degree in today’s economy that’s polarized between high- and low-wage work. As a whole, high-school graduates were more likely to live in poverty and be dissatisfied with their jobs, if not unemployed.

Deborah Helton Director Send Email View Full Bio

The federal government provides several tax incentives for college students and their parents.  How to best take advantage of these benefits can be tricky.  In this article, we will outline the possible benefits and the pros-and-cons of each in order to explore a few strategies that might be most helpful.

The American Opportunity Tax Credit is a refundable tax credit for undergraduate college education expenses. This credit provides up to $2,500 in tax credits on the first $4,000 of qualifying educational expenses.

Pros: Up to 40% of the American Opportunity credit is refundable. This means up to $1,000 of the American Opportunity credit can be refunded to you, even if your tax liability is zero. This makes the American Opportunity credit potentially more valuable than the Lifetime Learning credit, which is non-refundable.

Cons:  The credit cannot be claimed if a student has already completed four years of college or if the student has already claimed the credit four times on previously filed tax returns. The credit is available to undergraduate college only, and the student must be enrolled at least half time.  Currently, the credit is scheduled to be available through 2017. The credit is phased down benefits for income from $80,000 to $90,000—or $160,000 to $180,000, if filing jointly—and is not available for people with incomes above the phase-out range.

The Lifetime Learning Credit is a credit worth up to $2,000 or 20 percent on the first $10,000 of expenses.

Pros: The Lifetime learning credit is a tax credit that can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills.  The student does not have to be enrolled to a certain threshold; they could be taking only one class.  There is no limit on the number of years this credit can be claimed.

Cons: The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $53,000 and $63,000–$107,000 and $127,000 if filing jointly. You cannot claim a lifetime learning credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). The credit is a per return credit, meaning it could encompass more than one student.

The Hope Credit allows for the first $1,200 in qualified expenses as well as half of the qualifying expenses between $1,200 and $2,400.  The maximum credit is $1,800 per student.

Pros: This credit could accumulate a benefit higher than Lifetime learning credit in some instances. It can be used for one student if another student is utilizing the Lifetime learning credit on the same return.

Cons:  Only available in the first two years of post-secondary education and must be enrolled at least half time.  The credit is phased out once a taxpayer’s modified adjusted gross income exceeds between $50,000 and $60,000 ($100,000 and $120,000 if filing jointly).

The Tuition and Fees Deduction is an alternative to the education credits that provides an above-the-line deduction. The deduction is available for any person who paid tuition and other required fees for attending college, or any other post-secondary school on up to the first $4,000 in qualified expenses.

Pros:  The tuition deduction is not restricted based on what year of college you are in, or if you are a part-time or full-time student. Taking even one class can qualify you for this deduction.   You can deduct tuition and other required fees for the year that you are filing your return and for classes starting in the first three months of the year to follow. The IRS provides the following example in Publication 970, “For example, if you paid $1,500 in December 2012 for qualified tuition for the spring 2013 semester beginning in January 2013, you may be able to use that $1,500 in figuring your 2012 deduction.”

Con:  While the tuition deduction has been around since 2002, this deduction is scheduled to expire at the end of the year 2013. The deduction is limited to $4,000 max per student for income up to $65,000 ($130,000 for joint filers); $2,000 max per student for income over $65,000 and up to $80,000 ($160,000 for joint filers); and no deduction for income over $80,000 ($160,000 for joint filers).

College Savings Plans also called Section 529 plans are a tax favored savings account. Colorado has a few plans sponsored by the State.

Pros:  Similar to retirement accounts this type of account will grow and earn income tax free and withdrawals from the account are also tax free as long as they are used for specified higher education expenses.  Colorado offers a deduction dollar-for dollar deductible against Colorado state income tax.  There are no income limitations to this deduction.  A plan can be started anytime, even while the student is already enrolled.

Cons:  Distributions not used for education are subject to a 10% penalty and taxed as income.  Overfunding this plan should be monitored.  Contributions to the plan are subject to gift tax consequences if your contributions and other gifts to a particular beneficiary exceed $14,000 in 2014.  There are special rules to allow higher contributions over a defined time period.

What’s a Qualifying Education Expense?

Qualifying educational expenses for the American Opportunity Credit are tuition and related course materials. By contrast, “qualifying expenses” are restricted solely to tuition for tuition and fees deduction or the Lifetime Learning credit. For the American Opportunity credit, other course materials such as books, lab supplies, software and other class materials can qualify for the tax credit.

In contrast the tuition and fees deduction doesn’t allows expenses for courses related to sports, games or hobbies and non-academic fees such as student activity fees, athletic fees and insurance expenses are not deductible, even if these fees are required by the school. Similarly, the cost of books, supplies and computer equipment cannot be deducted as part of the tuition and fees deduction. Schools report the amount of qualifying expenses to you and to the IRS using Form 1098-T.

Section 529 plans also allow withdrawals for Computer Technology or Equipment and internet access, as well as room and board costs expenses generally not qualifying for the education credits.

So what benefits should you claim?

When it comes to the benefits and limits inherent in higher education benefits, it is important to consider carefully how to best take advantage of these options. Income levels of the parent and student should be considered.  Also taken into account is whether the student is working and has a tax liability.

In some situations, allowing your child to claim a credit is more advantageous.  Starting in 2013, married couples with income over $300,000 will see a phase out of personal exemptions and be totally phased out of all Federal educational tax credits and deductions listed above.  So the ability to claim your child’s personal exemption may not be as valuable of a tax deduction as it has in the past.

If this is the case, it may be beneficial to allow the child to claim himself on his own return and claim an education credit.  This choice is all or nothing choice, that is to say the credit will follow the personal exemption or allowing a student to claim themselves also allows them to also take the tax credit.  Similarly, a parent can’t claim a credit without claiming the student on their return.  If a student is working and claiming the credit they have the opportunity to obtain a refundable portion of the education credit with the American Opportunity credit, whereas the other credits will only reduce a tax liability.

There is also a scenario in which a working student claims a credit for the first $4,000 of qualified expenses to fully utilize education credits.  Then parents can cover other qualified expenditures by utilizing a Section 529 plan.  Since this account can be set up at any time, a parent can contribute money one day and take out the next for expenses, allowing a lot of flexibility.  With no income limitations, parents can obtain the Colorado state deduction for the Section 529 account contributions while allowing the child to claim the credit they would otherwise be phased out of.  When utilizing this strategy, ensure that the $4,000 of funds used for the credit are separate from the Section 529 funds, those two benefits can be doubled dipped.

If you have more than one student in college these considerations should be made on a per student basis.  For each student, you can elect for any year only one of the credits. For example, if you elect to take the lifetime learning credit for a child on your 2013 tax return, you cannot, for that same child, also claim the American opportunity credit for 2013. If you are eligible to claim the lifetime learning credit and you are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both.

Optimization of your situation should be consider carefully and discussed with your tax advisor to ensure you have all the details worked out properly.

Deborah Helton Director Send Email View Full Bio

While many advisers believe that saving for your retirement should be the number one financial goal, a child’s education continues to steal financial focus of parents. Numerous surveys have revealed that between 68 and 85 percent of parents hold education as a first or second saving priority, beating out other significant events including emergency savings and retirement funds. With the national discussion and concern over the earning gap between those with and without college degrees coupled with the rising cost of higher education, it is easy to see how the focus can be shifted to saving for your child’s college education.

The average price tag for a moderate college budget to attend an in-state public college for the 2013-2014 academic year averaged $22,826, according to the College Board’s recent study. This budget encompasses tuition and fees, books, housing, meals, supplies and other items including transportation costs.

Creating a financial goal is remarkably easy. Current tools allow you to pinpoint a school and, based on the age of your child, will return a saving goal to get you started. Once you have a goal in place, the popular mechanisms for saving varies widely: 38 percent of people save through regular savings accounts, while 23 percent utilize 529 plans and only 5 percent utilize Coverdell accounts, according to the EARN Research Institute. So, what is your best savings tool?

Regular Savings/Investment Accounts:  With the price of tuition rising faster than inflation, a portfolio tilted toward stocks may help you keep up with your goals.  As your child grows, you can reduce the exposure and risk in these accounts by switching to more conservative investment alternatives in the market; however, this alternative will be taxed as you go, hindering your growth with annual tax payments.

529 Plans:  A 529 Plan is an education savings strategy operated by a state. Two are available in Colorado: Scholars Choice and College Invest. The plan is designed to help families set aside money for college, growing tax-free.  In addition to tax-free growth, parents or other contributors to the plan are able to take a Colorado state tax deduction for dollars contributed into the plan.  Money in the plan can be used to meet the costs of qualified colleges nationwide, regardless of the state the plan originated. Investment options inside the 529 plan can be limited to more conservative or age-based portfolios.  Penalties do apply if funds are removed for purposes other than college education or specific related expenses.

Coverdell Accounts:  Similarly, a Coverdell account is an Education Savings Account, which includes higher education. The total contributions to this account cannot be more than $2,000 in any year and the beneficiary of the funds must be under 18 or have special needs.  Although contributions aren’t deductible, deposits grow tax-free.

Roth IRAs:  A less thought of alternative for college savings is a ROTH IRA.  If your child has earned income, this might be another opportunity to save for college.  The benefits of the 529 are built in with tax deferred savings along with the investment freedom of a traditional investment account.  Annual contribution limits in 2014 for a ROTH account are the lessor of $5,500 or earned income.  If your student has a part-time job, maybe working for their entrepreneurial parent, they can contribute to a ROTH account.  Distributions from a ROTH are tax-free if used for college, a first home or retirement above age 59 ½.

Start Today:  Even modest savings can pack a punch if you start early.  Investing just $100 a month for 18 years will grow into $35,500 with an assumed rate of return of 5 percent. It is never too late to start saving, but the earlier parents start, the better off they will be in the long term.

Bridge the GAP with  Scholarships, Grants and Loans :  College scholarships and grants are readily available to students willing to do the research and pay attention to regulations.  Many program sponsors set their own rules about who can apply to specific scholarships, so meeting eligibility criteria is key to receiving awards.  Subscribe to online accounts to help you sort through the scholarships and find ones that meet your student’s needs. Some resources include scholarships.com or fastweb.com.  Ensure your student completes the general scholarship application at his or her college of choice as well.  Government assistance through grants and some scholarship matching also occurs by completing the FAFSA form or Free Application for Federal Student Aid.  Filing your federal income tax return and FASFA application early will increase your student’s chances of being matched with financial aid. Finally, college loan applications are more lenient than other loans and offer lower interest rates than the market.  Loans can help fill in the financial needs. Knowing the difference between subsidized loans and unsubsidized loans is very important. Subsidized are best as interest on the loan is paid by the US Department of Education for up to six months after you leave school. On the other hand, unsubsidized loans accrue interest from the day the loan is borrowed.

Tax Breaks:  The American Opportunity Credit, Lifetime Learning Credit and Hope Credit are all Federal tax credits that can be claimed for college expenses.   These credits can be paired with other strategies like the 529 or Coverdell as long as the same expenses aren’t utilized for both benefits.  Depending on your tax situation, there are a number of strategies in deducting this credit or utilizing the tuition and fees deduction in order to offset the overall cost of college.  These credits or deduction are applicable on the first $4,000 of expenses each year.

Many people incorrectly assume that having savings set aside for college will affect their ability to obtain traditional financial aid.  This myth should be ignored.  Meet with your financial advisor or CPA to discuss what option or blend of options may be best for you.  To manage risks, parents should periodically review their investment choices for college savings to ensure choices still meet their needs.

 For more information, contact Deborah Helton, CPA at 719-579-9090.