Tax Best Practices for Independent Medical Groups

Tax Best Practices for Independent Medical Groups

 

LUTZ BUSINESS INSIGHTS

 

Tax Best Practices for Independent Medical Groups  

BRYAN FREW, TAX DIRECTOR

 

When joining a private practice as a physician, you are taking on the responsibility of managing a small business in addition to practicing medicine. On top of overseeing the everyday operations, physicians must employ effective strategies to reduce tax burden and ensure the future growth of the practice. Here are a few tax best practices for independent medical groups.

1. Choose the right retirement plan

Retirement plans for independent medical groups can be divided into two main categories:  
  • Defined benefit plan 
  • Defined contribution plan 
Each plan has its own cost of administration, and whether it’s the employee or employer who undertakes the investment risks will depend on the type of plan. Contributions to either plan give the company tax deductions while providing a benefit to employees. The size of the tax deduction depends both on the plan chosen and the demographics of the workforce.

Defined Benefit Plan 

A defined benefit plan offers a guaranteed income for life upon retirement. The amount typically depends on factors such as years of service and salary. Defined benefit plans are not as common in the private sector, and the funds are generally inaccessible until retirement. The company assumes responsibility for the money and for its disbursement when payments are due. In other words, if the funds do not bring enough returns to cover the retired employee’s pension amount after investment, the employer bears all the risk. As a result, the costs of administration for this type of plan can be extremely high because it requires insurance and complex actuarial projections for guarantees. In a defined benefit plan, retirees can choose lump-sum or annuity payments. Annuity payment plans are more popular because they do not require managing a ton of money, and retirees are less likely to be affected by market interference.  

Defined Contribution Plan  

The employee is largely responsible for the investment in a defined contribution plan, but often the company will make matching contributions up to a certain limit. A 401(k) is a good example of a defined contribution plan.   The employer is not responsible for the performance of the funds after disbursement, which means low risk and less administration cost for the company. The employee makes the contributions and chooses among the investments provided by the plan. With this type of plan, you are limited to the amount of contribution you can make each year. The max contribution to a defined contribution plan is $61,000 in 2022 (adjusted for inflation) with an additional $6,000 catch-up contributions for individuals aged 50 and over.

2. Entity Selection 

Many factors must be considered when choosing what type of entity the practice is to become. A common setup is to have the operations of the practice as an ‘S’ Corporation and the real estate and large medical equipment to be owned by an LLC taxed as a partnership. The practice (S-Corp) would then have a rental agreement with the real estate company for the use of the building and equipment. The purpose of the S-Corp is to receive desirable tax treatment for the profits of the business (taxed as ordinary income) and the services the physician provides (taxed as both ordinary tax rates and subject to FICA tax). If the practice were taxed as a partnership, the physician would find that all of his or her income would be subject to both ordinary tax rates and self-employment tax rates. If the practice was taxed as a C-corporation, the physician’s earned income for services provided would be taxed at ordinary rates and FICA rates, while the profits of the practice would be distributed to the owner as a taxable dividend AFTER the entity paid corporate taxes, resulting in the dreaded “double taxation”. With the dual-entity system in place, the entity renting the building and equipment would not be subject to self-employment tax as a partnership and receives favorable tax treatment via IRS section 754 when ownership changes occur. There are various reasons one may make different entity selections. This makes it much more important to consult an experienced business advisor when setting up a new private practice.

3. Job-related expenses

One way physicians in private practice can relieve their tax burden is by deducting physicians’ job-related expenses. The tax cuts and jobs act eliminated itemized deductions for unreimbursed employee expenses. This does not favor W2 employees who use after-tax money on job-related expenses. However, business owners can still deduct any expenses that are ordinary and necessary even if the IRS doesn’t consider the expense “indispensable”.  Private practitioners often find themselves with expenses that qualify as both necessary and ordinary, but the other partners are unwilling to incur that expense. For example, a physician with a satellite clinic would consider spending $7,000 on a marketing campaign as an ordinary and necessary expense, but his or her partners may not want to share in that expense. Private practices can use creative compensation models to allocate these expenses to the right owner so that partner-specific deductions do not affect the others’ compensation. Contacts us if you have any questions or learn more about our healthcare accounting and consulting services. 

ABOUT THE AUTHOR

402.462.4154

bfrew@lutz.us

BRYAN FREW + TAX DIRECTOR

Bryan Frew is a Tax Director at Lutz. He began his career in 2009. He is responsible for providing taxation services to businesses and individuals, as well as trusts and estates with a focus on medical practices.

AREAS OF FOCUS
  • Individual & Business Taxation
  • Estate & Trusts
  • Healthcare Accounting & Consulting
AFFILIATIONS AND CREDENTIALS
  • American Institute of Certified Public Accountants, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • BSBA in Accounting, University of Nebraska, Omaha, NE
COMMUNITY SERVICE
  • Third City Community Clinic, Past Treasurer
  • Volunteer Coach for Youth Sports & Camps

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Financial Management and Governance Best Practices for Nonprofits

Financial Management and Governance Best Practices for Nonprofits

 

LUTZ BUSINESS INSIGHTS

 

financial management and governance best practices for nonprofits

NATE JONES, AUDIT MANAGER

Effective governance and sound financial practices are key to ensuring strong nonprofit management. For any nonprofit leader, this is critical to effectively support the organization’s chosen causes, maintain trust with supporters, and enable organizational longevity. Regardless of your organization’s mission, adhering to these practical tips for managing finances and governance will help keep the organization in compliance and operating at its highest potential. 

1. Establish Strong Internal Control Policies

The first aspect of effective financial management and governance is installing internal control policies to guide critical processes. Internal controls exist to regulate staff, board members, and external vendors from misusing funds. To start, a segregation of duties policy should be put in place to the highest extent possible. This policy should establish a clear delineation as to who has access and control over certain actions within the major financial transaction cycles. For example, the person who receives mailed funds should not the same person who deposits them. Likewise, whoever approves vendor orders should not have custody of the funds to pay that vendor. 

In conjunction with these policies, there should be multiple layers of review and approval for each duty. Expenditure approval should also have a clear process that has oversight on it. Organizations should consider requiring more than one person’s approval on purchases over a specific dollar threshold. Once these policies are created, they must be formalized and subject to regular review. This will help retain meaningful control over funds, ensure that individuals are subject to necessary supervision, and avoid misappropriation of donor dollars. 

2. Systematic Board Recruitment and Acceptance

The nonprofit board plays a decisive role in both governance and financial management. Board members provide guidance and insight to the organization to ensure it’s able to meet its goals to serve its larger purpose. Thus, recruitment and acceptance of board members is a key part of building a strong, competent executive team. 

First, the size of the board should reflect the size and complexity of the organization to ensure maximum impact. Likewise, the board should be meaningfully diverse, both in experience and demographics. This will help the board contribute a wide array of experiences and insights, helping the organization navigate any and all challenges.  

Once board members are selected, they need to have a clear understanding of their responsibilities and obligations. This will help them retain neutrality and carry out their duties in a compliant and impactful manner. It is also incumbent upon the organization to educate board members on state regulations and best practices as they relate to the specific nonprofit. By taking these steps, leaders will help set their board members up for success while enabling them to maximize their impact on the organization. 

3. Clear and Concise Board Duties

Clear and concise board duties keep governance on track by informing the work of the board. Thus, it’s critical to manage these closely, with specific attention to certain duties. 

Conflicts of interest within the board should be reviewed at least annually.  

Board members and nonprofit members both need to be held to a high level of scrutiny. This helps ensure that board members retain independence from the organization and that all decisions are in the nonprofit’s best interests.  

Review and implement clear policies on executive compensation, internal controls, whistleblowers, retention/destruction, and gift acceptance.  

Each of these subjects must be considered. They must have clearly defined policies that are also subject to regular review to ensure that none of them conflict with the nonprofit’s goals or mission. 

Review and approve filing requirements and financial documentation prior to finalizing.  

A key capability of the board is its ability to provide objective financial oversight and advice relative to finances. Thus, the board should be part of the filing and financial document review process to ensure the organization remains compliant with its nonprofit status. 

Maintain minutes for all board meetings.  

Not only is this a requirement for legal compliance, but minutes help to keep the board accountable to the nonprofit’s goals and needs. Furthermore, this provides a means for future review and audit as necessary. 

4. Transparency

The last facet of strong governance and good financial management is transparency. This means transparency throughout all levels of the nonprofit as well as to the board and the public. To help maintain this type of accountability, it’s important to begin by establishing financial performance metrics. Once established, these can then be used for both benchmarking and clear disclosure to the public. This helps garner trust while also instilling confidence as to where and how finances are being spent.  

To further this goal, the organization should also make all form 990s, financial statements, and annual reports available publicly for consumption, with the website being the preferred medium. Likewise, public disclosure of all governance policies will help with transparency and accountability. 

Conclusion 

Good financial management and governance are key to ensuring the success of nonprofit organizations. Through the establishment of strong internal controls, systematic board recruitment and installation, the creation of clear and concise board duties, and financial transparency, nonprofit leaders can be confident in the ability of their organizations to find both longevity and success. 

Need help with establishing good financial management or governance practices for your nonprofit? Lutz has extensive experience helping nonprofits navigate these considerations and is here to help you. Contact us for more information or visit our website to learn about our nonprofit accounting services. 

ABOUT THE AUTHOR

Nate Jones

402.827.2042

njones@lutz.us

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NATE JONES + AUDIT MANAGER

Nate Jones is an Audit Manager at Lutz. He began his career in 2016. He provides assurance services to clients with a focus on the nonprofit and staffing industries. In addition, he assists with training for new audit staff, interns, and the Firm’s international workforce.

AREAS OF FOCUS
  • Audit
  • Employee Benefit Plans
  • Nonprofit Industry
  • Staffing Industry
  • Audit Staff & Intern Training 
AFFILIATIONS AND CREDENTIALS
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • BSBA in Accounting and Business Finance, University of Nebraska, Omaha, NE

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The difference between bookkeepers & CPAs: which does your business need?

The difference between bookkeepers & CPAs: which does your business need?

 

LUTZ BUSINESS INSIGHTS

 

The difference between bookkeepers and CPAs: which does your business need?

TAYLOR HOYT, SENIOR ACCOUNTANT
ACCOUNTING Interns: Laine SaBell and Larren Fear

If you’re a business owner, you know that keeping your finances in order is essential to your success. But what does that mean exactly? Do you need a bookkeeper, a CPA, or both? Does it make sense to hire a full-time professional or should you explore outsourcing your bookkeeping tasks to an accounting firm? In this post, we’ll break down the difference between bookkeepers and CPAs to help you decide which one is right for your business.

 

1. What bookkeepers do

Bookkeepers are responsible for maintaining financial records daily. This includes tracking income/expenses, recovering payments, and preparing reports. Bookkeepers must be detail-oriented, organized, and able to navigate accounting software. Some bookkeepers may also handle payroll and human resources tasks. Bookkeepers can be thought of as the handlers of day-to-day finances that flow through the business.

 

2. What CPAs do

Certified Public Accountants (CPAs) provide various financial services to individuals and businesses. The most common services include tax preparation, auditing, bookkeeping, and financial consulting. CPAs are also qualified to handle all the bookkeeping tasks mentioned above. In addition to these traditional services, CPAs may also specialize in areas such as forensic accounting, estate planning, or corporate finance. While a bookkeeper maintains financial records, CPAs analyze the records to provide suggestions and assist in business decisions.

The specific duties of a CPA vary depending on their area of specialization. However, all CPAs are responsible for ensuring that their clients comply with local, state, and federal laws. In addition to their professional responsibilities, CPAs also must uphold the highest ethical standards. As a result, CPAs play a vital role in maintaining the public’s trust in the financial system.

 

3. The benefits of having a bookkeeper and a CPA

Keeping track of your finances is essential to the success of your business. However, it can be challenging to keep up with all the paperwork and bookkeeping on your own. This is where a bookkeeper can be extremely helpful. A bookkeeper can keep track of all your financial transactions, prepare financial statements, and reconcile bank statements. In addition, a bookkeeper can help you stay organized and ensure that all your financial records are up to date.

While a bookkeeper can be a great asset to any business, there are some things that they cannot do. This is where a CPA comes in. A CPA can give you tax advice or prepare/file your tax return. In addition, they can help you plan for your business’s future by creating a financial forecast and evaluating the business’s financial status. While a CPA can perform all bookkeeping tasks, not all bookkeepers can perform CPA tasks.

As you can see, a bookkeeper and a CPA can be crucial team members. The bookkeeper and CPA work together to ensure the business is in a solid financial position.

 

4. How to choose the right professional for your business

Having a good handle on your finances is essential as a business owner. But between bookkeepers and CPAs, it can be hard to know whom to turn to for help. Here are a few things to keep in mind when choosing a professional:

  • What services do you need? A bookkeeper can handle invoicing, tracking expenses, and preparing financial reports. On the other hand, a CPA can provide tax/financial advice and guidance on complex financial issues.
  • What is your budget? Bookkeeping services tend to be less expensive than CPAs. However, you can always outsource your accounting instead of hiring a full-time employee. Lutz offers Client Advisory Services to help reduce your staffing expenses.

Choosing the right professional for your business depends on a variety of factors. By taking the time to consider your needs and budget, you can ensure that you get the help you need without overspending.

 

5. The cost of hiring a bookkeeper and/or CPA

A bookkeeper or CPA can save time and money by keeping your financial records in order. The cost of hiring a professional bookkeeper or CPA varies depending on the size and complexity of your business, but it’s typically a small percentage of your overall revenue. Without one, you could make costly errors in reporting income/expenses or miss out on important deductions and tax savings.

 

6. Outsourced Accounting

It may make sense to hire outside professionals to complete all or some of the bookkeeping and CPA duties listed above. If you are unable to hire a full-time employee, an outsourced accounting team can perform many accounting and finance functions, filling multiple roles simultaneously. They could act as a bookkeeper, controller, CFO, tax preparer, or any combination of roles you need for your businesses. The peace of mind and time saved is well worth the price.

 

Lutz Can Help!

There are many benefits of having a bookkeeper and CPA. From accurate financial records to tax advice and consulting, these professionals can help take your business to the next level. Make sure to contact us if you have any questions or want to learn more about our accounting services.

ABOUT THE AUTHOR

Taylor Hoyt

402.769.7046

thoyt@lutz.us

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TAYLOR HOYT + SENIOR ACCOUNTANT

Taylor Hoyt is a Senior Accountant at Lutz. She began her career in 2019. She specializes in providing tax consulting and compliance services to clients in a variety of industries with a focus on individual and business income tax returns.

AREAS OF FOCUS
  • Tax
  • Accounting Consulting
AFFILIATIONS AND CREDENTIALS
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • MPA, University of Nebraska, Lincoln, NE
  • Bachelor's in Accounting, University of Nebraska, Lincoln, NE
THOUGHT LEADERSHIP
  • The Difference Between Bookkeepers & CPAs: Which Does Your Business Need?

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Lutz Named a 2023 Best Tax and Accounting Firm by Forbes

Lutz Named a 2023 Best Tax and Accounting Firm by Forbes

 

LUTZ BUSINESS INSIGHTS

 

Lutz Named a 2023 Best Tax and Accounting Firm by Forbes

Forbes has named Lutz, a Nebraska-based business solutions firm, a 2023 Best Tax and Accounting Firm in America. The list identifies firms across the U.S. that are most recommended for their tax and/or accounting services. This is the fourth year in a row Lutz has been named to both the “Best Tax Firms” and “Best Accounting Firms” lists.

To generate the Best Tax and Accounting Firms list, Forbes partnered with research company, Statista, to distribute a survey to various tax and accounting professionals, including CPAs, tax lawyers, accountants, CFOs, and more, between July 11 and September 2, 2022. The survey asked participants to select the top ten tax and top ten accounting firms they would recommend based on their professional experience. Forbes considered nearly 4,500 recommendations, and firms with the highest number of recommendations were awarded. In total, 200 companies were named “America’s Best Accounting Firms,” and 200 were named “America’s Best Tax Firms.”

For a full list of Forbes’ 2023 Best Tax and Accounting Firms in America, please visit https://www.forbes.com/lists/best-tax-firms/?sh=6791804d664b.

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Lutz to Transition Hastings Location

Lutz to Transition Hastings Location

 

LUTZ BUSINESS INSIGHTS

 

Hastings Office

Lutz to Transition Hastings Location

Lutz, a Nebraska-based business solutions firm, has decided to transition its Hastings location effective April 30, 2023.

Beginning May 1, 2023, Hastings team members will serve local customers under the leadership of former Lutz Shareholders Adam Jacobitz and Jeremy Evans as an independent CPA Firm.

“Since our acquisition on May 1, 2017, tremendous changes have impacted all businesses, including public accounting. This decision was difficult as Lutz has operated and immersed our team members in the Hastings community for five years. We worked alongside organizations to grow, pivot, and make tough decisions, enriching our partnerships with many local families and business owners,” said Mark Duren, Managing Shareholder of Lutz.

“All parties agreed that local control and decision-making for Lutz’s Hastings office would benefit clients, staff and the community. Lutz remains committed to focusing on best practices and strengthening our presence across Central and Western Nebraska, creating opportunities for team members, and invigorating success for clients through our tailored business solutions,” he said.

Leading up to this transition, the Lutz Team, including the Hastings office, will continue to deliver exceptional service to all our clients, including clients serviced by Hastings.

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Markets Are Forward Looking + Financial Market Update + 12.6.22

Markets Are Forward Looking + Financial Market Update + 12.6.22

FINANCIAL MARKET UPDATE 12.6.2022

AUTHOR: JOSH JENKINS, CFA

STORY OF THE WEEK

MARKETS ARE FORWARD LOOKING

Last week the Bureau of Economic Analysis (BEA) published its revised GDP figure for the third quarter. The updated data revealed that the economy grew a little faster than previously thought, with GDP increasing from the initially estimated 2.6% to 2.9%. The outlook for economic growth in Q4 remains solid. The Federal Reserve Bank of Atlanta’s popular GDPNow model is calling for fourth-quarter GDP growth of 3.4%.

While economic growth is expected to finish 2022 off on solid footing, expectations for 2023 are not as rosy. Many investors and economists expect growth to grind to a halt next year, pulling the economy into a recession. The chart below, from the Wall Street Journal, illustrates a recent survey on recession expectations conducted by the Federal Reserve Bank of Philadelphia. Based on the data, nearly half of the forecasters anticipate a recession to begin next year.

Source: WSJ

As you can see above, there is more of a consensus that we are approaching a recession than at any other time over the last fifty years. Of course, this does not mean that the forecasters are actually correct. Their track record is not exactly inspiring. According to this survey, the forecasters haven’t estimated more than a 1 in 4 chance of a recession ahead of an actual economic downturn since the 1980s.

Still, the expectation of weakness on the horizon is widely held and has likely been incorporated into market prices to some degree. Investors rightfully associate recessions with poor stock market performance, but the connection between the two is not as direct as many people might expect.  This is largely because the stock market is forward-looking. Current prices don’t just reflect the reality on the ground today. They also incorporate expectations for what may happen in the future, weighted by the likelihood of those expectations coming to fruition.

For a good example of how this has played out in the past, see the below chart from Dimensional Fund Advisors. It illustrates the performance of the S&P 500 leading into and coming out of the ‘Great Recession,’ as the 2008-09 Financial Crisis is often referred to. As you can see, the stock market peaked prior to the onset of the recession. Stocks then began to decline rapidly and were near their lows by the time the recession was officially announced. Prices did not wait for the official declaration. They moved as soon as investors began to sense things were deteriorating.

 Source: Dimensional Fund Advisors

Stocks eventually bottomed during the recession and began to rise on the expectation that things were improving. The next bull market in stock prices began while the economy was still contracting, and it began substantially before the end of the recession was officially announced.

The propensity for markets to move based on expectations is the basis for a popular saying amongst professional traders: ‘buy the rumor, sell the news.’ Market prices are continuously handicapping the current environment and potential future developments.  At times, the market can move too much in anticipation of an event or announcement. In this case, when the official news breaks, it is not uncommon to see the market movement reverse to some degree.

So, where does all of this leave us? Unlike during the Financial crisis, the market is expecting trouble ahead well before any actual contraction in economic activity. This is reflected in both surveys of forecasters as well as in asset prices themselves. The important questions for investors are:

  1. Is a recession in the near-term inevitable?
  2. If one is, how bad will it be?
  3. And what probability and severity of a recession are currently baked into asset prices?

Unfortunately, these questions are all unknowable in advance. While it is common for the stock market to reach its bottom prior to a recession ending, it has not historically bottomed prior to the recession beginning. The implication here would be the potential for more market volatility if we were indeed heading for a recession. On the plus side, even with the recent rally in the stock market, stocks are still well off their peaks. As a result, some portion of the pain has already been endured.

WEEK IN REVIEW

  • The payrolls report, published last Friday, showed continued resiliency in the face of tightening monetary policy. Nonfarm payrolls increased by 263k in November vs. expectations of a 200k increase. The unemployment rate remained unchanged at 3.7%, while wages increased by a higher than expected 0.6%. The stock market has been under pressure since the report was published, as the stronger than expected data suggests the Fed may need to tighten monetary policy more than investors were hoping.
  • The Institute for Supply Management (ISM) reported updates on manufacturing and services sector activity. The manufacturing activity index declined to 49 (below 50 signals contraction, while above 50 signals expansion). The services sector, which is a much larger portion of overall economic activity, increased to a robust 56.5.
  • Next week will arguably be the most important week for the remainder of 2022 in terms of economic data. On Tuesday, we will get the November CPI print. Inflation data has been the most impactful to markets this year, given its influence on the Fed’s monetary policy tightening. Continued cooling in the CPI data could offer a nice tailwind for stocks through the end of the year, while a hotter than expected figure will likely spark volatility across markets. On Wednesday, the Federal Reserve will conclude its last monetary policy meeting of the year. The Fed Fund Futures market is currently pricing a 0.50% hike as the most likely scenario, following four consecutive 0.75% hikes.

ECONOMIC CALENDAR

Source: MarketWatch

HOT READS

Markets

  • Payrolls and Wages Blow Past Expectations, Flying in the Face of Fed Rate Hikes (CNBC)
  • The Fed’s Path to a ‘Goldilocks’ Economy Just Got a Little More Complicated (CNBC)
  • Services Come With a Amile, But the Economy Could Still Be Frowning (WSJ)

Investing

  • Stocks Have Historically Been the Best Inflation Hedge (Josh Brown)
  • Small-Cap Stocks Are Really Cheap (MorningStar)
  • Is Real Estate a Better Investment Than the Stock Market (Ben Carlson)

Other

  • Thankfully College Football Playoff Doesn’t Succumb to the SEC-Big Ten Takeover (SI)
  • The Incredible Shrinking Future of College (VOX)
  • The Best New Cars, Trucks, SUVs, and Minivans (Car & Driver)

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

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ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + CHIEF INVESTMENT OFFICER, PRINCIPAL

Josh Jenkins is a Chief Investment Officer and Principal at Lutz Financial. With 12+ years of relevant experience, he leads the Investment Committee and specializes in assisting clients with portfolio construction, asset allocation, and investment risk management. He is also responsible for portfolio trading, research and thought leadership, and the division's analytics and operational efficiency. He lives in Omaha, NE.

AREAS OF FOCUS
  • Asset Allocation
  • Portfolio Management
  • Research & Data Analytics
  • Trading Team Oversight
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst®
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

All content © 2017 Lutz Financial  | Important Disclosure Information |  Privacy Policy

FORM CRS RELATIONSHIP SUMMARY

Quarter Three Middle Market M&A Report 2022

Quarter Three Middle Market M&A Report 2022

 

LUTZ BUSINESS INSIGHTS

 

Quarter Three Middle Market M&A Report 2022

“The global mergers and acquisition market has remained resilient through a period of great economic uncertainty.”

The global mergers and acquisition market has remained resilient through a period of great economic uncertainty brought on by a combination of surging inflation, rising interest rates, tightening capital markets, and geopolitical tensions. The total value of lower middle market deals announced in Q3 amounted to $81.3 billion – 0.8% above Q2-22. Similarly, total transaction volume has remained steady decreasing by a marginal 0.7% when compared to the prior quarter. Deal volume has moderately slowed as the global mergers and acquisition market reverts to sustainable, healthy levels of activity following an intense market observed in 2021.

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11.30.22 | Nonprofit Tax Update + Form 990 | Webinar

11.30.22 | Nonprofit Tax Update + Form 990 | Webinar

 

LUTZ BUSINESS INSIGHTS

 

Non-Profit Tax Update

NonProfit Tax Update + Form 990

11.30.22 | Recording

Even though tax-exempt nonprofits do not pay federal taxes, they do have to file an information form with the IRS. Form 990 makes sure that nonprofits conduct their business in a way that is consistent with their public responsibility. In this presentation, Lutz experts Hannah Goscha and Dan Sweeney will cover Form 990, as well as other hot topics currently seen in the nonprofit industry.

Key Takeaways:

  • Form 990 Overview and Best Practices
  • 990-EZ and 990-N Filing Requirements
  • Tax Updates for Nonprofits

Seminar Level: Beginner

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Markets Are Forward Looking + Financial Market Update + 12.6.22

3 Reasons the 60-40 Portfolio Isn’t Dead + Financial Market Update + 11.29.22

FINANCIAL MARKET UPDATE 11.29.2022

AUTHOR: JOSH JENKINS, CFA

STORY OF THE WEEK

3 REASONS THE 60-40 PORTFOLIO ISN’T DEAD

2022 has unquestionably been a tough year for diversified investors. With most major asset classes in the red, there has seemingly been no place to hide. The classic 60-40 portfolio, which represents an asset allocation with 60% invested in stocks and 40% in bonds, is having one of its worst years going back to 1980.

Any time this tried-and-true approach comes under pressure, people tend to line up to declare that it’s dead. Typically, this includes the financial media deploying its standard playbook of using fear to attract eyeballs, as well as other financial professionals trying to sell a more complex (and, of course, more expensive) alternative.

Despite all these declarations, we are not ready to call the time of death yet. Here are three reasons we think the 60-40, or diversified portfolios in general, still make sense for investors.

1. Drawdowns are Normal

The 60-40 portfolio has a very long track record of success, which is part of the reason it gets so much attention when it comes under pressure. The chart below illustrates the annual returns for a 60-40 portfolio going back to 1980. The green bar represents the return contribution from stocks, while the grey bar represents the contribution from bonds. Additionally, the green number represents the total return, while the red number represents the largest intra-year decline.

There are several takeaways from this chart:

  1. There is a high chance the 60-40 portfolio will have a positive return each year. Since 1980, the portfolio has been positive about 83% of the time (35 of 42 years).
  2. Typically, if one of the asset classes had a negative year, the other asset class was positive.
  3. Despite a positive return in most years, intra-year drawdowns are normal and often quite large.

Source: JP Morgan Asset Management, FactSet, Standard & Poor’s, Bloomberg. Intra0year drops refer to the largest market drops from a peak to a trough during the year. For illustrative purposes only. The 60-40 portfolio is 60% invested in the S&P 500 Total Return Index and 40% invested in the Bloomberg U.S. Aggregate Bond Index. The portfolio is rebalanced annually. Returns shown are calendar year returns from 1980 to 2021, over which time period the average annual return was 10.6%. Guide to the Markets – U.S. Data are as of September 30, 2022. 

The above chart clearly demonstrates the 60-40 portfolio is not immune to volatility. Prior to 2022, there were ten different instances where the portfolio was down 10% or more during the year. In six of those ten years, the 60-40 still had a positive return. Given the scale of the current drawdown and the relatively short amount of time till the end of the year, it seems unlikely that it will end 2022 in positive territory. Still, we think there are much better days ahead for balanced investors.

2. Valuations Have Improved

Much of the market volatility this year can be attributed to the Federal Reserve’s tightening of monetary policy, which is aimed at combating the rapid pace of inflation. To do this, the Federal Reserve has lifted its benchmark federal funds rate by 3.75%. In the context of recent Fed tightening cycles, the Fed’s actions in 2022 can be considered extremely aggressive. As a result of this dramatic upward shift in short-term interest rates, other asset classes have needed to adjust.

Bond prices move inversely with interest rates, so as rates jumped higher, bond prices plummeted. Making matters worse for the bond market, interest rates have increased from a historically low level. Consequently, there was little to no interest income to offset the price decline. Moving forward, however, things look very different. Now that interest rates have moved dramatically higher, bonds are once again generating income. There is also the possibility that interest rates could decline if the economic outlook got dark enough, this would result in price appreciation for bonds.

With the yield on the Bloomberg Aggregate Bond Index hovering around 5% as of the end of October, expected returns for the bond market are the highest they have been since the Financial Crisis nearly 15 years ago!

While the relationship of stock prices to the level of interest rates is not as direct as it is for bonds, it is still meaningful. A stock’s value is generally considered to be the present value of all its future cash flows. To arrive at the present value, a discount rate is applied to those cash flows. As interest rates increase, so does the discount rate, which in turn, lowers the present value. Additionally, as interest rates increase, overall demand within the economy slows, which is a headwind to corporate earnings and, ultimately, the cash flow to be returned to shareholders.

By the end of 2021, valuations, particularly for larger growth-oriented companies, were stretched. After the recent volatility we have experienced, prices appear to be much closer to fair value. Some areas of the market, including small, value, and international, are cheaply priced relative to history. Ultimately, while the repricing in both the stock and bond market in response to rising interest rates has been painful, the silver lining is that expected returns have improved dramatically as a result.

3. The Future Remains Uncertain

Investors tend to make poor decisions when sentiment hits an extreme. This is equally true when the market is skyrocketing and the prevailing emotion is greed, as it is when prices are tumbling and fear takes hold. A balanced portfolio, such as the 60-40, is an excellent tool to combat these powerful emotions that can get investors into trouble.

Meaningful exposure to the stock market allows a balanced investor to participate in the upside when times are good, while bonds usually (though not always) provide a ballast to the portfolio, dampening the large swings that can cause investors to sway from their plan.

Elroy Dimson, Professor at the London Business School, famously said: “Risk means more things can happen than will happen.” Inflation, monetary policy, the war in Ukraine, geo-political tensions, slowing economic growth, and other potential risk factors that have not yet been identified can combine to form a virtually limitless array of possible outcomes. As a result, attempting to tactically shift one’s portfolio allocation in anticipation of the future is a fool’s errand. Fortunately, a balanced portfolio relieves an investor of the need to predict the future.

WEEK IN REVIEW

  • According to FactSet, 94% of the S&P 500 has reported Q3 results as of November 18th. The earnings growth rate, blended between companies that have already reported with the estimates for those that have yet to report, is at 2.2% year-over-year. If the earnings growth rate for Q3 remains at 2.2%, it will be the slowest quarter of earnings growth in two years. Early estimates for Q4 reflect a 2.1% decline in earnings. Earnings growth represents an important fuel for continued appreciation for the stock market.
  • This will be a big week of economic data. On Tuesday, we will get the September reading on the Case-Shiller Home Price Index and consumer confidence. On Wednesday, we will get the first revision on Q3 GDP, job openings, quits, pending home sales, and the Fed’s Beige Book. On Thursday, we will get jobless claims, Personal Consumption Expenditures (PCE – the Fed’s preferred inflation gauge), and manufacturing activity. The week will be headlined by Friday’s Payrolls report.
  • Fed Chairmen Jerome Powell is scheduled to give a speech on Wednesday. Investors will tune in and look for any new clues on how monetary policy might evolve in the coming months.

ECONOMIC CALENDAR

Source: MarketWatch

HOT READS

Markets

  • Fed’s Williams Says Inflation Fight Could Last Into 2024 (WSJ)
  • Crypto Speculation Is All But Over. Its Systemic Troubles Aren’t (WSJ)
  • Yield Curve Inversion Reaches New Extremes (WSJ)

Investing

Other

  • It’s Not Your Imagination: Shopping on Amazon Has Gotten Worse (Washington Post)
  • Nebraska Hires Matt Rhule: What We Know, and What we Don’t, About New Coach (The Athletic)
  • The U.S. Needs More Housing Than Almost Anyone Can Imagine (The Atlantic)

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

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ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

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JOSH JENKINS, CFA + CHIEF INVESTMENT OFFICER, PRINCIPAL

Josh Jenkins is a Chief Investment Officer and Principal at Lutz Financial. With 12+ years of relevant experience, he leads the Investment Committee and specializes in assisting clients with portfolio construction, asset allocation, and investment risk management. He is also responsible for portfolio trading, research and thought leadership, and the division's analytics and operational efficiency. He lives in Omaha, NE.

AREAS OF FOCUS
  • Asset Allocation
  • Portfolio Management
  • Research & Data Analytics
  • Trading Team Oversight
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst®
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

All content © 2017 Lutz Financial  | Important Disclosure Information |  Privacy Policy

FORM CRS RELATIONSHIP SUMMARY

Lutz Tech adds Duren, Manley and Swiercek

Lutz Tech adds Duren, Manley and Swiercek

 

LUTZ BUSINESS INSIGHTS

 

Devin Duren
Bill Manley
James Swiercek

Lutz Tech adds Duren, Manley and Swiercek

Lutz, a Nebraska-based business solutions firm, recently added Devin Duren, Bill Manley and James Swiercek to its Tech division.

Devin joins the firm as a Service Desk Engineer remotely. He is responsible for troubleshooting deep technical issues, maintaining network infrastructure, and providing remote support for clients’ workstations and servers. In addition, he helps manage escalated incidents and service requests, as well as user communication to improve IT processes and business efficiency. Duren has over two years of experience in IT support.

Bill joins the firm as a Senior Project Engineer in the Omaha office. He is responsible for implementing new technology and hardware solutions for Lutz Tech clients. In addition, he assists the service desk with network troubleshooting. Manley has over 11 years of experience in technology.

James joins the firm as a Service Desk Technician remotely. He is responsible for servicing the helpdesk to resolve immediate technical issues, maintain network infrastructure, and provide remote support for clients’ workstations and servers. In addition, he provides IT support and incident tracking for Lutz Tech clients. Swiercek is currently studying information technology at Metropolitan Community College.

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Get to Know the Lutz Talent Team!

Get to Know the Lutz Talent Team!

 

LUTZ BUSINESS INSIGHTS

 

Get to Know the Lutz Talent Team

Chris bouchard

Talent Shareholder

Laurie Cradick

Client Relations Manager

Katy Doyle

Recruiter

Alex Cassidy

Client Relations Lead

Steve Guenther

Talent Director

Lindsey Sparks

Recruiter

Hanna Vogel

Talent Sourcer

Jana Stone

Talent Sourcer

Kendall Prine

Client Relations Manager

Raechel Germain

Talent Administrative Assistant

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Tax Considerations for Trusts and Estates

Tax Considerations for Trusts and Estates

 

LUTZ BUSINESS INSIGHTS

 

Tax Considerations for Trusts and Estates

hannah goscha, tax manager
accounting intern: claire donahoe

A trust or estate provides a way to manage property and finances while protecting the assets of the people involved. There are various tax considerations regarding trusts and estates, so it’s essential to understand what you need to do to stay compliant with laws and regulations. This blog post will outline some of the key tax issues for trusts and estates, so you can be sure you’re utilizing all possible tax advantages.

 

What is a Trust?

A trust is a legal arrangement in which one party, the trustee, holds the property on behalf of another party, the beneficiary. The grantor is the individual who creates the trust fund and is usually the owner of the trust’s assets. The trustee is responsible for managing the trust and ensuring that the beneficiaries receive the benefits specified in the trust agreement.

 

Types of Trusts

There are three main types of trusts: simple, complex, and grantor. Simple trusts must meet three requirements:

  • Trust income must be distributed annually.
  • There can be no charitable beneficiaries.
  • No distributions of trust principal can be made.

A trust that doesn’t meet those requirements would be a complex or grantor trust. Grantor trusts are treated as if the grantor is the owner of the trust for income tax purposes. Non-grantor trusts, on the other hand, pay tax at the trust level and distribute income to the beneficiary, which will be reported on the issued K-1.

Trusts can be an essential part of estate planning and can help individuals minimize their tax liability and protect their assets. Learn more about the different types of trusts by reading our previous blog.

 

Does a trust file a tax return?

Once a simple or complex trust is created, it must file a tax return called Form 1041 if it has a gross income of $600 or more. Trusts must also provide a Schedule K-1 to all the trust beneficiaries. The beneficiaries will then use this information to report their share of the trust’s income on their personal Form 1040 tax return.

 

What are some deductions that trusts can claim?

You can use a trust for various purposes, including estate planning and asset protection. As with other legal entities, there are certain deductions that trusts can claim that can help reduce the overall tax liability of the trust. These deductions include:

  • Trustee fees– Fees paid to the trustee for managing the trust
  • Administrative expenses– Costs associated with managing the assets of the trust
  • Investment advisory fees– Fees paid to an investment advisor to manage the trust’s assets
  • Legal fees– Legal costs associated with forming and maintaining the trust
  • Tax preparation fees– Costs related to preparing and filing the trust’s tax return
  • Income distribution deductions– Deductions taken for distributing income to the beneficiaries
  • Real estate/property taxes – Taxes paid on property owned by the trust
  • Charitable contributions – Donations made by the trust to a qualified charitable organization

 

Trust Rules to Consider

65 Day Rule

The 65-day rule states that a trustee can make distributions to trust beneficiaries within 65 days after year-end, and those distributions can be treated as if they were made in the previous tax year. Therefore, if you want distributions to be considered part of the previous tax year, the deadline to make them is March 6th. This rule applies to discretionary trusts (those in which the trustee can use their discretion about using the trust’s income and capital) and estate distributions.

10 Year Rule

Another important rule to be aware of is the 10-year rule, which says that any property left in a trust must be distributed within ten years of the settlor’s death. Failure to do so could result in a significant tax bill.

 

Estate Tax Considerations

Estate and inheritance taxes are two primary tax considerations to keep in mind when someone dies. Both taxes depend on where the person lived before they died. Most estates are not large enough to be taxed, as the federal estate tax only applies if the deceased person’s assets are $12.06 million or more. Many states are getting rid of state and inheritance taxes, which is quite controversial. Nebraska does not have estate taxes.

 

Estate Tax Reduction Options

There are several ways to reduce the amount of estate tax owed. One way is to give gifts to family members during your lifetime. You can also set up a family-limited partnership, which can help to minimize estate taxes. Another option is to make charitable donations through a trust. Alternatively, you can set up an irrevocable life insurance trust to help pay off any estate taxes owed. By taking advantage of these strategies, you can reduce the estate tax owed and ensure that your loved ones are taken care of after you pass away.

If you have any questions or would like more information about our accounting and consulting services, please don’t hesitate to contact us.

ABOUT THE AUTHOR

Hannah Goscha

402.763.2975

hgoscha@lutz.us

LINKEDIN

HANNAH GOSCHA + TAX MANAGER

Hannah Goscha is a Tax Manager at Lutz. She began her career in 2018. She is responsible for providing tax consulting and compliance services to clients with a focus on partnerships, corporations, nonprofits, trusts and estates.

AREAS OF FOCUS
  • Tax
  • Accounting & Consulting
  • Nonprofit Industry
AFFILIATIONS AND CREDENTIALS
  • American Institute of Certified Public Accountants, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • Master's in Accounting, University of Nebraska, Omaha, NE
COMMUNITY SERVICE
  • Lutz Gives Back, Co-President

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IRS Tax Inflation Adjustments for Tax Year 2023

IRS Tax Inflation Adjustments for Tax Year 2023

 

LUTZ BUSINESS INSIGHTS

 

irs tax inflation adjustments for tax year 2023

daniel sweeney, tax director

 

On October 18, 2022, the IRS announced the tax year 2023 annual inflation adjustments for more than 60 tax provisions, including tax rate schedules and standard deduction rates. US tax rates are adjusted for inflation annually. The increase is particularly generous due to this year’s high inflation.

In addition to the release by the IRS, the US Social Security Administration (SSA) announced on October 13, 2022, the maximum amount of wages subject to Social Security will increase from $147,000 in 2022 to $160,200 in 2023. The 9% increase in the Social Security wage base from 2022 to 2023 represents the largest percentage annual increase to the Social Security wage base since 1983. 

While these adjustments won’t apply until the 2023 tax year (for returns generally filed in 2024), understanding these changes can help individuals with personal, business, and investment strategies. Below are highlights of the key tax adjustments:

 

Marginal Rates – Single and (Married Filing Joint (MFJ))

  • 37% for income greater than $578,125 ($693,750 for MFJ)
  • 35% for incomes over $231,250 ($462,500 for MFJ)
  • 32% for incomes over $182,100 ($364,200 for MFJ)
  • 24% for incomes over $95,375 ($190,750 for MFJ)
  • 22% for incomes over $44,725 ($89,450 for MFJ)
  • 12% for incomes over $11,000 ($22,000 for MFJ)

 

Standard Deductions

  • $27,700 – Married Filing Joint and surviving spouse (up $1,800 from the prior year)
  • $13,850 – Single and Married Filing Single (up $900 from the prior year)
  • $20,800 – Head of household (up $1,400 from the prior year)

 

Estate/ Gift Thresholds

  • The annual exclusion for gifts increases from $16,000 to $17,000.
  • The basic estate tax exclusion for inheritances increases from $12,060,000 to $12,920,000.

 

Fringe Benefits

  • The monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases from $280 to $300.
  • For Health Savings Accounts (HSAs), the contribution limit for self-only coverage increases to $3,850, and Family Coverage increases to $7,750.

If you have any questions, please contact us or your Lutz representative.

12.13.22 | YEAR-END TAX UPDATE | WEBINAR

Though there aren’t many days left in 2022, you still have time for a quick review of your financial situation. In this presentation, Lutz experts will cover current tax law updates, as well as general year-end planning ideas.

KEY TAKEAWAYS:

  • Up-to-Date Tax Law Changes
  • Tax Planning Opportunities
  • New Green Energy Tax Credits

REGISTER

ABOUT THE AUTHOR

402.463.8988

dsweeney@lutz.us

747 N BURLINGTON AVE

SUITE 401

PO BOX 1317

HASTINGS, NE 68902

DANIEL SWEENEY + TAX DIRECTOR

Daniel Sweeney is a Tax Director at Lutz with over five years of experience in taxation. He focuses on several areas, including tax preparation and planning for individuals, businesses, and estates and trusts. His experience also includes international tax and tax research.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • Nebraska State Bar Association, Member
  • Hastings Young Professionals, Member
  • Nebraska State Bar
EDUCATIONAL BACKGROUND
  • BA in Political Science, American University, Washington, D.C.
  • JD, University of Nebraska Lincoln College of Law, Lincoln, NE
  • LLM Tax, Northwestern Pritzker School of Law, Chicago, IL
COMMUNITY SERVICE
  • Hastings College Adjunct Professor of Federal Income Tax

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2023 Expanded Eligibility + Individual Residential Energy Credits

2023 Expanded Eligibility + Individual Residential Energy Credits

 

LUTZ BUSINESS INSIGHTS

 

2023 expanded eligibility + individual residential energy credits

daniel sweeney, tax director

 

The federal government offers two energy credits designed to help individuals offset residential energy costs.

  • The Nonbusiness Energy Property Credit (IRC Section 25C)
  • Residential Energy Efficient Property Credit (IRC Section 25D)

The Inflation Reduction Act, passed this year, renamed and modified both. More individuals can now take advantage of the expanded credits starting in 2023.   

 

Nonbusiness Energy Property Credit / Energy Efficient Home Improvement Credit (25C)

The nonbusiness energy property credit is intended for homeowners who install energy-efficient improvements. The credit has historically had a $500 lifetime limit and is equal to 10% of the amount paid by the taxpayer. Qualified energy efficiency improvements include home insulation, exterior doors, exterior windows and skylights, certain roofing materials, and residential energy property expenditures like electric heat pumps, electric heat pump water heaters, central air conditioning systems, natural gas/propane/oil water heaters, biomass fuel stoves, natural gas/propane/oil furnaces and hot water boilers, and advanced circulating fans. 

Effective 1/1/2023 to 12/31/2032, the $500 lifetime limitation has been abolished, and now a $1,200 limit per taxpayer per year applies. Furthermore, the credit limit increases from 10% to 30%. Certain improvements have separate limitations: 

  • $600 for residential energy property expenditures, windows, and skylights
  • $250 per exterior door ($500 total for all exterior doors)
  • $150 for a home energy audit.

 

Residential Energy Efficient Property Credit / Residential Clean Energy Credit (25D)

The residential energy efficient property credit (IRC Section 25D) incentivizes individual taxpayers to purchase alternative energy products that rely on renewable energy sources, such as wind, solar, geothermal, or fuel cell technology. The cost of wind turbines, solar panels, solar electric equipment, solar-power water heaters, etc., is eligible for the credit, whether they are installed in a primary residence or vacation home.

Specifically, you can use the credit on the following expenditures:

  • Qualified solar electric property expenses
  • Qualified solar water heating property expenses
  • Qualified fuel cell property expenses
  • Qualified small wind energy property expenses
  • Qualified geothermal heat pump property expenses
  • Qualified battery storage technology

The rate to calculate qualifying expenses has increased from 22% to 30% for 1/1/2022 to 12/31/2032. If you have any questions, please contact us or your Lutz representative.

12.13.22 | YEAR-END TAX UPDATE | WEBINAR

Though there aren’t many days left in 2022, you still have time for a quick review of your financial situation. In this presentation, Lutz experts will cover current tax law updates, as well as general year-end planning ideas.

KEY TAKEAWAYS:

  • Up-to-Date Tax Law Changes
  • Tax Planning Opportunities
  • New Green Energy Tax Credits

REGISTER

ABOUT THE AUTHOR

402.463.8988

dsweeney@lutz.us

747 N BURLINGTON AVE

SUITE 401

PO BOX 1317

HASTINGS, NE 68902

DANIEL SWEENEY + TAX DIRECTOR

Daniel Sweeney is a Tax Director at Lutz with over five years of experience in taxation. He focuses on several areas, including tax preparation and planning for individuals, businesses, and estates and trusts. His experience also includes international tax and tax research.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • Nebraska State Bar Association, Member
  • Hastings Young Professionals, Member
  • Nebraska State Bar
EDUCATIONAL BACKGROUND
  • BA in Political Science, American University, Washington, D.C.
  • JD, University of Nebraska Lincoln College of Law, Lincoln, NE
  • LLM Tax, Northwestern Pritzker School of Law, Chicago, IL
COMMUNITY SERVICE
  • Hastings College Adjunct Professor of Federal Income Tax

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November Retirement Plan Newsletter 2022

November Retirement Plan Newsletter 2022

 

LUTZ BUSINESS INSIGHTS

 

PUBLISHED: NOVEMBER 21, 2022

november RETIREMENT PLAN NEWSLETTER

DOL UPDATES GUIDANCE ON AUDITOR INDEPENDENCE FOR RETIREMENT PLAN ENGAGEMENTS

In September, the U.S. Department of Labor (DOL) released an Interpretive Bulletin that updates guidance on audits of benefit plans under the Employee Retirement Income Security Act. The updated guidelines are intended to help determine when a qualified public accountant is independent for the purpose of auditing and rendering an opinion on the Form 5500. With the new guidance, DOL removes what it describes as certain “outdated and unnecessarily restrictive provisions” and reorganizes other provisions for clarity.

While offering clarification for auditors, the bulletin also aims to inform plan sponsors seeking to engage external accounting resources and ensure adequate access to knowledgeable practitioners. “Our goal in updating the Interpretive Bulletin is to make sure the Department of Labor’s interpretations in this area continue to foster proper auditor independence while also removing outdated and unnecessary barriers to plans accessing highly qualified auditors and audit firms,” said Acting Assistant Secretary of Labor for Employee Benefits Security Ali Khawar in a statement.

Among changes in the new bulletin is an update on what constitutes a “disqualifying financial interest” for new audit engagements. According to the guidelines, an accountant, or accounting firm, is not prohibited from taking on a new engagement solely due to a related party holding the plan sponsor’s publicly traded securities during the financial statement period. However, DOL specifies that “the accountant, accounting firm, partners, shareholder employees, and professional employees of the accountant’s accounting firm, and their immediate family,” must dispose of any such holdings before the period during which the engagement occurs. It defines that period as beginning when the accountant either signs an agreement to perform the engagement or commences the audit process (whichever comes first) and “ending with the formal notification, either by the member or client, of the termination of the professional relationship or the issuance of the audit report for which the accountant was engaged, whichever is later.”

The bulletin also provides clarification on what constitutes an “office” for determining who is considered a “member” of an accounting firm and when someone would be regarded as “located in an office” of a firm that performs a substantial portion of the engagement. The department explains that it views an office as a “reasonably distinct subgroup within a firm” that serves the same group of clients or performs work on “the same categories of matters.” It places more weight on substantive matters, such as an individual’s expected interactions with personnel and their reporting channels, rather than physical location.

In addition to its revised guidance, the new bulletin also restates some of its original promulgations on auditor independence from 1975. The guidance reminds plan administrators, for example, of the requirement to retain an “independent qualified public accountant” to conduct an annual review. The accountant, it states, must render an opinion on whether the financial statements conform with generally accepted accounting principles and whether required schedules within the plan’s annual report fairly present the information contained therein.

The full updated bulletin is available on the U.S. Federal Register website.

 

Sources:

https://www.dol.gov/newsroom/releases/ebsa/ebsa20220902

https://www.plansponsor.com/ebsa-issues-new-audit-independence-guidance/

https://www.federalregister.gov/documents/2022/09/06/2022-18898/interpretive-bulletin-relating-to-the-independence-of-employee-benefit-plan-accountants

DOES YOUR RETIREMENT PLAN STAND OUT FROM THE CROWD?

With more than two-thirds of American workers having access to a retirement plan, employees and job seekers have come to expect one as part of their benefits package. That means it’s more important than ever to make sure your offering differentiates your organization from the competition. Whether you’re looking to deepen your bench by attracting top talent or retain the valued employees you have, evaluate if your retirement benefit is enough to move the needle.

Workers Want Financial Wellness

Access to a retirement plan can be desirable but also overwhelming. A retirement plan is many workers’ first investing experience, and it can be intimidating if they fear making a mistake with their hard-earned pay or “locking up” funds for many years. When employees sit on the sidelines, they aren’t getting all they can out of their retirement plan. Providing the necessary guidance to better understand their plan can give employees the confidence they need to take full advantage of this valuable benefit. A 2022 Schwab survey shows that 23% of respondents desire a financial wellness program, and 20% want access to a financial advisor. Companies like Apple know that offering flexible options to learn about product features and providing one-on-one support helps consumers get the most out of their purchases and promotes customer satisfaction and loyalty. Empower your employees with a robust financial wellness offering with plentiful options for participants to access the information and support they need on demand.

Investment Choices May Bolster Enthusiasm

As worker turnover rates remain stubbornly high during the “great resignation,” your retirement plan can help reduce churn. Offering an array of professionally vetted investment choices may boost participation and enthusiasm. If you do include self-managed options, just be sure to talk to your advisor about providing appropriate education and guardrails so workers can make prudent decisions, especially when it comes to novel or alternative asset classes such as cryptocurrency, which may not be considered prudent in the current regulatory environment.

Features That Can Provide a Boost

Consider adding bonus features to set your plan apart when appropriate, such as profit sharing, for example. Or consider allowing participants to use contributions to pay down student debt or build an emergency fund. Also, don’t overlook the ability of more generous “standard” features — such as immediate eligibility, faster vesting, a larger match, and low fees — to give your plan an edge.

A retirement plan offering requires a significant investment of time, money and other organizational resources. It also carries with it a certain degree of risk. Make sure yours is getting the street cred it deserves and paying out the dividends you want as a plan sponsor.

 

Sources:

https://www.blog.personalcapital.com/blog/retirement-planning/average-401k-balance-age

https://www.planadviser.com/role-401k-todays-tight-labor-market

DOCUMENTING FIDUCIARY PLAN MANAGEMENT RESPONSIBILITIES

ERISA states that every plan document must identify a “Named Fiduciary” to be the individual or entity serving as the primary fiduciary responsible for all plan management activities (e.g., President, Plan Administrator, The Company (BOD), or another individual or entity).

The Named Fiduciary can delegate nearly all plan management responsibilities to “co-fiduciaries”; however, they must retain the responsibility to regularly monitor the prudent management of these co-fiduciaries (e.g., individuals who comprise a plan steering committee or others who impact plan decision making).

Having a Committee Charter is very beneficial when delegating any fiduciary responsibilities to co-fiduciaries.

A Committee Charter documents the delegation of the specified plan management responsibilities, as well as plan practices and procedures, to plan co-fiduciaries. A board resolution adopting the committee is also helpful (if there is no BOD or other controlling entity, an adoption resolution is not necessary). Your financial professional can assist with a sample Committee Charter and related documents that can be easily edited to suit your needs.

Co-fiduciary Acceptance, and Resignation signatures, although not specifically required by ERISA, are quite important. The fiduciary acceptance (by signature) specifies the specific responsibility delegations. Resignation signatures are important, and they can remove the fiduciary from further post-resignation liability. ERISA holds that if a co-fiduciary (e.g., Committee member) leaves the Committee but does not leave the company, they remain liable for the actions of the remaining co-fiduciaries (committee members) unless they sign a resignation statement (also available via your financial professional). Finally, resigning fiduciaries need to follow plan procedures and make certain that another fiduciary is carrying out any responsibilities left behind that are required for prudent plan management. It is critical that a plan has appropriate fiduciaries in place so that it can continue operations and participants have a way to interact with the plan.

See the following link for the DOL’s stated positions on these and other fiduciary responsibilities:

https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities.pdf

PARTICIPANT CORNER: ARE YOU THANKFUL FOR YOUR HEALTH?

With small lifestyle changes and healthy choices (especially with all the shared yummy foods), you may reduce your annual healthcare costs and increase your income. These lifestyle changes can be as simple as limiting your salt intake or taking your prescribed medication regularly.

By adopting healthy habits, you can mitigate future healthcare costs. Data from HealthyCapital reveals that by simply making a few minor changes to daily routines and reducing the risk factors leading to chronic disease, individuals could potentially add years to their lives and save thousands of dollars in lifetime medical expenses. (See example below)

Savannah and Adrian are both 45 years old, and both sought medical treatment for high blood pressure. Savannah doesn’t follow the lifestyle changes her doctor suggested, whereas Adrian diligently follows her doctor’s recommendations. With Adrian’s small changes, she saves more than $1,000 in out-of-pocket healthcare costs. Additionally, Adrian’s combined pre-retirement and in-retirement savings will be $89,456 more than Savannah, as shown in the table below.


Annual
Out-of-Pocket Healthcare Costs:

  Savannah Adrian

Adrian’s Savings in

Health Expenditures

Age 45 $2,477 $1,286 $1,192
Age 64 $13,936 $7,343 $6,592
Total Pre-Retirement $138,288 $72,591 $65,697
Total In Retirement $51,790 $28,031 $23,759
Grand Total $190,078 $100,622 $89,456

DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial (“Lutz”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a Lutz client, please remember to contact Lutz, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Lutz shall continue to rely on the accuracy of information that you have provided.

For more important disclosure information, click here.

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Lutz adds Gullotta, Kehr, and Prine, Transitions Preston

Lutz adds Gullotta, Kehr, and Prine, Transitions Preston

 

LUTZ BUSINESS INSIGHTS

 

Anthony Gullotta
Michelle Kehr
Kendall Prine
Lauren Preston

Lutz adds Gullotta, Kehr, and Prine, Transitions Preston

Lutz, a Nebraska-based business solutions firm, recently added Anthony Gullotta, Michelle Kehr, and Kendall Prine to its Omaha office and has transitioned Lauren Preston to new role.

Gullotta joins the firm as a Staff Accountant in the Client Advisory Services department. He is responsible for providing outsourced accounting services and assistance, including QuickBooks support and payroll compliance. Anthony received his bachelor’s degree from the University of Nebraska-Omaha.

Kehr joins the firm as a Receptionist, where she is responsible for creating an exceptional experience for clients and visitors. In addition, she will manage client inquiries, coordinate communication, and perform other administrative duties as needed. Michelle brings over 18 years of administrative assistant experience to the role.

Preston has transitioned to a Copywriter position in Lutz’s marketing department. In her new role, she will be responsible for writing and editing internal and external communications, developing creative content for Lutz’s social media platforms, and assisting with various marketing and sales projects. Preston joined Lutz in 2015 and spent seven years in the tax department. She graduated from Marquette University with a bachelor’s degree in communications.

Prine joins the Lutz Talent division as a Client Relations Manager. She is responsible for assisting business leaders to find the best long-term talent to reach their business goals. Kendall brings over six years of business development experience to the team.

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Lutz adds Felber, Helgerson, Molina and Spilinek

Lutz adds Felber, Helgerson, Molina and Spilinek

 

LUTZ BUSINESS INSIGHTS

 

Morgan Felber
Lauren Helgerson
Teresa Molina
Tonya Spilinek

Lutz adds Felber, Helgerson, Molina and Spilinek

Lutz recently added Morgan Felber, Lauren Helgerson, Teresa Molina and Tonya Spilinek to the firm.

Felber joins the M&A division as a Transaction Advisory Services Associate. She is responsible for assisting with transaction due diligence, transaction structuring and valuation support. In addition, she prepares Quality of Earnings Reports for a variety of businesses. Graduating from Texas Christian University, she received her bachelor’s degree in accounting. She works in Lutz’s Omaha office.

Helgerson joins the firm as a Senior Accountant in the healthcare department. She is responsible for preparing cost reports, delivering accurate financial statements, and providing healthcare consulting services to clients with a focus on Critical Access Hospitals (CAH). Graduating from the University of Nebraska-Omaha, she received her master’s degree in accounting. She works in Lutz’s Omaha office.

Molina joins the firm as a Receptionist in Lutz’s Grand Island office. She is responsible for creating an exceptional experience for clients and visitors. In addition, she will manage client inquiries, coordinate communication, and perform other administrative duties as needed. Teresa graduated from the University of Nebraska-Lincoln with a bachelor’s degree in child, youth and family studies.

Spilinek joins the firm as a Client Resource Assistant in the Grand Island office. Her responsibilities include assisting accounting professionals in obtaining and processing information for accounting clients and providing general administrative support as needed. Tonya brings over eight years of customer service and problem-solving experience to the role.

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What the Positive CPI Report Means for Investors + Financial market Update + 11.15.22

What the Positive CPI Report Means for Investors + Financial market Update + 11.15.22

FINANCIAL MARKET UPDATE 11.15.2022

AUTHOR: JOSH JENKINS, CFA

STORY OF THE WEEK

WHAT THE POSITIVE CPI REPORT MEANS FOR INVESTORS

Last week the Bureau of Labor Statistics (BLS) published an update on inflation. The Consumer Price Index (CPI) data surprised the market, with the rate of price increases in October coming in lower than expected. The market responded in dramatic fashion, with the S&P 500 recording its highest single-day gain (+5.54%) since April 2020.

Much of the market’s reaction to the cooler than expected inflation print relates to its potential impact on the path of monetary policy. At the press conference following the most recent Federal Reserve (Fed) policy meeting, Chairman Jerome Powell framed the evolution of their fight against inflation as three questions:

  1. How fast to raise rates?
  2. How high to raise them?
  3. How long to leave them there?

At this stage of the game, the answer to the first question has been well established. The Fed has lifted the benchmark federal funds rate at the fastest pace going back to the early 1980s, increasing it by 3.75% since March. How high the Fed will ultimately raise rates is arguably much more important moving forward.

The cooler than expected inflation data has potentially (but not certainly) provided some evidence that inflation has peaked and is rolling over. The implication here is that the Fed may not have to raise interest rates as high as previously thought, which means less breaking power applied to the economy. The prospect of this sent bond yields tumbling and stock pricing skyrocketing last week.

The peak level for fed funds during a given cycle is often referred to as the ‘terminal rate.’  The question of how high to raise interest rates can then be translated to: what will the terminal rate be? There are a couple of ways to see an estimate for the expected terminal rate:

  1. The Fed’s Summary of Economic Projections (SEP)
  2. Pricing in the fed fund futures market

Ironically, the market-based measure has been more accurate in recent cycles, even though the Fed officials making those forecasts are the people with direct control over the rate! During the prior few tightening cycles, the Fed consistently overestimated how high they would be able to raise rates. During the current cycle, they have consistently underestimated it. Each of the three SEPs published thus far in 2022 came with sizable upward revisions to the Fed’s forecasted path of the fed funds rate.

Following the CPI print last week, the market-based measure of the terminal rate declined, although it remains above the last Fed Forecast. The Fed will publish its next SEP following the next meeting, which concludes on December 14th. The market will be watching closely for changes to their forecast.

Despite the market’s joyous reaction to the CPI report, investors would do well not to get carried away with this news. While the report was undoubtedly a positive development, economic data is notoriously noisy, and one data point does not equal a trend. The July CPI report was similarly low on a month-over-month basis, only to be followed by multiple months of elevated readings.

Additionally, The Fed’s message at the last press conference was that despite the expected slowdown in the pace of rate hikes, it was premature to think about pausing rate increases altogether. The Fed has continued to deliver that message this week, saying they have a ‘ways to go’ before rate hikes are done.

Finally, the prospect that the Fed’s policy path puts the economy into a recession remains a very real possibility. That kind of slowdown in economic activity would likely put pressure on stock earnings, which would, in turn, put pressure on stock prices. While stock valuations have come down dramatically from the 2021 highs, they still aren’t necessarily cheap for the S&P 500. It’s unclear exactly how much bad news is being priced in. Ultimately, the path forward remains highly uncertain, and the markets will likely remain volatile. The best course of action for investors is to stay diversified and not allow market sentiment (positive or negative) to derail your long-term plan.

WEEK IN REVIEW

  • The top story from last week was the Consumer Price Index (CPI) data published before the market opened on Thursday. The report, published by the Bureau of Labor Statistics (BLS), showed that inflation increased in October at a slower rate than anticipated. The headline figure increased 0.4% MoM vs. expectations of a 0.6% increase (7.7% YoY vs. expected 7.9%). Core CPI, which excludes the volatile food and energy categories, increased by 0.3% MoM vs. expectations of a 0.5% increase (6.3% YoY vs. expected 6.5%). Used cars and trucks, apparel, and medical care services all declined during October and contributed to the cooler than expected figures.
  • Market prices jumped following the inflation report. The S&P 500 gained 5.5% on the day, while the yield on the 10-Year Treasury declined 0.3%. The fed fund futures market is now pricing in an 80% chance that the Fed will only hike 0.5% at the next FOMC meeting (12/14). A few Federal Reserve officials have made public comments in the last couple of days urging the market not to overreact to the positive news, suggesting the Fed has more to do to ensure inflation is under control.
  • Economic data to be published this week includes retail sales and industrial production on Wednesday, jobless claims (a proxy for layoffs) on Thursday, and existing home sales and the Index of Leading Economic Indicators on Friday.

ECONOMIC CALENDAR

Source: MarketWatch

HOT READS

Markets

  • Consumer Prices Rose 0.4% in October, Less than Expected, as Inflation Eases (CNBC)
  • Fed Official Warns Inflation Fight Has ‘Ways to Go’ (WSJ)
  • Move Over, Inflation: Here Comes the Earnings Crunch (WSJ)

Investing

  • Important and Hard To Teach (Morgan Housel)
  • The Optimal Spreadsheet Answer Is not Always The Best Solution for People (Adam Grossman)
  • A comparison of Sam Bankman-Fried’s FTX vs a massive Fraud That Unraveled During the Great Depression (Ben Carlson)

Other

  • Your Next Car Might Not Drive If You’ve Been Drinking (Axios)
  • World Cup Predictions and Knockout Brackets (Sports Illustrated)
  • What we learned After Testing a Chevy C8 Corvette Over 40,000 Miles (YouTube)

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

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ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

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JOSH JENKINS, CFA + CHIEF INVESTMENT OFFICER, PRINCIPAL

Josh Jenkins is a Chief Investment Officer and Principal at Lutz Financial. With 12+ years of relevant experience, he leads the Investment Committee and specializes in assisting clients with portfolio construction, asset allocation, and investment risk management. He is also responsible for portfolio trading, research and thought leadership, and the division's analytics and operational efficiency. He lives in Omaha, NE.

AREAS OF FOCUS
  • Asset Allocation
  • Portfolio Management
  • Research & Data Analytics
  • Trading Team Oversight
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst®
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

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Jerad Knott Recipient of Volunteer Leadership Award

Jerad Knott Recipient of Volunteer Leadership Award

 

LUTZ BUSINESS INSIGHTS

 

Jerad Knott

Jerad Knott Recipient of Volunteer Leadership Award

Lutz, a business solutions firm, is proud to announce that Jerad Knott has been named a recipient of the Clara Barton Meritorious Volunteer Leadership Award, presented by the American Red Cross Nebraska-Iowa Region. Recipients of this award demonstrate the highest degree of collaboration, broad strategic thinking, and model the highest standards of honesty and integrity. These volunteers are known for cultivating innovation to find and champion the best creative solutions while taking an active role in developing others toward leadership.

Jerad Knott is a Tax Shareholder at Lutz with over 19 years of experience. He has been volunteering for the American Red Cross since 2014 and is entering his third year as Board Chair for the Central and Western Nebraska chapters.

Rachelle Lipker, Executive Director of the Central & Western NE Chapter, said, “Jerad does a great job leading the Central and Western Nebraska board of directors and our Philanthropy Committee. We have not only grown our board member numbers under his leadership, but we have also increased board giving year-over-year. Jerad’s integrity and commitment to the Red Cross is impeccable. We are truly blessed to have him as our board leader.”

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11.9.22 | Preparing & Reviewing Medicare Cost Reports | Recording

11.9.22 | Preparing & Reviewing Medicare Cost Reports | Recording

 

LUTZ BUSINESS INSIGHTS

 

AM I READY TO SELL MY BUSINESS?

PREPARING & REVIEWING MEDICARE COST REPORTS

11.9.22 | Recording

As Critical Access Hospitals (CAHs) prepare and review their annual Medicare cost report, we have some helpful tips and insights to keep in mind. In this webinar, Lutz experts Kirk Delperdang and Julianne Kipple will discuss preparing interim cost reports, how to use the cost report for certain financial analyses and projections and using the cost report as a tool to support operational decisions.

Key Takeaways:

  • Tips to Prepare/Review Cost Reports
  • Steps to Analyze and Drive Insights
  • Strategies to Support Operations

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Lutz adds 13 Staff Accountants

Lutz adds 13 Staff Accountants

 

LUTZ BUSINESS INSIGHTS

 

Lutz adds 13 Staff Accountants

Lutz, a Nebraska-based business solutions firm, recently added 13 staff accountants to its Omaha and Lincoln offices.

Joe Bindl joins the audit department in Lutz’s Omaha Office. He is responsible for providing credibility to clients through financial reporting. In addition, he works to maintain a high level of objectivity and confidentiality in all areas for clients in a variety of industries. Bindl previously interned with Lutz during tax season 2021 and 2022. Graduating from Concordia University, he received his Bachelor’s degree in accounting and business administration.

Trent Brown joins the tax department in Lutz’s Lincoln Office. He provides tax consulting and compliance services for clients with a focus on individual and business income tax. Brown previously interned with Lutz during tax season 2020, 2021 and 2022. Graduating from the University of Nebraska-Lincoln, he received his Bachelor’s degree in accounting and finance.

Kaylee Butler joins the tax department in Lutz’s Omaha Office. She is responsible for preparing individual and business income tax returns, as well as providing general accounting assistance to clients in a variety of industries. Butler previously interned with Lutz during tax season 2021 and 2022. She graduated from the University of Nebraska-Lincoln with a Bachelor’s degree in accounting.

Jack Chambers joins the tax department in Lutz’s Omaha Office. He is responsible for the preparation of individual, business and fiduciary income tax returns for clients in a variety of industries. Chambers previously interned with Lutz during summer 2021. Graduating from Arizona State University, he received his Master’s degree in accounting.

Wyatt Diedrichsen joins the healthcare department in Lutz’s Lincoln Office. His primary responsibility is to work with clients to prepare accurate monthly financial statements and cost reports. In addition, he will provide general accounting and consulting assistance. Diedrichsen previously interned with Lutz during tax season 2022. He graduated from Nebraska Wesleyan University with a Bachelor’s degree in accounting.

Steph Gaston joins the accounting department in Lutz’s Omaha Office. She is responsible for the preparation of individual and business income tax returns and providing credibility to clients through financial reporting. Gaston previously interned with Lutz during tax season 2019, 2020, 2021 and 2022. Steph graduated from the University of Nebraska-Omaha with a Bachelor’s degree in accounting and management.

Braxton Goacher joins the audit department in Lutz’s Omaha Office. He is responsible for providing credibility, objectivity and confidentiality to clients through efficient and effective financial reporting in a variety of industries. Goacher previously interned with Lutz during tax season 2022. He graduated from the University of Nebraska-Lincoln with a Master’s degree in accounting.

Brett Holtzen joins the tax department in Lutz’s Lincoln Office. He is responsible for preparing individual and business income tax returns, as well as providing general accounting assistance to clients in a variety of industries. Holtzen previously interned with Lutz during tax season 2020, 2021 and 2022. Graduating from the University of Nebraska-Lincoln, he received his Master’s degree in accounting.

Jack Jezewski joins the audit department in Lutz’s Omaha Office. He is responsible for providing credibility to clients through financial reporting. In addition, he works to maintain a high level of objectivity and confidentiality in all areas for clients in a variety of industries. Jezewski graduated from the University of Nebraska-Omaha with a Master’s degree in accounting.

Spencer Stenger joins the audit department in Lutz’s Omaha Office. He is responsible for providing credibility, objectivity and confidentiality to clients through efficient and effective financial reporting. Stenger previously interned with Lutz during tax season 2022. Graduating from Midland University, he received his Bachelor’s degree in accounting.

Brad Stuthman joins the tax department in Lutz’s Omaha Office. He provides tax consulting and compliance services for clients with a focus on individual and business income tax. Stuthman previously interned with Lutz during tax season 2021 and 2022. He graduated from the University of Nebraska-Omaha with a Master’s degree in accounting.

Carly Young joins the audit department in Lutz’s Omaha Office. She is responsible for providing credibility to clients through financial reporting in a variety of industries. She previously interned with Lutz during tax season 2022. Graduating from Creighton University, she received her Bachelor’s degree in accounting and economics.

Ryan Zelasko joins the audit department in Lutz’s Omaha Office. He is responsible for providing credibility, objectivity and confidentiality to clients through efficient and effective financial reporting. Zelasko previously interned with Lutz during tax season 2021 and 2022. He graduated from The University of Nebraska-Lincoln with a Bachelor’s degree in accounting.

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Federal Student Loan Forgiveness Update

Federal Student Loan Forgiveness Update

 

LUTZ BUSINESS INSIGHTS

 

Federal Student Loan Forgiveness Update

LESLIE MASEK, SENIOR ACCOUNTANT

 

In August 2022, President Biden announced the forgiveness of up to $20,000 of federal student loan debt for individuals as well as the extension of the student loan pause for a fifth time through December 31, 2022. The federal student loan debt relief application opened on October 17, 2022. However, on October 21, 2022, the Eighth Circuit Court of Appeals put the debt relief on hold while it considers an appeal from six states to abandon the debt relief program. The states involved claim the federal government doesn’t have the right to cancel debt on that scale without congressional approval. Additionally, the six states are arguing the plan will cost them future tax revenue (Nebraska v. Biden).

Other legal challenges have been raised against the federal loan forgiveness, but most have been dismissed by the courts. Recently, three other cases have been brought (Arizona v. Biden, Cato Institute v. US Department of Education, and Brown v. US Department of Education). So far, the Eighth Circuit case mentioned above has gone the furthest.    

For now, the student loan forgiveness program is paused until there’s a ruling from the Eighth Circuit Court of Appeals. It’s unclear how long the ruling will take and whether there are to be more legal challenges in the future. However, the federal student loan debt application is still open, and the US Department of Education (ED) is encouraging individuals to still apply for debt relief if they are eligible. The ED claims they will continue to review applications and process discharges when they are able to do so.

Filling out the debt relief application is easy and takes about five minutes. Individuals don’t need to log in or provide any documents to apply. Borrowers can apply for forgiveness any time before December 31, 2023. However, student loan payments are scheduled to restart at the beginning of 2023. The White House recommends applying as soon as possible so amounts can be forgiven before repayments start. Below is additional information about the federal student loan debt relief program.

 

Will student debt relief be taxed?

Student loan debt relief won’t be taxed at the federal level. Some states may be taxing this debt relief, so individuals should check with their state of residence for the latest information.

 

How much debt relief is available?

  • Up to $20,000 for Federal Pell Grant recipients who meet the income requirements
  • Up to $10,000 for non-Pell Grant recipients who meet the income requirements

 

What are the income requirements?

The income requirements are based on your adjusted gross income (AGI), which can be found on line 11 of the IRS Form 1040. You need to meet the AGI requirement on your 2020 or 2021 tax return, but you don’t need to meet it for both years:

  • Single and Married Filing Separately– under $125,000
  • Married Filing Jointly, Head of Household, and qualifying widow(er) – under $250,000

 

Do dependents qualify for debt relief?

Dependent students are eligible for the same amount of debt relief as everyone else, but their eligibility is based on one or both of their parents’ income, not their own income. If you’re a parent with eligible loans of your own, including parent PLUS loans, you can submit your own application. Your application will be processed separately from the one your child submits.

 

What are the steps to obtain debt relief?

  1. Apply for debt relief at https://studentaid.gov/debt-relief/application
  2. You’ll receive an email confirmation after you submit your application
  3. The ED will review your application and confirm you’re eligible for debt relief
  4. The ED will contact you if they need more information
  5. The ED will notify you once your application is approved
  6. Your loan servicer(s) will apply your debt relief and notify you

 

Which loans are eligible?

The following types of federal student loans disbursed on or before June 30, 2022, are eligible for relief:

  • Direct Loan Program loans
  • FFEL Program loans held by the ED or in default at a guaranty agency
  • Federal Perkins Loan Program loans held by the ED
  • Consolidation loans – if all the underlying loans were ED-held
  • Defaulted loans (includes ED-held or commercially serviced Subsidized Stafford, Unsubsidized Stafford, parent PLUS, graduate PLUS; and Perkins loans held by ED)

Private loans (i.e., non-federal loans) are not eligible for debt relief.

 

How do you find your loans and loan servicers?

Log in to https://studentaid.gov and select ‘my aid’ in the dropdown menu under your name at the top right of your screen.

 

If you have multiple loans, in what order will debt relief be applied?

For borrowers with multiple loans, the ED will apply relief in the following order:

  1. Defaulted ED-held loans
  2. Defaulted commercial FFEL Program loans
  3. Non-defaulted Direct Loans and FFEL Program loans held by ED
  4. Perkins Loans held by ED

If you have multiple loans in a program type (e.g., multiple Direct Loans), the ED will apply the relief in the following order:

  1. Apply relief to loans with the highest statutory interest rate
  2. If interest rates are the same, apply to unsubsidized loans before subsidized loans
  3. If interest and subsidy status are the same, apply to the most recent loan
  4. If all the above are the same, apply to the loan with the lowest combined principal and interest balance

For more information on the federal student loan debt relief, visit https://studentaid.gov

Lutz’s year-end tax update webinar, scheduled on December 13, 2022, will cover federal student loan debt relief updates in further detail. You can register for the webinar here. If you have any questions, please contact us or your Lutz representative.

ABOUT THE AUTHOR

Leslie Masek

531.500.2000

lmasek@lutz.us

LINKEDIN

115 CANOPY STREET

SUITE 200

LINCOLN, NE 68508

LESLIE MASEK + SENIOR ACCOUNTANT

Leslie Masek is a Senior Accountant at Lutz with over two years of experience in public accounting. She is responsible for preparing individual and business income tax returns, as well as providing general accounting assistance to clients in a variety of industries.

AREAS OF FOCUS
  • Tax
  • Accounting & Consulting
AFFILIATIONS AND CREDENTIALS
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • BS in Accounting, University of Nebraska, Kearney, NE
  • MBA, University of Nebraska, Kearney, NE

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11.2.22 | Hot Topics + Strategies for Business Technology | Recording

11.2.22 | Hot Topics + Strategies for Business Technology | Recording

 

LUTZ BUSINESS INSIGHTS

 

AM I READY TO SELL MY BUSINESS?

Hot topics + strategies for business technology

11.2.22 | Recording

Technology is rapidly changing. To stay ahead of the competition, businesses need to understand the latest technology available to them, find which options best fit their needs, and learn how to implement and best utilize their tech stack to drive growth. In this webinar, Lutz experts will discuss hot topics in the technology industry, including cybersecurity, managing your IT, and artificial intelligence, as well as provide business IT strategies for 2023.

Key Takeaways:

  • State of Cybersecurity
  • Tips and Tricks to Best Manage your IT
  • Technology Strategies for 2023

Seminar Level: GENERAL TECHNOLOGY KNOWLEDGE AND UP

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What the Positive CPI Report Means for Investors + Financial market Update + 11.15.22

The FANMAGs Crash Back to Earth + Financial Market Update + 11.1.22

FINANCIAL MARKET UPDATE 11.1.2022

AUTHOR: JOSH JENKINS, CFA

STORY OF THE WEEK

THE FANMAGS CRASH BACK TO EARTH

It has been a very tough start to the year for a handful of extremely popular large-growth companies. Collectively known by the acronym ‘FANMAG,’ the group includes Facebook (Meta), Apple, Netflix, Microsoft, Amazon, and Google (Alphabet). They have posted some eye-popping returns in recent years but have largely struggled as of late.

As the table below illustrates, the five-year returns generated by these businesses have generally exceeded the market, represented by the S&P 500. Netflix and Facebook are notable exceptions due to large year-to-date losses. So far, in 2022, Facebook has shed 47.7% of its value, while Netflix is down 51.6%. With the exception of Apple, the other FANMAG companies are dramatically underperforming the market year-to-date as well.

The chart below illustrates the reversal of fortune for the FANMAGs in another way. The line represents the cumulative outperformance of the FANMAGs relative to the Russell 3000 over the last five years. Looking at this chart, it’s not hard to see why they garnered their own acronym. From November of 2017 through December of last year, the FANMAGs outperformed the Russell 3000 by nearly 150%, which was up nearly 100% itself at one point during the period! Since the peak last year, the decline has been swift. By the end of October, the FANMAGs have given back a substantial portion of their outperformance.

Source: Morningstar Direct as of 10/31/2022. Returns are cumulative & calculated monthly. The FANMAG return is based on an equally weighted portfolio of the six component companies. 

There are a variety of reasons these companies have been under substantial pressure. The Federal Reserve’s policy shift aimed at combating inflation has arguably been the most prominent cause, as rising rates have hit high-growth companies hardest. It’s probably not a coincidence that the peak in FANMAG outperformance roughly coincided with Chairman Jerome Powell’s statement before Congress in November that ‘transitory’ was no longer the most accurate term for describing the current bout of high inflation.

When investors purchase a growth stock, they are usually doing so on the basis of a large potential payoff far in the future rather than substantial earnings and shareholder distributions today. Consequently, growth stocks have a higher duration (more interest rate sensitivity) than value stocks in a similar way that long-term bonds are higher duration than short-term bonds.

Another reason for the struggling performance relates to poor earnings reports and forward guidance. Last week, several of these companies released their third-quarter results, only to be hammered after missing estimates and providing a weak outlook. Facebook (Meta) fell 25% in a single day, Google (Alphabet) fell 10%, Microsoft fell 8%, and Amazon is down 16% since publishing. Netflix was able to surprise to the upside this quarter but fell 35% in a day in April after reporting its first quarterly loss of subscribers in over ten years. Apple is the lone FANMAG company that has outperformed the broad market this year, though it still trailed value stocks.

The chart below provides some insight into why the FANMAG stocks have been punished so brutally following earnings reports. It illustrates the valuation of the top 10 stocks of the S&P 500 vs. the remaining companies and the Index as a whole. While the top 10 stocks don’t perfectly align with the FANMAGs, there has been substantial overlap over time, making it a reasonable comparison. As you can see from the chart, there have been two periods in recent decades where the valuation of the ten largest stocks has become significantly dislocated from the rest of the market. The first period was during the technology bubble of the late 1990s. We still find ourselves within the second period, despite the rapid correction we have been experiencing.

Source: JP Morgan Asset Management. Data as of 9/30/2022.

It requires extreme optimism from investors to stretch the valuation as dramatically as the ‘Top 10’ had been in the above chart. When a stock fails to deliver on these ever-rising expectations, the snapback can make for a rude awakening. While valuations did not quite reach the same extreme we saw during the tech bubble this time around, they seem to be deflating at a similar speed. Note that this chart is only through 9/30/2022, and the green line likely moved substantially lower during October.

Investors may be tempted to purchase some of these companies following their steep declines over the last few months. While it’s certainly possible, they will regain their operational footing and recapture investor imaginations, a major challenge they face is that they increasingly compete with each other. For example, two or more of these stocks compete in each of the following markets: streaming services, cloud computing, advertising, and search. These companies sported sky-high valuations because their growth had been so strong for so long. Now growth seems harder to come by, despite valuations that are still stretched. That is not a recipe for strong returns moving forward.

WEEK IN REVIEW

  • Last week was a big one for earnings announcements, with a few of the large tech giants undershooting forecasts. According to FactSet, 52% of the S&P 500 has reported Q3 results as of last Friday’s close. The earnings growth rate, blended between companies that have already reported with the estimates for those that have yet to report, is at 2.2% year-over-year. This is slightly below FactSet’s forecast of 2.8% at the start of earnings season, and would mark the slowest earnings growth since the third quarter of 2020. If it wasn’t for the energy sector, earnings would actually be negative for Q3.
  • It’s a big week for economic data reports. On Tuesday, we will get an update on manufacturing activity, job openings and quits. Thursday will have jobless claims (a proxy for layoffs) and an update on the services sector. The week of economic data will be headlined by the Non-Farm Payrolls report due on Friday.
  • In addition to the big week for economic data, the Federal Reserve will conclude its two-day monetary policy meeting on Wednesday. The market is currently pricing in a 0.75% hike, which would bring the benchmark federal funds rate to a range between 3.75% to 4.00%. The market will watch the post-meeting press conference with Fed Chairmen Jerome Powell (Wednesday at 1:30 CT) for clues as to when and how the Fed might begin to slow the pace of rate increases.

HOT READS

Markets

  • U.S. GDP Accelerated at 2.6% Pace in Q3, Better Than Expected as Growth Turns Positive (CNBC)
  • Key Inflation Gauge For The Fed Rose 0.5% In September, In Line With Expectations (CNBC)
  • Animation: The Largest Public Companies by Market Cap: 2000-2022 (Visual Capitalist)

Investing

  • What to Do When You Know What Stocks Will Do Next (Jason Zweig)
  • Cumulative vs Cyclical Knowledge (Morgan Housel)
  • IN the Markets Nothing is As Dependable as Cycles (Ben Carlson)

Other

  • How To Watch Football Like an Expert from the Comfort of Your Own Couch (The Athletic)
  • Win or Lose, Mickey Joseph Believes His Time is Now at Nebraska (Sports Illustrated)
  • The Hunt for the Dark Web’s Biggest Kingpin, Part 1: The Shadow (Wired)

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

ECONOMIC CALENDAR

Source: MarketWatch

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ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

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JOSH JENKINS, CFA + CHIEF INVESTMENT OFFICER, PRINCIPAL

Josh Jenkins is a Chief Investment Officer and Principal at Lutz Financial. With 12+ years of relevant experience, he leads the Investment Committee and specializes in assisting clients with portfolio construction, asset allocation, and investment risk management. He is also responsible for portfolio trading, research and thought leadership, and the division's analytics and operational efficiency. He lives in Omaha, NE.

AREAS OF FOCUS
  • Asset Allocation
  • Portfolio Management
  • Research & Data Analytics
  • Trading Team Oversight
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst®
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

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Employee Retention Credit + Update, Complexities and Buyer Beware

Employee Retention Credit + Update, Complexities and Buyer Beware

 

LUTZ BUSINESS INSIGHTS

 

Employee Retention Credit + Update, Complexities, & Buyer Beware

justin korth, tax director

The last major federal COVID-related tax credit program, the Employee Retention Credit (ERC), is still open and providing benefits to employers affected due to disruptions during the COVID pandemic in 2020 and 2021. However, we have found business owners are frequently approached with questionable, sometimes fraudulent, claims made by third-party tax credit firms.

 

WHAT IS ERC? 

The employee retention credit (ERC) is a refundable payroll tax credit designed to help businesses affected during the COVID-19 pandemic by either a government shutdown order or a significant decline in gross receipts. You can read our previous blog post for more specific qualification information. 

 

GOVERNMENT SHUTDOWN & SUPPLY CHAIN DISRUPTION

A business could be qualified for ERC even if it did not have a revenue decline. Qualification depends on full or partial suspension of operations based on governmental orders to a business itself or its supply chain. An order must be from an applicable governmental authority (federal, state, county or local) that has jurisdiction over the employer’s operations.

As referenced from IRS Notice 2021-20, “the declaration of a State of Emergency by a governmental authority is not sufficient to rise to the level of a governmental order. Further, such a declaration that limits commerce, travel, or group meetings, but does so in a manner that does not affect the employer’s operation of its trade or business does not rise to the level of a governmental order.”

Lutz has found that many third-party credit providers frequently ignore the exceptions to these rules, which can be the difference between qualifying and not qualifying.

More than nominal impact

A full or partial shutdown or supply chain interruption must have disrupted more than a nominal portion of an employer’s business operations. More than nominal is defined as 10 percent of total gross receipts or 10 percent of total employee hours. The comparison period is the same calendar quarter compared to 2019 gross receipts or employee hours.

Qualified wages

If qualified due to a governmental order, qualified wages are only wages paid during the shutdown period. This is different from revenue decline, which qualifies a business for the entire quarter.

Full or partial shutdown

To qualify for a full or partial suspension of operations, the business must have been subject to a government-mandated order. The most affected businesses are restaurants with indoor dining restrictions and healthcare facilities that perform elective surgeries.

Examples of government orders that may qualify:

  • Limited hours of operations
  • Limited working hours for employees subject to a curfew
  • Limited indoor seating for restaurants
  • Shutdown for periodic cleaning and disinfecting
  • Limited use of physical space for employees who could not perform comparable duties, responsibilities, or services from home

Examples that do not qualify on their own include the following:

  • Self-imposed restrictions that were not required due to a government order
  • Work-from-home requirements for jobs that could be performed remotely
  • Decreased profits due to a lack of demand or increased costs to comply with CDC recommendations
  • Lack of customer demand as a result of stay-at-home orders
  • Labor shortages or the inability to hire personnel to run the business as normal
  • Requirements to wear masks or socially distance

Supply chain disruption

This provision shifts the burden to your supplier, subject to full or partial suspension due to government orders, which did not allow your business to operate as usual. Please note that most manufacturers were deemed “essential” and were therefore exempt from most government orders.

Third-Party credit companies abuse this supply chain area of the ERC program the most. Supply chain issues in the United States have been obvious, but they don’t necessarily qualify your business for the ERC, as some may argue.

The business must meet all the following criteria to qualify for the ERC based on supply chain disruption:

  • The supplier must have been unable to make deliveries of critical goods or materials due to a U.S. governmental order to suspend its operations fully or partially.
  • The business could not procure these critical goods or materials from an alternatively affordable supplier.
  • The goods or materials not available must be “critical.”
  • The supply delays that caused the business to suspend certain operations must have caused more than a nominal impact to the business.

Some examples that do not qualify on their own include:

  • Inability to timely receive products due to trucking issues
  • Inability to timely receive products due to labor shortage issues
  • Inability to receive products from a standard supplier, but the business was able to procure comparable products from an alternative supplier
  • General business disruptions due to international supply chain issues

 

ERC COMPLEXITIES

There are a few complicated areas of the ERC program that deserve special attention when analyzing qualifications and calculating credits. It is important to work with a qualified professional who understands your business and how these rules apply.

Interaction with other COVID programs

There is no double dipping of qualified wages allowed among various COVID programs, most notably the first and second rounds of the SBA’s Paycheck Protection Program (PPP), SBA’s Restaurant Revitalization Fund (RRF), IRS’s FFCRA emergency paid sick and family leave, DHHS’s Provider Relief Funds (PRF), and other state programs. Although no double dipping is allowed, interaction among the programs is possible.

Lutz is an expert in each of these areas and provides comprehensive guidance when analyzing ERC. Be aware that third-party providers possibly only consider ERC, which could jeopardize other funding the business received.

Interaction with commonly owned entities and family members

Aggregation and affiliation issues arise when individuals and certain relatives have majority ownership in various entities. Control groups, brother-sister organizations, parent-subsidiaries, and affiliated service groups are some forms of aggregation that must be considered for the ERC.

Aggregated groups must analyze payroll on a combined basis to be considered for the credit. This is true for employee count to determine if the business is a large employer, revenue decline calculations, and determination of full or partial suspension of operations to the business or its supply chain. Government orders may have disrupted one business in an aggregated group, but the aggregated group will only qualify if it can prove that the shutdown affected more than a nominal portion of the entire aggregated group.

When it comes to calculating the credit, individuals (and attributed family members) that own more than 50 percent are disallowed from receiving credits on their wages.

Income tax interaction

When qualifying for the ERC based on revenue decline, revenue must be considered on the tax return basis of accounting, which may differ from what company management typically uses. Many businesses have differences in book/internal and tax revenues.

The ERC is treated like other payroll-related credit programs. Unlike tax-exempt income from PPP forgiveness, the expenses used for the ERC are disallowed deductions on income tax filings, meaning that ERC credits are taxable.

IRS guidance requires taxpayers to amend income tax filings in the year credits pertain to. For example, if a taxpayer files the ERC for 2020 and the income tax returns are already filed, the 2020 income tax filings must be amended to account for the increase in income.

 

BUYER BEWARE

ERC applications on Form 941-X don’t require up-front documentation, meaning the IRS pays out credits first and asks questions later during a potential audit. Many credit firms advertise aggressively and guarantee that businesses qualify while loosely interpreting IRS rules. These factors have led to many occurrences of abuse and fraudulent claims.

The government is targeting Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) fraud. The IRS has ERC audits on its radar and is providing a new way for people to make anonymous reports concerning third-party credit companies promoting improper ERC claims.

The American Institute of Certified Public Accountants (AICPA) has acknowledged widespread abuse of this program and has shared its thoughts on enforcement with the IRS. The IRS released this announcement on October 19, 2022 detailing widespread abuse.

Extended statute of limitations

Payroll tax returns normally have a three-year statute of limitations. However, when making an ERC claim, the statue automatically extends to five years, meaning the IRS has more time to audit credit claims. Ultimately the taxpayer takes on the risk of the audit when working with third-party credit companies, even if they offer audit protection. Most firms do not sign the amended filings as a paid preparer, so it leaves the business exposed to penalties and interest should the IRS disallow the credit claim.

Contingent fees

Be sure your ERC provider is working as a partner to your business instead of for its own benefit. The rules are complicated and require extensive knowledge of your business. If a third-party provider does not ask the right questions or consider the full picture, it may result in the wrong eligibility determination. Do not ever sign amended returns if you are uncertain about the reasoning for the qualification. Many times, credit companies only communicate with you through salespeople; it is important to understand qualifications directly from the CPA or legal team.

Most third-party credit companies operate on a contingent fee basis, meaning they charge more for their services the more credits they calculate. Most contingent fees range from 10 to 25 percent, meaning a business’s after-tax ERC benefit is 45 to 60 percent.

Lutz does not operate on a contingent fee basis, so we have your best interest in mind throughout the ERC consulting engagement and will be honest if we believe you do not qualify. We are not motivated to inflate your credit or disregard IRS rules.

 

PROCESSING TIMELINE

The IRS has a large backlog of amended payroll tax returns that were delayed during COVID-19. It is currently taking 6-12 months to receive refunds from Form 941-X filings. If the quarterly claim is more than $200K, it requires manager approval resulting in even longer processing times.

If your business is still awaiting refunds and Lutz filed as paid preparer, do not use a separate credit company to file again. There are steps to determine where the filing is in the IRS queue.

 

LUTZ CAN HELP 

Lutz has a team specialized in the ERC that has assisted hundreds of businesses in claiming credits. If you believe you may qualify or have been approached by firms offering to help you apply for the ERC, we recommend you contact us or reach out to your Lutz Representative before proceeding.

ABOUT THE AUTHOR

402.514.0007

jkorth@lutz.us

LINKEDIN

JUSTIN KORTH + TAX DIRECTOR

Justin Korth is a Tax Director at Lutz. He began his career in 2016. He is responsible for individual, business, and fiduciary tax compliance and consulting, estate & business planning, and taxpayer representation on IRS matters. In addition, he oversees our international workforce initiative.

AREAS OF FOCUS
  • Income, Business, and Fiduciary Income Tax Returns
  • Taxpayer Representation
  • Estate and Business Planning
  • Client Accounting Services
  • Small Business Accounting Consulting
  • Forensic & Litigation Support
  • Real Estate Industry
  • Agriculture Industry
  • Medical Staffing Industry
  • Manufacturing Industry
AFFILIATIONS AND CREDENTIALS
  • Nebraska Society of Certified Public Accountants, Member, Legislation Committee
  • American Institute of Certified Public Accountants, Member
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • BSBA in Accounting and Finance, University of Nebraska, Omaha, NE
COMMUNITY SERVICE
  • UNO School of Accounting, Advisory Board Member
  • UNO College of Business Scholars Academy, Mentor
  • UNO Young Alumni Academy, Member
  • St. Vincent de Paul Knights of Columbus, Member
  • Youth Catholic Professionals - Omaha, Former President
  • JPII Newman Center, Finance Committee Member
  • Sacred Heart Catholic School, Mentor

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How the Work Opportunity Tax Credit Can Help Your Business

How the Work Opportunity Tax Credit Can Help Your Business

 

LUTZ BUSINESS INSIGHTS

 

How the Work Opportunity Tax Credit Can Help Your Business

jerad knott, tax shareholder

 

Hiring employees is one of the biggest and most expensive undertakings for any business, regardless of size or industry. But if you hire from a specific group, the government can make it less costly by offering the Work Opportunity Tax Credit (WOTC) to lower the overall business tax bill.

 

WOTC Overview

Since its inception in 1996, WOTC has benefited employers and employees. It enables businesses to hire individuals from certain groups who face significant employment barriers while offsetting the costs of hiring and employee retention.

This federal tax credit allows citizens to move gradually from economic dependence into self-sufficiency. It achieves this by creating job opportunities enabling them to contribute as taxpayers.

The credit focuses on qualified wages paid to these employees during their first employment year. Other employees eligible for long-term temporary assistance for needy families (TANF) will have the credit extended into the second year of employment.

Businesses must first become certified by the state to be eligible for the WOTC. To claim the WOTC, organizations must complete Form 5884 and include Form 3800 when filing their business taxes.

 

Target Groups

WOTC offers tax credits to incentivize workplace diversity and create easy access to good jobs for American workers. The target groups include:  

  • Ex-felons
  • Veterans
  • People on long-term unemployment
  • Unemployed Veterans
  • Qualified Long-Term Unemployment Recipient
  • Food Stamp (SNAP) recipients
  • Summer Youth Employees
  • Designated Community Residents
  • Vocational Rehabilitation Referrals
  • Temporary Assistance for Needy Families (TANF) Recipients

Every target group has unique eligibility requirements that individuals must meet for the employer to qualify for the credit. For example, the veteran category is worth four times the amount of an eligible WOTC hire. It offers immediate tax benefits for companies that hire veterans.

The credit is available only for workers who work at least 120 hours. A reduction applies in the credit if the employee works for a minimum of 120 hours but less than 400 hours.

The benefits are only available for new hires. Wages paid to individuals who had previously been employees and rehired do not qualify. Additionally, wages already paid to specific individuals related to the employer or business owner will not be eligible.

 

WOTC Benefits

WOTC can benefit your business in various ways. Some of the top benefits include:

1. Reducing Federal Tax Liability

The WOTC program decreases federal income through the credit it generates. In some cases, it can completely eliminate it. Employers will require income tax liability, allowing them to use the credit that does not exceed the income tax owed.  

If the employee has no tax liability, they can still apply for the credit. Credits can be carried forward up to 20 years to reduce tax liability. Tax credits are based on the employee’s first-year wages. Qualified employees will have worked a minimum of 120 hours.

Reducing your company’s federal income tax liability will decrease the cost of operating your business. You can use the funds you save on other projects or use them to expand your business.

2. Increasing Profitability and Cash-flow

All WOTC-qualified employees can increase your company’s profitability by over 80% compared to non-qualified employees. The value ranges from $2,400 to $9,600 for every qualified new hire, based on the target group, the number of hours worked, and the job performed.

Increasing your cash flow with these tax savings will improve your margins and sustainability. WOTC will make your company profitable even with the increased cost of operating a business today.

3. No Limit on the Number of Employees to Hire

The credit does not restrict the number of new employees who qualify for the tax savings. You will receive the tax benefits of WOTC whether you employ 10 or 10,000 eligible employees.

4. 20% of New Hires Are Potentially Eligible

Companies can benefit from WOTC even without a history of this federal initiative. You will likely have already hired or will hire employees who meet the qualification criteria. About 20% of hires today qualify for the credit in most industries. Other industries may experience an even higher rate of qualification. The more you hire, the higher your chances of getting workers eligible for WOTC tax credits.

 

Improve Your Bottom Line with Tax Savings

The WOTC program has created a win-win situation for both employers and employees. Employees who previously lacked employment opportunities due to disabilities or were considered too risky now have a chance to make a living. On the other hand, employers enjoy better tax savings and increased profitability.

But getting the most out of WTOC benefits requires you to meet several obligations. These include submitting forms to state agencies, providing supporting documentation, monitoring hours and wages, and calculating tax credits.

Due to the complexity of administrative processes and accounting, companies require various resources to implement the program correctly. You can avoid this hassle by managing your records effectively to have all the necessary details to submit for claims.

This is where Lutz comes in. We understand all your personal, financial, and organizational needs regarding tax. When you collaborate with us, your life becomes easier, and you can rest soundly with effective accounting services. Contact us if you have questions or learn more about our accounting services.

ABOUT THE AUTHOR

Jerad Knott

308.398.1545

jknott@lutz.us

3320 JAMES ROAD

SUITE 100

GRAND ISLAND, NE 68803

JERAD KNOTT + TAX SHAREHOLDER

Jerad Knott is a Tax Shareholder at Lutz. He began his career in 2003. He provides tax planning, research, compliance and consulting services to privately held companies.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • American Institute of Certified Public Accountants, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • BSBA, Hastings College, Hastings, NE
  • MBA, University of Nebraska, Omaha, NE
COMMUNITY SERVICE
  • Ashland City Council, Past Councilman
  • Ashland Planning Commission, Member
  • ClubRed (American Red Cross), Board Member
  • Project Extra Mile, Past Board Member

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6 Common Cybersecurity Hacking Methods & How They Work 

6 Common Cybersecurity Hacking Methods & How They Work 

 

LUTZ BUSINESS INSIGHTS

 

6 Common Cybersecurity Hacking Methods & How They Work 

JIM DEBOER, service manager

 

When it comes to cyber security, you must ensure that your company’s systems are up to par with modern standards. The first step is familiarizing yourself with the most common cybersecurity hacking methods and understanding how they work.

 

1. Malware 

Malware is arguably the most prevalent cybersecurity hacking method. The hacker typically sends malicious software to your computer via a link or email attachment. If you click on that link, the software is installed on your computer. 

Once inside, the malware can retrieve sensitive data from your hard drive, prevent access to vital components of your network, or completely incapacitate your system. The most common types of malware are: 

Ransomware

Ransomware is malicious software that encrypts data on either a computer or an entire network. The ‘ransom’ in ransomware comes from the extortion attempt that follows encryption. Attackers will demand a ransom or fee to be paid in cryptocurrency (Bitcoin, Ethereum, etc.) in exchange for a program to decrypt and recover your data.

Viruses

A virus is a corrupted computer program that attaches itself to another program to cause damage to your system. Once you run the infected program, the virus spreads to other programs on your computer. 

Trojans

A Trojan is a type of malware that disguises itself as a harmless and useful computer program when it is actually a malicious file. Trojans do not necessarily replicate themselves like viruses. They are commonly used by hackers to establish a backdoor through which to exploit your system (in the same way the Greeks used Trojan Horses to invade their enemies).

Worms

A worm is similar to a virus in the way it is usually sent (via email) and self-replicates. The main difference is that a virus attaches itself to a host program while a worm can live in its own individual program. A worm can also spread by itself without your interference. Other types of malware include spyware, adware, etc.

 

2. Phishing 

Cybercriminals can also use phishing to steal your identity and money. The attacker sends you an email pretending to be someone trustworthy (a bank manager, interviewer, celebrity, social media page, etc.). They use convincing words to prompt you to give up sensitive information such as your card details, passwords, bank credentials, etc. They then use this information to steal your identity and hack your accounts. 

Hackers typically combine phishing with other methods, such as malware, network attacks, and code injection, for a successful hack. Apart from email phishing, the other types of phishing commonly used by attackers include angler phishing, vishing, smishing, whaling, and spear phishing. 

Here are two articles to help you learn more about phishing scams and how to avoid them:

 

3. DoS (Denial of Service)

A DoS attack is designed to shut down your network or computer and deny access to the end users. The attackers flood the machine or network with an overwhelming amount of bad network traffic, thus preventing normal traffic from accessing the system or internet. There are two types of DoS attacks: 

  • Flood DoS attacks: The hacker oversaturates the servers with large quantities of data packets, leading to DoS. 
  • Buffer overflow attacks: The attacker targets and exhausts all of the system’s memory, hard drive space, and/or CPU time with the goal of crashing the system. 

DoS attacks can also come in the form of DDoS (Distributed Denial of Service), where hackers launch the attack from multiple infected host computers.

 

4. SQL Injection

SQL injection is a hacking method where cybercriminals use malicious code to access your company’s database and retrieve vital information. Once inside, they can steal, modify or delete the data. The attackers can also gain administrative rights and potentially further compromise your organization. 

SQL injection is one of the oldest and worst cybersecurity attacks that gives hackers access to intellectual property, personal data, and trade secrets of a company. It can target websites or web applications with SQL databases such as MySQL, SQL Server, and Oracle. 

 

5. Password Attack 

Once a hacker has your passwords, they can access vital data and systems with devastating consequences. Password attackers use various methods to access your private accounts, including: 

  • A brute-force attack – This is one of the simplest hacking methods that relies primarily on trial and error to crack passwords, login details, encryption keys, and more. The hackers use a program to attempt all the possible combinations of available information to find the right password. 
  • A dictionary attack – The hacker guesses from a list of passwords to try and gain access to your machine and network. 

Cybercriminals can use a number of ways to obtain your passwords, including testing your network connection to find unencrypted passwords, phishing, breaking into a password database, using social engineering, or simply guesswork. Be sure to read this article to learn how to keep your passwords and accounts protected.

 

6. Keylogger/Keystroke Logger/Keyboard Capture

Keylogger is a program that records every activity on your computer, even the mouse clicks. Software versions can come as a part of any of the malware varieties listed above. Some attackers can also insert a physical keylogger device into your computer with the ability to capture your entire computer activity and send it to themselves. Hackers often use keyloggers to steal login details and sensitive data such as passwords, email ids, pin codes, and account numbers. 

 

Lutz Tech Can Help

Modern hackers use advanced skills to try and trick you. It’s important to be vigilant and understand the common tactics to avoid falling victim to a cybersecurity breach. Contact us today for any questions or learn more about our Lutz Tech services.

ABOUT THE AUTHOR

402.778.7950

jdeboer@lutz.us

LINKEDIN

JIM DEBOER + SERVICE MANAGER

Jim DeBoer is a Service Manager at Lutz Tech with over 15 years of experience in the technology industry. He is responsible for troubleshooting computer and server discrepancies, responding to technical inquiries from clients, as well as providing onsite assistance to outsourced IT clients.

AREAS OF FOCUS
  • Outsourced IT
  • Technical Support
  • IT Infrastructure
  • Client Service
  • Technology
AFFILIATIONS AND CREDENTIALS
  • VMWare VCP
  • Microsoft MCSA
  • Microsoft Certified Professional
EDUCATIONAL BACKGROUND
  • BS in Network Engineering, University of Advancing Technology, Tempe, AZ

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How to Find a Company Culture that Aligns with Your Values

How to Find a Company Culture that Aligns with Your Values

 

LUTZ BUSINESS INSIGHTS

 

How to Find a Company Culture that Aligns with Your Values

LAURIE CRADICK, CLIENT RELATIONS MANAGER

 

Today, employees want to work for companies with culture and guiding principles that reflect their values daily. This contributes to employee satisfaction, productivity, and engagement in the workplace.

However, finding a great company to work at goes beyond simply matching your talents to the role. While having the relevant abilities and expertise is vital, being the right cultural fit and demonstrating that your values align with the business’s mission can be equally significant. So how do you align your values with a company’s culture?

 

Find What’s Important to You

Before you can find a workplace culture that is a good fit for you, you must first understand what that means. What is important to you at work? What do you value most? We are all unique and have different requirements, so find what will make you tick and motivated to go to work every day.

Here are some elements you should consider:

1. Diversity

Working for a company that supports diversity and inclusion can increase morale, happiness, and productivity. It could also expose you to new information and knowledge.

2. Work-Life Balance

You have a life outside the office and need a good balance between that and work. Reduced burnout and good family life lead to long-term job satisfaction.

3. Growth Opportunities

We all look to elevate our lives. The same should go for your job. Companies that offer employee training, tuition reimbursements, and job-shadowing opportunities are a good place to ensure that your career grows along with you.

4. Creativity

Creativity may make the workplace more enjoyable and exciting. Additionally, creative team collaboration yields excellent solutions to difficulties and everyday work challenges.

5. Communication

Like any relationship, communication is key. You will want to work in a company that communicates clearly with its employees. Communication and transparency are good indicators of a company’s integrity and its level of value to its employees.

TIP: If you still doubt yourself, consult the people in your life for an outside perspective. They can help you find what’s important to you. 

 

What’s the Importance of Company Culture to You?

It is a chance to learn about an employer’s culture and ideas. Keep in mind that employers frequently view numerous candidates with identical qualifications and will select the person whose values and culture most closely align with the company’s values, beliefs, and standards. 

In many circumstances, the individual who wins the position is not always the most qualified but rather the one who is the best fit for the business culture or who most closely corresponds with the mission and values of the organization. Additionally, joining a company whose values do not coincide with yours can leave you feeling unfulfilled and dissatisfied with your position, regardless of compensation and benefits.  

 

Assessing the Perfect Culture Fit

The importance of company culture fit should not be underestimated. It is necessary to assess your potential work environment and ensure that its mission, vision, and values closely align with your personality.

Before applying for that job, consider the following:

1. Company’s Mission and Values

Research your potential new company. Social media interactions, the corporate website, and even the photographs on the company pages can reveal a lot. Also, look for press releases about the company’s philanthropic activity, community service, team building, and job happiness.

2. Interact with existing employees

Social media is a great tool to find out what current and former employees think of the company. If most employees are saying nice things, it is usually an indication that the company values its employees and has a great overall culture.

3. Employee Timespan

You must keep an eye on employee turnover at the organization. If the organization has a high employee turnover rate, this is a red flag. Do you encounter the same job postings all the time? Is it your perception that staff prefer to quit rapidly? Do some investigating, but this could be a solid indicator of poor employee culture.

 

Prioritize The Right Company Culture for You!

The trend of mass resignations and career pivots is mainly motivated by a need and search for personal fulfillment. Therefore, a company with a culture that matches your mentality, beliefs, and aspirations can be tremendous for your life and career. Spend enough time finding the perfect fit for you. This will result in smoother interviews, greater compatibility, and long-term relations with the company.

 

How Lutz Talent Can Help

Lutz Talent helps businesses and individuals find the right fit. Contact us for search and staffing assistance, or visit our website to find current job opportunities that align with your values.

ABOUT THE AUTHOR

Laurie Cradick

402.778.7974

lcradick@lutz.us

LINKEDIN

LAURIE CRADICK + CLIENT RELATIONS MANAGER

Laurie Cradick is a Client Relations Manager at Lutz Talent with over 20 years of experience in business development and client relationship management. She is responsible for assisting business leaders to find the best long-term talent to reach their business goals.

AREAS OF FOCUS
  • Recruiting
  • Accounting & Finance Industry
  • Networking
EDUCATIONAL BACKGROUND
  • BA in Business Administration, Truman State University, Kirksville, MO
COMMUNITY SERVICE
  • Children's Hospital & Medical Center Friends Board, Past Treasurer, Past President, Advisor
  • Epilepsy Foundation of Nebraska, Blackstone Stroll Event Chair

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