Storm Alert: How to Protect Your Business’ Finances

Storm Alert: How to Protect Your Business’ Finances

A bomb cyclone hits leaving snowfall that’s measured in feet instead of inches, bringing down powerlines and trees that will keep area businesses closed for days and possibly weeks.

A fire at a nearby building creates hazardous conditions for the surrounding area, resulting in officials making nearby offices off-limits until safety can be assured.

A severe hurricane hits. The roof of your office building is torn off and everything inside is destroyed.  Work conducted in that building is stalled for months.

Severe weather and fire events are occurring with greater frequency. While you have commercial property insurance to cover physical assets, what about income you lose and expenses you must continue to pay should your business temporarily shut down?  That’s where business interruption insurance comes in.

Business interruption insurance replaces financial losses and expenses you must continue to pay during a shutdown related to a covered weather or fire event. So, any income you would have earned had the event not occurred plus any expenses you must continue to pay while your business is temporarily shut down are replaced. This helps protect your business’:

  • Cash flow. Business interruption insurance replaces the income your business would have earned had the event not occurred, ensuring cash continues to flow into your business even if you’re temporarily closed.
  • Working capital and equity. Rather than seeing your assets shrink and debts increase due to expenses you would still have to pay during a temporary closure (i.e., payroll, mortgage, taxes, loan payments, temporary workplace expenses and more), business interruption insurance covers these expenses. As a result, your working capital, short-term business health, and solvency are protected.
  • By providing coverage to protect revenue and cover expenses, your business has the help it needs to protect profits during a shutdown and more quickly return to normal once a shutdown has ended.
  • During a temporary shutdown, business expenses may increase to cover costs associated with an interim workspace (i.e., rent). Rather than seeing your cash on hand going to cover additional expenses, business interruption insurance can protect it by covering costs associated with having to open a temporary work location.
  • Maintaining cash flow, working capital, and equity plays into the formula to determine your bonding rating, which can impact your ability to bid on and secure future work.

Anything not covered by your business interruption insurance, as well as the premium you pay for that coverage, are deductible on your income statement. What’s more, depending on your business’ structure, a business loss, if incurred, can be carried forward into future years if not used up in the current year.

In addition to the financial protections business interruption insurance affords, it can also help with employee retention and productivity by covering payroll during a temporary closure.  Considering today’s challenges recruiting and retaining talent, keeping payroll going during a shutdown ensures your business will have the staff needed to ramp up productivity as soon as the shutdown is over.

Finally, extreme weather or fire events usually result in more contracting jobs following the event. By having business interruption insurance, you not only keep your business running, but also equip it to take on additional work, and that benefits everyone.

Don’t Miss Out on Big Company Retirement Benefits Just Because You’re Self-Employed

Don’t Miss Out on Big Company Retirement Benefits Just Because You’re Self-Employed

If you feel like you’re missing out on big company retirement benefits, check out a solo 401(k). Sometimes referred to as an individual 401(k), a solo 401(k) plan provides valuable savings and tax benefits, while enabling you to build retirement income.

Who’s eligible?

You are eligible to participate in a solo 401(k) if you are a self-employed owner of an S Corporation that has no full-time employees. Your spouse may also be eligible if he/she earns an income from your business. You do need an Employer Identification Number (EIN) to open a Solo 401(k).

What advantages does it offer?

You can benefit as both an employee and an employer.

  • As an employee, you can defer a portion of your pay before taxes (other than Social Security and Medicare) are deducted. This reduces your taxable income. Your savings are invested and grow tax-free until you retire and make withdrawals. (If you choose a Roth Solo 401(k), your contributions can be made from your after-tax pay; then, you’ll pay no taxes when these contributions are withdrawn at retirement.)
  • As an employer, you can choose to make a profit-sharing contribution to the plan; the contribution is tax deductible.

You choose how to invest contributions so they grow over time. Unlike a large employer’s 401(k) plan, no testing is required for a solo 401(k).

When do contributions have to be made?

If you are deferring a portion of your pay under the plan, it gets deducted throughout the year. For a profit-sharing contribution, you have until the tax-filing deadline for the tax year to make the contribution. So, you have until when you file taxes in 2023 to make a contribution for 2022.

When can I receive my benefits?

When you retire as long as it’s after age 59 1/2; otherwise, penalties and taxes will apply.

Where can I open a Solo 401(k)?

Brokers, mutual fund companies (i.e., Vanguard, Fidelity, or Schwab), self-directed retirement plan providers, and some banks offer solo 401(k) plans. (Visit Investopedia for recommendations.)

Why should I consider opening a solo 401(k) plan account?

A solo 401(k) offers several benefits. It provides a valuable way to set aside and grow income for retirement. It’s flexible – you can choose to open a before-tax or Roth account, and you decide how to invest your account balance. It provides tax breaks for any profit-sharing contributions your company makes to the plan. If your spouse earns income from your company, he or she can participate, too.

How much can I elect to defer from my earnings and contribute via profit sharing?

Contributions are based on your W-2 reported earnings up to a maximum annual contribution (equal to net earnings minus 50% of self-employment tax), up to an annual IRS limit ($330,000 for 2023).

For 2023, you can elect to defer up to $22,500 (plus $7,500 in catch-up contributions if you are age 50 or over). Plus, a profit-sharing contribution can equal up to 25% of W-2 earnings. In total (elective plus profit sharing) contributions are limited to $66,000 in 2023 (excluding the $7,500 catch-up contribution).

To learn more about the potential tax benefits of opening a solo 401(k) to you and your S Corp, contact RBT CPAs today. We’ve been serving clients in the Hudson Valley and beyond for over 50 years.

How Your School Can Use Federal Funds to Go Green

How Your School Can Use Federal Funds to Go Green

Thanks to the Inflation Reduction Act (IRA), there is more federal funding available – in the form of grants and tax credits – to help schools go green and save. Is your district making the most of this opportunity?

IRA funding is meant to help schools create healthy, sustainable learning environments by providing tax credits for clean energy and transportation, plus support for energy efficiency initiatives. Here’s a sampling of what’s available…

  • Tax credits or direct payment to reduce installation costs for renewable energy sources like solar panels, geothermal heat pumps, and energy storage systems. Receive 6% to 30% of eligible costs, plus an additional 10% for meeting certain criteria.
  • Funding for energy produced from renewable sources like solar panels, geothermal heat pumps, and energy storage systems. Receive 1.5 cents per kWh produced plus 10% for meeting certain criteria.
  • Tax credits or direct payment for the purchase of clean light- and heavy-duty electric vehicles (including buses). Depending on type of vehicle and weight, receive up to 30% of the price or incremental cost for a comparable vehicle, whichever is less.
  • Tax credit for alternative fuel refueling property, including charging stations for electric school buses. (Low income and rural schools may be able to receive direct pay.)
  • Reduce energy-saving project costs by passing on deductions – equal to $.50 to $5 a square foot – to eligible contractors and other entities who agree to reduce fees by the amount of the deductions. Use this for interior lighting design; heating, cooling, ventilation, and hot water systems; and building envelop design or retrofit that increase energy efficiency by 25%.
  • Access no- or low-interest loans to deploy low- and zero-emission technologies via the Greenhouse Gas Reduction Fund.
  • Competitive grants can help replace eligible vehicles with zero-emission vehicles, including electric school buses; monitor and reduce greenhouse gas emissions and other pollutants at schools in low-income and disadvantaged communities; invest in community-led projects in disadvantaged communities to address disproportionate environmental and public health harms from pollution and climate change; support neighborhood equity, safety, and affordable transportation access.
  • Partner with eligible recipients to receive funds to increase the number of trees on school property.

For complete details, download the “K12 Education and Climate Provisions in the Inflation Reduction Act Guide” created by the Aspen Institute’s “This Is Planet Ed” and the World Resources Institute’s “Electric School Bus Initiative”.  (Natalia Akopian, Michelle Faggert, and Laura Schifter. (2022). “K12 Education and Climate Provisions in the Inflation Reduction Act” The Aspen Institute: Washington, DC. school-climate-provisions-in-the-inflation-reduction-act.)

The IRA is just one source of green funding for schools – there are others.

For an overview of how to develop a green plan for your district, refer to this seven-step guide from The Henchinger Report. (Kamenetz, Anya. “There’s a lot of new money for greening education. This is how schools could use it.” December 20, 2022. The Henchinger Report.)

While you focus on taking advantage of this billion-dollar opportunity (literally), please know that RBT CPAs is here to take care of your accounting, tax, and audit needs. We’ve been serving clients in the Hudson Valley and beyond for over 50 years. Give us a call.

Overcome Staffing Challenges with Customized Compensation and Benefit Plans

Overcome Staffing Challenges with Customized Compensation and Benefit Plans

As an accountant, I can always depend on numbers to make sense, until they don’t. Take the talent shortage, for example. According to the AGC 2023 Construction Hiring and Business Outlook Report,  69% of survey respondents expect to increase headcount this year. At the same time, 80% indicate they’re having a hard time filling some or all salaried or hourly craft positions. Results are higher for respondents in the Northeast (76% and 88%, respectively) and New York (83% and 86%, respectively).

Add to that the existing shortage of 650,000 construction workers, plus the expectation that more than 40% of the current U.S. construction workforce will retire in the next decade, and the math just doesn’t add up.

The equation gets even more complicated. There are 67 workers for every 100 open jobs in the U.S. according to the U.S. Chamber of Commerce. People are staying out of the workforce. Immigration is at an all-time low. Headlines are screaming about shortages in doctors and nurses, government employees, teachers, accountants, public service employees, techies, and more, making competition for limited human resources fierce and the need for a comprehensive, multi-faceted talent acquisition strategy table stakes.

Put simply, there are more jobs than people and that’s not going to change. What has to change is how companies acquire and retain talent, while reinventing how work gets done. This includes coming up with engaging compensation and benefits approaches that strategically differentiate your company from competitors’.

For example, what if an employer created a customized benefit for different employee classes that provides a modest benefit for less experienced team members, but grows as they become more experienced? It could have a multiplier effect based on length of service but allow the team member to receive payments at milestones so the benefit is real now and not 30 years away. The employer could contractually put money away for an employee, get a tax deduction, and gain a competitive retention and attraction tool.

According to Lou Bach who leads RBT CPA’s Spectrum Pension & Compensation affiliate, “These Non-Qualified Deferred Compensation Plans are usually reserved for top executives and have a salary deferral component, like 457 plans; however, since they are employment agreements, they are not limited to highly compensated employees. Rather than salary deferral, all contributions are provided by the employer. I’ve seen them referred to as ‘Tactical Employer Compensation Arrangements.’ We have actually done a number of these for clients, dating back over the last decade. Given today’s shortage of skilled labor, I believe we’ll be seeing more of these types of arrangements going forward.”

Willard Financial Group out of Springfield, MA, for example, has been custom designing select incentive plans since 1996 for key employees with specialized skills, ranging from executives and project managers to machinists and nurses. According to James D. Percy, J.D., CLU, ChFC, “Because these are non-qualified plans, such as deferred compensation and SERP (supplemental executive retirement programs), we can provide companies with the ability to pick and choose who participates and the benefit level for each employee. Once the company decides which employees will participate, we custom design a simple plan tailored to each selected individual or group.” That custom-designed deferred bonus plan with ancillary benefits can be tailored to the needs of each employee.

So, an employee with young children may find an agreement that pays a child’s college tuition in ten years, plus offers life insurance meaningful, while someone retiring in 10 years may prefer a payout equal to three times compensation at the end of a long-term project. The key is to design the custom plan to be meaningful and motivate each individual employee.

In addition to adopting creative approaches to pay and benefits, you may want to check out recruiting and retention resources at the AGC, U.S. Department of Labor, U.S. Chamber of Commerce, National Center for Construction Education and Research, and the Building Talent Foundation (BTF). Also find unique talent resources via organizations like Helmets to Hardhats, the Rework America Alliance, and Opportunity@Work.