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Solomon & Hoover CPAs, PLLC Blog

Financial Guidance to Help Your Business Succeed

Archive for April, 2015

How the IRS views your investments

Posted by admin On April 14th

How the IRS views your investments




When it comes to taxes, all investments aren’t created equal — everything depends on their character and timing. So before you sell appreciated stock, buy interest-bearing bonds or even rebalance your portfolio, learn the tax consequences.

Deferring vs. paying now

The first distinction is between taxable and tax-deferred accounts. Retirement accounts such as traditional 401(k)s and IRAs are tax-deferred, which means you make pretax or tax-deductible contributions and don’t owe tax on them, or your investment gains, until you take the money out in retirement. Tax-deferred portfolios support — or at least tolerate — investment strategies such as frequent trading activity.

A taxable account that you fund with posttax dollars is less amenable to such investment strategies because you’re responsible for the tax on appreciated investments in the year you sell them. This may be less of an issue if you hold an investment for at least one year and it qualifies for the 15% or 20% long-term capital gains rate. But if you sell earlier, you may owe as much as 39.6% in tax on capital gains, depending on current income.

Taxable accounts make more sense for investments you intend to hold for a long time. Certain types, such as index funds and international funds, which tend to make minimal taxable distributions, are also generally suited to taxable accounts.

The bond question

Bonds often present tax complications for investors. Usually, some interest-paying fixed-income investments need to be in taxable accounts to provide liquidity for trading. But whether it’s better to invest in taxable or tax-free bonds depends on several factors, including your expected return after taxes.

All else being equal, a taxable bond paying 4% and subject to a 40% tax (for a net after-tax return of 2.4%) is less desirable than a tax-exempt bond paying 3%. Your need for current income also affects whether you should hold fixed-income investments in a taxable or tax-deferred account.

Other taxes

You may also be subject to the 3.8% net investment income tax (NIIT), which is in addition to regular income or alternative minimum tax liability. The rules for NIIT are complex, but it generally applies to unearned income and capital gains if your modified adjusted gross income reaches a certain threshold. Contact us with any questions about how the NIIT and other taxes may affect you.

Teach your children well — A financial education is critical to their success

A financial education is critical to their success




Parents are the biggest influence on their children’s financial habits — even more than work experience and classroom instruction — according to the National Endowment for Financial Education. Don’t worry: Even if you’re not a financial professional, the lessons you’ve learned as a fiscally responsible adult and successful businessperson can help set your children on the path to financial success.

Money should be earned

One of the most important money messages you can impart to your children is that it’s a scarce resource to be carefully managed. When children have access to money every time they want it, they can take it for granted.

So consider having your kids earn their own money by performing chores around the house or taking a summer job. Then make them responsible for paying some of their expenses or saving up for a major purchase, such as a bike or gaming system. This helps instill the idea of earning and saving as well as the importance of balancing needs and wants.

Along the same lines, warn your children about the potential perils of credit. Help them understand how detrimental high interest rates and late fees can be — well before they’re old enough to have their own cards.

Compounding is powerful

In addition to opening savings accounts for your children, introduce them to investing concepts. Showing the power of compounding can help your children understand why it’s important to start investing for big goals, such as college or retirement, sooner rather than later.

One useful approach is to compare the results of two hypothetical investors, one of whom waits much longer than the other to begin saving for retirement and ends up with a much smaller nest egg. Age-appropriate resources illustrating this principle can be found online on sites such as and

Portfolios teach investing

When your children have learned simple saving and investing concepts, help them build their own imaginary or real portfolio. While some kids will enjoy analyzing individual stocks — particularly familiar companies associated with the products and services they use every day — others may prefer buying mutual funds. It’s also worthwhile for young people to learn about other asset classes used to diversify a portfolio and dampen volatility, such as cash, bonds, real estate and even commodities.

For help in selecting the right mutual funds, your kids can benefit from the numerous fund screeners available online. The premium fund screener offered by investment research company Morningstar allows searching for socially responsible funds and funds with automatic investment plans, which can be suitable for the repeated small investments a young person might be making.

Gift of knowledge

You want your children to grow up to be financially successful adults. Giving them the right tools — and, more importantly, the right values — can provide them with a head start.

SupplierPay: What’s in it for you?

Posted by admin On April 14th

SupplierPay: What’s in it for you?




Even in the best of times, starting — and growing — a small business can be tough. But the credit crunch that followed 2008’s mortgage meltdown made finding working capital almost impossible for many business owners. One of the ways the government is helping to fill the credit gap is with SupplierPay.

Launched this past summer, SupplierPay builds on the earlier success of QuickPay, a government initiative that asks federal agencies to pay their small business vendors quickly — usually within 15 days. SupplierPay extends this practice to the public sector. Participants promise to expedite payment of small company invoices or to help suppliers gain access to lower-cost capital.

The goals are to reduce operating costs for small businesses (QuickPay has been credited with over $1 billion in cost savings for participating companies), encourage job creation and strengthen supply chains. To date, nearly 50 large companies spanning a variety of sectors have signed on with SupplierPay, including Apple, AT&T, Honda, Kaiser Permanente and Xerox. For more information and updated lists of SupplierPay participants, visit the White House website at

Planning for a smooth leadership transition

Posted by admin On April 14th

Planning for a smooth leadership transition





It’s never too early to start thinking about a succession plan. Whether retirement is years away or just around the corner, you want to protect the value of your business by ensuring that any leadership transfer will be smooth. Begin exploring the process by considering the following issues:

Employee buy-in. A successful succession hinges on supportive — or at least, accepting — employees. So involve managers and key staff in the planning process.

Misinformation, rumors, threats about quitting or refusals to support the new boss are common during leadership transitions. To reduce or eliminate potential sources of conflict, identify stakeholders who may have strong concerns about your next company leader or the succession process. Then work out problems with them early on.

Board support. Consider forming a board of directors consisting of people you trust who’re familiar with your industry. This board can help you assess the strengths and weaknesses of potential successors. Your board can also help assimilate your successor. Board members’ varied perspectives usually provide a more objective and collaborative approach to analyzing succession problems and developing fresh solutions. They can further assist by mediating organizational disputes, giving feedback on your heir apparent’s progress and reassuring business stakeholders.

Work experience. Successors-in-waiting need leadership and decision-making experience before they assume the top position. For example, your successor should learn how to use your company’s financial data for tax purposes, financial reporting compliance and profitability analysis. In addition, allow your successor to:

  • Spend time with HR staff to learn about your hiring methods and benefits issues,
  • Get his or her hands dirty in the field with your sales staff or on the front lines of the production floor, and
  • Meet and get to know major customers, suppliers, lenders and investors.

Communications strategy. Don’t wait too long to reveal when you’re leaving the company and whom you’ve selected as a replacement. Giving ample notice (at least one to two years) will allow plenty of time for employees to voice their concerns about your successor and the transition as a whole.

Break the news gently to gain their support for the new boss while giving them good reasons to stay with your company. If disagreements arise, discuss the issues openly and seek compromise by enabling your successor to exercise his or her newfound decision-making authority.

Remember that professional advice is critical to creating a solid succession plan. However, while your advisors can help you hammer out the details, the big succession plan decisions must be yours.


Prepare your successor for success

You’ll never find the time to teach your heir apparent everything you want him or her to know. So instead focus on critical knowledge, ensuring that your successor:

  • Understands your company’s direction, the factors critical to its success and its major challenges going forward,

  • Has in-depth knowledge of your products or services, competitors and industry,

  • Is comfortable with your business’s culture and supportive of its people, and

  • Has internalized your organization’s core values.

To help ensure employees fully accept your successor, set your departure date and stick to it. It’s fine to serve as a consultant and advisor — just don’t play an active role in the company’s daily functions after you’ve “retired.”