Monthly Archives: September 2015

October Tax Tips

Why you should contribute more to your 401(k) in 2015

401k ficuciary dutyContributing to a traditional employer-sponsored defined contribution plan, such as a 401(k), 403(b) or 457 plan, offers many benefits:

  • Contributions are pretax, reducing your modified adjusted gross income (MAGI), which can also help you reduce or avoid exposure to the 3.8% net investment income tax.
  • Plan assets can grow tax-deferred — meaning you pay no income tax until you take distributions.
  • Your employer may match some or all of your contributions pretax.

For 2015, you can contribute up to $18,000. If your current contribution rate will leave you short of the limit, consider increasing your contribution rate through the end of the year. Because of tax-deferred compounding, boosting contributions sooner rather than later can have a significant impact on the size of your nest egg at retirement.

If you’ll be age 50 or older by December 31, you can also make “catch-up” contributions (up to $6,000 for 2015). So if you didn’t contribute much when you were younger, this may allow you to partially make up for lost time. Even if you did make significant contributions before age 50, catch-up contributions can still be beneficial, allowing you to further leverage the power of tax-deferred compounding.

Have questions about how much to contribute? Contact Jim Komos at jkomos@cp-advisors.com or 216.831.7171. We’d be pleased to discuss the tax and retirement-saving considerations with you.

Opening the “back door” to a Roth IRA

A potential downside of tax-deferred saving through a traditional retirement plan is that you’ll have to pay taxes when you make withdrawals at retirement. Roth plans, on the other hand, allow tax-free distributions; the tradeoff is that contributions to these plans don’t reduce your current-year taxable income.

Unfortunately, modified adjusted gross income (MAGI)-based phase-outs may reduce or eliminate your ability to contribute:

  • For married taxpayers filing jointly, the 2015 phase-out range is $183,000–$193,000.
  • For single and head-of-household taxpayers, the 2015 phase-out range is $116,000–$131,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

If the income-based phase-out prevents you from making Roth IRA contributions and you don’t already have a traditional IRA, a “back door” IRA might be right for you. How does it work? You set up a traditional account and make a nondeductible contribution to it. You then wait until the transaction clears and convert the traditional account to a Roth account. The only tax due will be on any growth in the account between the time you made the contribution and the date of conversion.

Need help or want more information?  Contact Ciuni & Panichi, Inc.’s tax experts by calling 216.831.7171 or email jkomos@cp-advisors.com.

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July Tax Tips

2015 Summer State Tax Update
© 2015

What’s the value of my manufacturing business?

mfg88The value of your manufacturing company depends on a variety of factors, such as what products it manufactures, how it’s expected to perform, where it’s located and why you’re appraising it. Let’s take a closer look at the current merger and acquisition (M&A) market and how appraisers use three techniques to value manufacturers.

Hot market
The scene is set for a stunning M&A display for the rest of 2014 and beyond: Many companies are sitting on large cash reserves, banks are offering inexpensive financing options, investors are more confident and equity markets are relatively stable. Reuters reports that worldwide M&A deal volume was up 75% in the first half of 2014 over the same period in 2013 — the highest level in seven years.

Hot manufacturing segments include technology, health care and life sciences, energy, gas and oil, and consumer markets. Sellers in these segments may wind up in a bidding war that drives up their values. But beware that some buyers are still trolling for bargains, so don’t take the first offer you receive without obtaining a formal appraisal first.

Three valuation methods
Appraisers use these three valuation approaches to value manufacturers:

  1. Cost approach. Manufacturers rely heavily on tangible assets, so the balance sheet is a logical starting point. Some items are worth more (or less) than book value.
    For example, manufacturers sometimes use the same depreciation methods for book and tax purposes. Accelerated depreciation methods, including expanded Section 179 and bonus depreciation deductions available in recent years, have significantly lowered the net book values of fixed assets — including machines, large tools, heavy-duty vehicles, computers, software and office furniture — below current market values.
    Receivables also may need to be adjusted for bad debts. Inventory may include obsolete or unsalable items. And contingent liabilities — such as pending lawsuits, environmental obligations and warranties — also must be accounted for.
    But the biggest adjustment is for intangible assets, such as internally developed patents, brands and goodwill. The cost approach generally omits intangible value, but it can serve as a useful “floor” for a company’s value. Appraisers typically use another technique to arrive at an appraisal that’s inclusive of these intangibles.
  2. Market approach. Sales of comparable public stocks or private companies may be used to value your business. Finding comparables can be tricky, however. Many small manufacturers tend to be “pure players,” whereas public companies tend to be conglomerates, making meaningful public stock comparisons difficult.
    When researching transaction databases, it’s essential to filter deals using relevant criteria, such as industrial classification codes, size and location. Adjustments may be required to account for differences in financial performance and to arrive at a cash-equivalent value, if comparable transactions include noncash terms and future payouts, such as earnouts or installment payments.
  3. Income approach. Expected future cash flows can be converted to present value to determine how much investors will pay for a business interest. Reported earnings may need to be adjusted for a variety of items, such as accelerated depreciation rates, market-rate rents, and discretionary spending, such as below-market owners’ compensation or nonessential travel expenses.

A key ingredient under the income approach is the discount rate used to convert future cash flows to their net present value. Discount rates vary depending on an investment’s perceived risk in the marketplace.

Critical adjustments
When using the market or income approach to arrive at a preliminary value, the appraiser may need to adjust for excess working capital if you carry more cash or inventory than the average manufacturer. Nonoperating assets are also added back to an appraiser’s preliminary value.
Additional adjustments may be required if a business owns its facilities, because real estate ventures differ from manufacturers in terms of risk and return. A real estate appraiser may be called in to value your facilities.

Appraisal pros do it best
These considerations are just a sampling of the subtle nuances that go into valuing a manufacturer. Each business is unique. Owners who rely on gut instinct or do-it-yourself valuations may leave money on the table when they sell — or risk overpaying when they expand through acquisition. Consider hiring a professional appraiser to value your company before taking any action.

Charles Ciuni is a Certified Valuation Analyst and is specially trained to understand both the principals of business valuation as well as their practical applications.  He specializes in litigation support services. Contact him at 216.831.7171 or cciuni@cp-advisors.com.

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© 2015

Is Your Company’s 401(k) Plan as Good as It Could Be?

DaneWilson-01 smaller2In light of a recent SCOTUS ruling, this is a good time to double-check.

Provided by Dane A. Wilson, Wealth Management Advisor

How often do plan sponsors check up on 401(k)s? Not as often as they should, perhaps. A recent legal development seems to call for greater supervision of these plans from employers – a degree of supervision many have not routinely provided.

A major lawsuit has been resolved concerning investment selection & fees. In May, the Supreme Court decided Tibble v. Edison International, No. 13-550. It ruled that under ERISA, a plaintiff may timely initiate a claim for violation of fiduciary duty by a plan sponsor within six years of the breach of an ongoing duty of prudence in investment selection.¹

Specifically, some beneficiaries of the Edison 401(k) Savings Plan took Edison International to court, seeking damages for losses and equitable relief. Twice, the plaintiffs argued, the plan sponsor had added higher-priced funds to the plan’s investment selection when near-identical, lower-priced equivalents were available.¹

Justice Stephen Breyer, stating the opinion of the unanimous Court, wrote that retirement plan fiduciaries have a “continuing duty — separate and apart from the duty to exercise prudence in selecting investments at the outset — to monitor, and remove imprudent, trust investments.”¹ ²

Do you see more lawsuits emerging as a consequence of this ruling? It does seem to invite them. The above language implies that the investment committee created by a plan sponsor shoulders nearly as much responsibility for monitoring investments and fees as a third-party adviser. Most small businesses are not prepared to benchmark processes and continuously look for and reject unacceptable investments.

Do you have high-quality investment choices in your plan? While larger plan sponsors have more “pull” with plan providers, this does not relegate a small company sponsoring a 401(k) to a substandard investment selection. Employees are smart and will ask questions sooner or later.

Are your plan’s investment fees reasonable? Employees can deduce this without checking up on the Form 5500 you file – there are websites that offer some general information as to what is and what is not acceptable. Most retirement savers read up on this with time, and most know (or will know) that a plan with administrative fees pushing 1% is less than ideal.

Are you using institutional share classes in your 401(k)? This was the key issue brought to light by the miffed plan participants in the Tibble v. Edison International case. When Edison International added a collection of mutual funds to its 401(k) plan in 1999, it chose to offer plan participants retail shares in six of those funds rather than institutional shares.³

Edison International saved about $8 million in administrative expenses with that move – but there was a cost for that savings, and it was passed on to plan participants. They ended up paying higher fees on those investments, for retail shares have markedly higher fees than institutional shares. It is not unusual for the difference to exceed a tenth of a percent. This may not seem like much to quibble about in the present, but the impact on retirement savings over time can be significant.³

When was the last time you reviewed your 401(k) fund selection & share class? Was it a few years ago? Has it been longer than that? Why not review this today? It is part of your fiduciary duty to your employees to do so.

You certainly do not want a lawsuit brought against your company charging that you neglected a core responsibility of sponsoring a 401(k) plan. The Supreme Court decision on Tibble v. Edison International may inspire similar legal action from disgruntled plan participants. Do your best to avoid it – call in a financial professional to help you review your plan’s investment offering and investment fees.

Dane A. Wilson,  Wealth Management Advisor, for C&P Wealth Management may be reached at 216-831-7171 or dwilson@cp-advisors.com.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – faegrebd.com/23003 [5/18/15]
2 – ebn.benefitnews.com/news/retirement/scotus-decision-opens-door-to-more-401k-lawsuits-2746418-1.html [5/18/15]
3 – money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2014/03/31/how-the-supreme-court-could-stop-the-401-k-rip-off [3/31/14]

 

 

Ciuni & Panichi Honored for Eighth Year as a Great Place to Work

nc99 test11Ciuni & Panichi, Inc., a Cleveland accounting and consulting firm, is pleased to announce it has been named a NorthCoast 99 Winner for the eighth consecutive year.

Ciuni & Panichi, Inc. places a high value on giving back to the community.  It is something that founders Chuck Ciuni and Vince Panichi felt was important from the very beginning.  The firm has a volunteer committee that looks for opportunities for the firm to participate with local organizations.  They take suggestions from staff as well and come up with a calendar of events for employees to participate in.  In addition, many at the firm are on the boards of the area’s nonprofit organizations which helps staff develop leadership skills as well as learn about the organizations first hand.

Mike Klein, the partner who leads the Not-for-Profit Group, feels this is an important component we bring to our clients,  “This not only aids the organizations for whom our staff volunteer, but helps our staff see not-for-profit organizations from the perspective of management and boards.  As a result, they become more effective advisors to our clients.”

This is just one of many aspects that makes Ciuni & Panichi, Inc. a great workplace, in the end it is our employees that make us who we are.

NorthCoast 99 is an annual recognition program that honors 99 great workplaces for top talent in Northeast Ohio.  Ciuni & Panichi, Inc. is honored to be recognized for the eighth year in a row.  The program was developed and is presented by ERC.  ERC is Northeast Ohio’s leading and largest professional organization dedicated to HR practices, programs and services.  Since 1999, hundreds of organizations have been nominated and applied for the award, and the program has recognized over 400 organizations for their ability to maintain great workplaces that support the attraction, retention, and motivation of Top Performers.

Are you interested in joining Ciuni & Panichi, Inc.?  Contact Jacki Bell at jbell@cp-advisors.com for more information.