Business Owners’ Potential Business Exit Worksheet

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1. What motivated you to start your business?

 

2. How important is your business to your personal identity?

 

3. Is the business your primary source of income? If not, what is?

 

4. How much time do you spend working ‘in’ the business rather than ‘on’ the business?

 

5. Which of the following best describes you? (circle one)

  • Wealthy but I would prefer to continue to work
  • I need to continue to grow my business if I want to own an asset that will eventually make me wealthy
  • I’m already wealthy and ready to exit my business in the next 1-3 years
  • I wish I had sold the business already

 

6. What, in your opinion, is the #1 thing you can do to grow and protect the value of your business?

 

7. What aspects of your business keep you up at night?

 

8. There are many ways to exit a business, of the following six options, which are the two that you find the most likely and compelling? (Circle two)

  • Gifting or sale to member(s) of your family
  • A buyout made by your business partner(s) or your co-shareholders
  • A management buyout by one of your essential manager employees or a group of essential manager employees
  • A sale to a large group of your employees (ESOP etc.)
  • A private equity sale or recapitalization – selling your business, or a significant part of your business, to a buyer that would like to buy, improve and re-sell (or possibly hold) the business
  • Sale of the entire business to a practitioner in the same business or a related industry
  • Public offering of company stock (IPO)

 

9. What valuation method do you use to measure the value of your business (EBITDA multiple, Discounted Cash Flow, ‘Back of the Envelope’ etc. etc.)

 

10. How much money do you believe you need in order to maintain or improve your lifestyle after you are no longer taking a salary from your business?

 

11. Let’s talk about your team. Do you regularly (at least once per year) consult with the following 5 types of advisors? (Circle all that apply):

  • Accountant
  • Estate Attorney
  • Corporate Attorney
  • Financial Advisor
  • M&A Advisor (business broker, investment banker etc.)

 

12. Does your team of advisors coordinate their planning and advice for you? How often do they meet to review your comprehensive plan?

 

13. How often do you and your co-owners set aside half a day for a formal ‘shareholder’s meeting’ designed to jointly make business decisions and solve problems in the business?

 

14. How recently have you updated your shareholders (buy/sell) agreement? Does it include your most recent valuation? Is it adequately funded by insurance?

 

15. What are the best methods you’ve used to attract, retain, and reward your key employees?

 

16. Would your business be likely to suffer a financial loss if you or essential employee(s) were lost or incapacitated?

 

17. Do you or your company own any life insurance policies for business succession, buy/sell, disability, deferred compensation or retirement purposes?

 

18. Have you done any advanced estate planning for yourself and your family (giving away company stock, living trusts, life insurance, charitable planning)?

 

19. Have you updated your advanced estate plan to reflect recent changes in your business or recent tax-related legislation passed by Congress?

 

20. Would you be interested to have a second opinion on any of your planning work that we have asked you about on this worksheet?

IRS Releases 2018 Form W-4 and Updated Withholding Calculator

The IRS has released a new version of Form W-4, as well as a new withholding calculator to help taxpayers adjust their 2018 tax withholding.

The Tax Cuts and Jobs Act made major changes to the tax law and it is important to ensure that you are having the right amount of tax withheld from your paycheck in order to avoid facing an unexpected tax bill or penalty when filing your 2018 tax return.

We recommend that all employees check their 2018 withholding, especially those who:

  • Earn two incomes or are in two-income families
  • Work only part of the year
  • Have children who claim credits such as the Child Tax Credit
  • Itemized deductions in 2017
  • Have high incomes and more complex tax returns

 The IRS has created two methods to help taxpayers determine their appropriate withholding:

  1. A withholding worksheet, which is included with the 2018 Form W-4
  2. New withholding calculator https://apps.irs.gov/app/withholdingcalculator/index.jsp

We recommend using the calculator, as it is designed to help employees make changes based on their personal financial situation. To use the calculator, you will need your most recent pay stub and a completed copy of your 2017 income tax return.  If you have not yet filed your 2017 return, you can refer to 2016, but the results may not be as accurate.

-Your Fortis Tax Team
March 2, 2018

 

Fortis Perspectives – February 2018

FROM THE DESK OF OUR MANAGING PARTNER, RANDY HUBSCHMIDT

Today’s Multifamily Housing Sector

In Order to Sell Right, You First Have to Buy Right

 

Key Takeaways

  • Proper market analysis is essential for success when investing in multifamily housing.
  • Multifamily housing should remain strong as new tax laws make single family ownership less attractive and as downsizing Boomers migrate to urban markets vacated by Millennials.
  • There is still plenty of upside left for properties that can be upgraded quickly and cost effectively and can be re-positioned in the market.

Recent stock market volatility has caused many to wonder if the real estate market has also hit its near-term peak. Many investors have asked me if it’s time to take some chips off the table or diversify into other sectors of the real estate market.

Real estate is notorious for its boom and bust cycles. As is the case with other asset classes, as returns continue to increase, more capital is attracted. As more capital is attracted, investors become increasingly aware that returns are on the upswing and thus, still more capital flows in that direction. At some point the music stops and you don’t want to be the one left without a chair. Sound familiar?

How real estate differs from stocks

Unlike publicly traded stocks, it takes time to deploy capital into real estate. If you are talking about a development, entitlements take time, contractor bids are collected, building commences and finally “lease up” (attracting tenants) begins. This process can take several years. By the time lease-up begins, the market may have shifted and the projected rents may be unachievable. If the projections are rosy to begin with, or if the project is over-leveraged, then returns on this investment will suffer.

If we’re talking about a “reposition” or a “value-add” project, there should be existing cash flow that can be reinvested into the property to make the required capital improvements. If the property can be quickly upgraded and repositioned in the market, then its owners will be in a better position to take advantage of the market upswing before time runs out.

Unfortunately, real estate investors often enter the market too late in the cycle and end up buying at the top of the market. This may certainly be the case when it comes to some of the multi-family assets being purchased today.

How real estate is like the stock market

Real estate and equities are in the sense that it’s very hard to financially engineer your way out of a bad investment or to rely on the “next bigger sucker” to provide your exit. If buying real estate at 5 cap or buying a tech stock at 100 P/E, how much more room is there to go?  As the old saying goes, “In order to sell right, you first have to buy right.”

  • If you buy right, you can always hold the asset for the cash flow it generates and sell when the market turns back in your favor.
  • If you buy right, you can sell when you want to, not when you have to.

According to Multifamily Executive’s (MFE) 2018 Investment Forecast, competition for attractive assets becomes tighter as valuations increase, and as a dearth of yield persists in fixed income. Thus, operational expertise becomes even more important.

The MFE report also said to expect continued outperformance in the secondary and tertiary markets despite the increased competition for high quality assets. Primary markets continue to attract the most attention driving capitalization rates down. Thus, those assets may yield lower overall returns.

Challenges will be ‘the same, but different’

MFE’s report also had an interesting take on Millennials and their propensity to rent in urban markets: “Challenges will be ‘the same, but different.’” MFE and other market observers say statistics no longer support the belief that millennials will be lifelong renters—i.e. perpetual members of the sharing economy that not only don’t buy homes in the suburbs; they don’t even commit to purchasing cars in order to get around.

Not so. Millennials are clearly delaying marriage, children and household formation later than previous generations did. But, here’s the thing: Eventually they are getting married, starting families, buying cars and migrating to the suburbs. This trend would normally be adverse news for the multi-family housing sector, but there’s another powerful trend taking place–aging Boomers are doing the reverse. Boomers are downsizing, which means they are selling their suburban homes and moving into multifamily units in urban areas. I suspect this trend to continue for the foreseeable future.

As Bendix Anderson recently explained in National Real Estate Investor (NREI), The Apartment Sector Boom (Is) Set to Continue in 2018. Anderson’s report said the new tax law changes will create an increase in overall renters as the tax benefits of home ownership have been reduced for the time being. The NREI report also said that Developers will continue to focus on the primary markets, as well as on gentrifying surrounding areas and on building luxury apartments. According to the report, these developments charge rents at the top of their respective markets and face significant competition from other luxury apartment offerings. The report also said it will be increasingly difficult for those properties to raise rents.

At Fortis, we tend to agree with Anderson’s assertion that the strongest returns can be achieved in the secondary markets—markets that are located close enough to primary markets so they can “siphon off” prospective tenants who’ve been priced out of primary markets and where competition among buyers is reduced.

Conclusion

Real estate has, and always will be, an important component for a well-balanced long term portfolio. If you or someone close to you is concerned about your lack of diversification or wealth building strategies, please don’t hesitate to contact us.

Randy Hubschmidt
Managing Partner, Fortis Wealth

Fortis Advisors, LLC is a registered investment adviser with the Securities and Exchange Commission. You can read more about the Fortis team at www.fortiswealth.com. To the extent that content includes references to securities, those references do not constitute an offer or solicitation to buy, sell or hold such security as information is provided for educational purposes only. Articles should not be considered investment advice and the information contain within should not be relied upon in assessing whether or not to invest in any securities or asset classes mentioned. Articles have been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Securities discussed may not be suitable for all investors. Please keep in mind that a company’s past financial performance, including the performance of its share price, does not guarantee future results. Material compiled by Fortis is based on publically available data at the time of compilation. Fortis makes no warranties or representation of any kind relating to the accuracy, completeness or timeliness of the data and shall not have liability for any damages of any kind relating to the use such data. Material for market review represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Indices that may be included herein are unmanaged indices and one cannot directly invest in an index. Index returns do not reflect the impact of any management fees, transaction costs or expenses. The index information included herein is for illustrative purposes only

Tax Identity Theft Awareness Week: January 29 – February 2, 2018

DAY 5 – How are the IRS and state revenue officials protecting taxpayer data today?

  • Password protocols have been enhanced for individual and tax professional software.
  • The IRS is requesting additional information from tax professionals who contact them to discuss client information. The additional information may include SSN, date of birth or home address.  According to the IRS, this personal information is necessary to verify the identities of the tax professional they are releasing taxpayer information to.
  • IRS has strengthened protections for IRS e-Services.
  • States and financial institutions have implemented their own program to help identity false refunds.
  • The IRS is enforcing a Form W-2 verification code that will help verify income information and employer for 2018 tax filing season.
  • The IRS has a public awareness campaign “Taxes. Security. Together.” to help taxpayers and tax professionals stay alert to cybercriminals and identity thieves. https://www.irs.gov/pub/irs-pdf/p4524.pdf

As cybercriminals and identity thieves’ progress, we need to stay on guard!

To keep yourself up to date with the latest scams and tips to protect your personal information visit www.irs.gov.  You will find plenty of information regarding the latest scams targeting taxpayers, telephone scams, email scams, etc.

 

Sources

https://www.irs.gov/ “Security Summit Partners Mark Progress in Identity Theft Battle; Prepare for 2018 Tax Season”

https://www.journalofaccountancy.com/ “IRS asking for taxpayer representatives’ personal information”

 

Tax Identity Theft Awareness Week: January 29 – February 2, 2018

DAY 4 – Reasons to Use Direct Deposit for your Tax Refund

Nowadays, using direct deposit is the fastest and safest way to receive a tax refund. Taxpayers who option out of e-file and choose to file a paper return can still use direct deposit as their refund method.

Direct deposit is beneficial because it eliminates the risk of a paper tax refund being stolen or lost.

FAST – SECURE – SAFE – DIRECT DEPOSIT

 

 

The IRS does have a direct deposit limit.  The limit is set to fight fraud, identity theft and criminals obtaining multiple refunds.  The limit of tax refunds being directly deposited into a single bank account or pre-paid debit card is three.  The fourth and subsequent refunds will be paper checks and mailed to the taxpayer or their tax professional with a notice.

You must deposit refunds into an account in your own name, spouse’s name or both.  Keep in mind, some banks require both spouses’ names on the account to directly deposit a tax refund.  It is best to check the direct deposit rules with the bank first.

With direct deposit, you have the option to split a refund into several accounts.  These accounts include checking, savings, health and some retirement accounts.  For more detailed information and instructions use IRS Form 8888 or notify your tax professional to complete the form on your behalf when filing your tax return.

Sources

https://www.irs.gov/ “Here’s Five Reasons to Use Direct Deposit for a Tax Refund”

https://www.irs.gov/ “Get Your Refund Faster: Tell IRS to Direct Deposit your Refund to One, Two or Three Accounts

Tax Identity Theft Awareness Week: January 29 – February 2, 2018

DAY 3 – How Do You Protect Yourself From Identity Theft?

TREAT YOUR PERSONAL INFORMATION LIKE CASH, don’t leave it laying around.  By taking a few simple steps, you can reduce your risk of identity theft.

  • Do not routinely carry your social security card or any type of document with your social security number.
  • Keep old tax returns and tax records secured/locked away. If electronic, keep encrypted.
  • Shred tax documents or any document with your personal information before throwing away in the trash (credit card bills, invoices, banking statements, medical documents, expired driver’s license, etc.).
  • Avoid IRS-Impersonators. The IRS will not call you with threats of jail or lawsuits.  The IRS will not request personal information online.

Forward IRS-related scam emails to phishing@irs.gov.

Report IRS-impersonators at www.tigta.gov

  • If you are publicly sharing your personal information on social media….stop! There is just some information that should not be shared with everybody.

The Do Not Share List

  1. Home address
  2. Places you lived
  3. Birth date (M/D/Y)
  4. Work place
  5. Vacation plans
  6. Any information about your children, a new car, a new home.

 

Sources

https://www.irs.gov/“Taxpayer Guide to Identity Theft”

Tax Identity Theft Awareness Week: January 29 – February 2, 2018

DAY 2 What To Do If You Become A Victim Of Tax Identity Theft

  • Respond immediately to any IRS notice. 

Call the IRS at 800-829-1040 to verify the notice received of tax identify theft or your tax professional will call on your behalf with Power of Attorney.

When the IRS confirms they sent the notice, an Identity Theft Affidavit (Form 14039) should be completed and submitted.

The IRS will then issue a PIN that verifies that you are the true owner of that identity.

It is extremely important to not misplace your PIN.  Obtaining a replacement PIN is a real challenge.

 For more information on IRS identity theft victim assistance visit irs.gov/IdtVictimAssistance

  • Alert your financial institutions right away.

They will need to monitor any fraudulent activity on your accounts.  You will need to review transactions and have any accounts closed that you did not authorize to open.

  • Notify at least one of the credit bureaus.

The credit bureau will place a fraud alert on your credit records. 

  • Contact the FTC (Federal Trade Commission) to file a complaint.

The FTC recommends you visit their website to find helpful resources and file the complaint online.    identitytheft.gov

 

Sources

https://www.irs.gov/ “Taxpayer Guide to Identity Theft”

Raquel, Arrechea “Understanding Tax Return Identity Theft.” New Jersey CPA Magazine

Tax Identity Theft Awareness Week: January 29 – February 2, 2018

The 2017 tax filing season is officially here.  Fortis is helping to raise awareness on tax identity theft so that you do not become a victim. We also know identity theft is a frustrating process for victims.  If you become a victim, we are committed to resolving your case as quickly as possible.

 

DAY 1 – What is Tax Identity Theft?

Tax identity theft is when someone steals your social security number to file a false tax return claiming a tax refund.

You most likely will not know if you are a victim of tax related identity theft until you file your tax return.  You will be contacted by your tax professional or by the IRS if there are suspicions.

 

Warning Signs:

  • More than one tax return was filed using your SSN.
  • You owe additional tax, refund offset or have had collection actions taken against you for a year you did not file a tax return.
  • IRS records indicate you received wages or other income from an employer for whom you did not work.

If you suspect you are a victim of tax related identity theft you still need to continue to pay your taxes and file your tax return(s). 

 

Source

https://www.irs.gov/ (Taxpayer Guide to Identity Theft)

Fortis Perspectives – November 2017

2017-11-22_12-38-49

FROM THE DESK OF OUR DIRECTOR OF TAX

 

Year-End Tax Planning In the Wake of Tax Reform.

Jennifer-Fields_bwAs you have undoubtedly seen in the news, the U.S. House and Senate have each released their respective versions of the Tax Cuts and Jobs Act over the last few weeks. The House bill presented many challenges for year-end planning and now this is compounded by the Senate’s proposal, which varies from current law and the House proposal. What should taxpayers contemplate as we approach December 31st? Consider the issue below. As always, we are here to help you navigate the every-changing tax landscape.  Reform may bring lower tax rates and greater limitations on deductions. Consider accelerating deductions and deferring income.

  • Consider paying state, local and real estate taxes before year-end.
  • Proposed changes to the mortgage interest deduction are on the table. Before paying off, refinancing or consolidating debt speak to your tax advisor to determine how you may be impacted.
  • Although charitable gifts continue to be a deduction under the proposed bills, taking the deduction in 2017 against higher tax rates may be applicable to you.
  • Itemized deductions are expected to be limited so consider prepaying tax preparations fees and investment advisory fees.
  • Other standard year-end practices still apply including the following: utilizing payroll or RMD withholding in lieu of quarterly estimates, realizing losses on investments, donating appreciated stock, making qualified charitable distributions from an IRA, maximizing 2017 retirement contributions and year-end gifting.
  • Both bills contemplate an expanded gift / estate tax exemption. Although we do not foresee any year- end deadlines, many families will want to take advantage of this immediately following the New Year, should a bill be passed.
  • For business owners, modifications to corporate tax rates as well as pass-through entities will certainly call into question the optimal entity structure. We recommend consulting with your advisor immediately to consider all options.
  • Other corporate matters like expensing the cost of qualified property, depreciation and deductibility of interest may change so this warrants most business owners to revisit their current tax plans.

In summary, the proposed bills impact individuals, corporations, pass-through entities and exempt organizations. We expect these bills to be modified as politics will inevitably interfere with real tax reform. Our clients will hear from us in the coming weeks as we prepare for year-end and 2018 planning opportunities. In the meantime, if there are immediate needs or concerns please do not hesitate to contact us to discuss the potential impact on you and your family.

Fortis Perspectives                                                                                November 2017

Jennifer L. Fields
Director of Tax