Monday, July 29, 2013


There is an old adage in the retail business that the three most important points in your business plan are; location, location and location.  Meaning that no matter how good the rest of your business plan is, if you do not have the customer traffic, you will not succeed. 

I was recently reminded in an unpleasant way that the three most important management techniques in being a personal representative, trustee, or manager in a family estate, trust or business are; information, information and information.  It has been my experience that about 80% of all family disputes about the running of, and distributions from family estates, trusts and businesses could have been avoided if the person in charge had just communicated more often and in more detail with the other concerned parties.  Most arguments and dissatisfaction within these family enterprises arise from differing expectations or understandings of the facts. 

For example, one heir of an estate may think that their parents left an estate of $1 mil when there really is only $700,000.  An accurate inventory of the estate assets with supporting documents would have cleared this up before any mistaken expectations could cause bad feelings.  Or one beneficiary may believe that all the assets of the trust were to be divided equally among the beneficiaries when in fact the trust calls for an unequal distribution.  Or one member of the family may think that the family business earns $200,000 per year, when in fact it only earns $50,000 and needs to retain that amount to expand the business inventory.  All of these disputes could have been avoided by simply communicating information to all parties.

Sometimes the person in charge believes that they are doing the right things and that is all that is required.  But whenever there is a vacuum of information, others will fill the vacuum with their own inaccurate guesses.  Other times the manager believes that they are too busy to do interim reports, they will send out a report when the estate or trust is finally settled.  But by then, people have already formed their opinions.  The information needs to be communicated as it is being developed, before others start to form their own guesses as to what the results should be.  Much time and frustration caused by unhappy family members could be saved if the person in charge keeps everyone up to date as to what is happening and what decisions are being considered.  If the proposed decisions cause disagreement, the disagreement can usually be resolved with much less time and stress if it is fully discussed before any action is taken rather than after.  After an action is taken the decision maker is often on the defensive when justifying what they have done, but before an action is taken it is easier to listen to conflicting ideas without getting upset.

So if you are the one in charge of a family enterprise, whether estate, trust or business, take the time to send out complete and frequent reports on what is happening.  And if you are one of the interested parties but not the one in charge, before getting upset, ask the manager for complete and frequent reports.  Everyone will be much happier with both the results of the enterprise and with their family members if you remember: information, information and information.

Loren McCann, CPA, MS (Tax)

Wednesday, July 17, 2013


We have all been debating, perhaps agonizing over, what to do about health insurance for our employees.  Most of us have tried to understand what the government was going to require us to do and when we had to do it.  However, I would like to suggest a different approach.  Maybe we should ask ourselves, “What is the best way to keep my employees and what is best for them?”  Rather than waiting for the government to tell us what we have to do, why not view it as a problem of what is best for our employees.  Let’s face it, it looks like at some time in the near future we will be forced to deal with the health insurance issue anyway.  I think we should accept that health insurance will be part of the cost of having employees and build that into our planning now, not as a requirement, but as a fact of life.  It is usually more effective to approach a problem as an expected part of the employee equation rather than a government add-on requirement.  We tend to have a more open mind when dealing with issues that are a routine part of business planning.  If we try to think of health insurance from our employee’s point of view we might also think of some options that we would not otherwise have considered.  Even small business can build health insurance into their employment package, and with the government mandate, we can present the revised compensation package to our employees with the added weight of the official requirement to make the transition more acceptable. 
I am convinced that it is time to turn this negative requirement into a positive planning opportunity.  If nothing else, it may save us a few gray hairs and anxious nights.
Loren L McCann, CPA, MS (Tax)

Monday, July 15, 2013


Most of us will agree that we do not want to pay more taxes than we have to.  But making this year’s tax the lowest that is possible is not always the best idea.  We need to look at the long term picture to see if we might be better off paying a little more this year in order to facilitate paying less in the future.  Let me give you an example:  a couple of years ago one of my clients and I discussed converting his Traditional IRA to a Roth IRA.  The IRA was about $2,500,000 and the resulting tax would be about $900,000.  “Why would you want to accelerate the tax bill on that IRA”, you might ask.  There were several reasons we decided to make the conversion.   As a traditional IRA there was a required minimum distribution each year of over $300,000. This income kept the taxpayers in the highest tax bracket and we expected the highest bracket to go higher in the future.  We also knew that the “Medicare Surtax” was going into effect in 2013.  The taxpayers also had to pay a higher Medicare insurance premium because of their high income each year, and they often had capital gains that would be taxed at a higher rate beginning in 2013.  By converting the IRA to a Roth with no more taxable distributions they were able to lower their tax rate from the highest rate to the lowest rate, avoid the Medicare Surtax, reduce their Medicare insurance premium, and pay a lower tax rate on their capital gains.  An additional plus is that the Roth IRA has no required minimum distribution so the taxpayers could let the IRA accumulate and pass it along to their heirs if they did not need to use it during their lifetimes.

There are other, less dramatic ways that we can save taxes by paying more now.  When putting new depreciable assets into use we often have a choice about using one of the rapid depreciation methods or using a slower depreciation method.  Before making that choice we need to look at the long range picture.  If the year the new asset goes into use happens to be a low income year, it could be better to not use a rapid depreciation method so that more depreciation will be saved for years when the income is expected to be higher.  There are many times when taking a bigger depreciation deduction causes the income to be so low that a person’s itemized deductions are not as effective that year, and since itemized deductions cannot be carried over to the next year, the effect of the added depreciation is lost.

Sometimes a decision has to be made as to whether an expenditure is currently deductible or should be capitalized and depreciated over time.  Theoretically, an expenditure either is or is not currently deductible.  However, as a practical matter, there are lots of times when the facts can be viewed different ways and a decision made as to which way to handle the tax treatment.  In these cases it is important to look at the long term and see when the deduction would be most beneficial.

These are just a few of the kinds of tax choices that you can make.  There are many times that we can make decisions that affect long range tax issues and it is important that we communicate with you face-to-face so that the best decisions can be made.  The better we know you and your plans and expectations, the better those choices will be.
Loren L McCann, CPA, MS (Tax)