Tips for Deducting Travel Costs and Meal Expenses on Your Taxes

Business owners can run into considerable costs when traveling for work, but some of these expenses can provide deductions come tax time.

Travel may have been curtailed during the pandemic, but it remains necessary for many self-employed individuals across the country. 

When you travel multiple times per year to meet with clients or negotiate contracts, the costs can quickly add up and begin to hinder your bottom line. Travel is about more than plane tickets and hotels; meals, ground transportation, and miscellaneous expenses add up.

The good news is that tax deductions are available for many business travel expenses, including transportation costs and meals. 

Here’s a look at the things you can write-off and the documentation you’ll need to keep the IRS happy.

Deducting meal expenses

You’re going to need to eat while on the road, and, luckily, you can deduct some of these expenses. 

According to the IRS, business owners can deduct 50% of their meal costs as long as they’re a legitimate business expense. If the meal is a primary part of your business function, a community event you’re sponsoring, or a charity dinner, you can often deduct 100% of the cost.

Keep in mind that you can’t deduct personal meals while on a business trip. For example, if you meet with a family member for dinner while traveling for business, you can’t write off the bill. 

You must ask for a receipt for meals you plan to deduct from your taxes. While you don’t have to include this receipt with your tax return, you might need to show it if the IRS audits you later. 

Transportation tax deductions

You can deduct transportation costs for business travel, no matter which method you use. 

According to the IRS, you can deduct 57.5 cents per mile when driving your personal vehicle in 2020, plus add the cost of tolls and parking onto the deduction. In theory, this tax-deductible business expense should offset the cost of gas and upkeep on the vehicle when using it for work.

If you choose to take a plane, bus, or train to your destination, you can deduct your ticket’s cost from your taxes. Taxi and other transportation modes between the airport or station and your hotel and your hotel and your work location also count. 

When renting a car in the city where you’re working, you can write-off the expense when using the car entirely for business. If you’re using the vehicle for personal reasons, too, only a portion of the cost is eligible.

Other deductible expenses

Other items are tax-deductible, as well, depending on the nature of your trip and what expenses you incur.

For example, you can write-off your hotel room if you’re unable to return home on the same day. Remember, however, that only essential expenses are eligible. You can’t deduct minibar charges or movie rentals. Make sure you ask for an itemized bill when checking out of your hotel room because the IRS will want to see it if they ever audit you.

There could be situations, like giving a presentation, where an equipment rental is necessary on a business trip. This expense is deductible, assuming that the rental is entirely for business reasons.

Other deductible expenses include conference fees, dry cleaning expenses, telephone and fax charges, and tips you provide to service staff while on a business trip.

Things you can’t deduct!

Before filing your taxes, be aware of specific items you can’t deduct. Failure to follow the rules could lead to an audit, which you surely want to avoid.

You can’t deduct most entertainment costs, for starters, including tickets to sporting events, country club memberships, fishing trips, and nights at a bar. Even if you’re conducting business in these settings, the activity is considered entertainment. 

You also can’t deduct lodging expenses within your home city. While you can write-off meal and vehicle mileage in your home city, the IRS won’t like it if you attempt to deduct a hotel room, even if you’re attending a conference nearby.

It’s perfectly acceptable to bring your family with you on a business trip, but don’t try to deduct their travel costs. The hotel room remains a business expense because you’d need it anyway, but your family’s plane tickets and meals are considered recreational.

Although it’s a somewhat vague term, you aren’t permitted to deduct “unreasonable” expenses on your taxes. The problem is that there is no official definition for these expenses, so don’t go overboard and stick to things that you know qualify to avoid an audit.

Keep a keen eye on your tax situation

If you still aren’t sure about what you can deduct and how to claim these items on your return, working with a professional can help. This assistance ensures that you make the maximum entitled deductions without running afoul of rules that will get you audited.

The team of experts at Provident CPA & Business Advisors is standing by to assist as you make tax deductions related to your travel and meal expenses. Get in touch to learn more.

Tax Planning for Locum Tenens Physicians

New to a locum tenens assignment? To optimize tax planning and maximize savings, here are important factors to consider.

Being a locum tenens physician gives you a great deal of flexibility, providing new opportunities during a career and a chance to gain further professional experiences and perspectives. You can potentially work in locations you wouldn’t otherwise, including different states and perhaps even countries. 

There’s plenty to consider when you’re taking on these roles, including moving costs, where you’ll live, your new employer, and plans for the future. And there are also unique tax implications from being a locum tenens physician since you will be most likely be working as an independent contractor during your assignment. 

Here’s what you need to know about tax planning for locum tenens positions:

1099s and paying estimated taxes

Up until now, you may have always been a W-2 employee, meaning taxes are taken out of your paycheck each month by your employer, and you simply have to file an annual return. When you start as a locum tenens doctor, you become an independent contractor—meaning you’ll receive a 1099 form from your employer instead of the W-2. This income is still reported to the IRS by a locum tenens employer.

As an independent contractor receiving one or more 1099s, you’ll probably have to pay estimated quarterly taxes. You’ll only receive the 1099 annually, so you have to keep track of your income and calculate how much you owe to the IRS each quarter. When it’s time to file the annual tax return, you’ll report your 1099 income on Schedule C (Form 1040 or 1040-SR).

Depending on the type of business structure, the rules on when and how much you pay will vary. But be prepared to set aside more for taxes, since you’ll be covering your employer’s share of FICA taxes as well as your own, unlike W-2 employees.

Writing off expenses

A benefit of being an independent contractor is that you can write off work-related expenses. If you have to move for your locum tenens assignment, for example, you can usually write off the costs of moving and travel. Other deductions apply to a home office (if applicable), retirement savings, and sometimes your car. Make sure you save all receipts and records and document your business expenses when they occur.

You may qualify for many other deductions, so walk through your expenses with a tax professional. It’s crucial to take advantage of all available tax credits since you’ll be covering more in taxes as an independent contractor.

Creating a tax entity

Some locum tenens physicians decide to create an LLC, PLLC, or corporation to gain more control over their taxes. Sometimes, it might make more sense for you to create one of these business structures if you are earning a lot in your temporary position or paying a significant amount in self-employment tax. However, don’t make the call without first talking through your situation with a CPA.

Filing in the right locations

Just because you’re temporarily working in another state doesn’t necessarily mean you don’t have to file taxes in your home state. You will likely have to file in both locations. And if you’re working in multiple states, you will have to pay taxes to all of them, though you won’t have to pay taxes on the same income more than once. 

If you’re taking on an international locum tenens position, you’ll still be taxed by the IRS on income earned outside the country, in most cases.

Finding the right tax help 

It’s incredibly beneficial to find a qualified tax professional to assist you if you are a locum tenens physician. The aforementioned tax considerations will vary based on your specific situation—where you’re practicing, for how long, the type of business entity you’ve created, and more. A tax professional will help you understand when to pay taxes, what you can deduct, and how much to pay quarterly, if applicable. 

Provident CPA & Business Advisors can provide the peace of mind that you’re filing correctly and taking advantage of each and every deduction available to you. Changing locations or job duties for a locum tenens assignment can already be chaotic, so allow us to help manage your tax burden. 

Contact Provident to learn more.

Paying Tax on Insurance Premiums and Benefits

Being aware of your tax situation and where you can avoid paying it could bring considerable savings to both individuals and businesses.

Insurance is a necessity because it protects you from uncertainty. Without this safety net in place, you could end up with out-of-pocket expenses that take you a lifetime to repay. With apologies to Benjamin Franklin, “death and taxes” are the only certainties in life.

But there is undoubtedly a way to minimize the latter part of that idiom. Specific tax considerations go hand-in-hand with insurance premiums and benefits, and you’ll want to learn where you can avoid paying tax and where it’s a requirement.

Tax savings are available to both individuals and businesses that depend on the type of insurance. So let’s look at the ways you might save on your next tax bill:

Tax savings for employees

On a personal level, learning how your taxes and insurance policies are connected can save you money now and in the future.

When it comes to employer-paid life insurance, the premiums paid on these policies count as taxable income, but only if the plan covers an individual for over $50,000. When a policy becomes larger than that number, the premiums are exposed to federal taxation for the excess.

If you have disability insurance, things are a little more complicated, and you’ll have to consider your options carefully. The gist is that self-employed individuals can deduct insurance premiums on policies that cover business overhead while sick or disabled, but not on policies that cover lost wages.

In addition, if you deduct your overhead-covering premiums from your taxes, the benefits you receive become taxable income. If you don’t deduct the premium, however, the benefits aren’t taxable. Carefully decide whether or not to deduct your insurance premiums based on your situation.

Disability benefits are also taxable if your employer pays for your disability insurance. Basically, if you get sick and receive disability benefits, you’ll pay income tax on them.

From a healthcare standpoint, employees who don’t have access to group health coverage can fund a healthcare savings account and receive tax savings. Through this account, you can put tax-deductible money away for medical expenses and then withdraw it, tax-free, when you need it. This policy is like investing in personal medical insurance, and you get tax benefits along with it.

There are many ways for individuals to use insurance for tax benefits, so make sure you’re up to date on the latest rules and regulations to maximize your savings.

Business insurance tax considerations

Things are a little more complicated when buying business insurance, and tax savings (and penalties) could come in various ways.

Multinational insurance

For starters, if you have a global presence, you’ll likely want a policy in every country where you have operations, so it’s consistent with local insurance regulations and tax law.

These insurance considerations are also essential for taxes because if you go with a U.S.-based insurance company that isn’t licensed to insure you in a foreign country, the IRS could view any reimbursement you see as taxable income. Depending on your organization’s configuration and the amount of your payout, you could be on the hook for paying up to 21% on this income.

You could also have to pay taxes or financial penalties in the country where the loss occurred, putting you even further in the hole.

As a rule, you should purchase an insurance policy in every country in which you’re operating to avoid these tax problems if you need to file a claim.

Loss of key personnel

You can protect all kinds of things with business insurance, including the loss of key personnel. The idea is that if an influential individual within the organization passes away or otherwise becomes incapable of working, your insurance will offset some of the financial casualties associated with that loss.

As far as taxes go, you cannot deduct your premiums as a business expense because your organization is a beneficiary of the payout. At the same time, the company isn’t responsible for paying federal income on the proceeds.

Property and liability insurance

Your business will undoubtedly have property and liability insurance because these policies protect the organization from significant losses, many of which will be outside your control.

You are permitted to deduct the premiums for this insurance from your taxes because they’re considered ordinary and necessary expenses for tax purposes. If the reimbursement you receive is less than your financial loss, the difference also becomes tax-deductible.

Life insurance for employees

We went over some life insurance considerations for employees, but it also has tax considerations for the organization.

If you’re offering to pay life insurance premiums for your employees, it could go a long way toward attracting high-quality talent. The more you provide for workers, the easier it gets to retain this talent for years to come, as well.

From a tax standpoint, C corporations can deduct these premiums from their taxes because they won’t benefit from the payout. As mentioned before, this rule only covers policies with payouts up to $50,000. After that, the excess costs count as taxable wages for your employees.

Split-dollar life insurance policies, where you and a worker share the insurance costs and payout benefit, are not eligible for deductions because the company stands to profit from the plan.

The assistance you need

When you’re unsure about your taxes and whether or not a premium is deductible, you’ll want an expert on your side. Provident CPA & Business Advisors is standing by to answer your tax questions and offer professional advice. Contact us to learn more about our tax strategy services.

Why Keeping Accurate Tax Records Is Vital for Business Owners & Professionals

Spending a little time creating tax records and holding onto documentation could save you a lot of hassle in the future.

Business owners and individuals must, of course, retain relevant tax information to file accurately. But you’ll also want to hold onto all of your documentation in case the IRS wants to see it later. 

Saving your receipts, bank statements, invoices, and payroll records proves your income, expenses, and deductions, ensuring you have the right answers when the taxman comes calling. Other documentation you’ll require includes employment tax records and any supporting documentation that proves your financial picture to the IRS.

Keeping this tax information on-hand also makes it possible to deduct more business expenses and, potentially, save you significant money.

Here’s some information on why thoroughly organizing and holding onto tax records is essential to your bottom line:

Which documents you need

Many different recordkeeping systems exist, and the goal of each of them is the same: to show your income and expenses clearly.

As a result, whichever system you employ should include a summary of all of your business transactions and have information on your gross income, credits, and deductions. If you’re running a small doctor’s office, for example, having a business checking account makes it simpler to monitor your income and expenses. If your organization is a little more complicated, you might use a different system.

In addition to the numbers, you’ll need your gross receipts, which can include documentation like deposit information, receipt books, register tapes, your 1099-MISC form, and invoices. 

If you buy items and resell them to customers, including manufacturers that purchase raw material and sell the finished product, records of your purchases are required. Supporting documentation here includes canceled checks, invoices, credit card statements, and cash register tapes. 

Similar documentation can prove your business expense claims, which are any costs you incur, not including purchases, that you require to carry on the business. You’ll also need to substantiate travel, entertainment, transportation, and gift expenses on your return.

Assets are a vital part of your tax records, including your office furniture and any equipment you purchase. In this case, you’ll need documentation showing when you bought these assets, the cost, how you used it, and how and when you disposed of any old assets. If you’ve sold off some business assets, you must also include information on the selling price.

Finally, if you have employees, you’ll have to hang onto your employment tax records for the IRS to review. These records include all wages and benefit payments you make, employee information, and copies of your employees’ income tax withholding certificates.

Organizing all of this documentation in case the IRS wants more information from you can make your life much easier down the line. 

How long you need the records

The amount of time to hold onto tax information depends on your situation. 

If you end up owing on your taxes, you’ll want to keep your records on-hand for at least three years from their due date. After three years, the period of limitations for assessing tax ends, and the IRS can no longer amend a return and demand additional payments.

However, there are always exceptions, as the period of limitations never expires for a fraudulent claim or if you fail to submit your return. The IRS also has six years to audit if they believe you’ve underreported income by 25% or more. As a result, many businesses hold onto their detailed annual financial statements for as long as seven years, just to be safe.

There’s a slightly different employment tax process, and you’ll want to keep these records for at least four years from the date the tax is due or paid, whichever is later.

The gist is that as long as you keep diligent records, file your taxes on time, and make accurate claims, you’ll only need to hold onto your business tax records for at least three years and employment tax records for four years from their due date.

Avoiding fines and saving money

Of course, the main reason you’re keeping all of these records is that you don’t want to get on the wrong side of the IRS.

If the IRS goes back and looks over your tax returns, it’s up to you to prove expenses and deductions. If you don’t have the documentation to verify the return information, the IRS can demand back taxes and issue a penalty for tax underpayment. 

The penalty depends on a business’s structure and the reason the IRS audits you. Your business could also end up paying interest on late tax installments. In short, you don’t want to end up in this situation because it will lead to significant financial losses.

The other benefits of keeping tax records

Beyond using tax records to satisfy the IRS, you can use this information to monitor the business’s progress and provide an accountant with more items to deduct.

In the retail environment, you’ll see which items are selling as you go through these documents, providing insight into any changes that may affect projections. The same can be said for any business type because financial records show managers what’s working and what needs improvement. 

These records also make life easier for your tax professional. The more documentation provided, the easier it is to deduct expenses from a tax bill. For example, executives and investors can use certain travel and transportation expenses to bring about considerable tax savings.

You can even go after tax refunds from past reporting periods if you feel like you’ve overpaid. Taxpayers have three years from the date they filed a return or two years from the date they paid the tax, whichever is later, to revisit a claim. You also have seven years to recover a tax overpayment resulting from a bad debt deduction or worthless securities.

Get the help you need

Taxes can be confusing, but receiving professional advice and assistance delivers a clearer picture of the documentation needed to avoid tax problems. This help can also significantly lower your annual tax bill.

Provident CPA & Business Advisors helps our clients pay the least amount of tax as legally possible. We work with professionals, entrepreneurs, executives, and investors to provide maximum tax savings ethically. Contact us for more information about what we can do for you.

COVID-19 Tax Deductions That You May Qualify For

The COVID-19 pandemic has activated provisions in the Internal Revenue Code (IRC) that could make you eligible for tax benefits for certain relief payments. Learn more about IRC Section 139 and other applicable tax credits.

Section 139 of the Internal Revenue Code (IRC) outlines rules and guidelines for disaster-relief payments. As COVID-19 continues to impact the economy, causing record unemployment numbers and business closures, this section of the tax code has been triggered.

Whether you’re an employer or individual, you could be eligible for certain tax deductions related to COVID-19. While the CARES Act has provided stimulus payments and other benefits to Americans and businesses, these additional tax credits offer further assistance for those struggling during the pandemic.

Here’s an overview of what you need to know about IRC Section 139, the FFCRA, and other tax credits related to COVID-19 that you could be eligible for.

Section 139 and FFCRA relief payments

Section 139 outlines how employers can handle relief payments to employees during a disaster. Applicable payments are those made to staff members who have been directly impacted by the pandemic. This compensation is deductible for the employer and will also be excluded from the worker’s income.

According to Section 139, a qualified disaster relief payment can include the following:

  • Reimbursement or pay for reasonable and necessary personal, family, living, or funeral expenses incurred directly from COVID-19
  • Reimbursement or pay for expenses to repair or rehabilitate a personal home or its contents, which are attributable to the pandemic

Qualifying payments will be free of income, payroll, and self-employment taxes.

Note that emergency relief payments made to employees from charitable organizations are covered under Section 139. This means that if a business makes disbursements through a controlled private foundation and other applicable guidelines are followed, payments will be tax-free. 

The Families First Coronavirus Response Act (FFCRA) outlines how employers can provide paid sick leave or family and medical leave related to COVID-19. If eligible, business owners can claim tax credits on these leave payments made to employees if they had to take time off work because of COVID-19. These provisions are in place from April 1, 2020, to December 31, 2020.

Eligible employers are businesses with fewer than 500 employees, and those required to pay qualified sick leave wages or family leave wages under the FFCRA.

The FFCRA covers employees for: 

  • Two weeks or 80 hours of paid sick leave at the same rate of pay if the employee is quarantined or experiencing COVID-19 symptoms
  • Two weeks or 80 hours of sick leave at two-thirds of their pay if they need to care for an individual who must quarantine or take care of a child who cannot attend school normally

Other COVID-19 tax benefits

If an individual has experienced significant impacts from COVID-19 and has an IRA, they can borrow up to $100,000 from the account and pay it back within three years of the date of withdrawal. This can all be done as if it is a tax-free rollover. There is also no limit on what can be done with the funds during the three years.

Another credit applicable to employers is the employee retention credit. This tax break encourages employers to keep their workers on the payroll during the pandemic. The credit is 50% of up to $10,000 in payments made by an employer impacted by COVID-19. Eligible employers include those whose business is wholly or partially suspended, or whose gross receipts are less than half of the comparable quarter in 2019. Once the receipts reach above 80% of the comparable quarter in 2019, they no longer qualify.

Additionally, the CARES Act allows for deferment of employment payroll taxes. Both self-employed workers and employers can defer social security tax to be paid at the end of 2021 and 2022.

Work with a tax professional to understand COVID-19 deductions

Still have questions about tax deductions related to COVID-19? These changing regulations can be complicated and confusing. Work with a tax professional who can ensure that you’re paying the least amount of tax legally possible. You must always be sure that you’re complying with all applicable laws while taking advantage of any deductions and credits for which you qualify.

The team at Provident CPA & Business Advisors is here to help you during this time of uncertainty and financial distress. If your business is seeing impacts from the pandemic, contact us to find the best way forward. We can help you focus on growth and profit improvement in addition to accounting and tax considerations.

How Physicians Can Protect Themselves Against Tax Fraud

Tax fraud is rampant, and doctors are a targeted group. Here are steps physicians can take to lower the risks

Tax fraud is an ongoing battle for both U.S. citizens and the IRS. Victims often unknowingly share too much personal information that leads to the filing of fraudulent returns—or they provide false data on their returns after receiving bad advice. 

According to a report from the Treasury Inspector General for Tax Administration, there were 30,038 tax returns with approximately $135.6 million claimed in fraudulent refunds as of February 29, 2020.

Doctors are particularly vulnerable to tax schemes. As large earners, hackers target physicians in efforts to steal their tax refunds or engage in other activities that lead to financial gain. Some speculate—especially in years like 2014, when numerous doctors were attacked—that many physicians experience tax fraud because of medical database breaches. 

Stay ahead of the game by learning how to protect yourself against tax fraud.

1. Know the most common attack methods

First, familiarize yourself with how attackers generally commit these crimes. The following approaches are common:

  • Identity theft and fraudulent returns. A standard method for tax criminals involves stealing your personal information so they can submit fraudulent tax returns. 
  • Phishing. Fraudsters often send out communications that appear to be from organizations like the IRS. Be wary of any email or website asking you for your personal information—the IRS will not contact you via email, text message, or social media about your tax refund. 
  • Preparer fraud. Unfortunately, some people who claim to help you prepare your taxes are looking for ways to scam you and steal your identity or engage in refund fraud. 
  • False promises. If someone advises you to falsely inflate your income or expenses to qualify for deductions, it is likely a scam. 
  • Phone calls (aka “Vishing”). Just as attackers will try to email you posing as a legitimate entity, they will also call you to try to get your information or convince you that you need to deal with a tax issue immediately.

Watch out for these tax scam methods and attempts to steal your personal information. Be especially wary of sharing details like your Social Security number.

2. Understand your responsibility 

If you decide to follow bad advice, whether inflating your income or expenses or providing other fraudulent information on your tax return, you and you alone are legally responsible for that false data. It might seem unfair if you were acting on guidance you thought you could trust. But unfortunately, you’re still the party that lied.

If you work with an abusive tax return preparer, for example, that person could defraud you, and you’re ultimately still responsible for the tax return information you provided. Always be cautious when choosing someone to help you prepare taxes.

3. Be aware of the other risks of identity theft

When someone steals your identity for tax fraud purposes, there are other ways the information could be used to harm your practice. Attackers may not stop with taxes and also gain access to your financial accounts. One sign that someone else is using your identity is if you receive more credit card offers than usual.

Avoiding giving out your personal information to sites, organizations, or individuals you cannot verify is essential to reduce your risk of tax-related fraud—and it’s also crucial for other areas of your life and medical practice. 

4. Check your tax records

The IRS website has a resource called Get Transcript that allows you to search for your tax records. Doctors should especially review their tax records to ensure they have not been an unknowing victim of fraud.

Also, keep an eye on all bank and credit card statements and any changes to your credit score.

5. File your taxes as early as you can

Another step you can take to prevent tax fraud is to file as early as possible in the year. When you have all the relevant tax forms needed, don’t waste any time. Filing quickly will reduce the risk of someone filing dishonestly before you can send your legitimate return. If you submit the documents first, the second fraudulent return will be rejected.

Tax fraud is a serious issue for physicians. But you can reduce your risk by understanding how it usually occurs and implementing these steps to protect yourself. 

Always work with a tax professional you can trust. The team at Provident CPA and Business Advisors can assist you with questions, help you protect your assets, and optimize tax-related aspects of your medical practice. Contact us today to learn more.

How to Avoid Sinking Your Succession Plan

Even the strongest business can be decimated without a solid succession plan. Here’s how to avoid common pitfalls

As with any part of business strategy, succession planning is one piece to the puzzle for companies to have a long life. And it’s not a small consideration. Succession planning can drive continued business growth, lead to a smooth transition after retirement, and even reduce taxes. 

But according to a Deloitte report, only 30%  of family-owned businesses make it into the second generation, 12% into the third, and 3% into the fourth and beyond. These statistics don’t count the organizations that failed shortly after an owner sold them—often with financial repercussions to the seller.

Succession plans fail for a variety of reasons, but some of the most common are:

  • Leaving roles undefined
  • Failing to recognize internal talent
  • Not focusing on how the transition itself will work
  • Not planning for a business of the future and likely structural changes

Let’s dig into how to avoid some of these pitfalls:

Clearly define roles

Succession planning is more than just focusing on who will replace the primary business leader. In fact, it should involve all parts of the business. Just as important as naming your successor is figuring out how that change will impact other leaders and managers. You must recognize that succession planning is integral to the entire business strategy.

All units of the business should have a part in the succession plan. Instead of only focusing on who will replace the CEO, also outline who will be succeeding each department head or manager, even if these moments don’t all occur at once. Beyond managers and supervisors, detail which roles within the business are integral to success and include them in the plan.

Clearly define each key role and what specific responsibilities that person will have. Namely, what they’ll be held accountable for, who will report to them, who they will report to, and their role in critical business processes.

In addition to defining crucial roles, identifying who will fill these roles is also an area where many executives fail. Finding the best candidates won’t happen overnight, but many business owners may not put as much emphasis on current team members as they should. 

Pay close attention to internal employees and leaders who show promise. This requires looking at team- and employee-specific KPIs and actual performance results over some time. A management talent assessment should be conducted when you are succession planning so that the company’s next generation will be strong.

Focus on the transition

Make sure that the transitional period is prioritized when planning, not just the eventual outcomes of the shift. This may even require hiring or appointing a pivotal person to lead the transition. They can be involved in succession planning now to understand goals and how to implement the plan when the time comes. 

The transition doesn’t have to be instant, so focus on the concrete steps that will be taken when you’re ready to step down. One important step is communication with stakeholders. As Deloitte points out in the report above, failure to communicate with this group is “one of the biggest threats to a smooth transition of a business from one generation to the next.” 

Incorporate the needs and concerns of other stakeholders during the planning process so they’ll be more aware of and involved in the transition when it’s occurring. They’ll feel like they have a say in the process, and their help and support during the transition are vital.

Consider tax implications

Estate and tax planning can go hand-in-hand with succession planning, especially if a priority is preserving family wealth generated from the business. This requires knowledge about the best approaches to reducing taxes when you’re transferring ownership of the company, which can be easy to overlook for many founders.

Make sure that the current business entity structure makes the most sense for long-term success. The type of structure you choose can impact both business and personal taxation. And how much the company is worth will affect gift and estate taxes, so succession planning should prioritize effectively valuing the organization. 

Accommodate change

One important step is identifying what exactly makes the business valuable. In succession planning, preserving both assets and values should be top of mind, so the entity will continue that legacy and continue to grow. Passing down a company only to have its values changed or forgotten can easily happen when leadership changes hands.

Just as important as outlining key roles and figuring out successors is 1) defining the current operating structure and 2) thinking through how crucial business functions may change in the future. 

What about operations could shift? What will look different as the business becomes larger? What will change about the community the company serves? You won’t know how to identify roles and responsibilities until you can get a clear picture of where the organization is headed. 

Effective succession planning will lead to many benefits for both you and the business you’ve worked hard to build. These include:

  • Long-term survival and growth
  • Agreement among stakeholders, employees, family members, and heirs
  • Taking control of the process now so that it’s not out of your hands when the time comes
  • A smoother transition for everyone across the organization
  • Confidence that you’re leaving your business to the right people who share your values
  • Reduced estate and income taxes

There’s no avoiding the fact that you’ll be exiting from your business someday. Creating a sound succession plan will ensure an exit goes smoothly and achieves your goals.

Contact Provident CPA & Business Advisors to learn more about our advisory services.

The 5 Steps to Financial Freedom

It’s crucial to be equally strong in 5 key areas to maximize financial efficiency and ensure continued growth

Ensuring the financial health of your business relies on the diligent review and management of a combination of factors, not just one or two areas. This involves carefully evaluating where you’ve been and what your numbers look like right now. Only then can you make fact-based decisions about the future of your business. 

Minimizing your tax burden and choosing the right legal business structure are two other ways to be proactive about managing your finances. You must put practices in place that give you the right insights and the power to turn those insights into action.

Here are five steps to financial freedom that we practice at Provident CPA & Business Advisors, and how we approach each area.

 1. The Proactive Management System

First, you won’t be able to plan for where you’re going without knowing where you’ve been and what’s happening right now within your business. This is why we employ the Proactive Management System to focus on two main components:

  • Accounting: We make sure that your accounting process is effective and efficient. You need a method in place that will always be accurate and also provide the insights you need to keep improving.
  • Putting numbers to work: We help you take the critical numbers you’re tracking and combine reports into a simple, automated dashboard. This enables you to always see and use your most important financial metrics.

Our system helps you understand your cash flow, identify areas where you could make changes, and take the right steps to keep growing and improving.

 2. Tax minimization

Many individuals and businesses overpay in taxes each year without knowing it. We help our clients pay the least amount of tax legally possible through a concerted review of your situation and devising a strategy that matches it. Our 5 Star Program™ helps you create a long-term plan for tax minimization that enables growth.

Examples of tax-saving strategies include taking advantage of the gift-tax exclusion, understanding and applying deductions for entertainment and travel, the tax benefits of charitable giving, and many others.

It’s also important to know the tax implications of the different types of business structures, whether you want to form an LLC, a sole proprietorship, a partnership, or a corporation. Each has its own pros and cons for taxes, and we’ll help you select the option that fits your needs and goals.

 3. Growth and profit improvement

At Provident, we’ve come up with a structure to help you scale and financially succeed. Our plan revolves around these components:

  • KPIs: Identifying the most critical key performance indicators (KPIs) for your business is the first step to success. Monitor your progress and view business data that will help you make better decisions.
  • Critical drivers: What are the vital drivers of your business? There are between three and five essential components that we’ll help you identify and measure.
  • Budgets: Keeping a rolling 12-month budget helps you understand what’s happening each month and where you can improve.
  • Forecasting: The budget is linked to 12-month forecasts so you can keep tabs on revenue and plan more effectively.
  • Financial statement review: We review and analyze all financial transactions, so nothing is unclear.
  • Cashflow planning: Prioritize real-time planning by focusing on your future cash flow.

These are all important areas that need to be reviewed regularly for continuous business improvement.

 4. Succession planning

Part of ensuring your business lasts for the long term involves creating the right succession plan. It’s not always easy to imagine how things will operate after you’re gone. But you likely don’t want the business to fail when you’re no longer running things—especially if you’re keeping it in the family, or a successful sale is tied to its continued financial performance for an agreed period. 

Start succession planning now. Key considerations when creating your succession plan include what individual will take over, the precise steps taken during the transition, and what to do if something changes. Other related strategies we help you with include selling the business, estate planning, minimizing taxes at the time of death, retirement planning, and buy/sell agreements.

 5. The EOS Model

The Entrepreneurial Operating System (EOS) is an effective method we use to help our clients. The model is centered around the idea that if you can clarify and achieve your business’s vision—and implement concerted steps along the way—you’ll find long-term success. 

There are six components of EOS:

  1. Vision: Everyone involved with the business should be on the same page about what they’re working toward.
  2. People: Every individual on your team must align with the vision and strengthen the organization.
  3. Data: Identify and track the numbers that provide an objective measure of success.
  4. Issues: Problem-solving in the right way is a crucial component of a well-run business.
  5. Processes: Identify the core processes that truly drive your business. Each department and each team member should know what to do, and these procedures should be transferrable and repeatable.
  6. Traction: Continuous growth is driven by discipline and accountability. Ensure you maintain traction by mastering the art of execution.

5 steps to financial freedom—exponential results

These five steps drive our values and services at Provident CPA & Business Advisor. We ensure that you aren’t leaving money on the table come tax time and continuously taking proactive steps to understand and improve your business.

Contact us to learn more about how we can help.

Every EOS® Step, Explained

Learn the six steps of the Entrepreneurial Operating System® (EOS) and how to use them when planning for business growth

The Entrepreneurial Operating System (EOS) is used by founders and businesses to improve processes and set up a successful path to long-term growth. The concepts and tools presented in EOS help teams become more aligned and enable a company to identify and harness its strengths and weaknesses. 

EOS can be broken down into six key steps: vision, people, data, issues, processes, and traction. Here’s what you need to know about how they play out in practice. 

 1. Vision

Part of creating a successful growth plan is making sure all team members are on the same page. By defining a clear vision—a statement that aligns your company’s mission, core values, purpose, and goals—and communicating it across your company, your people will come together to work toward shared objectives. 

Start by assessing your organization:

  • What are your strengths and weaknesses?
  • What makes you unique?
  • What are your problem areas?
  • What are your long-term goals? 
  • Who do you serve, and why?

Asking these questions will help you nail down your purpose and vision and put it into words. 

 2. People

Of course, you won’t get anywhere without the right people behind your brand. Make sure you’re surrounding yourself with individuals who will help you fulfill your vision. They need to be driven, capable, and passionate about what your company is doing.

Start with your recruiting process. Create screening questions and interview topics that show you not only a person’s qualifications and experience but their commitment to the same concepts that your company is all about. Focus on more of a culture-fit interview style when hiring, and less on a strict resume review. 

Paying closer attention to the people you bring on board will help you create teams that align on goals and values, and employees will be more likely to stick around. Use the EOS People Analyzer to identify if someone will fit in with your culture and be the right person in the right seat.

 3. Data

It’s not enough to hire the right people who all follow the same vision and core values. To grow and improve the business, you need to analyze real numbers that gauge your efforts’ success. Using data to drive your decisions, you can avoid guesswork and use facts to keep moving forward. 

Understand the numbers behind the business by putting data-gathering and analytics processes in place. You can view areas of weakness, such as slow response times or low sales numbers during certain times of the month. This gives you the power to address the problem where it starts and opens up opportunities for remedies like further training and process improvement.

 4. Issues

Success can’t happen without failure. Along your journey, and you and your team will face obstacles and challenges. There’s no avoiding it. But if you recognize this now, you can create plans for problem-solving that will help you get through those tougher times. 

Start by accepting these issues, instead of denying their existence. Embrace the mindset that you can learn from mistakes. Instead of punishing someone who takes a misstep, present the situation as a learning opportunity that everyone can benefit from.

 5. Process

Your day-to-day workflows drive results, and all systems should all be geared toward the same goals. Identify your core processes—those that directly impact outcomes and keep the business running. Ensure that your processes are consistent and robust, as this is the only way you’ll be able to scale.

People involved in each process should know their role in both the specific procedure and where that role fits into the overall business. This gives them a sense of purpose, both on a granular level and a big-picture scale. 

 6. Traction

Don’t get caught up in a lofty vision for your brand without evaluating how you’ll get there. Create traction by making your goals a reality with small steps that lead to substantial outcomes and successes. 

Creating traction starts with implementing practices for accountability and discipline into all of your teams. Stress efficiency and cut out tasks or processes that don’t serve your objective. Traction is about executing daily goals and operational tasks that lead to faster and continuous forward movement.

The benefits of mastering the six EOS steps

When you’re able to take these steps—fully implementing the EOS principles—your business sees the following benefits:

  • Use a holistic model that strengthens the entire business, not just one aspect or department.
  • Get to the root of your problems to better address them—permanently.
  • Apply essential tools and concepts that you can use for years to come.
  • Foster focus, discipline, and accountability across your teams.
  • Assess and identify what’s most important about your company. 
  • Create better goals using actual numbers that define business performance. 
  • Improve productivity and work quality by delegating the right tasks.
  • Experience consistent growth and increased revenue.

At Provident CPA & Business Advisors, we help small businesses master the concepts and tools in EOS. We start the process with a free 90-minute meeting, which helps us understand your organization and customize the system to your company. Contact Provident to learn more about our growth and profit improvement services. 

The Fine Art of Estate Equalization

Crafting an estate plan that satisfies all of your heirs can be challenging. An unequal estate could mean that your legacy is compromised, especially if you own a business. Consider every angle in advance for the fairest outcome.

One of the trickiest components of estate planning can be knowing how to divide assets among beneficiaries.

It’s wise to revisit your estate plan to ensure equalization. It’s not enough to focus on tax implications, especially if you have a large estate or a business to pass down the line. While creating a truly equal inheritance plan can be challenging—especially when only certain heirs can perform specific responsibilities for your estate or business—an approach like utilizing life insurance could be the answer.

What is estate equalization?

Estate equalization does not necessarily mean that all heirs receive the same amount of money or proportion of assets after you’re gone. It means that the value of what they receive after you die is equitable and equal in value.

Value can mean different things to different heirs. For example, some family members may care more about a property or possession for its emotional worth, not its monetary value. Of course, these values and priorities can be hard to measure, making it even more challenging to create an equal and fair estate plan.

Equalizing a business legacy with life insurance

If you run a business and hope that it continues in the family for generations to come, there are some special considerations when estate planning. The fact is, some of your heirs may not always want to be part of the company. When you are gone, it’s not as simple as dividing up what the business is worth. It is not a liquid asset.

You first need to create a succession plan that outlines who will take over and what roles and responsibilities other heirs will (or won’t) have.

When it comes to estate planning, you may think that your two options would be to leave the business to all heirs equally or leave it only to the children capable of running it. But these two options are not always equitable.

If specific children or family members are involved in your business, and others aren’t, one solution is creating equalization via life insurance. This means setting up a plan so that the heirs involved in the company will get equity passed down to them. Heirs who are not will be able to receive the same value of inheritance from life insurance benefits, as well as assets unrelated to the business.

It’s a delicate combination that must be planned with care, mainly because the non-business liquid assets will be unequally distributed to make up for the business inheritance.

Without ensuring that the inheritance plan is equal and fair, your legacy—and the future of the business you’ve created—will be uncertain. It’s crucial to plan ahead.

Primary goals are to protect the business after you’re gone with the right leadership and ensure your family members will not end up in conflict with each other.

Creating an estate equalization plan

These matters can be complicated and emotional. You may decide to involve your children or other family members in the planning process to understand their commitment to the business or the sentimental value of a particular property. To ensure that your family can peacefully uphold your legacy after you’re gone, it’s wise to understand their priorities and goals. You can then start understanding how to balance liquid and illiquid assets.

Other considerations are related to avoiding a significant tax burden for your family when you pass away. The professionals at Provident CPA and Business Advisors can help with the tax aspects of estate planning.

Contact the Provident team to learn more.