Electric Vehicle Tax Credits and the Future of the Automotive Industry

3 min read

One highlight of the recently passed Inflation Reduction Act of 2022 (IRA; HR 5376) includes modifications to what is more commonly referred to as EV credits. Specifically, Section 30D of the Act is where the most important modifications are, and where the present tax credit for electric vehicles is spelled out in the U.S. Code. There is also new stimulus for previously owned electric vehicles, industrial vehicles and “alternative fuel refueling property.”

According to the Joint Committee on Taxation’s estimates, in lieu of what was previously known as the credit for plug-in electric vehicles, there is now a new clean vehicle credit. It is expected to be worth $7.5 billion over the next decade. Other noteworthy tax credits include $1.7 billion for “alternative fuel refueling property,” $1.3 billion available for buying a previously owned qualified plug-in EV, and $3.6 billion in tax credits for qualified commercial clean vehicles.

How the IRA Changes Section 30D and EV Tax Credits

For eligible, new clean vehicles, purchasers may receive $7,500 in federal tax credits and $4,000 for similarly used vehicles. It is important to note that taxpayers who purchase such vehicles are eligible for this tax credit if their modified adjusted gross income (MAGI) during the current or preceding tax year is no greater than $300,000 for joint filers; $225,000 for heads of household; and $150,000 for single filers. It is also limited to pickup trucks, vans, and sport utility vehicles up to a MSRP of $80,000. All other vehicles costing up to $55,000 are similarly eligible.

Critical Mineral Standards

Another important qualification for this tax credit is if the vehicle’s battery has a minimum threshold of critical minerals and if it has been processed in the required geographies. Section 30D(e) requires progressively increasing percentages of critical minerals either processed or extracted in the United States or another country the U.S. has an existing free-trade agreement with. If the stated percentages are recycled in North America, a vehicle’s battery components may also qualify for the tax credit.

Once guidance is issued by the U.S. Treasury and before the start of 2024, there must be at least 40 percent of eligible critical minerals to qualify. Vehicles placed in service in 2024 must have at least 50 percent critical minerals in their batteries. Critical minerals must be 60 percent, 70 percent and 80 percent of a battery’s components in 2025, 2026 and after Dec. 31, 2026, respectively. Dependent on future guidelines developed by the Internal Revenue Service, manufacturers will have to sign off on battery component makeup.

Requirements for Battery Manufacturing/Assembly Requirements

According to Section 30D(e)(2), prior to Jan. 1, 2024, at least half of the components of an EV battery must be assembled or manufactured in North America. Starting in 2024 and through 2025, 60 percent of a battery must meet such requirements. Beginning in 2026 through 2028, this requirement will increase by 10 percent annually, eventually requiring 100 percent of a battery’s construction to meet these standards beyond Dec. 31, 2028.

Other Considerations for Tax Credit Eligibility

If any critical minerals were extracted, handled or recycled by a “foreign entity of concern,” it is prohibited by the IRA for tax credit eligibility. Similarly, final assembly also must take place within North America to retain eligibility for the tax credit. Being considered a “qualified manufacturer” is another requirement that is necessary to maintain tax credit eligibility. This is any manufacturer that adheres to the EPA’s Title II Clean Air Act rules.

With the push for cleaner and greener energy evolving, this is one of many tax credits for consumers and businesses alike to reduce emissions and navigate the U.S. Tax Code.

Expanding the Net Investment Income Tax

3 min read

Despite borrowing massive amounts of money, the government still needs to find ways to raise revenue to pay for new programs and spending. The current democratically controlled Congress is looking to potentially implement new social programs and a climate bill. As a way of funding these initiatives, they are considering an expansion of the Net Investment Income Tax (NIIT).

The NIIT is proposed to raise revenue since it is seen as politically more palatable, given that it typically only impacts a small group of wealthier taxpayers. Critics, however, say the plan in its current form would also hurt small family businesses.

Who Pays NIIT Now?

Under the Affordable Care Act (ACA), the NIIT applied a 3.8 percent tax on investment income. Investment income includes both passive sources like dividends, capital gains, interest, royalties, and rents as well as passive business income. Under the ACA, the NIIT applied only to single taxpayers earning $200k or more and joint filers with $250k or more.

When it comes to the taxability of business income under the NIIT, because the law only captures passive business income, most owners of pass-through entities must pay the NIIT; however, active owners of S-corporations are exempt. Likewise, if someone qualifies as a real estate professional, their income is considered active and so their rental income is also exempt.

Who Would Pay Under the New Proposed Law?

The current version of the House bill makes two major changes. First, the NIIT expands to capture all business income. Essentially, S-corporation shareholders, limited partners, and pass-through entity owners that are currently exempt would be impacted.

Second, when it comes to removing the exemption on this business income, the income threshold rises from $200k to $400k for single filers and from $250k to $500k for taxpayers filing jointly. The effect of this would be to exclude most business owners from the tax, but make filing more complex for those impacted.

Under the new rules, the Tax Policy Center projects that in 2023 the tax hike would fall on those in the top 1 percent of household incomes or those making approximately $885k or more. Further, even among the top 1 percent, more than 50 percent of the tax increase would be borne by the top 0.1 percent for those making $4 million and up.

Impact No Small Businesses

Overall, about 14 percent of taxpayers report some form of business income on their federal tax returns. The amount reported, however, is usually not a material amount for most as a percentage of their income. For example, only approximately 5.5 percent of taxpayers with reported business income had this as the source of 50 percent or more of their total income. As a result, the impact will be mostly on a small percentage of small businesses. At the same time, as business income is far more variable than employment income, someone could easily fall in and out of the tax range.

Conclusion

Overall, the House bill looks to raise the threshold of where the NIIT expansion applies by the type of income it captures. We will have to wait and see if there are changes as the bill makes its way through – if it even passes at all. No matter what happens, there will certainly be tax increases of some kind.

How Businesses Can Mitigate Inflation & Maintain Pricing Power

5 min read

Whether it’s tariffs, trade wars, or post-pandemic inflation caused by kink-ridden supply chains and what many experts believe to be excess money printing, inflation is an insidious drag on businesses’ operations. When it comes to energy’s contribution to inflation, the U.S. Energy Information Administration (EIA) reports that crude and natural gas prices in 2022 have increased on an annualized and weekly basis. Looking at the snapshot of 7/21/2022, WTI crude on the futures market was $96.35 a barrel. This was up more than $26 compared to 12 months ago, and $0.57 higher than a week earlier. For the same time frame, natural gas futures were $7.932/MMBtu, an increase of $3.973 from 12 months ago and an increase of $1.332 from a week earlier.

When it comes to businesses using any type of commodity, they’re faced with the question of how to raise retail prices when their prices increase. However, many business owners are hesitant to increase prices on their goods and services as they fear it will drive away customers. But in light of increasing input prices, not implementing price increases correctly will impact a business’s earnings and profitability.

As McKinsey & Company explains, there are many considerations why businesses have had trouble with mitigating costs in light of rising input costs. It’s important to monitor raw material costs with a fine-tooth comb. Businesses that bury costs of commodities, labor or tariffs under general accounting categories hide spikes in input costs due to factoring ancillary costs. If volatile input or uncontrollable factors, however, like tariffs can be monitored independently and in real time, businesses are more likely to be able to increase prices – and do so more gradually. With this in mind, McKinsey & Company highlighted four practices that businesses can implement to combat pressure from input costs and pushback from customers who question the reason for price increases.

1. Create a Database of Dynamic Costs

By looking at historical records going back as far as 36 months, businesses can determine trends and keep track of increases or decreases of input materials to share with the sales and customer service department, who can then communicate with customers. Along with looking at how contracts are written and if there are escalator clauses that permit conditions to adjust for increases in input materials, taking steps to accurately measure the impact of raw material costs can be helpful for price increase considerations.

It could look at costs by department. If a plating department at a manufacturing company plates 50,000 pieces of metal a month, incurs $200,000 of direct material costs and has $50,000 in labor and overhead costs, it can be broken down into a per unit cost of $4 for materials and $1 of labor and overhead costs. If the per unit cost of materials fluctuates, investigation can occur through the supply chain from the supplier to the price of futures contracts to see if prices can be negotiated or must be increased for customers.

2. Mind the Economy

Businesses are advised to keep an eye on current economic conditions. This is how companies can set a dynamic pricing strategy. Building on the first step, it’s advised to index prices to those of commodities to reduce the lag time between when companies experience changes in costs for their input materials and when retail prices actually reflect the true cost to the company. Be it fuel, wood, coffee or metals, understanding how the price of commodities fluctuates in real time is essential to determine when and how to adjust prices for retail customers. It also can help businesses determine how competitors are adjusting their pricing to customers, how far prices could increase, and how to augment delivery of goods or services to stay competitive and profitable.

In addition to escalation clauses, companies adapting to changing input material prices could, for example, introduce shorter-term contracts, look for more competitive suppliers, or substitute different but equal quality/performance materials.

3. Coaching Staff to Educate and Explain Price Fluctuations

Continual evaluations for sales teams are imperative. Supervisors must see what accounts have (and have not) been informed of price increases. They should focus on what accounts have accepted price increases (and what level of price increases have been accepted). They also should look at what accounts are likely to accept price increases and what accounts are not likely to accept price increases. Businesses also must factor in the business cycle for the sales process and how each account is performing relative to its price increase targets due to cyclical increases in input commodity prices and interest rates for financing availability. Ongoing coaching should be implemented to identify major issues and ways to resolve them. Anticipating and preparing sales representatives for customer questions through role playing can help better prepare employees to explain why price increases are a part of doing business.

4. Managing Performance

Businesses must play the long game after products or services have been priced accordingly to commodity and input prices. Since inflation follows the economic cycle, upside and downside pricing dynamics can catch companies off guard. Consistently updated product or service pricing systems and prepared sales teams can lead to more profitable margins and hopefully the ability to weather volatile and long-term price spikes.

Much like the price of commodities and labor fluctuate based on dynamic market conditions, finding ways to adapt one’s business practices can increase chances of surviving and thriving in a challenging economy.

Sources

https://www.bls.gov/news.release/ppi.nr0.htm

https://www.eia.gov/

https://www.mckinsey.com/business-functions/growth-marketing-and-sales/our-insights/defying-cost-volatility-a-strategic-pricing-response

Stock Splits, Explained

5 min read

Imagine selling slices of a large pizza. You can cut it into four even slices and charge $2 a slice. Or, you can cut it into eight even slices and charge $1 per slice. Either way, the total value of the pizza will still be $8.

That’s what happens when a stock splits. Let’s say a stock’s market price is $100. With a 2-for-1 split, each current owner receives one additional share for each share he owns. Now, each share is worth $50. If you had one share to start, you now have two, but the total value of the investment remains $100.

A stock split differs from when a company decides to issue new shares, wherein new shares flooding the market can dilute the value of existing shares. With a stock split, the value of existing shares do not decrease. The total market value of a shareholder’s holdings will remain the same.

There are different forms of stock splits, such as the 2-for-1, 3-for-1, or 3-for-2 stock split. They all work the same way: You get two shares for everyone you hold, or three shares for everyone you hold, or three shares for every two shares you own.

Another, the less common form is called the reverse stock split. This is when a company decides to reduce the number of outstanding shares, which in turn will increase the stock price of shares held by stockholders. This strategy is generally used to boost the price of a stock that has lost value over time.

It is important to recognize that the stock split is a simple strategy designed to affect the stock price. It in no way changes the company’s market capitalization (i.e., total value of all outstanding shares) or other fundamental metrics. In order to issue a stock split, it must be approved by both company management and the board of directors. Furthermore, the company must publicly announce its intention to conduct a stock split within days or weeks of implementation.

The timing of the announcement is important because some investors try to take advantage of a stock split, believing that the value of the stock will increase as a result. This has more to do with market sentiment than any change in company fundamentals.

For example, in the past when a stock split its value often returned to its pre-split price within a year. This is not necessarily because the company has improved fundamentals, but rather because the investor market simply believes that stock is worth that price — it’s a form of confirmation bias. However, in recent years it is not as common for split stocks to climb back to their original price as it was in the past.

Why Conduct a Stock Split?

Again, the reason for a stock split is largely driven by market sentiment. For example, some investors may not have a lot of discretionary income to invest, so they look for a lower-priced stock. While they might not consider a stock valued at $100 per share, they may be interested in the company at $50 a share. In fact, following a recent stock split, investors may see it as getting a bargain price for that stock. As such, they might buy two shares. Now they’ve spent $100 on two shares whereas they were reluctant to buy one share for $100. The value is the same, but psychologically, that stock now seems like a great buy. This is referred to as unit bias. Psychologically, most people perceive lower per share prices to mean that a stock is “cheaper” and therefore may have more room to make gains.

In addition, now they can further diversify their portfolio with different stocks, whereas before those high-priced shares may have dominated their portfolios, exposing them to greater market risk.

A stock split also gives current shareholders the opportunity to increase their holdings at half price. While the value hasn’t changed when they make the buy if the stock increases in the future their portfolio will increase in value because they have more shares of that stock. For example, let’s say you have 10 shares of a stock priced at $10, for a total value of $100. The stock splits 2-for-1, so now you have 20 shares priced at $5, still valued at $100. In a few years, the stock price grows to $20 per share. Had the stock not split, your total value would grow to $200. But because you now own 20 shares, the total value of those shares would grow to $400.

Clearly, the true value of a stock split comes from holding those shares until the price increases substantially.

Mutual Fund Split

Some mutual funds also engage in the split strategy, but instead of splitting an individual stock, the fund company issues additional shares of the fund at a reduced price. In all other ways, a mutual fund share split works like an individual stock split.

If you’d like to learn the history of a company’s stock splits, consider the following resources:

stocksplithistory.com or Morningstar.com.
Another option for both stocks and mutual funds is to search by the stock symbol at Yahoofinance.com. On the stock’s performance chart, look for the Events tab and check the Stock Splits option. You may need to reduce the historical time frame to see splits marked clearly.
You also may be able to search for stock split history on the website of your online broker. Many outfits offer these types of research tools.

Stock Splits, Explained

August 1, 2022 · Blog, Financial Planning, Uncategorized

5 min read

Stock Splits, What is a Stock Split Imagine selling slices of a large pizza. You can cut it into four even slices and charge $2 a slice. Or, you can cut it into eight even slices and charge $1 per slice. Either way, the total value of the pizza will still be $8.

Why Conduct a Stock Split?

In addition, now they can further diversify their portfolio with different stocks, whereas before those high-priced shares may have dominated their portfolios, exposing them to greater market risk.

Clearly, the true value of a stock split comes from holding those shares until the price increases substantially.

Mutual Fund Split

If you’d like to learn the history of a company’s stock splits, consider the following resources:

Click on the investor relations tab on the company website, which often provides a history of the company, including dates of past stock split activity.
Search by the ticker symbol at stocksplithistory.com or Morningstar.com.
Another option for both stocks and mutual funds is to search by the stock symbol at Yahoofinance.com. On the stock’s performance chart, look for the Events tab and check the Stock Splits option. You may need to reduce the historical time frame to see splits marked clearly.
You also may be able to search for stock split history on the website of your online broker. Many outfits offer these types of research tools.

Disclaimer

8 Ways to Save on School Supplies

3 min read

Even though summer is still somewhat in full swing, school will be starting soon. Yes, you heard that right. This means that you probably need to get prepared for the inevitable cash outlay ahead. But it doesn’t have to cost an arm and a leg. Here are some ways to navigate the upcoming expenditures and save a penny or two.

Start Early

We’re talking a few weeks ahead, if possible. If you wait until the last minute, supplies might run out. You may have to spend time online searching and/or driving from store to store – and paying the premium both in terms of products and gas. If you spread out purchases a little at a time, you won’t feel the financial hit so severely. Dive in early and you’ll thank yourself when it’s all over.

Conduct a Supply Audit

Dig into those drawers, closets and storage bins for school supplies from last year. Chances are, you bought a set of, say, pencils and all are not used. When you’re done, put what you’ve found in a central location and make your shopping list. Be sure to keep this list handy (on your phone, or in your bag if you’ve handwritten it). Another way to keep track of what you already have is to snap a pic of it.

Swap With Friends

Do this before you spend any money. Organize a small gathering with other parents, trade your wares, figure out what you need, then get going.

Head to the Dollar Store

After you’ve audited and swapped, check out these bargain basement stores. Here, you’ll find big savings on basics like notebooks, pencils, plus hand sanitizer and facial tissues.

Scour Thrift Stores

While thrift stores might not have supplies in terms of schoolwork, they’ll definitely have back-to-school clothes you can buy for a song – aka pretty darn cheap. You might look for backpacks here, too, which are a must-have. Tip: Don’t let your kiddos wear their new duds immediately. Save them for the first day (and days after) so they’ll feel like they’re starting the new year with a 100 percent fresh start.

Shop on a Sales Tax Holiday

state sales tax holiday list for you.

Follow Popular Stores on Social Media

Many companies send their followers coupon links and advance notice about juicy sales. Several to watch on Facebook and Twitter are Staples, Office Depot, Target, Best Buy, as well as Coupons.com and RetailMeNot.

Make One Trek Solo

While taking the kiddos along can be fun and a great bonding experience, chances are they’ll plop things in your cart you might not want – and run up the bill. By yourself, you can get in and out quickly and control the cost.

Going back to school can be a challenging transition, both for kids and parents. However, if you plan ahead and stay on track, you can give yourself an A+ for all you’ve accomplished.

Sources

https://www.moneycrashers.com/back-to-school-supplies-list-tips/

8 Ways to Save on School Supplies

August 1, 2022 · Blog, Tip of the Month, Uncategorized

3 min read

8 Ways to Save on School Supplies Even though summer is still somewhat in full swing, school will be starting soon. Yes, you heard that right. This means that you probably need to get prepared for the inevitable cash outlay ahead. But it doesn’t have to cost an arm and a leg. Here are some ways to navigate the upcoming expenditures and save a penny or two.

Start Early

Conduct a Supply Audit

Swap With Friends

Do this before you spend any money. Organize a small gathering with other parents, trade your wares, figure out what you need, then get going.

Head to the Dollar Store

After you’ve audited and swapped, check out these bargain basement stores. Here, you’ll find big savings on basics like notebooks, pencils, plus hand sanitizer and facial tissues.

Scour Thrift Stores

Shop on a Sales Tax Holiday

Lots of states have these and during this time (or day or weekend), you can buy computers, clothing and school supplies without paying sales tax. Here’s a state sales tax holiday list for you.

Follow Popular Stores on Social Media

Make One Trek Solo

Going back to school can be a challenging transition, both for kids and parents. However, if you plan ahead and stay on track, you can give yourself an A+ for all you’ve accomplished.

Sources

https://www.moneycrashers.com/back-to-school-supplies-list-tips/

Disclaimer

What Are NFTs and How Can Businesses Benefit?

4 min read

Non-fungible tokens (NFTs) are rising in demand, and some brands are already generating great results in their campaigns and providing a unique experience to customers. As the hype around NFTs continues, businesses need to understand how they can benefit.

What is an NFT?

An NFT is a valuable digital asset created using blockchain. Unlike cryptocurrencies, NFTs are not mutually interchangeable as each NFT represents a different asset with a different value. Hence, an NFT verifies the authenticity of a non-fungible asset. This means that the purchaser of the asset/product can only use a product. Unlike other digital products, an NFT can’t be duplicated and sold. This is because the non-fungible asset is made into a token with a digital certificate of ownership, creating authenticity and credibility. NFTs could include videos, music, physical products, services, documents, artwork, and even memes.

A non-fungible asset’s value depends on various factors, such as underlying value, ownership history, perception of the buyer, future value, etc.

How NFTs Have Been Used

So far, some industries are already reaping benefits from NFTs. Various cases of NFTs can be found in gaming, music, fashion, sports, and virtual real estate.

research conducted in March 2021 by Morning Consult, a global decision intelligence company, about half of the people who identified themselves as avid physical collectors were interested in NFTs. In addition, users have more control over the asset bought because it cannot be used in any other way or duplicated, making it more valuable.

It might not be obvious to most when NFTs are worth an investment. However, looking at NFTs that have already been sold, this can present an opportunity that businesses should not ignore. For instance, the first tweet by Twitter CEO Jack Dorsey was sold for over $2.9 million in March 2022. The Nike brand also has been making headlines with its virtual sneakers, with one selling at $134,000.

With such news making the headlines, businesses may wonder how they can benefit from NFTs.

How Can a Business Benefit from NFTs?

Businesses still hesitant about adopting new technologies should start considering creating NFTs that align with their brand image. Below are some ways in which a business can benefit:

1. Brand Visibility

Aside from digital marketing, NFTs provide another way businesses and corporations can drive attention to their brand. For instance, by creating a digital version of your products, you expose it to NFT enthusiasts, some of who might not be aware of your products. NFTs also can be incorporated as part of your brand storytelling, creating unique experiences for your customers, consequently increasing consumer engagements.

2. Authenticity

Many businesses undergo massive losses of revenue due to counterfeit products. With NFTs, businesses can ascertain the authenticity of their products and services. A digital certificate is issued with every transaction and a record is kept on the blockchain. A customer can check the authenticity since the blockchain can be traced to the original seller.

3. Additional Revenue Stream

Businesses can use NFTs as an additional source of income by selling digital forms of their products or services. One way to do this is by creating an early access opportunity before the official product launches, creating a buzz and ensuring the NFT value will rise.

4. Customer Loyalty Program

The versatile nature of NFTs makes them ideal for use in loyalty programs. The tokens can be used as medals for loyal clients or as membership tokens.

5. Prevent Ticket Scams

Many people fall victim to online ticket scams where they buy fake discounted tickets or duplicate tickets of an original event ticket. The money collected doesn’t go to the business, which also affects the event organizers. Customers also risk their credit card information being stolen by scammers. However, turning a ticket into an NFT makes it easy to verify its authenticity and even prevent ticket black markets.

6. Managing Supply Chain

NFTs are positively disrupting the supply chain. By the use of blockchain technology, it’s now easy to trace the entire process of a product lifecycle, from raw material, transportation, manufacturing, and distribution up to the end consumer. Hence, businesses interested in improving transparency and accountability can embrace NFTs to automate their supply chain.

Conclusion

NFT technology is relatively new, and its practical use is still limited. However, the fact that people are willing to spend on them is reason enough why any business should consider leveraging NFTs in its marketing strategies to help boost brand engagement and drive sales.

What Are NFTs and How Can Businesses Benefit?

August 1, 2022 · Blog, Uncategorized, What’s New in Technology

4 min read

What is an NFT Non-fungible tokens (NFTs) are rising in demand, and some brands are already generating great results in their campaigns and providing a unique experience to customers. As the hype around NFTs continues, businesses need to understand how they can benefit.

What is an NFT?

A non-fungible asset’s value depends on various factors, such as underlying value, ownership history, perception of the buyer, future value, etc.

How NFTs Have Been Used

So far, some industries are already reaping benefits from NFTs. Various cases of NFTs can be found in gaming, music, fashion, sports, and virtual real estate.

The growth of NFTs has been attributed to the fact that humans like to collect things, and since NFTs are designed to be scarce digital assets, this contributes to the high prices. According to research conducted in March 2021 by Morning Consult, a global decision intelligence company, about half of the people who identified themselves as avid physical collectors were interested in NFTs. In addition, users have more control over the asset bought because it cannot be used in any other way or duplicated, making it more valuable.

With such news making the headlines, businesses may wonder how they can benefit from NFTs.

How Can a Business Benefit from NFTs?

Businesses still hesitant about adopting new technologies should start considering creating NFTs that align with their brand image. Below are some ways in which a business can benefit:

1. Brand Visibility

2. Authenticity

3. Additional Revenue Stream

4. Customer Loyalty Program

The versatile nature of NFTs makes them ideal for use in loyalty programs. The tokens can be used as medals for loyal clients or as membership tokens.

5. Prevent Ticket Scams

6. Managing Supply Chain

Conclusion

Disclaimer

Strengthening the Supply Chain, the Professional Workforce, Cybersecurity and Coastal Ecosystems

4 min read

Supply Chain Security Training Act of 2021 (S 2201) – This legislation is designed to identify supply chain risks and develop a government program to train federal officials with supply chain risk management responsibilities to prepare and mitigate those risks. The training program would cover the complete acquisition life cycle, including funding for data access and processing as well as appropriate technology and communication vehicles. The bill was introduced by Sen. Gary Peters (D-MI) on June 23, 2021. It passed in the Senate on Jan. 11 and in the House on May 10. It was signed into law by the president on June 16.

Bridging the Gap for New Americans Act (S 3157) – Introduced by Sen. Amy Klobuchar (D-MI) on Nov. 3, 2021, this bill recently passed in the Senate on June 23 and is in the House for consideration. The bipartisan bill would authorize a study on employment opportunities for naturalized and lawfully present non-U.S. citizens who hold professional credentials from non-U.S. countries. For example, the opportunity to employ doctors with medical degrees to help meet U.S. demand in the growing shortage of physicians. The Department of Labor would identify and recommend how to address factors that affect their qualifications for U.S. jobs in various fields of expertise.

State and Local Government Cybersecurity Act of 2021(S 2520) – This legislation expands the Department of Homeland Security (DHS) responsibilities for mitigating cybersecurity threats, risks and vulnerabilities with more proactive and defensive measures.The Act was introduced by Sen. Gary Peters (D-MI) on July 28, 2021. It passed in the Senate on Jan. 11 and in the House on May 17. It was signed into law on June 21.

South Florida Clean Coastal Waters Act of 2021 (S 66) – An algal bloom is a rapidly growing algae that can produce toxic conditions harmful to humans, animals, aquatic ecosystems and the economy. They are most prevalent in South Florida. The bill, introduced by Sen. Marco Rubio (R-FL) on Jan. 27, 2021, directs the Inter-Agency Task Force on Harmful Algal Blooms and Hypoxia to develop a plan to address how to reduce and control theeffects of the blooms throughout the South Florida ecosystem. This legislation passed in the Senate on March 8 and in the House on May 11. President Biden signed the bill into law on June 16.

Active Shooter Alert Act of 2022 (HR 6538) – Introduced by Rep. David Cicilline (D-RI) on Feb. 1, this bill would direct the Department of Justice to set up a national alarm system specifically to warn citizens of an active shooter event. The DOJ also would work with state, tribal and local governments to coordinate networks and establish procedures for how to respond to active shooters. The bill passed in the House on July 13. It is presently under consideration in the Senate, where it faces opposition because many believe it duplicates the existing Integrated Public Alert and Warning System (IPAWS). The premise is that a separate system for active shooter events would risk desensitizing citizens with false alarms.

Advanced Air Mobility Coordination and Leadership Act (S 516) – This bill was introduced by Sen. Jerry Moran (R-KS) on March 11, 2021. It passed in the Senate on March 23, 2022, and in the House on June 14, but the House made changes and returned it to the Senate. The purpose of this legislation is to establish an Advanced Air Mobility (AAM) interagency task force to plan and coordinate efforts for urban-based cargo and passenger aircraft (e.g., drones, air taxis, air ambulances) in the United States. The program would address matters related to safety, infrastructure, physical security, cybersecurity and federal investment in order to integrate these new aircraft into existing airspace operations.

Women’s Health Protection Act of 2022 (HR 8296) – Introduced by Rep. Judy Chu (D-CA) on July 7, this bill passed the House on July 15 and is currently with the Senate. The bill would prohibit state governments from restricting access to abortion services (via drug prescription, telemedicine or immediate action) in situations where the provider determines that birth would endanger the mother’s life.

The IRS is Auditing Fewer Returns than Ever

3 min read

One of the perennial fears of taxpayers is getting audited by the IRS. Financially, few scenarios strike such fear into the heart of taxpayers. However, taxpayers can probably breathe a sigh of relief – at least for now. This is because the rate at which the IRS is initiating audits of individual taxpayers is dropping like a stone.

Decline in Audit Rates

The rate at which the IRS is auditing individual taxpayers has declined overall between the years of 2010 and 2019 (2020 data is too new and 2021 returns are still being filed through the extension period). According to the Government Accountability Office (GAO), nearly 1 percent of all taxpayers were audited in 2010 compared to only 0.25 percent for the tax year 2019. The GAO chart below shows the ski slope-like drop in individual tax audit rates over the period.

Table #3 from the GAO Report

While the IRS continues to audit higher earning taxpayers more often overall, during the 10-year period audit rates consistently declined for all levels of taxpayers, except those with the highest incomes. The audit rate for taxpayers with income between $200k and $500k experienced the largest drop, with the audit rate declining from 2.3 percent down to 0.2 percent; a 92 percent reduction in audits. Taxpayers with the highest incomes, defined as $10 million or more, saw a resurgence in audit rates from 2017-2018; however, even they experienced an overall decline, dropping from 21.2 percent in 2019 to only 3.9 percent in 2019 – equating to an 81 percent decline.

Impact on the Treasury

There is the theory that the prospect of a tax audit leads to greater voluntary compliance. In other words, if people think they won’t get audited, then they are more likely to cheat on their taxes.

Non-compliance with tax laws and regulations have a material impact on the Treasury. According to the IRS, it is estimated that on average, individual taxpayers under-reported nearly $250 billion a year for the period 2011-2013. This obviously leads to the non-collection of taxes that are otherwise owed the government and raises issues of fairness for taxpayers who are playing by the rules.

Why the Decline in Audit Rates?

One of the main drivers is a lack of resources at the IRS, a combination of both reduced funding and less auditors on staff. The number of agents working for the IRS has declined across the board since 2011. Tax examiners, the type who handle basic audits by mail, have dropped by 18 percent. Meanwhile, revenue agents, who handle the more complex cases in the field, declined by more than 40 percent over the same period.

Demographics point to an increase in these trends as there are a wave of coming retirements in the IRS. Over the next three years, nearly 14 percent of current tax examiners and 16 percent of revenue agents are expected to retire. Stack on top of this the fact that the inexperience of newer agents and the time to complete audits is also taking longer.

Conclusion

The IRS claims it is missing out on millions in legally due tax revenues due to the inability to maintain enforcement. They say they need more funding to hire more agents to perform more audits, which not only find fraud in the audits themselves but also increase overall compliance due to the pressure this creates.

Currently, there is no political focus on bringing major new resources to the IRS, so it’s not likely to see an uptick in individual tax audit rates anytime soon. The trend of focusing on the highest earners, however, will likely continue as this is where the IRS can find the most bang for its buck.

The IRS is Auditing Fewer Returns than Ever

July 1, 2022 · Blog, Tax and Financial News, Uncategorized

3 min read

IRS is Auditing One of the perennial fears of taxpayers is getting audited by the IRS. Financially, few scenarios strike such fear into the heart of taxpayers. However, taxpayers can probably breathe a sigh of relief – at least for now. This is because the rate at which the IRS is initiating audits of individual taxpayers is dropping like a stone.

Decline in Audit Rates

IRS is Auditing

Table #3 from the GAO Report

Impact on the Treasury

Why the Decline in Audit Rates?

Conclusion

Disclaimer

Measuring the Margins

5 min read

Corporate profits, according to the Bureau of Economic Analysis, grew by $20.4 billion in the final quarter of 2021, a 0.7 percent increase. For the first quarter of 2022, corporate profits fell by 2.3 percent or $66.4 billion. On an annualized basis, corporate profits fell 5.2 percent in 2022, but grew 25 percent in 2021. With the economy facing inflation, the uncertainty of the Russia/Ukraine conflict, and the world working its way out of the COVID-19 pandemic, economic uncertainty abounds. For companies, measuring margins is one way to evaluate performance and strategize ways to survive and thrive in a dynamic economy. Here are a few common margins that businesses can determine to measure their financial performance.

Operating Margin Defined

Also referred to as return on sales, this measures the profit a business makes on a percentage basis, per dollar, from its core operations. It accounts for manufacturing costs that fluctuate, such as paying employees and input stock. The operating margin is determined by obtaining the business’ earnings before interest and taxes (EBIT) and dividing it by its net sales or sales revenue.

Operating Margin = Operating Earnings (EBIT) / Revenue

Operating Earnings = Revenue – (cost of goods sold (COGS) + overhead expenses, except tax and loan servicing costs)

Assuming a business had $10 million in revenue, $1.5 million of COGS and $750,000 in related overhead expenses, it would be as follows:

Operating Earnings = $10 million – ($1.5 million + $750,000) / $10 million

Operating Earnings = $10 million – ($2.25 million) / $10 million

Operating Earnings = $7.75 million / $10 million = 0.775 or 77.5%

Understanding the Operating Margin

This doesn’t factor in things such as taxes, interest on loans or other non-core business expenses. However, it gives a picture of what’s remaining for its non-core operating expenses, such as servicing outstanding loans. By looking at a company’s past operating margins, the trends can determine a company’s performance. Ways to improve the margin include reducing staff redundancy, negotiating better deals on raw materials or reaching more receptive customers.

Marginal Revenue Product (MRP)

If a piece of equipment or employee can create an output of X (the marginal physical product or MPP) and each additional unit of production sells at Z price (marginal revenue or MR), the MRP of the piece of the new investment is MPP x MR. Accepting that all other costs remain constant, if the business owner pays less than or equal to the MRP, it may be profitable. Otherwise, it’s not a good decision.

Using the example of a furniture manufacturer looking to respond to increased demand, this illustrates how it can guide business decisions. If a new employee can produce 100 tables every week that will retail for $100 per table, this is the MPP. Based on the calculation, the MPP of 100 multiplied by the marginal revenue (MR) of $100 = $10,000. If the business can hire and retain a new employee for less than $10,000 per week to increase their production by 100 tables per week, it can signal a positive investment.

Marginal Cost of Production

This metric is a way for businesses to determine efficient manufacturing costs. Looking at production volume, this calculation can determine if adding an additional unit to production would add profitability by examining fixed and variable costs. Fixed costs don’t change with modifications in production levels.

A static or fixed cost can be spread out over more units of increased production. However, if expanding production capacity requires additional fixed costs, it can add to the marginal cost of production, which will be explained shortly. When it comes to variable costs, as the name implies, as more production occurs, the costs similarly vary.

Assume company A makes widgets with $1 in variable costs and fixed costs of $10,000 per month, producing 5,000 widgets monthly. This would lead to $2 in fixed costs ($10,000 in fixed costs/5,000 widgets).

This final cost per widget comes to $3 ($2 fixed + $1 variable cost).

If company A chose to produce 10,000 widgets a month and they could use existing machinery, employees, etc., their fixed costs would drop to $1 ($10,000 in fixed costs/10,000 widgets).

Assuming the same variable cost of $1 per widget, plus the $1 in fixed costs, it would cost $2 per widget if the 10,000 widgets were produced. However, if additional investments (equipment, etc.) were needed to produce widget 5,001 to 10,000, this consideration would need to be factored in the marginal cost of production. If additional equipment costs $1,000 to increase production, the business would need to factor this in to see if it’s still profitable.

Essentially, if this additional production cost is less than the price of an additional individual unit, there’s the potential for a profit for the business.

Contribution Margin After Marketing (CMAM)

This measures how much cash is earned from a single unit sold after accounting for promotional and variable expenses. Example expenses include input stock, freight, inventory, etc. It’s important to distinguish between pre-planned marketing expenses over a set period of time (per month, quarter, etc.), and variable sales commissions that can fluctuate. CMAM is calculated as follows:

Contribution Margin After Marketing = Sales Revenue – Variable Costs – Marketing Expense

Looking at how much each unit can add to a business’ profitability:

CMAM for every Unit = Sales Revenue for every Unit – Variable Expenses for every Unit – Marketing Expense for every Unit

From there, a business’ net profit or loss can be found using this ratio:

Net Operating Profit = CMAM – Fixed Costs

Considerations

A smaller or negative CMAM is indicative of a product that’s likely uncompetitive. Conversely, a high CMAM, especially over a long time, can indicate the product is well regarded. It can help businesses to determine their most profitable products and/or what products to discontinue, etc.

With economic uncertainty expected to continue, keeping an eye on past, present and future margins is a key way to maintain a business’ chance of thriving in 2022 and beyond.

Sources

https://www.bea.gov/data/income-saving/corporate-profits

Building Wealth Through Home Equity

5 min read

Often the first house a person buys is an affordable condominium, townhouse or older single-family dwelling, also referred to as a “starter home.” It might be small and lack features they dream about, from new appliances in the kitchen, to dual sinks in the bath, to a large yard or a garage.

However, the key to a starter home is not to acquire your dream house, it is to build equity that you can eventually deploy to buy your dream home. It’s important not to wait until you have enough money for the ideal property. Start as early as you can and buy something affordable to get your foot in the door of homeownership.

Interest Rates and Maintenance Expenses

Buying a home when mortgage interest rates are low offers a key advantage for building wealth because it reduces your loan payment, thereby freeing up more discretionary income to put toward other investments, home upgrades or pay down the mortgage balance.

When deciding your price range for purchasing a home, it’s also important to budget common maintenance costs, such as utilities, repairs and upgrades, as well as homeowner’s insurance and property taxes. These costs can be substantial, yet many new homebuyers do not account for them in their budget. They only take into consideration whether or not they can afford the monthly mortgage. It is always a good idea to have a lower payment that you can well afford in order to avoid relying on savings or credit to pay for maintenance expenses as they arise. And remember, maintenance of your property is critical because it can help improve your sale price when you move, which is key to building wealth.

Building Home Equity

The next step to building wealth through homeownership is to sell for a substantial profit. Home equity, which is the market price for which you can sell the home minus your remaining mortgage balance, is achieved in two ways. One way to build equity relies on the real estate market. Over time, houses generally increase in price, so most people are able to sell their home for more than they paid for it. How quickly home prices rise will depend on the overall economy and your home’s particular appeal. That’s why it’s important to make an attractive location one of your top requirements. For example, even if you don’t have children or want children, buying a home in a sought-after school district will likely increase the value of your home faster. Other location features include easy access to shopping districts, major highways and even an airport.

The second way to build equity is through the monthly payments you make on the mortgage, which reduce the balance owed. If you can afford it, adding more to your monthly payment and directing the excess toward your principal balance helps build home equity faster. Another payment option that can help build equity faster is to apply for a shorter-term loan than the standard 30-year mortgage. For example, a 15-year term mortgage features a lower interest rate and the borrower pays off the loan in half the time. Note that monthly payments will be higher, but a homeowner can save thousands of dollars in interest with a shorter-term loan.

Transaction Costs

The garden variety advice is to remain in your home for at least five years. That’s because selling your home and buying a new one involves substantial transaction expenses, from closing costs to initiating a new loan, as well as paying commission fees to both the seller’s and buyer’s real estate agents (usually 3 percent each). Therefore, you need to have lived in the property long enough to build equity through payments and market appreciation to offset these expenses and still make a profit.

Sales Tax

Be aware that it is advantageous to live in your primary residence for at least two years before you sell. Otherwise, your sales profit could be subject to capital gains taxes on the first $250,000 for single tax filers, and as much as $500,000 for married filing jointly. The tax rate is the same as your ordinary income tax rate if you owned property for less than one year; after that, the capital gains rate is based on your tax bracket (15 percent or 20 percent).

Trade Up, Then Down

Over many decades, you can build wealth by buying a home and then periodically “trading up” once you attain substantial equity. The tactic of trading up means you invest your profits in a more expensive home and then begin building equity again. One way to save for retirement is to keep trading up until you retire, then downsize to a less expensive home with lower maintenance expenses. At that point, you can redeploy the profit derived from the home equity you have accumulated into a stream of retirement income.

Today’s Market

In recent years, high prices and low inventory in the residential real estate market have made it harder for young adults to buy a starter home. For those currently shut out, keep saving until the market stabilizes, because the higher your down payment, the lower your monthly payments will be – and the more equity you’ll have in your home. You can still build wealth through homeownership, even if you start late.

Electric Vehicle Tax Credits and the Future of the Automotive Industry

Expanding the Net Investment Income Tax

How Businesses Can Mitigate Inflation & Maintain Pricing Power

Stock Splits, Explained

8 Ways to Save on School Supplies

What Are NFTs and How Can Businesses Benefit?

Strengthening the Supply Chain, the Professional Workforce, Cybersecurity and Coastal Ecosystems

The IRS is Auditing Fewer Returns than Ever

Measuring the Margins

Building Wealth Through Home Equity

Category: Blog

Electric Vehicle Tax Credits and the Future of the Automotive Industry

Expanding the Net Investment Income Tax

How Businesses Can Mitigate Inflation & Maintain Pricing Power

Stock Splits, Explained

8 Ways to Save on School Supplies

What Are NFTs and How Can Businesses Benefit?

Strengthening the Supply Chain, the Professional Workforce, Cybersecurity and Coastal Ecosystems

The IRS is Auditing Fewer Returns than Ever

Measuring the Margins

Building Wealth Through Home Equity

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