JAK + CO.

Certified Public Accountants

Call Our Minnesota CPA Firm: 651.641.1099

Proposed Regulations Target Discounts in Gift & Estate Planning

By

By Brenda K. Lowe, CPA, PFS |

For owners of family-controlled businesses, the thought of transferring ownership to the next generation can be daunting. But in light of new estate and gift tax regulations proposed by the Treasury Department, owners considering such a transfer may want to take action before the end of the year.   

The proposed regulations are designed to restrict or eliminate valuation discounts and deathbed transfer discounts available under existing rules. This change could significantly reduce the tax benefits of transferring interests to family members. It’s worth noting the IRS has targeted these discounts for years.

Valuation discounts disregarded

When it comes to shares of family-owned and closely held businesses, valuation discounts typically address “lack of control” and “lack of marketability.” Combined, these discounts have the potential to significantly reduce the value of the transferred interests. The proposed regulations “disregard” some restrictions that have historically been used to apply these discounts.

The proposed regulations also target some deathbed transfers, as well as transfers within three years of death. Transfers of interests that result in the expiration of the power to liquidate, i.e. fractionalizing the interests thru multiple transfers, and then claiming a “lack of control” discount or if there is a lapse of a liquidation right. If the family as a whole has control before and after, the restrictions may be ignored and the full value of the entity must be included in the decedent’s estate.

What could this mean for me?

If you were planning to gift, sell or transfer assets to a family member under the current regulations, discounts could be used to reduce the value of the transferred interest, thereby reducing the estate or gift tax. For example, if the initial value of your transfer was $100,000 and applicable discounts totaled 30 percent, the net value of your transfer would be $70,000. If all of the discounts were disregarded, the transfer would be at the $100,000 value.

There’s a window of opportunity before year-end

The IRS will hold a hearing on the proposed regulations on Dec. 1; the earliest the proposal could be finalized is Dec. 31, 2016. This means you still have time to make transfers under the current, more favorable regulations.

If you think you could be affected by this new tax development, get in touch with your JAK accountant as soon as possible. We are familiar with the proposed regulations, and our tax professionals can help you understand your options. At the least, it’s worth knowing how you could be affected, so you can plan a successful business succession.  

3 Ways Budgeting Can Improve Your Construction Business

By

Construction BudgetingBy Jason J. Loven, CPA, CCIFP® | 

In the midst of permitting deadlines and site visits, budgeting is probably one of the last things on your mind. But operating without an annual budget is like embarking on an unfamiliar road trip and leaving your GPS at home. Without directions and a way to pinpoint your progress, you risk getting lost…or losing revenue.

Here are three reasons why budgeting deserves a top spot on your to-do list.

It acts as a basic business plan.

Given the nature of your business, planning can be difficult. But even if you can’t say with certainty where your next job will come from, you can set realistic revenue and profit targets based on numbers from previous years. At a minimum, you can say, “Here’s what we expect to spend on advertising, rent, and office supplies.” Outlining your expected income and expenses gives management an agreed-upon plan for the year ahead.  

It gives you a benchmark.

Comparing your actual results to your budget on a monthly basis gives you a way to gauge how things are really going. Only then can you identify where adjustments should be made. For instance, if you see you’re behind on revenue, you can find a way to make it up. Maybe you look for ways to cut overhead costs or take on an extra job next month. Without a budget, you might not even know you were off-track.    

It keeps management accountable.

Finally, a budget gives you a way to hold management accountable for overhead costs like travel and entertainment, office supplies, and vehicle expenses. If your marketing manager had planned to spend X amount for advertising yet spent twice as much, there should be a reason for the overage. Proactively comparing actual costs to the budget lets you say, “Why have we overspent?” before it gets worse.

Not sure where to start?

Budgeting can be a challenging, time-consuming process. And it can be difficult to know where to start. But you’re not alone—we can help. Having worked with contractors and construction-related businesses for more than 50 years, we know what you’re up against, and can help you establish a budget that accounts for fluctuating project timelines and payrolls. So if you just need help getting started, or if you’d prefer guidance through the entire process, don’t hesitate to give us a call.      

Our Office

1781 Prior Avenue North
Falcon Heights, MN 55113
Main 651.641.1099
Fax 651.647.1099
www.jakcpa.com

John A. Knutson & Co., PLLP

John A. Knutson & Co., PLLP, (JAK) is a Twin Cities-based accounting firm serving clients throughout Minnesota and beyond. A Team Committed to Quality Beyond Expectations