As we await the House of Representatives’ vote on legislation that would provide the IRS with $80 billion in additional funding over the next decade, a new Morning Consult/Politico poll found that a majority of Americans are not really worried about being the target of an audit from a potentially restocked IRS.
Morning Consult wrote:
Conservative media has echoed GOP lawmakers’ efforts to portray an increase in IRS funding as a potential auditing-free-for-all manned by 87,000 new IRS agents, but the majority of voters (76%) said they were not concerned about the prospect of being personally audited by the IRS, a view that was consistent among Democrats (74%), independents (78%) and Republicans (77%).
More specifically, when it comes to possibly being personally audited, 44% of voters said they were “not at all concerned,” including 47% of Republicans and 41% of Democrats.
Regardless of party affiliation, the share of voters who said they were “very” or “somewhat” concerned about being audited personally was about 1 in 4.
In addition to the increase in funding to the IRS, the tax and energy bill passed by the Senate last weekend, called the Inflation Reduction Act of 2022, would establish a 15% corporate minimum tax, impose a 1% excise tax on corporate stock buybacks, and extend and expand tax credits for energy-saving improvements and electric cars. The House is expected to vote on and pass the bill on Aug. 12.
IRS audits have dropped significantly over the past decade, especially those targeting high-earners. According to a May 2022 report from the Government Accountability Office, the audit rate for Americans making $5 million or more fell to about 2% in 2019, compared to 16% in 2010.
In a letter to the Senate, dated Aug. 4, IRS Commissioner Charles Rettig wrote “audit rates will not rise relative to recent years for households making under $400,000.” However, large corporate and high-net-worth taxpayers should watch out, according to Rettig:
Large corporate and high-net-worth taxpayers often engage teams of sophisticated representatives who pursue unsettled or sometimes questionable interpretations of tax law. The integrity and fairness of our tax administrative system relies upon the ability of our agency to maintain a strong, visible, robust enforcement presence directed to these and other similarly situated taxpayers when they are noncompliant. These important efforts also support honest taxpayers who voluntarily comply with their filing and reporting requirements.
The Morning Consult/Politico poll found that 48% of respondents believe higher-income taxpayers will be targeted the most for audits by the IRS, but 44% think the IRS will go after middle-class taxpayers instead. Only 18% of voters said they believe the IRS would use its new enforcement funds to go after low-income earners, including just 14% of Republicans.
The poll was conducted Aug. 5-7 with a total of 2,005 respondents. The poll’s margin of error was two percentage points.
The Justice Department charged a Connecticut man on Aug. 9 with fraudulently obtaining and misusing funds from a Paycheck Protection Program (PPP) loan he received for his accounting business in 2021.
According to an indictment filed in the District of Idaho, 57-year-old Eric O’Neil of Bethel, CT, is accused of lying about the number of employees, the monthly payroll, and other information about his business on a loan application to a financial institution in Boise last year, CT Insider reported. In the loan, O’Neil sought $373,201 for his business Accountant R Us Inc.
He was charged on Tuesday with one count of bank fraud.
The money was granted to O’Neil by the Small Business Administration under the Coronavirus Relief, Aid, and Economic Security (CARES) Act, intended for small businesses struggling with the economic impact of COVID-19, the Justice Department said.
CT Insider reported that O’Neil had owned and operated Accountant R Us out of New York since 2013. On March 25, 2021, O’Neil, with others, submitted a PPP loan application:
However, “Accountant R Us had no employees, paid no salaries, and paid no payroll taxes,” according to his indictment.
To further the scheme, O’Neil and others submitted fake tax forms to the financial institution that contained false information about the total income, salaries and wages for the business in the 2019 tax year. The forms were never filed with the Internal Revenue Service, the indictment said.
He also submitted a fake payroll log that listed 22 employees, including O’Neil, and fraudulent profit and loss statements, according to the indictment.
“Accountant R Us did not appear to have any legitimate business operations or employees in 2019 and 2020,” the indictment said.
If convicted of the bank fraud charge, O’Neil faces a maximum penalty of 30 years in prison.
By Dr. Kristy Short.
Quick question right out of the gate: Just how important is client data in running an uber-efficient and highly lucrative firm. Quick answer: Massively!
No doubt you’ve heard this message many times over the past few years: Your client data represents a (potential) goldmine. The simple fact is that your data, and what you do with it, is central to running a successful, sustainable and step-above-the-rest firm. It’s the difference between a potential goldmine and a real one.
Firm leaders that understand this are reaping the benefits. Massive benefits, in fact… such as aggregating an ideal client roster, maximizing recurring revenue to create year-round income streams, and achieving workload balance that leads to happier staff and a sustainable business model.
Marcus Dillon, CPA and owner of Dillon CPAs, is a prime example of a leader who has figured this out. Someone who is leaning into Smart Client Management to maximize client data to grow and thrive. And, by the way, he’s also someone who is willing to share his secret sauce.
The bottom line is that client data is at the center of everything. It’s your ticket to long-term success—if you’re willing to put in the time to work it. And if you are, this is a great place to begin…a starter guide on how to dig deeper into data and strike gold!
Identify your ideal client profile (ICP)
Before you can go after clients who are the best fit for your firm, you first have to know who you’re looking for. Who do you want to serve? Who are you good at serving (think vertical markets)? What is your ideal client profile?
For starters, it’s important to understand that dollars don’t matter.
Okay, well, maybe this is a bit of an overstatement, but the sentiment is dead on. The point here is that looking solely at the revenue a client brings in doesn’t always make them an ideal match for your firm. You must also factor in key non-financial data.
For example: Do you have families of businesses you enjoy serving? Are you skilled at serving specific verticals? Do you actually like the client? Does the client respect your team’s time and efforts?
“Just because, historically, a client has spent a lot of money with you, doesn’t mean they’re a good fit for where you want to take your business,” explained Dillon. “At one point, we decided that we no longer wanted to offer audit and attest services. While they represented some large engagements, it just wasn’t the type of work we wanted to do.”
Relationships are also core to Dillon’s business model, which means one-time engagements don’t make the ideal-client-profile cut.
“We’re in the business of building relationships, not just processing transactions. We want clients to have multiple touch points with staff throughout the year and get really close to them. This is one of the things our staff love about their jobs.”
Looking at the non-financial side of what makes an ideal client is a big part of the puzzle. For long-term success, you have to enjoy the clients you serve and have the skills to deliver services efficiently, effectively and in a standardized manner.
Review the revenue
While this feels like a backslide on advice, it’s really not. (Bear with me.)
While not the sole factor in identifying your ICP, revenue is still an important factor in the data-mining process. Smart management of client data includes looking at the financial side as well. This provides insight into client longevity and adaptability to a fixed-fee, recurring-revenue model.
For Dillon CPAs, reviewing revenue has been central to the firm’s thrive factor. And, according to Marcus Dillon, it’s easy to do.
“We had this data readily available because we bill out of QuickBooks,” said Dillon. “It made it easy to look at the lifetime value of the client, how long they’ve spent money with us and what their average price point is. This really helps to determine if they are a good fit for us.”
A clear view into client revenue aids in understanding which clients to focus on in terms of transitioning them to the recurring revenue model—and/or those where there’s an opportunity to upsell additional value-added services.
Bring your staff into the convo
Dillon was quick to remind that staff input is another critical element of the process. Because staff are on the front line—working with clients every day—they have valuable information to share. So be sure to mine that data as well.
Look to staff to answer such questions as: What clients are the easiest to work with? Do they have needs beyond existing services provided? Do they advance your firm’s vision and support your business model (e.g., recurring revenue vs. one-time engagements)? Are they in an industry that aligns with your firm’s expertise?
“We like to bring our team into this process because they are so close to our clients,” Dillon explained. “At the partner level, I have to be dedicated to consistently reviewing data and refining our client base, and that means I need input from my team. I’ll give them a list and ask which clients are worth fighting to keep and improve as a client, if there are ideal clients I’ve overlooked completely, or if there are clients that need to go.”
While aggregating intelligence on clients is key, it’s also an exercise in getting buy-in from staff. When employees are part of the data-mining process, it fosters a deeper understanding of the firm’s bigger vision and goals. It also provides direct visibility into partner actions—like off-loading non-ideal clients that don’t support workload balance and a sustainable business model.
“Last year we got rid of about $80,000 of revenue by exiting several non-ideal clients,” Dillon said. “This gave our team a lot of motivation because we [the partners] followed through…because we put our money where our mouth is…in creating a better work environment and opening up capacity for staff to focus on clients we actually like serving.”
Getting to the gold
Data is everything if used properly. Regular, dedicated review and management of client data provides full visibility into all vital areas of running a successful and highly profitable firm, including:
- Identifying ideal clients (as well as those who need to go).
- Balancing staff workload and opening the door to preferred, relationship-based engagements (by reducing the number of non-ideal clients).
- Creating a positive work culture and happier staff (a balanced, focused workload will do that).
- Fostering buy-in from staff by making them part of the ongoing data-mining process.
- Uncovering new opportunities for recurring revenue.
- Cultivating client relationships by proactively offering much-needed services (before they have to ask) and a year-round connection to your team.
- And the list goes on…
There is power in your data. And smart management of it can lead to stellar results. Discover the goldmine, right there inside your business, to build the firm of your dreams.
Kristy Short, Ed.D, has been serving the accounting profession for more than 25 years—bringing a deep knowledge of branding, marketing communications, and content strategy and development to the table. She’s worked with hundreds of partners and staff to help them advance their firms for the modern era. Kristy’s been named one of CPA Practice Advisor’s “Most Powerful Women in Accounting” three times; has assisted noted thought leader, Darren Root, create multiple books; and published hundreds of education-based, accounting-focused articles over her career.
If you’re a self-employed individual or other small business owner, you now have a wide range of retirement plan options at your disposal, just like the corporate giants. For convenience, you might want to keep things simple. In that case, the Simplified Employee Pension (SEP)-IRA is certainly a viable alternative.
Icing on the cake: The Setting Every Community Up for Retirement Enhancement
The (SECURE) Act provides extra tax incentives for using qualified plans like SEP-IRAs. Notably, the SECURE Act increases the maximum available credit for starting a plan to $5,000 and creates a new credit of up to $500 per year for automatic enrollment plans.
Basic premise: First off, the employer must contribute to a SEP-IRA for any employees age 21 and over who have worked for the business three out of the previous five years (barring a union contract taking precedence). Even employees who have worked on a part‑time basis, or only worked for the employer for part of the year, must be covered if they earned at least a minimal amount during the year ($650 for 2022).
Contributions made to a SEP-IRA on behalf of employees are deductible by the employer just like contributions to other defined contribution plans. Accordingly, the limit for deductible contributions in 2022 is the lesser of 25% of compensation or $61,000. Caveat: The maximum amount of compensation that may be taken into account for these purposes is $305,000.
Note: Employer contributions are discretionary. In other words, you’re not locked into payments for the year. This allows you to boost contributions when business is booming or scale back contributions—or even make no contributions—in a year in which the business is struggling. However, you must contribute the same percentage of compensation for each plan participant.
The contributions to the SEP-IRA vest immediately. For instance, if an employee quits the day after the contribution is made, the money is still theirs to keep. In comparison, certain other qualified plans have “cliff vesting” or gradual vesting over a period of years.
As with other qualified retirement plans, early withdrawals made prior to age 59 ½ are subject to a 10% penalty tax, in addition to regular income tax, unless a special tax law exception applies. Similarly, under the SECURE Act, minimum distributions (RMDs) must begin in the year following the year in which an employee reaches age 72 (up from age 70½).
Practical advice: Get your SEP-IRA up and running before January 1, 2023. Otherwise, the contributions aren’t currently deductible. However, a SEP may be set up and funded after the close of the tax year as long the paperwork is completed by the employer’s tax return due date, plus extensions.
All you have to do to set up a SEP-IRA is fill out Form 5305-SEP and provide proper notification and copies to employees. You don’t even have to file the form with the IRS. Finally, unlike most qualified plans, you’re not required to provide the IRS with annual reports. This is truly an “easy” retirement plan to set up and operate.
Summer nights. The smell of freshly cut grass. The crack of the bat hitting the ball. A cold beer and a hot dog. The seventh inning stretch and of course that song. Cheering for favorite players. Kids in the stands with their baseball gloves, hoping for a chance to catch a foul tip. We’re Triple A here in Indianapolis, so the experience has a very home-town feel.
Things are different at the ballpark, however, for my first post-COVID-19 game. There is now 40-foot-high netting separating the field from the stands, protecting us from being able to catch those fly balls, and putting an end to those cherished moments when the base coach would toss a ball into the stands and into the glove of a fan. [Note, the outfield is still fair game for home runs, along with providing the ability for fans to throw the ball back on the field when the homer is hit by the opposing team.]
“The new netting system will provide fans peace of mind when sitting close to the action down the first and third baselines,” according to the Indianapolis Indians’ president and general manager. I’m sure there’s a plus side to not having to worry about being conked on the head by a runaway foul tip when you’re not paying attention to the game, but what about those hopeful children cradling their gloves, hoping for a chance at a catch and a memory? What about their peace of mind?
Other things have changed too. The beer and hot dogs are no longer delivered in the stands (nor are any other concessions), although this happened before COVID-19. You have to miss half an inning while you wait in line at the concession counters (where oddly they are televising a baseball game, but not the one you came to see).
I understand change, improvement, trends, insurance issues, health, and safety – all of this goes into decisions to move in whatever direction the rule-makers determine is for the greater good. But at the same time, I’m going to miss the sweet ballgames that were unencumbered with nets and where I didn’t have to leave my seat to get food.
All of that leads me to the point of this month’s message. We are honoring change here at CPA Practice Advisor this month with our annual Innovation Awards. We recognize new technology designed to make our jobs easier, speed things along, improve visibility with clients, stay on top of regulations, and yes, protect ourselves from unexpected fly balls in the form of security breaches and phishing attacks.
I’d like to take just a moment, however, to consider that our clients might still appreciate the traditional touches that we include in our relationships. While we are switching to an online/filesharing/chatbot relationship with clients, the occasional phone call or in-person meeting also goes a long way toward cementing our relationships for the long term. Sharing a few minutes with them to ask how they’re doing, just as we do with friends and family, is like tossing the baseball into the stands. All of the protection we install ensures data security and moves things along more quickly, but don’t forget that your clients might still like to have you toss that ball, spend a moment in the sunshine with them, as you cheer them on.
By Laura Davison, Bloomberg News (TNS)
Wealthy Americans dodged getting hit by tax increases in the Democrats’ economic package, but they likely will face a much better-funded Internal Revenue Service equipped with new auditors and technology to uncover tax avoidance.
Top-earning Americans should be prepared for audit levels they haven’t seen in decades as the agency prepares to train an expanded workforce that specializes in complex financial dealings, including cryptocurrencies and offshore investments.
The tax and climate bill that the Senate passed this weekend includes $80 billion for the IRS over the next decade, a massive influx of cash for the agency that has faced budget cuts and declines in customer service and audit levels over the past decade. Democrats supporting the bill hope the bill will reverse those slides.
The non-partisan Congressional Budget Office projects that the $80 billion investment will yield an additional $204 billion in tax collection over the next decade. But other estimates, including some internal Treasury figures, suggest it could be much higher.
Treasury has projected that the additional IRS enforcement could be almost twice what CBO predicts — about $400 billion over 10 years. Academic research has also found that higher audit rates increase tax revenue in two ways, directly from the money collected from tax return examinations, as well as higher voluntarily compliance after a taxpayer is audited and from others who fear higher risk of IRS scrutiny.
Lawrence Summers, who served as Treasury Secretary under former President Bill Clinton, said the CBO’s figures are too conservative and that the IRS could collect far more from high-earning Americans and corporations.
“If this program is really implemented, instead of the $200 billion that the CBO estimates, I think the benefit could be $500 billion or even possibly, if they do a great job, $1 trillion,” he said in a interview with Bloomberg Television last week. “So I’m pretty optimistic about the fiscal potential here if the administration really steps up.”
The IRS has a lot of ground to make up on audits. The agency scaled back audits of all taxpayers between 2010 and 2019, with the total audit rate falling to 0.25% from 0.9%. The largest drop has been among those reporting $5 million or more, who have a 2.35% chance of being audited, down from more than 16% a decade ago, according to a May watchdog report from the Government Accountability Office.
“The IRS has proven time and time again that it can step up to some of these measures or goals,” said Eric Hylton, a former IRS official in the agency’s small business division who now is the director of compliance at alliantgroup. “If they’re saying $204 billion, I do think the IRS will be able to exceed that with the IT modernization, and the appropriate personnel and funding.”
More than half of the $80 billion, which is slated to be given to the IRS in chunks over the next decade, in the bill is designated for enforcement, including hiring and training new auditors, about one-third is for operations support, and the remaining money is to upgrade computer systems and improve taxpayer services.
It may take several years before the IRS starts to see results from the additional money. The CBO estimates that only $3 billion of the $204 billion will be collected next year, compared to more than 10 times that at the end of the decade. That’s largely because it can take years to train auditors, select cases and resolve audits.
IRS Commissioner Chuck Rettig said in a letter to Congress on Thursday that the agency has fewer auditors in the field at any time since World War II, underscoring the need for the additional money. Rettig told a House panel earlier this year that his agency is “outgunned” in examinations of large companies that have teams of corporate accountants and lawyers.
The IRS funding has faced loud criticism from Republicans in Congress who say pumping more funds into the agency will do harm to taxpayers. Republicans say the additional money will harass taxpayers who haven’t knowingly done anything wrong, despite assurances to the contrary from Rettig.
Senator Rob Portman, an Ohio Republican, told reporters Wednesday that he believes the IRS needs more money, but that the money should be directed to taxpayers services and technology not to bring greater scrutiny to taxpayers.
The House still needs to approve the bill before it can go to President Joe Biden’s desk to become law.
©2022 Bloomberg L.P. Visit bloomberg.com. Distributed by Tribune Content Agency, LLC.
The “carried interest” loophole seems to have survived longer than the proverbial cat with nine lives.
New legislation just passed by the Senate—the Inflation Reduction Act—initially cracked down on the loophole once and for all. This tax break has been in the crosshairs of Congress for years. But the provision was removed from the bill due to objections from Sen. Kyrsten Sinema (D-AZ). The latest version is expected to sail through the House before it recesses and be signed by the president.
To make up for the lost revenue, the Act imposes a 1% excise tax on corporate stock buybacks.
Under the current rules for carried interest, compensation paid to managers of certain investment entities is taxed at favorable long-term capital gain rates instead of high-taxed ordinary income rates, after a three-year holding period is met. Generally, the new law would have required managers to meet a five-year holding period to qualify for long-term capital gain.
The maximum tax rate for long-term capital gain is only 20% (15% for certain low-to-moderate income taxpayers). In comparison, the top tax rate on ordinary income is 37% or almost twice as much.
The carried interest rules have long been criticized as providing an unfair tax advantage to a select group of wealthy individuals. In fact, opposition has come from both sides of the aisle. It’s been a frequent target of lawmakers in other proposed legislation. The three-year holding period requirement was added in 2017, but other efforts to curb this tax break have gone by the wayside.
Notably, both President Biden and President Trump supported closing the carried interest loophole during their respective campaigns.
Sinema, who has received substantial backing from wealthy financiers, proved to be the main obstacle this time around. The bill would not have passed without the removal of the provision. However, even those in favor of closing the loophole acknowledge that the projected revenue loss is relatively small.
The new law does contain other tax provisions: creating a new corporate minimum tax, extending and expanding tax credits for energy-saving improvements and electric cars, and increasing IRS enforcement activities, plus the new stock buyback tax. Finally, it’s likely that the carried interest loophole will remain a hot potato in our nation’s capital. Don’t be surprised if some members of Congress take another shot at closing it soon.
By Laura Davison, Erik Wasson and Ari Natter, Bloomberg News (TNS)
President Joe Biden and Senate Majority Leader Chuck Schumer are the biggest winners now that a huge piece of Democrats’ economic agenda is hurtling toward enactment.
The tax and energy bill passed Sunday after a year and half of rocky negotiations that divided the party. It gives Democrats tangible progress on key issues to show voters in the midterm elections this November.
Biden’s popularity nose-dived a year ago in the wake of the haphazard Afghanistan pullout and rising inflation—and a year of infighting among Democrats over the domestic agenda. That squabbling is in the past and Biden can say a cornerstone of his agenda will become law.
Schumer was slammed last year for failing to unite his caucus behind Biden’s “Build Back Better” plan. He managed to revive a slimmed version of the deal, navigate last-minute holdups and blindside Republicans hours after they gave up leverage by allowing a bipartisan semiconductor bill to pass.
Here’s who else comes out on top and who takes a hit from the landmark bill:
— The wealthy
None of the billions of dollars in tax increases Democrats floated a year ago on high-earning Americans made it into the final version of the bill, including proposals to double the capital gains rate, increase taxes on inheritances and levy a surcharge on millionaires. Despite rhetoric from Democrats that they wanted the richest Americans to pay much more, there wasn’t consensus within the party to pass a bill that raises levies on the 1%.
— Private equity
Private equity fund managers were able to dodge a tax increase that Sen. Joe Manchin wanted, but fellow moderate Democrat Sen. Kyrsten Sinema insisted be taken out of the bill. Manchin had wanted to narrow a tax break known as carried interest, that allows fund managers to pay lower capital gains rates on their earnings. The private equity industry was able to gain an additional win shortly before the final passage of the bill when a handful of Democrats broke with their party to vote on a Republican amendment that created a carveout for private equity-owned companies in the corporate minimum tax.
— Manchin, Sinema
The entire contents of the bill were essentially cherry-picked by Manchin and then tweaked to fit Sinema’s preferences. The two moderates amassed huge leverage with their willingness to accept no bill at all — and attacks from progressives — rather than a bill with provisions they opposed. The pair were also able to score some direct benefits for their states as part of the negotiations: Manchin secured and agreement to permit the completion of the Equitrans Midstream Corp.’s Mountain Valley Pipeline, and Sinema was able to get $4 billion for drought relief in Western states.
— Electric carmakers
The deal extends a popular $7,500 per vehicle consumer tax credit for the purchase of electric vehicles, a win for EV makers like General Motors Co., Tesla Inc. and Toyota Motor Co. But to win the backing of Manchin, companies will have to comply with tough new battery and critical minerals sourcing requirements that could render the credits useless for years for many manufacturers. Not all manufacturers stand to benefit from the credit. New cars that cost more than $55,000 and $80,000 for pickups and SUVs won’t qualify for the credits.
— Renewable energy
Solar company Sunrun Inc., energy storage and software provider Stem Inc., and hydrogen and fuel cell company Plug Power Inc. stand to benefit from generous tax credits in the bill. Nuclear reactor operators such as Southern Co., Constellation Energy Corp., Public Service Enterprise Group Inc. and Energy Harbor Corp. also could see a boon from a $30 billion production tax credit for nuclear power providers.
— Oil companies
Oil and gas got a boost alongside newer energy sources. The bill, which could mandate more federal oil and gas lease sales and boosts an existing tax credit for carbon capture, won praise from companies such as Exxon Mobil Corp. and Occidental Petroleum Corp. The legislation creates a new 10-year product tax credit for hydrogen production that rises to as much as $3 per kilogram depending on carbon intensity.
— Medicare, Obamacare enrollees
The final bill caps out-of-pocket costs for seniors’ prescription drugs at $2,000 a year and allows Medicare to negotiate the prices on 10 medications four years from now. The bill avoids a large January increase in Obamacare premiums for many middle income people by extending subsidies for three years.
— Deficit hawks
Manchin negotiated $300 billion in deficit reduction into the bill, the first major effort by Congress in 11 years to reduce the difference between how much the country spends versus how much tax revenue it takes in. The deficit cuts are minor compared to the $24 trillion national debt but hawks say it’s a start.
— The IRS
The Internal Revenue Service will get an influx of $80 billion over the next decade to expand its audit capability and upgrade technology systems after years of being underfunded.
The GOP was confident they had beaten back Biden’s tax and climate agenda and were stunned in late July when Schumer and Manchin announced a deal. While still the favorites to gain seats in the midterm elections, passage of the bill is a major setback for the GOP’s policy aims. It does, however, give them a new issue to campaign on in the fall campaigns.
— Pharmaceutical companies
The bill allows Medicare for the first time to negotiate with pharmaceutical companies on drug prices, a change that Congress has been discussing for decades with limited success, in part because of the drug lobby’s power. The pharmaceutical industry was able to score a partial victory after the Senate parliamentarian blocked a portion of the bill that would have capped price increases for drugs in the commercial market. Drug-makers will likely offset some of their reduced revenue from Medicare negotiations with higher prices for patients with private insurance.
— Tech companies
Technology companies are set to bear the brunt of the two major tax increases in the proposal — a 15% minimum tax on financial statement profits and a new levy on stock buybacks. Corporations like Alphabet Inc.’s Google and Meta Inc.’s Facebook have both been able to deftly use the tax code to cut down on the taxes they owe, while still being profitable. The minimum tax is designed to increase levies on companies that report large profits to shareholders, but can claim many deductions and credits to cut their IRS bills.
— The SALT caucus
The legislation does not include an expansion of the $10,000 cap on the state and local tax deduction, or SALT. The omission is a blow to residents of high-tax states in the Northeast and West Coast, and Reps. Josh Gottheimer of New Jersey and Tom Suozzi of New York, who led the effort to increase the size of the write-off.
— Bernie Sanders
The $437 billion in spending is a far cry from the $6 trillion that progressives, led by Sen. Bernie Sanders, envisioned at the start of Biden’s presidency. The bill excludes all proposals for new social programs, including child care, tuition-free college, housing spending and an expanded-child monthly child tax credit.
©2022 Bloomberg L.P. Visit bloomberg.com. Distributed by Tribune Content Agency, LLC.
By Jennifer Haberkorn, Los Angeles Times (TNS)
Senate Democrats on Sunday passed a sweeping health care, tax and climate change bill that will allow Medicare to negotiate prescription drug costs—a significant political win as the party tries to send a message before the midterm election that it is delivering on its promises.
The drug price plan is the centerpiece of the Democrats’ bill, the Inflation Reduction Act of 2022. The measure would also establish incentives to combat the climate crisis, impose new taxes on corporations and provide $4 billion for the Bureau of Reclamation to combat drought in the West—a last-minute addition.
The bill, approved via a fast-track legislative procedure that didn’t allow for a Republican filibuster, passed on a 50-50 vote, with Vice President Kamala Harris breaking the tie.
No Republicans supported the bill. It will now go before the House, where a vote is expected Friday.
Before passage, senators slogged through dozens of unsuccessful votes on amendments put forward mainly by Republicans to try to stop the bill or at least make it politically difficult for Democrats.
Republicans succeeded in killing one provision that violated Senate budget rules. It would have capped the price of insulin at $35 a month in the private insurance market.
President Joe Biden and congressional Democrats sorely need the legislative victory as they head toward the midterm elections, which traditionally favor the party out of power.
The package comes at the end of a remarkably productive sprint for the closely divided Senate. In recent weeks, the chamber has voted for a bipartisan gun bill, a boost for semiconductor manufacturing and aid for veterans exposed to toxic burn pits.
The Medicare drug negotiation policy—which Democrats have been pushing for nearly two decades—would mark a significant accomplishment that is likely to be popular with voters who are eager to go after drugmakers.
It amounts to the most substantial change in health care policy since the Affordable Care Act was passed in 2010. But it will initially have a limited impact on the pocketbooks of the nearly 64 million seniors in Medicare.
Negotiations between Medicare and drugmakers wouldn’t start until 2026, and would at first be limited to 10 drugs, adding more over time.
Sen. Bernie Sanders, I-Vt., a longtime proponent of Medicare price negotiations, called that portion of the bill “pretty weak.”
But Democrats rejected his amendment Sunday to strengthen the Medicare provisions.
Under the plan, Medicare will be able to negotiate over some of the most expensive drugs on the market, saving the federal government an estimated $288 billion over a decade, according to the nonpartisan Congressional Budget Office.
Likely targets for negotiations include Eliquis, an atrial fibrillation medication used by well over 2 million Medicare beneficiaries; the diabetes drug Januvia, the prostate cancer drug Xtandi; and the rheumatoid arthritis drug Orencia, according to industry players who are tracking the legislation. That list could change if pricier drugs enter the market in the next four years.
Chris Condeluci, founder of CC Law & Policy and a former staff member for Senate Finance Committee Republicans, predicted negotiations would not have a significant impact on the vast majority of Medicare beneficiaries, because most don’t use the most expensive drugs and are therefore unlikely to see direct savings.
“Unless your premiums go down, it doesn’t matter if Medicare is spending less” overall, he said.
But the bill would also cap Medicare beneficiaries’ out-of-pocket drug expenses at $2,000 per year, a policy that could help the approximately 1.4 million enrollees who hit that amount each year, according to the Kaiser Family Foundation.
Drugmakers generally like the out-of-pocket cap because the federal government will pick up the tab after patients spend the maximum.
The measure would also impose a cap on drugmakers’ price increases, though Democrats had to scale back the inflationary cap on Saturday when the nonpartisan Senate parliamentarian ruled that it didn’t adhere to Senate rules.
The inflationary cap isn’t a huge hit for the pharmaceutical industry because “companies have been self-policing,” said Ipsita Smolinski, a health policy adviser and managing director of Capitol Street, a research and consulting firm.
“They know they’d be on the front page of The Wall Street Journal or The New York Times if they obnoxiously price hike their products,” she said.
But drug manufacturers have strongly fought negotiating their prices with Medicare. Drugmakers and Republicans warn that allowing negotiations would stifle innovation of new drugs that pharmaceutical companies suspect would be affected. They also say the prospect of negotiations could prompt drugmakers to charge more when drugs first come on the market.
Medicare was barred from negotiating drug prices in 2003, with the establishment of the Medicare Part D drug program. The ban essentially allows pharmaceutical companies to set their own costs for Medicare, even though other government programs, such as Veterans Affairs, may negotiate for lower prices.
Drugmakers once had one of the most powerful lobbying groups in Washington, and still lead the pack in terms of spending to influence lawmakers. But their political power has waned in recent years amid high-profile price hikes, such as former Turing Pharmaceuticals Chief Executive Martin Shkreli’s decision to raise the price of one older drug by 5000%.
The legislation is a fraction of what Democrats had originally hoped to enact—a $3.5 trillion proposal that would have rewritten much of the nation’s social safety net, including home health care, child care and universal pre-K programs. That effort ended when Sen. Joe Manchin III, D-W.Va., said in December he would not go along with such an ambitious plan.
But after secret negotiations between Manchin and Senate Majority Leader Charles E. Schumer, D-N.Y., they resurrected portions of the bill last month.
The bill also seeks to address climate change. In an attempt to reduce emissions, it offers incentives for consumers to buy energy-efficient appliances and cars, and for manufacturers to make such products. According to Democrats, the climate policies would reduce emissions by roughly 40% by 2030.
About $9 billion would go to consumer home energy rebate programs. Lower- and middle-income people would be eligible for a $4,000 tax credit for buying a used clean car and up to $7,500 for buying a new one. Billions more would be spent to accelerate U.S. manufacturing of solar panels, electric vehicles and other clean products.
Finally, the bill would impose new taxes on wealthy corporations and their stock buyback programs—and would send new funding to the Internal Revenue Service, which the agency says it will use to crack down on wealthy tax cheats.
©2022 Los Angeles Times. Visit at latimes.com. Distributed by Tribune Content Agency, LLC.
Photo credit: Drew Angerer
Avalara Inc., a leading provider of tax compliance automation for businesses of all sizes, today announced it has entered into a definitive agreement to be acquired by Vista Equity Partners, a leading global investment firm focused exclusively on enterprise software, data, and technology-enabled businesses, in partnership with institutional co-investors.
Under the terms of the agreement, Vista will acquire all outstanding shares of Avalara common stock for $93.50 per share in an all-cash transaction valued at $8.4 billion, inclusive of Avalara’s net debt. The per share purchase price represents a premium of 27 percent over the Company’s closing share price as of July 6, 2022, the last trading day prior to media reports regarding a potential transaction.
Founded in 2004, Avalara’s success is built up on an extensive partner network; large tax content data and repository to help customers stay up to date on dynamic tax rules and regulations; and its cloud-native, end-to-end multi-product tax compliance portfolio. In partnering with Vista, Avalara will look to build on its successful platform by refining its go-to-market strategy, expanding its international workforce, streamlining its systems architecture, and continuing to pursue value-accretive M&A opportunities.
“For nearly two decades, Avalara has ambitiously pursued its vision to automate global compliance, making tax less taxing for businesses and governments around the world. As a leader in this category, we believe our continued investment in innovation and experience is exciting for our customers, partners, and employees. We are pleased to partner with Vista and will benefit from their expertise in enterprise software as we build and improve upon our cloud compliance platform,” said Scott McFarlane, co-founder and CEO of Avalara.
“Vista has built a reputation as a preferred partner for founder-led, next-generation software companies,” said Monti Saroya, co-head of Vista’s Flagship Fund and senior managing director. “We look forward to working with Scott and the entire Avalara team to advance their vision and continue delivering innovative solutions to customers.”
“Avalara is a mission-critical platform serving customers in a variety of end-markets, including retail, manufacturing, hospitality, and software,” said Adrian Alonso, managing director at Vista. “Avalara’s solutions, its commitment to product innovation, and its network of extensive partner integrations, resellers, and accountants make it a true leader in the space.”
The transaction, which was unanimously approved by the Avalara Board of Directors, is expected to close in the second half of 2022, subject to customary closing conditions, including approval by Avalara shareholders and receipt of regulatory approval. Closing of the transaction is not subject to a financing condition.
Upon completion of the transaction, Avalara’s shares will no longer trade on the New York Stock Exchange, and Avalara will become a private company. The company will continue to operate under the Avalara name and brand.
Goldman Sachs & Co. LLC is serving as exclusive financial advisor to Avalara, and Simpson Thacher & Bartlett LLP and Perkins Coie LLP are acting as legal counsel.
Kirkland & Ellis LLP is acting as legal counsel for Vista.
By Katharine Gemmell, Bloomberg News (TNS)
PricewaterhouseCoopers LLP was fined £1.75 million ($2.1 million) by the UK’s audit watchdog over failings in a 2017 audit of BT Group Plc, which was hit by a massive fraud at its Italian unit.
The Financial Reporting Council also handed partner Richard Hughes a £42,000 penalty for his role on the audit. The fines were reduced by the regulator after admissions and “early disposal.”
Both PwC and Hughes admitted the breaches which were “made following the identification of a fraud in its Italian operations in 2016,” the FRC said in a statement Monday.
The scale of the BT Italy scandal was such that in its 2017 financial statements BT disclosed adjustments of approximately £513 million. The company said at the time it was duped by a sophisticated deception orchestrated by a few employees and missed by its long-time accountant PricewaterhouseCoopers.
The sanctions in the case “will serve as a timely reminder to the profession,” Claudia Mortimore, deputy executive counsel at the FRC, said.
“We are sorry that aspects of this audit were not of the required standard,” a spokesperson from PwC said. “The FRC’s finding relates to a narrow element of the audit.”
PwC was also fined almost £5 million pounds in June for a series of poor audits of two UK construction companies, as the regulator continues to crack down on audit failings by the Big Four.
The UK is bringing in sweeping audit reforms aimed at reining in the dominance of the largest accountancy firms and cleaning up the industry following a string of high-profile scandals.
©2022 Bloomberg L.P. Visit bloomberg.com. Distributed by Tribune Content Agency, LLC.
There’s one type of tax-qualified retirement plan designed especially for self-employed individuals. The Keogh plan—named for the Congressman who spearheaded the legislation approving the plan—isn’t the hot commodity it was back in the day. But this is still a viable option for sole proprietors to consider.
Compare the benefits of a Keogh plan to other alternatives like SIMPLEs, SEPs and solo 401(k) plans.
Background: You can adopt either a defined contribution Keogh plan or a defined benefit Keogh plan. As you might expect, the rules for these variations generally mirror those of traditional defined contribution and defined benefit plans, including annual limits on contributions. Let’s take a closer look.
- Defined contribution Keogh: You have plenty of leeway. The maximum contribution for 2022 is equal to the lesser of $61,000 or 20% of earned income (more on this later).
- Defined benefit Keogh: The plan may provide an annual retirement benefit, based on actuarial computations, up to the lesser of 100% of earned income for the three highest-paid years or a specific dollar amount adjusted for inflation. The dollar limit for 2022 is $245,000.
However, watch out for a couple of tax twists. When you compute “earned income” for this purpose, your earnings from self-employment must be reduced by your contributions and one-half of the self- employment tax paid. In addition, the maximum amount of compensation taken into account can’t exceed an indexed annual amount. It’s $305,000 in 2022.
That’s the hard part. Otherwise, most of the other rules for qualified retirement plans are extended to Keogh plans. For example, early withdrawals made prior to age 59½ are hit with a 10% tax penalty on top of regular income tax, unless one of several special exceptions applies. Similarly, you must begin taking required minimum distributions (RMDs) in the year after the year in which you attain age 72 (recently increased from age 70½).
Suppose you have other employees on your staff. In that case, you’re required to cover them under the Keogh plan in the same percentage proportion as you do for yourself. Accordingly, the actual dollars allocated to yourself can exceed the amounts contributed for other staff members. This may appeal to you as opposed to some other qualified plans like a SIMPLE or a SEP.
Also, if a Keogh plan is found to be “top-heavy,” certain minimum contributions must be made for employees. A plan is considered top-heavy if more than 60% of contributions or benefits go to key employees. These rules are complex, so consult your professional tax advisors for more details.
Last point: The deadline for contributions to a Keogh plan for 2022 is your tax return due date, plus extensions, as long as the plan is set up before January 1, 2023. This provides a unique year planning opportunity for self-employed individuals. Do your due diligence if a Keogh makes sense for you.
A Top Technology Initiative Article.
As discussed in last month’s column, the opportunity to connect with many of you at live conferences this year was valuable and insightful. It made me think about your firm’s strategy and technology stacks. While I could have done without the gift of COVID (the gift that keeps on giving), the downtime was valuable.
I could reflect on your sincere questions that were looking for independent guidance. Your questions have reminded me that many of the problems you are trying to solve now are like the problems of the past. And one of the most significant issues is that you can’t find vendors or products that meet your expectations or your fundamental needs. One of my favorite clients is looking for a stack of solutions that will meet the needs of a tax and accounting practice.
Another is looking for solutions for a tax and advisory practice. A new client wanted to discuss the needs of a tax and growing CAS (Client Accounting Services) practice. Consulting engagements have been in larger firms that needed guidance on Tax, Audit, and growing CAS practices. When economic pressures mount, businesses, including CPA firms, look for a better, more profitable, and more efficient & effective way to deliver products and services.
My latest wake-up call hit during the Independence Day weekend. After setting up to play in our town’s parade with the Hutchinson Municipal Band, we were sitting in the sun waiting for the parade to start, and I watched families and groups of all kinds organize at the start of the parade. While we rehearsed our patriotic numbers to play in the parade, I had enjoyed playing traditional favorites.
Then, I started thinking about other favorite songs. Oddly, a 1983 song from the Eurythmics became an earworm. “Sweet dreams are made of this, Who am I to disagree? I travel the world And the seven seas, Everybody’s looking for something.” And then I realized that each of you is looking for your “something.” Some of you have found it, but many have not. Some of us have become very professional at helping clients and managing our practices, and some have not.
A few of you have focused on the client experience, and most have not. Some of you have learned how to manage a practice effectively, enjoy business development, understand business operations management, or manage personnel well, but many have not. We have been watching the fundamentals of business being lost by your clients. Have you lost sight of the fundamentals, too?
What are Fundamentals?
What do I mean by the fundamentals? Try a few of these on for size. For example, hiring and terminating the right people, truly providing excellent client service, managing day-to-day costs for profitability, getting processes (workflow) right to optimize operations, spending the time on personal relationships inside your firm and with your clients, staying informed on regulatory & technical changes, and innovating your delivery models to minimize wasted effort.
It is easy to get caught up doing things the same way, but life and business are changing all around us. So while we can continue doing the same thing, and you’ll likely get better at it, your comfort level will eventually lull you into performing below your optimum level.
A few famous sports stars understood the value of fundamentals. For example, Larry Bird of basketball fame said, “I wasn’t real quick, and I wasn’t real strong. Some guys will just take off, and it’s like, whoa. So I beat them with my mind and my fundamentals.” Michael Jordon said, “Get the fundamentals down, and the level of everything you do will rise.” Vince Lombardi noted, “Excellence is achieved by the mastery of the fundamentals.”
Earl Weaver, coach of the Baltimore Orioles, stated that “the key to winning baseball games is pitching, fundamentals, and three run homers.” Certainly, skill combined with luck doesn’t hurt, but do you note how many successful athletes understand the importance of fundamentals? Fundamentals help us plan our next move. Two of my favorite golf quotes are from Arnold Palmer “Golf is a game of inches. The most important are the six inches between your ears,” and from Ben Hogan, “the most important shot in golf is the next one.” What is your next shot?
Do you have your firm fundamentals right?
It has become apparent (again) to me that you must think about the fundamentals you want for your clients, your team, and your firm in every functional area, from tax to audit to practice management to Client Accounting Services (CAS) to Advisory.
- What does it take to prepare and deliver tax returns effectively?
- What should the end-to-end experience be for your clients and your firm? Can you describe it?
- Have you got a workflow diagram that shows the process?
- Have you reviewed your tools and technology stack?
- Are there better options in the market?
- Where are you wasting time?
- What are the bottlenecks when you are in the thick of tax season?
- What are recurring issues that you can address?
This year I’ve had many discussions about end-to-end tax workflow. Automating and enabling business development, engagement letters, PBC requests, organizer completion, business trial balances, 1040 workpapers, tax preparation software, review, assembly, delivery, and payment (plus more like extensions and estimates) are steps that all tax practices take. How can you make the steps easier and faster while maintaining quality and accuracy? Are there processes and tools that can help? Yes!
Likewise, for practice management, there are steps that firms have in common. Typical issues include engagement/project progress, due date monitoring, scheduling, time tracking for cost or billing purposes, reporting, profitability, expense management, workflow, document management, eSignature, portals, business development, CPE Tracking, and many more issues are everyday needs. Are there processes and tools that can help? Yes!
By the way, we’ve seen the same thing in audit, CAS, Advisory, wealth management, litigation support, and every other niche offering we have reviewed. Are there processes and tools that can help? Yes!
We’ve found in each practice area that we have reviewed that there are similar needs among firms with no solution able to satisfy everyone’s needs. And what continues to happen is that you are looking for solutions, perhaps an ideal solution, and there is so much inaccurate market noise that it is hard to pick a viable, long-term solution. There is no “silver bullet” to solve the problems, but you can improve the situation.
Brian Tankersley and I are pleased to produce our weekly podcast, The Technology Lab, to cover the numerous available tools. But point solutions, sometimes called best-of-breed, must be integrated into a larger framework or technology stack. It also became obvious (again) this past month that it was time to revise our stack recommendations. While Brian and I have helped many organizations develop their stack offerings, it has become clear that several approaches offered by organizations and consultants are long in the tooth. While they were fine in 2000 or 2010, they don’t fit the 2020s very well. And this realization was a great reminder that innovation must continue, but we must get the fundamentals right.
So, What Do I Do Now?
As I’ve pointed out in prior articles, the teams at Liscio and Suralink have repeatedly taught me about this client experience thinking. Your technology stack (= choices of tools) PLUS workflow procedures make all the difference in everyone’s experience. And as I noted in last month’s column and above, there does not seem to be a magic solution that works for every firm. While there are many good products in the market, you must look for tools and products that fit your firm’s fundamental needs. You don’t want to overbuy or underbuy the capabilities needed.
We will continue to share our evolving understanding of solutions, stacks, and best practices for CPA firms in this column, in our podcasts, and at every CPE event where we speak. Striving for the best client experience, team experience, and firm experience with quality is a fundamental we always try to get right.
The summer is an excellent time to reflect on Ecclesiastes 3:1-8 “For everything there is a season, and a time for every purpose under heaven…” The season is right to return to the fundamentals. Now is “a time to seek, and a time to lose; a time to keep, and a time to cast away.” What is best to keep in your practice, and what needs to go away? For many firms, getting the fundamentals right will help you pick the right platforms, products, and tools to serve your clients best.
Randy Johnston and Brian Tankersley, CPA.CITP, CGMA review OnceAccounting a single hub for accounting firms to manage all of their clients’ books, even on different systems.
Click here to listen to the podcast.
By now, your firm is likely feeling the effects of the Great Resignation (or the Great Reshuffle). Many baby boomers are retiring, and millennials and Gen Zers are looking for jobs with more flexibility and work/life balance. While every industry is being impacted, the accounting profession faces a dire talent shortage when the need for solid talent is steadily increasing.
Increasing compensation, focusing on employee well-being, and filling gaps with outsourcing and automation are strategies for overcoming the talent shortage. But have you considered how inefficient processes are impacting your talent?
Let’s look at nine wasteful activities your firm needs to address to improve your odds of attracting and retaining top talent.
Defects include mistakes like transposing numbers, entering incorrect information or not following procedures and quality guidelines. When people enter the wrong information and get the wrong product back, it takes a morale toll.
Using technology to auto-populate trial balances, financial statements, tax returns and other elements of client engagements reduces such errors.
Overproduction happens when people do more work than necessary. Examples include spending significant time on tax returns that will be extended anyway or prioritizing the wrong projects.
Overproduction usually leads to people picking up and putting down work repeatedly, duplication of efforts and frustration.
Waiting is any non-value-added time during which your team members aren’t performing value-added productive work. This could involve waiting on client information or waiting on reviewers.
When people must stop work to wait on a client or things sent to reviewers take forever to come back, people have to waste time relearning or researching where they were when they last worked on the project.
This might take a tiny amount of time on an individual project level, but it wastes a lot of time collectively.
Not utilizing people’s talents
We waste resources when higher-skilled people perform lower-skilled work. This might happen due to poor training, hoarding work or not leveraging technology.
Whatever the root causes, you’ll struggle to retain talent when people want to grow but are forced to do the same low-level tasks repeatedly.
Transporting is waste from passing around paper files and information from person to person instead of utilizing technology to automate workflows and share information.
It’s 2022—new college graduates don’t want to step back in time 20 years to deal with piles of paperwork when they start a new job. That misalignment with everyday life will send them to competitors who invest in modern tech.
Inventory sounds like terminology for the retail industry, but it also applies to a firm’s client engagements. Work-in-process and backlogs in email inboxes create bottlenecks and make it tough to get client engagements across the finish line.
Being pulled in a dozen different directions and dealing with competing priorities due to misalignment at the partner and manager level on what needs to be done and when creates stale inventory. This also negatively impacts the firm because that’s how we get paid.
Motion is the result of going on scavenger hunts for information. People waste time and effort searching through poorly named digital files or digging through poorly organized or overfilled physical files.
All of this leads to wasted time people could spend doing the work instead of searching.
Excess processing is doing more work than the client values or is willing to pay for. Examples include over-auditing or navigating multiple personal preferences of partners.
Spending time managing how people do the work takes a toll because it puts undue pressure on team members to keep it straight and compounds waste.
Negative attitudes, poor morale and refusal to follow firm processes impede progress. If the prevailing mindset across the firm, especially amongst leadership, is “this is how we’ve always done it,” you won’t be able to keep people.
People aren’t interested in being in a firm where they aren’t growing, so you need to cultivate a growth mindset.
Do any of these wasteful activities sound familiar? If so, they’re a big part of why your firm is having trouble attracting and retaining talent. Each of these wasteful activities has a people impact, so solve your process issues and you’ll be well on the way to solving your people issues.
Is your firm ready to stop wasting time on inconsistent and bloated processes?
One doesn’t have to be the loneliest number anymore. For years, sole proprietors weren’t able to choose from as wide a range of retirement plan options as bigger operations could. Or, in the case of a 401(k) plan, the administrative costs would outweigh the potential benefits in the business owner’s eyes.
But the landscape has changed dramatically over time. Currently, you have a myriad of choices at your disposal, including setting up and maintaining a “solo 401(k)” for you—and just you alone—at a reasonable cost.
Basic premise: A solo 401(k) plan works pretty much like a traditional 401(k). For starters, you can elect to defer part of your salary to your account within generous annual limits. For 2022, the maximum deferral is generally $20,500, plus you can tack on a catch-up contribution of up to $6,500 if you’re age 50 or over, for a grand total of $27,000.
This money contributed to the plan is then invested and can grow and compound within your account on a tax-deferred basis.
But there’s more: A business owner may add matching contributions as the employer up to the current tax law limits for defined contribution plans. The total deductible contributions for 2022 can’t exceed the lesser of 25% of compensation or $61,000, increased to $67,500 if you’re age 50 or over. The maximum compensation taken into account for these purposes in 2022 is $305,000.
This unique combination enables you build up a nest egg retirement even if you are getting a late start.
Note that a self-employed individual must make a special computation to find the maximum amount of elective deferrals and nonelective contributions. In figuring the contribution, your compensation is your “earned income.” This is defined as net earnings from self-employment after deducting one-half of your self-employment tax and contributions for yourself. Rely on your professional advisors for guidance.
Of course, strict testing requirements can be a headache for traditional 401(k) plans, but it is usually less of a hassle for solo plans. Notably, a business owner with no other employees doesn’t need to perform any nondiscrimination testing for the plan. Reason: There are no employees who might be receiving disproportionately high benefits.
Typically, a solo 401(k) plan may offer other advantages, such as the ability to borrow from your account or to take hardship withdrawals under extenuating circumstances. If you’ve worked somewhere else and built up savings in a 401(k) or other qualified retirement plan, you can generally roll over those funds tax-free into your solo 401(k). And contributions to the plan are discretionary, so you have more leeway in a year in which the business is struggling.
Finally, be aware you can use a Roth version of a solo 401(k). With this setup, you contribute after-tax proceeds to your account but you’ve secured the ability to take tax-free payouts in the future. Otherwise, distributions from a solo 401(k) plan are subject to ordinary income and the 10% penalty for early withdrawals, the same as a regular 401(k).
The choice is yours: Consider all the possibilities.