Family Business Considerations

Family businesses that manage to survive generation after generation leave not only a family legacy, but also the potential for tremendous wealth. For example, Arkansas-based Walmart is presently the largest business in the world in terms of revenue, earning more than $485 billion in 2017. In 1992, founder Sam Walton passed away and left his retail empire in the hands of seven heirs.1

Presently, the Walton family business outranks the wealth of the Koch Industries energy group, which is the second-largest privately owned company. Next in line in terms of individual wealth of business founders are Jeff Bezos (Amazon), Bill Gates (Microsoft) and Warren Buffett (Berkshire Hathaway).2

These are just samples of the scope of wealth an entrepreneur can amass. However, most small business owners do well just to keep their heads above water. For those who would like to pass their business on to family members, there are basic business management strategies to keep in mind.3 If we can help you develop an insurance strategy to help protect your business, your key executive staff or your legacy, please give us a call.

On a day-to-day basis, successful family-owned entities generally follow some well-honed principles to keep family politics out of the business. For example, the patriarch and his four daughters who run the six-generation family-owned business D.G. Yuengling & Son Inc. have many varying opinions. To keep the business humming, they agree that it’s OK to disagree: “Diversity of opinion is what keeps family businesses strong and spurs collaboration.”4

It’s also a good idea to keep family and business separate. This means scheduling regular, in-office staff meetings so that family dinners can focus on just that — family. It’s important, too, that everyone has distinct roles and responsibilities. It’s difficult enough when duties overlap among workers, but in a family business this can lead to an all-out sibling brawl. When jobs and job titles are doled out to family members based on their natural strengths and interests, each employee can take ownership and be held accountable, as well as enjoy the pride and satisfaction for their individual contributions.5

For some families, entering the family business may take time. Even beyond a formal education, it may be important to first seek non-family job experience before “boomeranging” back to the fold. This scenario worked well for the three generations that run Cleaver Farm and Home — a building-supply distributor in Kansas. The business has managed to expand as each generation of family members took charge. For the current generation of brothers, launching their own career paths allowed them to return to their family roots and give their own children the sort of childhood they enjoyed.6

Bear in mind, too, that younger generations can bring new skill sets to the family business.

For example, a 17-year-old prodigy whose family has owned a metalworking company since the late Middle Ages has introduced technology to the fold. Anton Klingspor added exponential growth in his family’s business through various technological tools like LinkedIn Lead Builder and Facebook Workplace to improve team collaboration and communication.7

As a business grows larger and more complex, the family may need to look outside the fold for specific skills and experience. It’s important to engage knowledgeable professionals and establish formal business and family governance systems to help manage risks and enjoy a more sustainable foundation for future success.8

Content prepared by Kara Stefan Communications.

1 Lianna Brinded. Quartz. May 14, 2018. “The richest family in the world beat the Koch brothers, Bezos, Gates, and Buffett.” https://qz.com/1276872/the-richest-people-in-the-world-walton-family-koch-brothers-bill-gates-jeff-bezos-warren-buffett/. Accessed May 28, 2018.

2 Ibid.

Hilary Sheinbaum. Forbes. April 30, 2018. “How The 4 Yuengling Sisters Manage The Family Business.” https://www.forbes.com/sites/hilarysheinbaum/2018/04/30/how-4-sisters-manage-the-family-business-and-still-get-along-and-you-can-too/#198c9d0262ca. Accessed May 28, 2018.

4 Ibid.

5 Amy George. Inc. Jan. 17, 2018. “How to Build a Family Business That Lasts for Generations, According to Bravo TV Star Tabatha Coffey.” https://www.inc.com/amy-george/how-to-build-a-family-business-that-lasts-for-generations-according-to-bravo-tv-star-tabatha-coffey.html. Accessed May 28, 2018.

6 Raney Rapp. Farm Talk. May 15, 2018. “Cleaver Farm and Home celebrates three generations of family business.” http://www.farmtalknewspaper.com/news/cleaver-farm-and-home-celebrates-three-generations-of-family-business/article_7796c170-584b-11e8-8ed6-27bc3ee8f20b.html. Accessed May 28, 2018.

7 John White. Inc. Sept. 7, 2017. “How This 17-Year-Old Used an Entrepreneurial Mindset to Grow His Family Business to $300-Million.” https://www.inc.com/john-white/lessons-from-a-gen-zer-on-how-to-grow-a-200-year-o.html. Accessed May 28, 2018.

8 Marleen Dielemen. Forbes. May 25, 2018. “4 Types Of Family Businesses You’ll See In Asia And How To Govern Each Effectively.” https://www.forbes.com/sites/nusbusinessschool/2018/05/25/4-types-of-family-businesses-youll-see-in-asia-and-how-to-govern-each-effectively/#5147434e659f. Accessed May 28, 2018.

Guarantees and protections provided by insurance products are backed by the financial strength and claims-paying ability of the issuing insurer.

 We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference. 

Various Types of “Economies”

As recently as five years ago, few people had heard of emerging businesses like Airbnb and Uber that allow proprietors to share their personal residences and cars to generate income. This business model is now commonly referred to as the “sharing economy.” 1

However, just as capitalism morphs, so does the concept of sharing. For example, some Uber drivers actually lease an upscale car to charge higher fares that compete with luxury driving services.2

The Great Recession played a hand in encouraging unemployed workers to find innovative sources of income when jobs were scarce, and the sharing economy has been seen as influential in our overall economy’s recovery. It’s worth considering how we can better prepare ourselves for potential economic declines via job innovation, vigilant savings habits and protecting a portion of our retirement assets through guaranteed insurance products. If you’d like help devising a strategy using a variety of insurance products to help you work toward your long-term retirement income goals, please call us to schedule a meeting.

In addition to the sharing economy, today’s world is home to a wide array of economic varieties, including:

Sharing Economy

As mentioned, this model focuses on sharing or renting under-utilized assets. One of the primary concerns with this model is trusting others to take care of your personal assets. Some proprietors require an upfront deposit to help defray the cost of breakage or stolen goods. Insurance companies also have gotten into this business by developing policies for reimbursement.3

On-Demand Economy

This model focuses on providing goods and services on an as-needed basis. For example, in situations where a short-term rental is cheaper than buying — such as owning a car in a large metropolitan city — it can be more cost effective and convenient to use Uber transportation rather than own a car. This is true in expensive cities including New York City, Chicago, Los Angeles, and others, particularly when including expenses like gas and insurance. 4

Peer Economy

This economic model is based on the creation of products, delivery of services, funding and more by peer-to-peer (P2P) networks. These peer-lending platforms can help bolster economic progress, particularly in a rising interest-rate environment. For example, a small business seeking capital may be able to use an online P2P lending platform that matches borrowers to lenders. This can help a business owner acquire a less expensive loan more quickly than through a traditional financial institution.5

Crowd Economy

The crowd economy enlists the larger population or a subset to generate funding, information, resources and more. This particularly interesting phenomenon has infinite applications. For example, the city of Akron, Ohio, is providing CPR training to the general public in hopes that crowd-sourcing certain emergency service skills will lead to more victims getting immediate help until paramedics arrive.6 Crowd-sourcing also is a good way to find undiscovered talent. Instead of hiring an advertising agency to produce promotional artwork for an annual film festival, the organizers may hold an open competition for the public, tapping local artists whose talent may otherwise go unnoticed.7

Statistics indicate that the sharing economy and its various iterations are producing big revenues. A recent U.S. study found that on-demand workers generated more than $110 billion in the 15 largest metropolitan areas, including New York City, Los Angeles, Miami, Chicago, San Francisco and Washington, D.C.8

Content prepared by Kara Stefan Communications.

1 April Rinne. World Economic Forum. Dec. 13, 2017. “What exactly is the sharing economy?” https://www.weforum.org/agenda/2017/12/when-is-sharing-not-really-sharing/. Accessed June 2, 2018.

Ibid.

Matthew Wall. BBC News. June 1, 2018. “’I bought my mum a flat just by renting out my camera kit.’” https://www.bbc.com/news/business-44301183. Accessed June 2, 2018.

4 Megan Rose Dickey. TechCrunch.com. May 30, 2018. “Here’s where it’s cheaper to take an Uber than to own a car.” https://techcrunch.com/2018/05/30/heres-where-its-cheaper-to-take-an-uber-than-to-own-a-car/. Accessed June 2, 2018.

5 Craig Asano and Michael King. The Globe and Mail. May 30, 2018. “Peer-to-peer lending will help small businesses stay afloat.” https://www.theglobeandmail.com/business/commentary/article-peer-to-peer-lending-will-help-small-businesses-stay-afloat/. Accessed June 2, 2018.

6 Doug Livingston. Akron Beacon Journal. May 31, 2018. “Akron is ‘crowd-sourcing’ CPR.” https://www.ohio.com/akron/news/akron-is-crowd-sourcing-cpr. Accessed June 2, 2018.

7 Michael Beiermeister. WBKB11.com. June 1, 2018. “Thunder Bay Film Society Crowdsourcing Cover Art for 2018 Sunrise 45 Film Festival.” http://www.wbkb11.com/thunder-bay-film-society-crowdsourcing-cover-art-for-2018-sunrise-45-film-festival. Accessed June 2, 2018.

8 Benjamin Mann. JD Supra. May 24, 2018. “The Gigs Get Bigger: Recent Data Shows the On-Demand Economy is Growing Into New Areas.” https://www.jdsupra.com/legalnews/the-gigs-get-bigger-recent-data-shows-85361/. Accessed June 2, 2018.

Guarantees and protections provided by insurance products including annuities are backed by the financial strength and claims-paying ability of the issuing insurer.

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

Vanishing Deductions

Money-Saving Tips

Beginning with the 2019 tax season, filing income-tax returns will no longer be “business as usual.” Some people may be happy to see their 2018 tax return streamlined and receive a higher refund to boot. However, others may lament lost deductions that had previously helped reduce their tax liability.1

The good news is that the standardized deduction will nearly double. Individual filers will receive a $12,000 deduction while married couples will get $24,000. However, in exchange for the simplicity, many itemized deductions will go away. The following are some of the more common ones.2

  • Dependent exemption — Taxpayers will no longer be able to subtract $4,050 from their taxable income for each dependent they claim. The newly doubled $2,000 child credit may help offset the loss of that deduction for some, but not for those whose children are in college.
  • SALT — Deductions for state and local taxes (SALT) will be capped at $10,000. This will mostly affect those who live in areas with high property tax areas, such as in South Florida, New York and
  • Mortgage interest deduction — Deductible interest will be capped for new mortgages valued at $750,000, down from $1 million.
  • Miscellaneous itemized deductions — Expenses such as unreimbursed employee-education expenses, tax-preparation services, investment fees and professional dues, among others, are no longer deductible.
  • Moving expenses — This deduction is completely eliminated for everyone except members of the armed forces.
  • Natural disasters — In the past, expenses not reimbursed by insurance or other relief programs could be deducted on your tax return. Now this deduction is available only to taxpayers in a presidentially designated disaster zone, typically made on a county-by-county basis.
  • Alimony — These payments are no longer deductible from federal taxes for any divorce that is executed after Dec. 31, 2018. However, there is no change in the tax treatment of alimony payments for divorces finalized before 2019.3

The content provided in this newsletter is designed to provide general information on the subjects covered. Neither our firm nor its agents or representatives may give tax advice. Be sure to speak with a qualified professional about your unique situation.

1 Maryalene LaPonsie. US News & World Report. Feb. 9, 2018. “10 Tax Deductions That Will Disappear Next Year.” https://money.usnews.com/money/personal-finance/taxes/articles/2018-02-09/10-tax-deductions-that-will-disappear-next-year. Accessed May 29, 2018.

Ibid.

3 Bill Bischoff. Marketwatch. Jan. 26, 2018. “New tax law eliminates alimony deductions — but not for everybody.” https://www.marketwatch.com/story/new-tax-law-eliminates-alimony-deductions-but-not-for-everybody-2018-01-23. Accessed May 29, 2018.

Deducting Home-Loan Interest

Planning Tip

The new tax law still allows a deduction for interest on a home equity loan, line of credit or second mortgage as long as the loan is used to buy, build or substantially improve the taxpayer’s primary or second home. Specifically, the interest is deductible only if the loan meets all three of the following criteria:1

  • The debt is secured by the underlying residence
  • The total of the refinanced debt is not greater than the cost of the residence
  • The proceeds are used to improve or expand the residence

However, the applicable loan is subject to a new $750,000 debt limit ($375,000 for a married taxpayer filing a separate return). This limit applies to the combined total of loans used to buy, build or improve the taxpayer’s main home and second home. If you have an existing home equity loan that does not qualify under these three criteria, the interest may no longer be deducted.2

 The content provided in this newsletter is designed to provide general information on the subjects covered. Neither our firm nor its agents or representatives may give tax advice. Be sure to speak with a qualified professional about your unique situation.

 1 IRS. Feb. 21, 2018. “Interest on Home Equity Loans Often Still Deductible Under New Law.” https://www.irs.gov/newsroom/interest-on-home-equity-loans-often-still-deductible-under-new-law. Accessed May 29, 2018.

2 Ibid.  

Content prepared by Kara Stefan Communications.

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

Filing Your 2018 Tax Return

Next year, taxes must be filed on or before April 15, 2019. For the last few years, that iconic date was extended because it fell on a legal holiday or a weekend, but it lands on a Monday in 2019.1 While there’s been significant debate regarding how the new tax law will affect Americans across the income scale, we should then have a better idea of how we may be personally impacted by the changes.

Highlights of the new tax law include:2

  • Lower individual tax rates
  • Increased standard deduction ($12,000 single; $24,000 married filing jointly)
  • Increased child tax credit ($2,000)
  • Elimination of dependent and personal exemptions
  • Elimination of some itemized deductions
  • $10,000 cap on the combined deduction for state income taxes, sales and local taxes, and property taxes
  • 20 percent deduction for “pass-through” entities (e.g., sole proprietorship, partnership, S corps)

In light of these changes, it’s a good idea to conduct a midyear review to see if there are ways to take advantage of the new changes or discover any potentially negative situations. If you’re not sure how you might be affected, consult with a tax professional. It may be worth reviewing your 2017 return to consider what new rules may affect your unique situation.

The content provided in this newsletter is designed to provide general information on the subjects covered. Neither our firm nor its agents or representatives may give tax advice. Be sure to speak with a qualified professional about your unique situation.

1 TimeAndDate.com. April 24, 2018. “Tax Day in the United States.” https://www.timeanddate.com/holidays/us/tax-day. Accessed May 29, 2018.

2 TurboTax. April 24, 2018. “How Will Tax Reform Affect My Refund Next Year?” https://blog.turbotax.intuit.com/tax-reform/how-will-tax-reform-affect-my-refund-next-year-33055/. Accessed May 29, 2018.