April 25, 2014

On April 3rd, Letterman broadcast his plans to retire from the show he created. CBS announced just one week later that Colbert, host of the Comedy Central show “The Colbert Report,” would be Letterman’s replacement. While Letterman won’t actually be leaving until next year, the speed and decisiveness of the transition to the public eye was no funny business. With Colbert quickly given the nod, the network has avoided a prolonged period of speculation for fans, endless scrutiny from Hollywood news outlets, and possible in-fighting among internal candidates and stakeholders.

Was it a surprise to executives that Letterman would retire one day? It shouldn’t have been. Yet networks and other businesses are often ill-prepared for similar contingency plans-whether an exit arises from retirement, illness, burnout, or simply the desire to move on to other projects.

Microsoft would have benefited from CBS’s approach when its former CEO Steve Ballmer stepped down. Instead, the corporate giant took months to announce Satya Nadella as successor, jeopardizing shareholder confidence, employee productivity and company profits.

Particularly for entrepreneurs, it’s all too easy to buy into the myth of being irreplaceable. While no one would suggest Letterman’s comedic style could be duplicated, the show is still preparing to go on, albeit in different form. If you don’t believe it can work, consider that “The Tonight Show”is enjoying a 60-year legacy despite former one-of-a-kind hosts Johnny Carson and Jay Leno.

Best known for playing a satirical political character, Colbert acknowledged his takeover of “The Late Show” by jesting, “I do not envy who they try to put in that chair,” because “Those are some really big shoes to fill-and some really big pants.”

We bet your shoes are just as big. Still, it’s important to consider how in your absence they might be filled, used or bought. The same goes for active partners and key employees. Starting the planning process years ahead will ensure you get the most from all you’ve invested into your company and that it continues to have a profitable future.

For a top 10 list of the best succession-planning steps to take, send us a message here. 

April 4, 2014

With only days left to file before the April 15th deadline, a lot of taxpayers are wondering whether they’ll be audited. The 2013 Data Book issued by the IRS is just the place to find the odds, which not surprisingly, go up as your income or business’s balance sheets do. This year’s report shows 1.0% of all individual returns were audited, but for those with income between $200k and $1 million that number grew to 1.4% and then jumped to 10.8% for income of $1 million or more. Approximately 1.4% of corporate returns were audited overall, but the rate ticked upward fast according to balance sheets, hitting up to 91.2% for corporations with $20 billion or more.

The IRS acknowledged in the report that ongoing budget constraints contributed to a 5% decline in audits between FY 2013 and 2012. Approximately 1.4 million individuals were audited, the lowest number since FY 2008. That’s good news for filers, right? Not necessarily. Here are three trends we’re seeing based on our experience representing hundreds of taxpayers and businesses:

Auditors’ Ability to Understand Complicated Tax Issues is Compromised –   Taxpayers aren’t the only ones challenged with navigating the 4,838 changes in tax code since 2001; its enforcers are, too. Do more with less, a mantra entrepreneurs of growing companies understand well, is one IRS auditors are also coming to terms with as a result of budget constraints.

Quality of Documentation Matters More Than Ever – Whether this is the IRS’ attempt to improve audit efficiency or reduce errors, we can’t know for sure. But the impression we’re getting is that auditors are adhering closely to a checklist of requirements, whether that list includes items actually required by regulations or not.

Auditors Don’t Always Understand How a Business Operates – We’ve seen auditors object to businesses with more than one landline and even deny deductions for businesses that reimburse salespeople for taking clients to lunch. What seems universal to us still needs to be defended to the IRS.

If you do get a notice of an examination, you don’t have to go it alone. Talley and Company’s tax and legal professionals can guide you through the process. We can submit requested documentation per an auditor’s preferred format, advocate for legitimate deductions taken by businesses in your specific industry, and go toe to toe with auditors through every inch of the tax code. Just remember that if the IRS comes calling you, you can call us.

March 17, 2014

Since January 1, when Colorado’s marketplace for the legal sale of recreational marijuana first opened, all eyes have been on the state to see what consequences unfold. Already, early estimates are showing tax revenues from pot sales to be far exceeding expectations-from the $70 million provided to voters to $98 million recently predicted by Colorado governor John Hickenlooper for the next fiscal year. 

Until recently, processing money from marijuana sales put federally insured banks at risk of drug racketeering charges. But just weeks ago, the Obama administration gave the “ok” for banks to lend to pot sellers, at least with a complicated list of due diligence requirements and over 20 red flags that must be reported to ensure business legitimacy and compliance with federal law. FinCEN, the Treasury Department’s Financial Crimes Enforcement Network, has a vested interest in helping to keep cash off the streets since it writes the rules that banks follow to mitigate money laundering and the financing of terrorism.

Yet many banks are reading the new guidelines as more of an outline to all the risks of doing business with pot sellers than a green light. The American Bankers Association says the new regulations simply aren’t enough, since they don’t change the fact that marijuana sales are still illegal under federal law. That means property used as collateral for loans would potentially be subject to federal drug-seizure laws. According to The Denver Post, Colorado’s two largest banks, Wells Fargo Bank and FirstBank, aren’t offering new loans to landowners with pre-existing leases with pot businesses.

You don’t have to be selling marijuana to run into obstacles with a financial institution, particularly when it comes to getting a loan or line of credit. If you’re seeking to obtain financing for cash flow and daily operations, growth plans or other needs, Talley & Company’s team and relationships with lending institutions can help. Our advisors can present and prepare your company’s financials in ways that increase favorability with lenders, helping to make sure your efforts don’t go up in smoke. 

March 7, 2014

Sadly, this isn’t the first time we’ve seen a story like acclaimed actor Philip Seymour Hoffman’s play out. Early this month, the headlines announced the lead Capote star’s premature death from an apparent drug overdose. This week, we find that as his loved ones attend to their grief, so must they contend with complicated issues arising from his poorly planned estate. Though Hoffman had thoughtfully created a will, it was over a decade old. Consequently, it not only contained gross omissions but was poorly designed to minimize the tax burden on his benefactors.

While Hoffman’s will included his son Cooper, his two daughters born after the will was made (and never amended) were effectively disinherited. New York law attempts to protect children with a special provision for this kind of scenario, but there’s no guarantee it will apply. These are not the kinds of matters you want to leave for the courts.

 Then there’s the mother of Hoffman’s three children-his longtime companion Marianne O’Donnell. She will reportedly inherit Hoffman’s estate outside the money allocated for his son. Had the couple been married, O’Donnell would have received an unlimited amount tax-free. Because they weren’t, O’Donnell will hand over anywhere from $11 to $15 million in taxes if the actor’s $35 million estate figure is right. No matter how the two felt about the institution of marriage, Hoffman’s estate planners could still have mitigated some tax expenses through other strategies, including trusts and gifted amounts during his lifetime.

Celebrities may be more likely to make the news, but they are far from the only ones with poorly planned estates. We understand how periodic reviews can seem less than urgent against the barrage of all of our growing to-do lists. So what’s our best advice? Schedule a regular time with your advisory team to review your will and update your estate. Once built into your calendar, you’ll not only have peace of mind but a signed legacy of caring and responsibility your loved ones will appreciate.

 So go ahead, make that appointment.

February 14, 2014

After announcing the departure of 33-year company veteran and CEO Steve Ballmer last August, Microsoft has only just declared his successor – Satya Nadella. While tech news insiders agree with the internal Bill Gates-like choice, the lack of a clear succession plan from the start, has left an indelible mark.

Ballmer held his position as CEO for the last 14 years, giving Microsoft more than a decade to develop a succession plan. Yet when the announcement was made that he would step down, not only was a successor not named but the timeline and process for finding his replacement was vague. This left the company open to commentary from all sides for potential candidates, and it created damaging uncertainty with investors. Months without a clear, singular vision for any company can also create political minefields, with people unsure of whose approval to attain due to divergent visions and others jockeying for positions in the senior ranks.

If all that alone wasn’t enough to create confusion, only two weeks after Ballmer’s noted departure Microsoft announced that it would be acquiring Nokia for $7.2 billion, the second-largest acquisition from the company behind Skype.

As we can see, even a large corporation with plenty of visionary leaders on its Board of Directors, including Bill Gates, can fumble on a succession plan. While the situation is unfortunate, it is far from uncommon. The reality is, and perhaps understandably so, planning your exit isn’t usually the most exciting task for a leader, but it is essential.

In what can be a harrowing process, many business leaders who doattempt to make a plan take on too many tasks by themselves. Others simply don’t start early enough to identify and prepare the right people for future roles. With so much at stake – both emotionally, financially and professionally – the key is simply to bite the bullet, start early, and be thorough. Doing so can create a smooth transition that keeps confidence strong among customers, investors, and employees. This confidence can play a major role in ensuring the success of your company’s future and enhancing your own personal legacy.

Apparently Warren Buffett, known for his uncanny foresight into financial markets, is not thinking too much about the big football game this Sunday.  Buffet, currently ranked 4th on Forbes’ list of top billionaires with an estimated worth of $53 billion, wants to make you an offer most would at least consider – he’ll give you $1 billion for a perfect March Madness bracket.

As reported by Forbes, Buffett and his company, Berkshire Hathaway, are offering the heaping cash prize to any person who can pick the correct winners of all 63 games in this year’s NCAA men’s basketball tournament.  The $1 billion will be paid in either 40 annual installments or a lump sum payment of just a half billion dollars. The odds of winning are said to be 1 in 4,394,967,296.  Considering March Madness never fails to provide basketball fans upsets and Cinderella stories, anyone experienced in filling out a bracket would probably agree the staggering odds sound just about right. But enough about the odds, how about the taxes?

Let’s get this out of the way quickly – you are going to owe Uncle Sam A LOT of money. Forbes ran a quick estimate and here are their numbers- a single filer would pay about $394,213.920 in federal taxes on the $1 billion or $197,955,348 if they took the lump sum. While the highest tax bracket for 2014 currently stands at 39.6% and kicks in on income north of $406,750, the U.S. income tax system is progressive, which means that billionaires pay the same amount of taxes on the first $9,075 as everybody else and so on. As far as deductions go, the majority of deductions and credits available to the average tax filer would be unavailable at the prize-winning income level.  While complaining about taxes is something of a national pastime these days, winning a $1 billion dollar prize might ease the pain.

Talley & Company offers a broad spectrum of services to fulfill the needs of high net worth individuals, entrepreneurially driven companies and their owners. Whether you are considering an M&A transaction or experiencing a financial windfall event, the professionals at Talley & Company can make the most of both your earnings and winnings.

Source: Forbes.com Jan. 21, 2014