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Karen Snodgrass

CPA | CK Principal

The death of a spouse is a profoundly challenging time, both emotionally and financially. Amidst the grieving process, surviving spouses must also navigate a complex array of tax issues. Understanding these tax implications is crucial to ensuring compliance and optimizing financial outcomes. This article explores the key tax considerations for surviving spouses, including filing status, inherited basis adjustments, home sale exclusions, notifications to relevant agencies, estate tax considerations, and trust issues.

Identify and Communicate with Key Advisors

If you have a team of trusted advisors – accountants, attorneys, insurance, and/or financial professionals – these individuals are adept at advising clients during this trying time. They have experience in dealing with these difficult issues and can advise in a non-partial way.  Let them help you as you grieve your loss.

Ideally, determining the key advisors should not be a difficult process. In some cases, prepared individuals may have created a crash card to assist their families upon their passing. The crash card may help you identify advisors and to know where important documents are stored.

Notifications to Social Security Administration and Payers of Pensions

It is imperative for the surviving spouse to notify the Social Security Administration (SSA) of the spouse’s death to adjust benefits accordingly. Usually, the funeral home will notify SSA, but to be safe, the surviving spouse should also contact SSA. Similarly, any payers of pensions or retirement plans must be informed to ensure the proper distribution of benefits and to avoid potential overpayments that would have to be repaid.

Changing Titles

To prevent future complications, it is essential to change the title of jointly held assets to the survivor’s name alone. This includes real estate, vehicles, and financial accounts. It is also an opportunity to determine whether ownership should be held individually or in trust. Properly updating titles ensures clear ownership and facilitates future transactions.

Beneficiary Designations

Surviving spouses should also review and update their own beneficiary designations on life insurance policies, retirement accounts, and wills.

Living Trusts and Other Trusts

Many couples establish living trusts to manage their assets. Upon the death of one spouse, the trust may split into two separate trusts: one revocable and one irrevocable. The irrevocable trust typically requires a separate tax return. Understanding the terms of the trust and its tax implications is crucial for compliance and effective estate planning.

Filing Status in the Year of Death

In the year of a spouse’s death, and provided the surviving spouse has not remarried, the surviving spouse has several filing status options. The option most often used is to file a joint tax return with the deceased spouse. This option is generally more favorable than filing as a single individual, as it allows for higher income thresholds and deductions. If the surviving spouse chooses not to file jointly, they may file as married filing separately or, if they qualify, as head of household.

If the surviving spouse has not remarried and has a dependent child, they may qualify as a “Qualifying Surviving Spouse” for up to two years after the year of the spouse’s death. This status offers benefits similar to those of filing jointly.

Inherited Basis Adjustments

When a spouse passes away, the surviving spouse may receive an adjustment in basis for the inherited assets, which can significantly affect future capital gains taxes. The extent of this basis adjustment depends on how the title to the assets was held:

  1. Sole Ownership by the Deceased Spouse: If the deceased spouse solely owned an asset, the surviving spouse typically receives a full step-up in basis. This means the asset’s basis is adjusted to its fair market value on the date of the deceased spouse’s death. This adjustment can reduce or eliminate capital gains taxes if the asset is sold shortly after the spouse’s death.
  2. Joint Tenancy with Right of Survivorship: In cases where the asset was held in joint tenancy with right of survivorship, the surviving spouse generally receives a step-up in basis for the deceased spouse’s share of the asset. For example, if a home was jointly owned, the basis of the deceased spouse’s half is stepped up to its fair market value at the spouse’s time of death, while the surviving spouse’s half retains its original basis.
  3. Community Property States: In community property states, both halves of community property receive a step-up in basis upon the death of one spouse, regardless of which spouse’s name is on the title. This means the entire property is adjusted to its fair market value at the time of death, providing a significant tax advantage for the surviving spouse.
  4. Tenancy by the Entirety: Like joint tenancy, in states that recognize tenancy by the entirety, the surviving spouse receives a step-up in basis for the deceased spouse’s share of the property.

The rationale behind these basis adjustments is to align the tax basis of inherited assets with their current market value, thereby reducing the potential capital gains tax burden on the surviving spouse. This adjustment reflects the change in ownership and the economic reality that the surviving spouse is now the sole owner of the asset.  

Establishing Inherited Basis

To establish the inherited basis, obtaining a qualified appraisal of the assets as of the date of death is often necessary. This appraisal serves as documentation for the basis and is crucial for accurately calculating capital gains or losses upon the future sale of the assets.

Future Home Sale and Gain Exclusion

Surviving spouses may benefit from the home gain exclusion, which allows for the exclusion of up to $500,000 of gain from the sale of a primary residence, provided the sale occurs within two years of the spouse’s death, and the requirements for the exclusion were met prior to the death. This exclusion can be a valuable tool for minimizing taxes on the sale of a home, although in most cases, any gain within the two years is likely to be minimal because of the basis step-up provision. After the two-year period has elapsed, the exclusion drops to $250,000.

Estate Tax Considerations and Portability Election

If the deceased spouse’s estate exceeds the federal estate tax exemption, an estate tax return may be required. Even if the estate is below the exemption threshold, filing an estate tax return can be beneficial to elect portability. Portability allows the surviving spouse to utilize the deceased spouse’s unused estate tax exemption, potentially reducing estate taxes upon the surviving spouse’s death. Not only federal estate tax laws should be considered, but state estate tax laws as well.

Understanding the Treatment of Tax Attributes for Surviving Spouses

In addition to the primary tax considerations, surviving spouses must also be aware of how tax attributes are treated following the death of a spouse. Tax attributes include various tax-related characteristics such as net operating losses, capital loss carryovers, and passive activity losses. This can be complicated based on whether the attributes are related to a specific spouse or jointly.

The tax issues facing surviving spouses are multifaceted and require careful consideration. By understanding filing status options, inherited basis adjustments, home sale exclusions, and other critical tax matters, surviving spouses can navigate this challenging period with greater confidence and financial security.

Contact CK’s office at 630.953.4900 for professional tax assistance to ensure compliance and optimize financial outcomes during this difficult time. Our trusted team of advisors will be there to guide you every step of the way.

Emily-Zeko-Headshot

Emily Zeko

Senior Tax Accountant

If you’re running a small or medium-sized business, you know that cash flow is everything. Keeping up with payroll, replenishing inventory, and funding growth can feel like a never-ending balancing act. But what if there was a hidden way to free up cash?

Enter tax credits. These aren’t just numbers on a financial statement; they’re tools that can give your cash flow the boost it needs. Let’s explore how you can unlock these hidden advantages and give your cash flow a much-needed boost.

Tax Credits: A Cash Flow Game-Changer 

Unlike tax deductions, which only reduce taxable income, tax credits directly cut down your tax bill. That means more money stays in your business, strengthening your financial position and fueling growth. Here are some key credits to consider:

1. Work Opportunity Tax Credit (WOTC) 

Why It’s a Win: Hiring new employees doesn’t just build your team, it can also boost your cash flow. The WOTC rewards businesses for hiring individuals from specific target groups, such as veterans, individuals from low-income areas, and long-term unemployment recipients. 

How It Works: You may be able to claim a tax credit for a percentage of an employee’s wages during their first year on the job. This can help offset hiring costs while reducing your tax liability. 

How to Qualify: Hire employees who meet WOTC eligibility, submit a certification request during the hiring process, and maintain precise hiring and detailed payroll records.

2. Research and Development (R&D) Tax Credit 

Why It’s a Win: Innovation pays off, literally. If your business is developing new products, improving processes, or advancing technology, you may qualify for the R&D tax credit.   

How It Works: You can claim a percentage of qualifying R&D expenses, including any wages and supplies involved with the research. This directly reduces your tax bill, making it a valuable incentive for businesses pushing the envelope in their industry. 

How to Qualify: Keep detailed records of your R&D activities, including project descriptions, expenses, and outcomes to support your claim.

3. Payroll Tax Credit for R&D 

Why It’s a Win: Startups and smaller businesses don’t have enough income to benefit from the R&D tax credit, but there’s a workaround. The payroll tax credit allows eligible businesses apply up to $250,000 of their R&D credit toward their payroll taxes instead. 

How It Works: This option provides cash flow relief right away rather than waiting to offset future tax liability. 

How to Qualify: Meet startup eligibility criteria (typically having less than $5 million in gross receipts) and ensure your R&D activities meet the requirements. Accurate documentation of expenses is key.

4. Industry-Specific Incentives 

Why It’s a Win: Certain industries, such as renewable energy, manufacturing, and tech—benefit from specialized tax credits to encourage innovation and sustainability. These credits reward activities like energy efficiency improvements, eco-friendly initiatives, and technological advancements. 

How They Work: Whether you are upgrading to energy-efficient equipment or investing in new technologies or adopting eco-friendly practices, these incentives help cut your tax bill and boost your cash flow. 

How to Qualify: Research the credits available in your industry and ensure compliance with all relevant requirements to make the most of these opportunities.

Maximizing Tax Credits for Long-Term Financial Strength 

Claiming tax credits is just the beginning. Once you secure them, they can be a powerful tool in your financial strategy. Use the extra cash inflow to invest in growth opportunities, pay down debt, or build a financial cushion for the future. By incorporating tax credits into your planning, you are setting your business up for stability and success. 

Ready to Unlock the Power of Tax Credits? 

Tax credits could be the key to unlocking new financial opportunities for your business. If you’re ready to explore which credits apply to you, Cray Kaiser is here to help. As experienced advisors, we specialize in helping businesses navigate the complexities of tax credits.

In this second installment of our series on navigating business mergers and acquisitions, Deanna Salo, Managing Principal at Cray Kaiser Ltd., shares valuable insights on preparing your business for a successful transition. Whether you’re planning to pass your company to the next generation, sell to a third party, or position your business for future growth, preparation is crucial. Join us as we delve into the foundational practices that set the stage for a smooth and strategic process.

Transcript:

My name is Deanna Salo, and I’m the Managing Principal here at Cray Kaiser, Limited CPAs and Advisors.

What needs to be in the Letter of Intent

The next point is probably where people get really close to signing something, and that’s a letter of intent, also known as an LOI. My next part here is to talk about what really needs to be in that letter of intent. Our clients receive letters of intents from prospective buyers and they can be very vague. And in the vagueness, they may feel that it’s giving each party a balance of opportunity to future, to negotiate in the future on these various points. I see the letter of intent, the LOI, as the framework of your purchase agreement. So I believe the letter of intent does need to be far more specific in terms of what it needs to include and I believe they need to include the following items.

The purchase price and the purchase structure definitely is the first line of every letter of intent. I’m going to give you X dollars for your company and this is going to be an asset purchase or it’s going to be a stock purchase. The difference between an asset purchase and a stock purchase is probably its own audio blog at its own time, but often people understand when they go into selling their business that those are the two structural options that they have in terms of how the purchase of their company may be transacted.

How much is going to be paid in cash? Sometimes if I’m going to be selling my company for X dollars, I may get a certain percentage of it in cash at closing, and the rest of it might be paid to me over time in an earn out with interest or with not interest with a promissory note. So being very specific as to what is the dollar amount for sure, what is the structure of the deal for sure, and then more importantly is how much am I going to get at close. So if the buyer needs to finance this purchase, you as the seller need to know that very early in the conversations.

An escrow, similar to selling a house, there might be an escrow requirement. Most deals that I’ve seen in the last five to six years, they all have escrows. And an escrow is effectively a certain percentage of the purchase price that’s held in a separate account in the name of the buyer and the seller for a certain period of time, until such time is all of the post-closing adjustments have been handled by the post-closing activities. It’s really to keep money aside for some of those loose ends of the deal, and then at the end of the period, the escrow is finally released to the seller. Another important part of the escrow is to understand how long do I have to wait for this escrow to be released. We see anywhere from six months to twenty-four months on these escrows. So it’s really important for the buyer to understand that the seller needs to know how long is that escrow going to need to be in place.

Understand the networking capital requirement

The networking capital requirement is also a very important part of a definition in a letter of intent. Networking capital is really current assets, less current liabilities. If you can picture the first day of operations of the new buyer with your company. They open on day one and they need operating assets to operate. They need receivables to be coming in and they certainly still might have some of your net payables that they need to pay out. So understanding how much of the networking capital component requirement will be of the buyer is another important part of the LOI in terms of specifying what that would be. Most times we just see that there will be a networking capital requirement, and most times the buyer may not yet be ready to understand what that amount might be because they haven’t completed their due diligence. But I would say that at the very least, it should say that there is going to be a networking capital component, and it will be agreed to by both parties. So this way, you as the seller, make sure that you have a voice to that final amount of what might be needed in that networking capital component.

Time to complete due dilligence

The letter of intent should also be very specific as to how much time the buyer has to complete their due diligence. You know as a seller time can be in your favor and time can be your worst enemy. With economic conditions changing so very quickly, if the buyer takes way too long to do their due diligence within the LOI framework, you may have economic conditions that will hamper the company’s ability and might actually reduce the value of your company. So making sure that the buyer has a specific period of time, we’ve seen it as few as forty-five days to complete their due diligence, all the way up to ninety days to complete their due diligence. Understand that letter of intent is an exclusivity arrangement between you and the buyer meaning at the time you sign the LOI, you are precluded from talking to anyone else. While an LOI is not binding, it does keep you both kind of on the same course to be honoring that LOI and being good stewards of the process to ensure that it gets completed in the right amount of time.

Who is paying the professional fees?

One of the other things that I see in LOIs that sometimes is missed is the transaction costs, professional fees. Professional fees should be taken on and each of the parties, the buyer and the seller, should take care of their own bills. As the seller, you can’t control how much attorney costs, advisory costs, will be generated by the buyer. And conversely, the buyer doesn’t have any control of the seller’s professional services from their accountants and attorneys. Ensuring that the transactional costs are paid for by each of their own parties and kept separate also commits to the letter of intent that should this deal not get done, meaning either party decides to walk away, that each party takes care of their own transaction costs at the end of the transaction.

The Non-Compete Agreement

The Non-Compete Agreement. Most times, the buyer will want to make sure that the seller, once they sell their company, they can’t turn around the next day and go open up a competing company down the block. So a non-compete is a very common additional bullet point in the letter of intent to suggest there will be a non-compete agreement, there will be a dollar amount assigned to the non-compete, and the seller will be precluded from operating in this industry for a certain sum of time. Perhaps a year, two years, three years, but it should be commented on that you as the seller will be committed to a non-compete. There’ll be a compensatory amount assigned to it and that you don’t want to have this non-compete to be for five or ten years. You want it to be a reasonable amount of time because if something goes wrong, you sell the company, the buyer is not really doing well with your company and you see it happening, you may want to open up your company again and having the non-compete understanding in the letter of intent protects both parties from doing the right thing during that period of time after the closing of the sale of your business.

Take care of key employees

Each company has key executives in their company, we wouldn’t get to where we are without having key personnel and ensuring that your key personnel are taken care of, I think is one of the head-to-heart conversations that most of our clients have. You know when you’re selling a business it’s a very emotional process and you’ve worked your lifetime to create the value, to create the place that you’ve created for your employees and your customers and your vendors and making sure that your key personnel are taken care of is very important to most sellers. So in the letter of intent, it’s another important part to have that the key executives in the company will be executing their own employment agreements with the buyer. So this ensures that you as the seller have a place for each of your key employees in the new company.

So we’ve talked a lot about mergers and acquisitions today mostly on the acquisition side and getting ready to be sold. Again, I think it’s important for any company in their strategic planning process to have many of these tools in their toolbox, being ready for a transaction, whether you’re going to buy a company or whether you’re positioning yourself to close, getting your financial warehouse in check, and getting ready operationally with your organizational structure to ensure that you have all the pieces laid out, the footprint of your company, understanding what should be included in a letter of intent, whether you’re buying again or selling your business, and making sure that your people at the end of the day are going to also be taken care of through employment agreements and be part of the team even in the in the new company if you’re selling your company.

All of this process there’s lots of phases to this process and at Cray Kaiser you know we’re here to help our clients again to and through their transactions at whatever point in their life cycle they’re at and if you need any further assistance on that please feel free to give us a call. Cray Kaiser is here for you during any part of this transaction.

Maria Gordon

CPA | Tax Supervisor – SALT

Beginning January 1, 2025, all out-of-state shipments into Illinois will be subject to the Retailer’s Occupation Tax (ROT). This tax includes state and local sales taxes and is determined based on the destination of the sale.

Key Changes

Previously, Illinois retailers with a physical presence in the state who sold tangible personal property from locations outside Illinois were only required to charge Illinois Use Tax (state, not local tax) on such sales. Under the new regulations, such sales will be subject to ROT, including local taxes.

Who Is Affected

This change only applies to retailers with a physical presence in Illinois who make sales into Illinois from an out-of-state location. The change does not impact remote retailers with no physical presence in the state.

Further Guidance

The State of Illinois provides Bulletin FY 2025-10 to assist sellers in navigating these changes including  what actions to take in response to this change.

ROT Rules by Seller Type

 1. Illinois Retailers

Sellers with a physical presence in Illinois shipping from locations within the State must collect and remit ROT based on the origin of the shipment.

2. Out-of-State Sellers

Retailers with a physical presence in Illinois and shipping from both in-state and out-of-state locations follow these rules:

3. Remote Sellers

Retailers with no physical presence in Illinois who meet a threshold of $100,000 or more in gross receipts or 200 or more separate transactions must collect ROT based on the destination of the shipment.

Need Assistance

Cray Kaiser can answer your questions on the changing landscape of sales and use taxes. Please contact us here or call us at 630-953-4900 if you have any questions.

In this first installment of our series on navigating business mergers and acquisitions, Deanna Salo, Managing Principal at Cray Kaiser Ltd., shares valuable insights on preparing your business for a successful transition. Whether you’re planning to pass your company to the next generation, sell to a third party, or position your business for future growth, preparation is crucial. Join us as we delve into the foundational practices that set the stage for a smooth and strategic process.

Transcript:

My name is Deanna Salo, and I’m the Managing Principal here at Cray Kaiser Limited CPAs and Advisors. In the Cray Kaiser family of clients, we’ve had a lot of activity in the mergers and acquisitions front, mostly where clients are looking to succeed their companies to what might be the next generation of their family business or privately held space, or they sell to a third party and look to a buyer, e company, and somebody to succeed their company and exit the company accordingly. The readiness of being acquired is a process and it’s best practice to start early and get the right procedures and get the right people in place to move your strategic plan to an acquisition, meaning whether you’re acquiring another company or you’re being acquired. In most cases, as I mentioned before, our clients are looking to be acquired to exit their company and to fulfill their strategic plan of retirement.

How to get ready for an acquisition

Some of the shared experiences and one most recent client experience that we’ve had is in six to seven points, which I think are the most important things about getting ready for an acquisition or being acquired.

Make sure your financial warehouse is in check

Making sure that your financial warehouse is in check. Your financial department, the procedures, the accounting department really needs to be updated and looked at in a very granular sense, meaning you might be getting monthly financial reporting from your internal accounting department, but really what else is there? And that’s documenting the procedures around your financial reporting system. Even documentation of your general operating procedures is an important part of getting your financial warehouse in check. There’s three different levels of financial assurance that your CPA can provide to you. One is a compilation, which is really no assurance. It’s the lowest level of assurance. The next is a financial review, and the highest level of financial assurance is an audit. We see clients actually moving through a compilation to a review to a financial audit to really get integrity to their financial statements, get those auditors in their offices to check and balance the financial operations of the company. And when you’re looking to be sold, being able to provide a buyer or a third party a financial audit provides integrity to the financial statements, reliability to the financial statements really shows the audience that you are ready for a financial acquisition. So getting your financials in place and on check is the first step in that direction.

Understand your organizational structure

The next point is understanding your organizational structure. And many owners look to me and say, I know my organizational structure. I know where the hierarchy lies in my company. And then I look at them and I go, but have you mapped it out? Being able to put your organizational chart in a framework to show a buyer that here’s our C-suite of leadership. These are the folks below them and not necessarily listing out the people’s names, but just their titles, their roles and responsibilities. Being able to document your organizational structure is really important to provide the footprint, the mapping of your company to a third party, so they know that you know how your operations actually work and who are the most important people or the most important jobs and roles within the organization. Your people, your process are two very important parts of the value of your company. So being able to document that organizational chart with the roles of the folks that you have in your company is one of the other next steps in getting ready to be acquired.

Assemble your team of advisors

Getting your team of advisors together and people, you know, clients of ours look to us and say, “Well, you’re my advisor, Deanna, so you’re part of the team.” And I said, “Yes.” And we need to make sure we have the proper legal counsel. Your corporate attorney might be a great person to help you with this deal, but perhaps you may want to have somebody else who maybe specializes in mergers and acquisitions from a corporate legal counsel assist. Your wealth management advisor who should be ready to receive potentially your after-tax cash flow from the sale of your business should also be part of your advisory group. And the current operations of the company may already have a banker involved where you might have loans and obligations to that bank, and they too need to be part of that team of advisors. Getting ready to sell your company, you need all of these people to provide you counsel through the journey of selling your business. And most importantly, the banker, if you do have obligations with the bank, you know, any change of ownership, any look to sell your company, they need to be definitely included in that conversation early rather than later.

Understand the value of your company

Understanding the value of your company. Here we see lots of our clients look and say, okay, I think my company is worth X dollars. If we go to the marketplace, this is how much I should get for my company. This is the multiple of EBITDA that I might need. Earnings before interest, taxes, depreciation, and amortization. A key role in determining value in the marketplace sometimes is a multiple of your EBITDA. Well, that might be true. However, we have clients that come to us and say, oh, I need Cray Kaiser to do a business valuation so you guys can tell me how much I’m worth so that I can go pedal my company out in the public market. And I would say, I’m not sure we really need a business valuation. The business valuation may be a great educational tool for owners so that they can decide how much a third party might look to their company and value them at, but it’s an expensive cost to have where markets, fair market value is probably mostly looked at in terms of what will the market provide. There’s lots of different factors that a buyer might look to you. You may have a certain product or service that they don’t have in their company. So there’s synergetic reasons for that other company to look at you and provide you a higher value than might be what you’re looking for. There’s other reasons that somebody may want to come and buy you from a demographic perspective. They don’t have a business in Chicago and they want to have a footprint in Chicago. Therefore it gives you even a higher value than what you might even compute in a business valuation. So I guess, you know, out of the value, I would say, you know, understanding what and how somebody might look at you as an important part of your process. What I can tell you, your value is not. It’s not what the owners need to retire. We often hear from clients, “Well, I need X million dollars so that I can retire and have my life after my business.” And I would say, “Okay, that might be a number, but it probably isn’t the number.” What the fair market value will bring to you, you really do need to start that process of going out into the market and getting a couple of different buyers potentially interested parties in your business. You know, only selling to one business is probably where you’ll end, but as you work through the process, it’s probably in your best favor to have multiple companies looking at you to create a competitive environment to drive up that value perhaps, or just to become a little bit more popular in that space to really determine for yourself what is the value that you might need for your company.

Get a non-disclosure agreement

One of the next points that I think is really important, as business owners get excited to the idea of selling their company, they’ve kind of come to their crescendo, if you will. It’s time for me to exit my company. It’s time to sell, they get really excited, and when people are interested in them, they get even more excited. And when you get excited, oftentimes I see clients letting the horse out of the barn way too early. So don’t let the horse out of the barn. And what I mean here is, don’t give away so much financial information before you have a non-disclosure agreement. A non-disclosure agreement is also known as an NDA. It is fine to have great conversations over drinks, over dinner. It’s important for the buyer to get that information from you, all the tribal knowledge, all the history of the company, and that can be done in lots of different conversations. But as soon as you start providing them financial information, historical financial statements, historical tax returns, that’s where you really need to get that NDA out there in front of any of that financial reporting. I would also say that if a buyer wants to start getting copies of customer lists and vendors’ lists and sales by customer and wages by employee, all of that information will be shared with them, but during due diligence. And that’s long after you’ve already signed a letter of intent and I’ll talk about that in just a minute. But in terms of not letting the horse out of the barn, that’s really keep your information guarded. Certainly give them all the intelligence about your company, the story, the history, the products, the people, the energy around the company. You can give them the financial information and the tax return information, however only start giving them some tangible information after you have a non-disclosure agreement signed.

If you’ve been thinking about ways to save on medical expenses, now may be the perfect time to open a Health Savings Account (HSA). Thanks to persistent inflation, the IRS recently announced historic bumps to contribution limits for HSAs, making planning for health savings more beneficial than ever.

What is an HSA?

Established in 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act, Health Savings Accounts (HSAs) are a type of medical savings account with tax advantages. Individuals contribute pre-tax income to savings accounts that may be used to pay for qualified medical expenses. Funds in an HSA roll over from year to year, meaning it is possible to establish significant reserves for future medical costs while saving money by lowering your taxable income.

HSA funds can be used for a variety of qualified medical expenses, including office visits, dental care, eyeglasses, over-the-counter medications, and more. Funds may even be used for costs related to healthcare, like transportation expenses.

Who Qualifies for an HSA?

HSAs are available to those enrolled in High-Deductible Health Plans (HDHP). HDHPs are defined as a plan where the deductible is higher than the average, as determined by the IRS. For 2024, an HDHP includes any plan “with an annual deductible that is not less than $1,600 for self-only coverage or $3,200 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $8,050 for self-only coverage or $16,100 for family coverage.”

In addition to being enrolled in an HDHP, you may not be enrolled in Medicare and must not be claimed as dependent on someone else’s tax return.

Contribution Limit Increases

For 2024, the IRS has raised the contribution limit for an individual to $4,150, an increase of $300 from the previous year, and $8,300 for family coverage, an increase of $550 from 2023. These amounts represent the largest yearly adjustments since the accounts’ inception and reflect rising healthcare-related expenses due to ongoing inflation.

Conclusion

HSAs can provide advantages in both the short term, by lowering your taxable income, and in the long term, by helping establish a cushion for future medical expenses. Increased contribution limits make HSAs more beneficial than ever. If you have any questions about HSAs or tax-advantaged medical savings accounts, please call Cray Kaiser at (630) 953-4900 or contact us here.

If you’ve been thinking about ways to save on medical expenses, now may be the perfect time to open a Health Savings Account (HSA). Thanks to persistent inflation, the IRS recently announced historic bumps to contribution limits for HSAs, making planning for health savings more beneficial than ever.

What is an HSA?

Established in 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act, Health Savings Accounts (HSAs) are a type of medical savings account with tax advantages. Individuals contribute pre-tax income to savings accounts that may be used to pay for qualified medical expenses. Funds in an HSA roll over from year to year, meaning it is possible to establish significant reserves for future medical costs while saving money by lowering your taxable income.

HSA funds can be used for a variety of qualified medical expenses, including office visits, dental care, eyeglasses, over-the-counter medications, and more. Funds may even be used for costs related to healthcare, like transportation expenses.

Who Qualifies for an HSA?

HSAs are available to those enrolled in High-Deductible Health Plans (HDHP). HDHPs are defined as a plan where the deductible is higher than the average, as determined by the IRS. For 2024, an HDHP includes any plan “with an annual deductible that is not less than $1,600 for self-only coverage or $3,200 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $8,050 for self-only coverage or $16,100 for family coverage.”

In addition to being enrolled in an HDHP, you may not be enrolled in Medicare and must not be claimed as dependent on someone else’s tax return.

Contribution Limit Increases

For 2024, the IRS has raised the contribution limit for an individual to $4,150, an increase of $300 from the previous year, and $8,300 for family coverage, an increase of $550 from 2023. These amounts represent the largest yearly adjustments since the accounts’ inception and reflect rising healthcare-related expenses due to ongoing inflation.

Conclusion

HSAs can provide advantages in both the short term, by lowering your taxable income, and in the long term, by helping establish a cushion for future medical expenses. Increased contribution limits make HSAs more beneficial than ever. If you have any questions about HSAs or tax-advantaged medical savings accounts, please call Cray Kaiser at (630) 953-4900 or contact us here.

Over the past three years, Cray Kaiser has continued to assist clients on the buy-side and sell-side of their transactions, even amidst the challenges of COVID-19. As key advisors to these transactions, we observed some best practices in getting your team ready to buy or sell.

On the Buying Front

Whether you have acquired a business over the tenure of your company or are looking to expand your footprint, there are nuances to buying a business and readying yourself for the process.

Selling your company may be the single largest transaction of your career. You’ve created a legacy for your clients and employees and will be leaving them in the hands of your buyer. So, preparing for this event may take longer than you think.

On the Selling Front

Whether you are looking to expand your footprint or sell to the right synergetic buyer, these best practices can help you prepare for the process and keep you on track throughout what is bound to be an emotional transaction (for either side!). Should you have any questions or need assistance in your process, Cray Kaiser is here to help. You can contact us here or call us at (630) 953-4900.

When you’re in the midst of building or growing a business, the last thing on your mind is what happens if the owner suddenly dies. How does the business move forward if this tragic circumstance occurs?

If the business was established as a partnership and the surviving partner has equity in the business, then a buy-sell agreement can provide a quick solution, particularly if an insurance policy has been set up specifically to facilitate the buyout. Working with an experienced attorney or accountant when establishing the business generally helps to ensure that there is a plan in place, whether there’s a partnership or not. Unfortunately, that is not often the case.

The absence of the driving force behind a business affects employees, customers, and family members who may have relied on the organization for income. If you find yourself in this unfortunate situation, you need to know the steps and options available to you, and how best to approach the many issues that will arise.

The First Decision: Whether to Save the Business or Not

The initial reaction to the death of a business owner may be to try to keep the business going. However, that is not always the best nor the smartest answer. Every situation is different, and decisions need to be made from a practical standpoint rather than an emotional one.

If the business owner was a professional and the entire entity was dependent upon them, their strengths, skills, and personality, then no amount of good intentions is likely to save the business. For instance, continuing to run a medical practice with a new physician will result in some patients staying on, while the majority are likely to move to another practice. The exception to this would be where there was already a partnership, or an heir of the business owner is able to assume their responsibilities in a way that makes the clientele comfortable. But even that transition represents a risk, as the time between the death and resetting the business is likely to be filled with costs for which revenue is not being generated.

Deciding whether to preserve and continue a business requires planning, realism, and perhaps most important of all, capital. Unless the estate has the funds available to keep things afloat while a new plan is agreed to, the challenges are likely to mount.

In the absence of a contingency plan with funds set aside to support it, the business owner’s estate is free to decide to walk away from the business. In many cases, the value of the operation may have rested almost exclusively on the deceased individual’s popularity and relationships with clientele, and when that is the case, the decision is clear, though often painful. Walking away from a business can feel like a second death, and it is easy to feel compelled to try to save the owner’s creation – but doing so can lead to financial losses that make the death feel even more painful.

Who is in Charge?

The first step in the process is ensuring there is a clear understanding of who the decision-maker is. If the owner held the business in his or her own name, the Estate will likely be the new owner. In that case, the Executor of the Estate would become the personal representative of the estate. If Trusts are involved a Trustee may be the lead. It’s important to work with legal counsel to review relevant documents to ensure there is an understanding of who can work on the deceased owner’s behalf.

Control of the Business’ Bank Accounts

One of the most important things that a newly assigned curator will take charge of is the business’ bank accounts, especially if the deceased owner is the only signatory. Banks will not allow checks to be written or withdrawals to be made without an authorized person’s signature and will freeze all accounts once they learn of a business owner’s death. This may result in bills not being paid and employees not receiving paychecks. These limitations will lead to services or goods not being provided to the business’ customers. Once legal control of the business has been established, whether permanent or temporary, the bank needs to be made aware of the new person’s identity and must be provided with legal documents that prove their authority. This may involve having the personal representative name themselves the new president – in the interim, inform the bank of the change and provide a new signature card.

Control of the Business’ Digital Assets

Today’s business environment is heavily reliant upon a digital, online presence. As such, the executor, administrator, or other decision maker of the affected business will need to gain access to passwords, so that they can control and make decisions relating to those assets.

Laws are being passed in several states to facilitate the transfer of this information, including in the state of California, where a Uniform Fiduciary Access to Digital Assets Act has been passed. This new legislation provides authority over digital assets to those who are fiduciaries of a business. Fiduciaries are those the court has recognized as having obtained authority from the deceased business owner in the absence of explicit instructions. This shows the importance of having guidance from an attorney or accountant, early on, in the establishment of a business, to pre-address issues and avoid potential problems in the event of the death of a business owner.

Selling the Business

If the decision is made to sell the business, it is essential that an outside entity such as a valuation expert is engaged to provide reliable, data-driven information on the business’ value. It would be prudent for the personal representative to familiarize themselves with the concepts involved in a valuation.

There are some scenarios where there is an obvious prospective buyer. This may be a competitor or an individual who has long worked alongside the deceased owner. This is often the easiest and most sensible option, as well as the one that is most likely to deliver favorable, uncomplicated terms. Working with a friendly buyer can expedite the process and alleviate stress.

Be Aware of Personal Guarantee Issues

After the death of a long-time owner, many vendors and creditors might be unwilling to do business with a new individual. This is particularly true for items or services that are capital-intensive or involve incurring significant expenses. The problem is often addressed by asking for a personal guarantee from the new owner – but offering one may not be a good idea. Making long-term decisions and commitments is generally not advised until the disposition of the business has been resolved; so issues such as signing a new lease or purchasing a new piece of equipment might best be delayed until after the larger decision regarding disposition has been made.

If you are the heir to a business owner who did not leave explicit instructions about what to do with their business in the event of their death, it is possible that they assumed or intended that their business would die with them. Even if that is the intention, it is helpful for business owners to make those intentions clear by documenting them.  Consider it the final gift to your heirs.

If you’d like to review your current business plan with one of our advisors, please call the Cray Kaiser office at (630) 953-4900.

When multiple business entities make a decision to start a new business together as a cooperative arrangement, they are creating what is known as a joint venture. In forming a joint venture, each of the involved entities agrees to what assets they will contribute, how they are going to distribute income and share expenses, and how the new entity will move forward.

Forming a Joint Venture

Even though a joint venture represents a cooperative between two or more business entities, each of those original entities retains its original legal status, whether as companies or corporations or as an individual or group of individuals. Not all joint ventures involve the actual formation of a new business entity, but if a new entity is created it will be required to pay its own taxes. The tax liability will be based on the form of business that is adopted: if an unincorporated joint venture, the tax on profits will belong to the entities who originally joined the agreement, while as a corporation it will have its own tax responsibility.

A joint venture can exist solely as an agreement between the original cooperating entities. Whatever form a joint venture takes, it is best arranged via a detailed, comprehensive contract that specifies the assets each participating entities will contribute, how the new entity will be managed, who will be in control of important decisions, and how the distribution of profits and losses will be accomplished.

The Benefits of a Joint Venture

There are numerous advantages to forming a joint venture, including combining distinct talent and background from two separate entities to create a novel product or service, or taking advantage of one entity’s strength in marketing with another’s innovation. A good example of a successful joint venture can be found in BMW Brilliance Automotive, Ltd, which was formed between BMW Group and Brilliance China Automotive Holdings. The two companies created a new entity to sell BMW vehicles in China, leveraging Brilliance China’s geographic presence to sell BMW’s products.

Among the reasons for forming a joint venture are:

Though many joint ventures are formed with an eye to the future, some are created to accomplish short-term goals and then quickly disband upon those goals being achieved.

How Does a Joint Venture Work? 

A joint venture can take the shape of any type of business entity, including a partnership or corporation. Whatever type of entity the founding entities land upon, decisions need to be made regarding division of stock if a corporation, who will be on the board of directors, and how much responsibility for the new entity’s management each original entity will carry.

In some cases, a joint venture is established under a unique federal income tax arrangement called a qualified joint venture that allowed a married couple greater simplicity in filing their joint return than they would find if a business that they operate together were to be established as a partnership.

Though similar, a consortium is not the same as a joint venture, as it is a more casual business arrangement that does not involve the creation of a new entity. Rather, in a consortium, distinct entities remain separate but make the decision to cooperate.

Crafting a Joint Venture Agreement 

Though it is conceivable that multiple entities would be willing to enter a joint venture on a casual basis or via an oral agreement (and there’s no legal requirement that a joint venture register with a state or federal government), it’s still better to involve an attorney who can craft a document requiring the signatures of all parties involved. A well-formulated joint venture agreement may include:

Once a joint venture is formed, there are additional tax considerations that may come into play. If you have any questions about forming a joint venture or a joint venture that you are already involved in, please contact Cray Kaiser.