Year: 2025

Dissecting Working Capital

What is Working CapitalWorking capital is the difference between a business’ current assets and liabilities. Negative working capital can happen when a business’ current assets are below its current liabilities. Therefore, working Capital = Accounts Receivable + Inventory – Accounts Payable. It’s a way to measure a company’s ability to meet short-term liabilities, such as managing inventory, satisfying vendor bills, etc., and how well its longer-term investments are implemented.

When a business has a surplus of current assets against its current liabilities, it’s said to have positive working capital. Generally speaking, when it’s positive, the business is able to service liabilities over the next 12 months, putting it in a good financial position. However, it’s important to understand how positive working capital is comprised. If a business has a sizeable outstanding accounts receivable account or has too much inventory, the company’s resources are not utilized efficiently. With money tied up in such areas and not financed by short-term liabilities, but with long-term capital, the long-term capital can’t be used for long-term investments.  

When working capital is either even or negative, it’s a way to gauge how (in)efficiently a business handles near-term financial obligations. Reasons why negative working capital exists include a business making one-time cash payments due to a business’ current assets markedly dropping. Similarly, current liabilities can increase massively with more accounts payable and increasing credit.

Delving into Negative Working Capital

When analyzing negative working capital, it’s important to see how it’s connected to the current ratio. The current ratio is a business’ current assets divided by its current liabilities. When the current ratio’s calculation is less than 1.0, the business has more current liabilities than current assets, resulting in negative working capital.

Temporary negative working capital may exist when a company spends excessively or sees a steep increase in outstanding bills due to buying input materials and services from its suppliers. Though extended periods of negative working capital could be a red flag because the business might have a problem paying immediate bills and is being forced to depend on financing or raising funds via equity issuances to manage its working capital, it gives insight into the company’s financial barometer.

Negative Working Capital Requires Judgment

Depending on the type of business and its working capital levels, a negative working capital figure may or may not indicate there’s a concern. Retail, grocery, and subscription negative working capital may not be bad; however, for capital-intensive companies, negative working capital might indicate trouble. One way to measure working-level capital is through the Cash Conversion Cycle (CCC). The CCC determines whether negative working capital is from efficient operations or cash flow constraints.

It looks at:

1. Days Inventory Outstanding (DIO) or how long the inventory waits before a sale is made.

2. Days Sales Outstanding (DSO) or how long before an invoice is paid to the company.

3. Days Payable Outstanding (DPO) or how many days it takes a company to pay its vendors’ invoices.

Where: CCC = DIO + DSO – DPO

If the resulting number from the CCC is negative, it indicates the company is receiving payments from its customers well before it needs to pay vendors/suppliers. A company with this type of result is in good shape financially. However, if the CCC is positive and meets some of the criteria, it would require further investigation to see if the negative working capital is worrisome. Examples of a company’s poor operation include higher accounts payable days, turnover slows, falling revenue, and accounts receivable collection timeframes increasing.

Conclusion

When it comes to working capital, it requires analysis as to why a company’s working capital level is at the level it is. Taking the level at face value doesn’t give the evaluator the full picture.

Preventing AI Deepfakes, Deterring Fentanyl and Foreign Aggression, and Strengthening Small Businesses

Preventing AI Deepfakes, Deterring Fentanyl and Foreign Aggression, and Strengthening Small BusinessesHALT Fentanyl Act (S 331) – On Jan. 30, Sen. Bill Cassidy (R-LA) introduced this bipartisan act in order to close a loophole that allowed clandestine drug manufacturers to evade illegal drug laws by altering the chemical composition of fentanyl. The legislation permanently classifies all versions of fentanyl as a Schedule I substance, much like heroin and LSD. The bill passed in the Senate on March 14 and in the House on June 12. It currently awaits the president’s signature for enactment.

TAKE IT DOWN Act (S 146) – This legislation was signed into law on May 19. Introduced by Sen. Ted Cruz (R-TX) on Jan. 16, the bipartisan bill authorizes the internet removal of visual depictions, generated by AI, of intimate acts of identifiable people without their consent.

No Tax on Tips Act (S 129) – Introduced by Sen. Ted Cruz (R-TX) on Jan. 16, this is a stand-alone bill that features the popular provision to provide a $25,000 deduction to non-itemized tax filers who work in common industries where cash tips represent a portion of their income. Note that Social Security and Medicare taxes (FICA) would still be deducted from those tips. The bill passed in the Senate on May 20 and currently lies in the House, where it conflicts with the current House-passed budget reconciliation bill being debated in the Senate.

Rescissions Act of 2025 (HR 4) – This bill would give Congressional consent to rescind previously approved funding for various government agencies and programs, in alignment with the president’s agenda, including USAID and the Public Broadcasting System (PBS). The bill was introduced on June 6 by Rep. Steve Scalise (R-LA), passed in the House on June 12, and currently lies with the Senate.

Connecting Small Businesses with Career and Technical Education Graduates Act of 2025 (HR 1672) – This act is designed to amend the Small Business Act to require that information relating to graduates of career and technical education programs be relayed to small business and women’s business development centers. The goal is to enable hiring of more graduates of career and technical education programs by small businesses. Introduced on Feb. 26 by Rep. Roger Williams (R-TX), this bill passed in the House on June 3 and is under consideration in the Senate.

CEASE Act of 2025 (H 2987) – Introduced on April 24 by Rep. Robert Bresnahan (R-PA), this legislation would limit (to 16) the number of for-profit small business lending companies (SBLCs) that can offer small business loans without further Congressional approval. America’s Credit Unions support the act because they say the SBA has in the past expanded the SBLC license pool without “sufficient guardrails” to regulate fintech lenders, which have been disproportionately associated with fraudulent loans. The bill passed in the House on June 5 and is now in the Senate.

7(a) Loan Agent Oversight Act (HR 1804) – This bill requires the SBA’s Office of Credit Risk Management to provide Congress with an annual report on SBA 7(a) loans generated through loan agent activity. Specifically, the report would collect and analyze the necessary data to ensure oversight for fraudulent loans, default rates, and risk analysis of SBLC loan agents. The bill was introduced by Rep. Tim Moore (R-NC) on March 3 and passed in the House on June 3. It now lies with the Senate.

American Entrepreneurs First Act of 2025 (HR 2966) – On June 6, the House passed this bill, designed to require SBA loan applicants to provide citizenship status documentation. It was introduced by Rep. Beth Van Duyne (R-TX) on April 17 and is currently under consideration in the Senate.

DETERRENCE Act (S 1136) – Introduced by Sen. Margaret Hassan (D-NH) on March 26, this bipartisan bill would step up criminal penalties for federal crimes funded, conducted, or perpetrated in concert with foreign governments. The acronym stands for “Deterring External Threats and Ensuring Robust Responses to Egregious and Nefarious Criminal Endeavors,” and includes crimes such as murder, kidnapping, or threatening violence against certain present and former federal officials or their families. The act passed in the Senate on June 10 and is under consideration in the House.

One Big Beautiful Bill Act: Part 2 – What the New Tax Law Means for Your Business

Part 2

OBBBA for businessesIn this second part of our two-part series on the One Big Beautiful Bill Act (OBBBA), we examine the legislation’s impact on businesses, trusts, and estates. In addition, we will look at its overall economic impact.

Estate Tax Changes

The federal estate tax exemption receives a significant boost under OBBBA. Previously set to go back to pre-TCJA levels at the end of 2025, the exemption is now permanent. For 2026, the exclusion is $15 million per person, adjusted for inflation annually. This represents a substantial increase from the 2025 exemption of $13.99 million per person.

Business Tax Benefits

OBBBA extends several key business tax provisions that were set to expire, ensuring continued tax relief for various business structures.

Pass-Through Entities benefit significantly from the permanent extension of the Section 199A deduction. This 20 percent deduction on business income that applies to LLCs, S corporations, and sole proprietorships was scheduled to expire at the end of 2025. The House’s proposed increase to 23 percent didn’t make the final cut.

Depreciation rules become more favorable permanently. The 100 percent bonus depreciation provision, which was phasing out, is now permanent. Additionally, the Section 179 expensing limit jumps to $2.5 million and begins to get phased out at $4 million.

Research and Development expenses can now be fully expensed for domestic R&D activities, replacing the previous requirement to amortize costs.

Employee Retention Credit Reforms

The pandemic-era Employee Retention Credit faces significant restrictions. Unpaid claims submitted after Jan. 31, 2024, are prohibited from receiving refunds. The legislation also introduces penalties for ERC mill promoters and extends the statute of limitations to six years.

Conclusion

This legislation represents a significant commitment to extending business-friendly tax policies while substantially increasing the federal debt burden. For businesses and high net-worth individuals, OBBBA provides long-term tax planning certainty by making temporary provisions permanent.

One Big Beautiful Bill Act: Part 1 – What the New Tax Law Means for You

Part 1

The One Big Beautiful Bill Act (OBBBA) passed the House on July 3 and was signed into law by President Trump. This comprehensive legislation makes several expiring tax cuts from the 2017 Tax Cuts and Jobs Act permanent while at the same time introducing several temporary provisions through 2028. In this two-part series, we will look at what the OBBBA means for taxpayers. In Part 1, we examine the impact on individual taxpayers; Part 2 will cover the Act’s impact on businesses, trusts, and estates.

Making TCJA Provisions Permanent

The bill primarily focuses on extending individual tax benefits sunsetting after 2025 since business tax benefits from the 2017 TCJA were already made permanent.

Income Tax Rates and Brackets: The current seven-bracket system is becoming permanent, with the highest rate staying at 37 percent.

Standard Deduction: The doubled standard deduction amounts are now permanent. For tax year 2025, this means individuals get $15,000, married couples filing jointly receive $30,000, and heads of household get $22,500.

Child Tax Credit: The credit increases from $2,000 to $2,200 per child, with future inflation adjustments. The credit remains subject to phase-outs beginning at $400,000 for joint filers and $200,000 for other taxpayers.

Alternative Minimum Tax (AMT): The TCJA increases to AMT exemptions are made permanent with inflation adjustments. For 2025, single filers get an $88,100 exemption that phases out at $626,350, while married couples filing jointly receive $137,000 that phases out at $1,252,700.

Changes to Deductions

State and Local Tax (SALT) Deductions: The current $10,000 cap on state and local tax deductions is raised temporarily to $40,000 with 1 percent annual increases through 2029. After that, it reverts to $10,000 in 2030. High earners with modified adjusted gross income in excess of $500,000 face a phase-down of this benefit.

Charitable Deductions: Starting in 2026, taxpayers who don’t itemize can claim an above-the-line deduction for charitable contributions up to $1,000 ($2,000 for married filing jointly). Those who itemize face new limits on deductions with modified carryover rules. The 60 percent contribution limit for cash gifts to qualified charities becomes permanent.

Mortgage Interest: The lower mortgage interest deduction cap of $750,000 (down from the previous $1 million) is made permanent. Interest on home equity debt unrelated to home improvements remains non-deductible.

What’s Eliminated: Several deductions are permanently eliminated, including personal exemptions (which remain at zero), miscellaneous itemized deductions subject to the 2 percent floor (unreimbursed employee expenses, tax preparation fees), and casualty and theft loss deductions except for federal disasters.

New Temporary Provisions (2025-2028)

Senior Deduction: Taxpayers over 65 can claim an additional $6,000 deduction, available whether they itemize or take the standard deduction. This phases out for joint filers earning $150,000 to $350,000 and other taxpayers earning $75,000 to $175,000. According to the White House, this provision will increase the percentage of seniors not paying tax on Social Security benefits from 64 percent to 88 percent.

No Tax on Tips: Workers in traditionally tipped industries who don’t itemize can deduct up to $25,000 of reported tips. This federal income tax deduction doesn’t affect state taxes or payroll taxes for Social Security and Medicare. High earners making over $160,000 are excluded, and the deduction applies to both cash and credit card tips.

No Tax on Overtime: A deduction for qualified overtime pay up to $12,500 ($25,000 for married filing jointly) is available for non-itemizers. This phases out for taxpayers with income over $150,000 ($300,000 for married filing jointly) and disappears entirely at $275,000 for single filers.

Auto Loan Interest: Interest on loans for U.S.-assembled cars becomes deductible up to $10,000, but only for vehicles assembled domestically. The deduction phases out for individuals earning over $100,000 (single) or $200,000 (married filing jointly). Campers and RVs are excluded.

Trump Accounts: New tax-advantaged accounts benefit children under 8. Parents can contribute up to $5,000 annually (adjusted for inflation), with funds locked until the child turns 18. Withdrawals for college, first-time home purchases, or starting a business are taxed at favorable capital gains rates. The government will deposit $1,000 for qualifying U.S. citizen children born between Dec. 31, 2024, and Jan. 1, 2029, with no income limits.

Additional Provisions

529 Education Plans: Tax-free distributions can now cover K-12 expenses at private and religious schools, plus additional qualified higher education expenses, including “postsecondary credentialing expenses.”

Pease Limitations: The previous caps on itemized deductions for high earners are permanently eliminated, replaced by a 35-cent-per-dollar limit on itemized deductions.

Gambling Losses: The ability to deduct gambling losses and related expenses is made permanent, but losses are limited to 90 percent of gains from the taxable year.

Looking Ahead and Conclusion

Tax professionals will be busy helping clients navigate these changes and identify new planning opportunities. The legislation creates a complex mix of permanent and temporary provisions that will require careful tax planning, particularly as the temporary provisions expire after 2028. Taxpayers should consult with tax professionals to understand how these changes affect their specific situations and develop appropriate strategies.

Addressing the Digital Divide within the Workforce

What is Digital DivideThe rapid pace of technological change, particularly the integration of artificial intelligence (AI) in daily workflows, is reshaping the global economy and the nature of work. Today’s digital divide is no longer limited to internet access in underserved communities. The divide has now become a business risk impacting productivity, inclusion, and competitiveness.

What is the Workforce Digital Divide?

The digital divide refers to disparities mainly in access to technology and digital skills. The groups affected by this divide include older people, frontline employees, lower-income staff,f and people in rural or underserved urban areas.

In the workforce context, the digital divide includes a lack of proficiency with essential software, collaborative tools, data analysis, cybersecurity awareness, and other emerging technologies. This means it is no longer sufficient to just provide access to technology. Employees must be equipped with advanced knowledge, skills, and experience that will help leverage technology for more complex tasks.

In most cases, older employees are assumed to require training, but it is crucial to recognize that younger generations, although perceived to be digital natives, may lack specific professional digital skills.

According to the World Economic Forum, there are three skill sets that have become critical: carbon intelligence, virtual intelligence, and artificial intelligence. This also aligns with the high adoption of technologies such as big data, cloud computing, and AI, creating the demand for these new skills.

The digital skills gap is said to cost businesses $1.4 million per week in losses and 44 wasted working days per year as employees struggle with technology-related challenges.

Cost of Digital Skill Gap to Enterprises

While technology is often seen as an equalizer, it can deepen existing gaps if poorly implemented. Lack of digital skills leads to:

  • Reduced productivity – workers who don’t have the digital skills take longer to complete tasks or avoid using the available technology tools.
  • Increased support costs – there are more help desk requests, longer onboarding periods, and fragmented communication workflows that create hidden costs.
  • Barriers to innovation – employees who don’t know how to use digital tools are less likely to suggest improvements or test new solutions.
  • Retention and equity risks – employees who don’t have the necessary digital skills feel disengaged, leading to turnover or missed promotion opportunities.
  • Reputation and customer experience – inconsistent internal digital experiences will often mirror the customer experience.

Main Causes of the Digital Divide

The main causes of the digital divide include:

  • Legacy systems – Businesses that still operate outdated technologies and manual processes. This slows down operations and also limits employees’ ability to develop the latest digital skills.
  • Training gaps – Digital education often focuses on corporate or technical teams. This leaves out the frontline and support staff.
  • Rapid tech evolution – New tools are rolled out faster than employees can adapt, creating friction and frustration.
  • Socioeconomic and educational gaps – Not all employees start from the same digital baseline, and this may be a problem if it goes unaddressed.

Although businesses don’t intentionally create this divide, failing to address it puts performance at risk.

How to Bridge the Digital Divide Gap

Employers must take proactive steps to close this divide by:

  • Prioritizing digital skills as a core competence – empowering the workforce with digital skills boosts confidence and adaptability. All employees, from the frontline staff to mid-level managers, should go through ongoing digital upskilling.
  • Ensuring equal access to tools and connectivity – all employees, regardless of their role or location, should have access to the necessary tools and bandwidth to do their jobs effectively.
  • Redefine hiring and promotions – hiring tech-ready employees only can promote inequality. However, a business can include digital skills training in the onboarding process. Promotion criteria should also be reviewed to ensure tech-savvy employees are not being intentionally favored.
  • Build partnerships and collaborations – partnering with technology providers who offer training resources and user-friendly tools is a great way to support employee upskilling. Organizations may also seek partnerships with government or non-profit initiatives that offer public programs for digital literacy.
  • Build a culture where digital growth is normal – digital transformation is also about creating a culture that encourages continuous learning and embraces change.

Conclusion

The digital divide has become a core business challenge. As technology evolves, companies must move beyond access alone and invest in digital skills, inclusive training, and a culture of continuous learning. Bridging this gap is essential for boosting productivity, retaining talent, and staying competitive in a digitally driven economy.

6 Reasons for Mid-Year Tax Planning

Mid-Year Tax PlanningRight smack dab in the middle of summer might seem like the worst time to think about your taxes, but it’s actually the perfect time. Here’s what taking a pause in July allows you to do.

Get Organized

Do you have all your receipts? Are your records up to date? Did you move, get married, or change your name? If so, you’ll need to notify the IRS. In fact, you can create an individual IRS online account to look at your tax records, manage communication preferences, make payments, and more.

Take a Financial Snapshot

When was the last time you looked at your checking, savings or investments to see if you’re where you want to be? If you take the time now, you can start with January and analyze the big picture. You can see if you’re happy with the growth of your investments and discover where you can make adjustments. Taking time to do this now will pay off in the long run.

Examine Your Paycheck

Are your earnings correct? Are you withholding enough taxes? As mentioned at the top, any big life event (divorce, having a child, buying a home) can affect your taxes. If you need help, the IRS has a Tax Withholding Estimator that can help you figure out your income tax, credits, adjustments, and more. If you need to change anything, the Estimator will show you how to update your withholding with your employer or direct you to where you can submit a new W-4. Taking time to review could help you avoid an unwanted large tax bill and/or penalty come tax season.

Double-Check Deductions and Credits

Are you maximizing these? Early planning allows you to identify and leverage available deductions and credits, reducing your taxable income and potentially increasing your tax refund. 

Increase Your 401K Contribution

Are you happy with your contribution? Can you increase it and still make ends meet? When you contribute more from each paycheck, you’ll decrease your taxable income for the year. Since employers usually have matching programs, it’s a great way to get free money and build your nest egg. Make sure you’re in it if your company offers this.

Convert a Traditional IRA to a Roth IRA

If you think you’ll be in a higher tax bracket when you’re in retirement, converting a traditional IRA into a Roth IRA is one way to reduce your tax payments in the long run. Here’s how it works. The money you contribute to a Roth IRA is taxed the moment you contribute, unlike a traditional IRA, which is taxed at the moment of withdrawal. When you convert to a Roth IRA, you’ll be paying taxes at your current rate instead of the (probably) higher tax rate in the future. Translated: You’ll pay taxes up front, which might be a big savings. Finally, Roth IRAs are not subject to the same Required Minimum Distributions as traditional IRAs are. That means more freedom when you want it most – when you retire.

Getting a handle on your finances by being proactive now gives you a great opportunity to take a breath, assess, and change direction if you need to. If anything, it will help prevent stress and scrambling in tax season. It’s safe to say that nobody wants that.

Sources

https://fsa1.com/why-its-smart-to-start-tax-planning-in-july/

Mid-Year Tax Checkup

Examining Differences Between Liquidity And Solvency

Differences Between Liquidity and SolvencyLiquidity looks at how well a company can handle paying wages, inventory, and lending repayments via measuring its cash or quasi-cash levels. Put another way, it looks at the health of a company’s cash flow to satisfy short-term financial obligations.

It’s important to be mindful of different sectors and what’s normal or healthy based on the time of year. For example, retail and manufacturing feature functionally focused companies, which means seasonality impacts their dynamic working capital requirements.

1. Current Ratio

The current ratio looks at the ratio of current assets divided by current liabilities. It measures how well a company is projected to pay its present obligations. If the result is 1.0 to 3.0, it’s considered financially well. However, if it’s higher than 3.0, suboptimal asset utilization may be incurred by the company, with a lower than industry average suggesting financial concern. It’s calculated as follows:

Current Ratio = Current Assets/Current Liabilities

The resulting current ratio can signal many things. For a growing current ratio, debt could be growing or cash levels falling. When the current ratio is falling, but not too low, and it’s a smooth downward trend, it can indicate the company is getting more efficient at moving inventory, collecting invoices, and reducing debt levels.

2. Quick Ratio or Acid Test

This is determined by taking the current assets and deducting inventory from them. Once that’s calculated, that number is divided by current liabilities. By looking at the business’ on-demand liquid assets without factoring in inventory, it’s calculated as follows:

Quick Ratio or Acid Test = (Current Assets – Inventory)/Current Liabilities

Resulting calculations above or equal to 1.0 show a company’s stable short-term fiscal health. It’s important to be mindful that a very high result can indicate there’s idle cash that’s not being reinvested, distributed to shareholders, or otherwise put to better use.

Defining Solvency

Solvency refers to the ability of a business’ complete assets to satisfy its complete long-term financial obligations and loan repayments. It’s especially helpful when the business is analyzed internally or externally to determine if the business can survive and thrive during challenging economic times (industry-specific or macro challenges). It helps determine the company’s creditworthiness, whether it’s a good bet for an investment, and/or the risk for companies to take on additional debt. It looks at not only the debt on the company’s financial statements, but also how it relates to equity, tangible assets, and EBITDA.

Debt to Equity

This measures how a company relies on debt versus its equity. It’s used when comparing one company against its industry competitors and how the company’s own ratio has trended over time. Looking at companies within the same industry, companies with a higher ratio indicate a riskier financial situation. Similarly, a ratio that’s too low can indicate a business not using debt to expand its operations effectively.

While liquidity and solvency are different, they are complementary for both owners and managers, along with external parties such as investors analyzing for the next potential investment.

Navigating Worker Classification: The Critical Difference Between Employees and Independent Contractors

Difference Between Employees and Independent ContractorsRunning a small business often means working with a mix of people: some full-time staff, part-time helpers, seasonal workers or project-based contractors. While this flexibility helps manage costs and workload, it creates a crucial decision point that many business owners underestimate: properly classifying each worker.

The stakes couldn’t be higher. Companies like FedEx have paid nearly half a billion dollars for getting this wrong, and even tech giants like Microsoft and Lyft have faced costly legal battles over worker misclassification.

Why Classification Matters More Than You Think

The difference between an employee and an independent contractor goes far beyond semantics; it fundamentally changes your legal and financial obligations.

When someone is your employee, you must:

  • Withhold income taxes, Social Security, and Medicare taxes
  • Pay the employer portion of Social Security and Medicare taxes
  • Potentially provide benefits like health insurance and retirement plans
  • Consider offering stock options or other incentive programs
  • Pay severance or unemployment compensation when appropriate
  • Comply with wage and overtime requirements

When someone is an independent contractor, you:

  • Simply pay them for their work
  • Issue a 1099-NEC form at year-end
  • Have no tax withholding obligations
  • Owe no employment benefits
  • Face no severance obligations

The Control Test: Your North Star for Classification

The Internal Revenue Service uses one primary principle: control. The more control you exercise over how, when, and where work gets done, the more likely that person is your employee.

Think of it this way: if you’re micromanaging the work process, you’re probably dealing with an employee. If you’re only concerned with the end result, you’re likely working with a contractor. The 20 factors identified by the IRS in Revenue Ruling 87-41 can be found in full here.

The IRS Three-Factor Framework

Rather than getting lost in complicated checklists, focus on these three core areas:

1. Behavioral Control – Do you dictate not just what work gets done, but how it’s performed? Employees typically receive training, follow company procedures, and work within established systems. Contractors bring their own methods and expertise.

2. Financial Control – Who controls the business aspects of the work? Independent contractors typically:

  • Invest in their own tools and equipment
  • Handle their own business expenses
  • Have multiple clients or income sources
  • Set their own rates and payment terms

3. Relationship Type – What does your working relationship look like? Employee relationships typically feature:

  • Written employment contracts
  • Ongoing work arrangements
  • Benefits packages
  • Work that’s central to your business operations

Beyond Taxes: The Broader Impact

Worker classification affects more than your tax bill. The Department of Labor’s 2024 updates to the Fair Labor Standards Act mean misclassification can trigger wage and overtime violations. State labor departments are also cracking down, with some states presuming workers are employees unless proven otherwise.

When Things Go Wrong: Your Options

If you realize you’ve made a mistake, don’t panic. You have several paths forward:

  • Get an Official Determination: File Form SS-8 with the IRS for an official ruling on a worker’s status. While it takes at least six months, you’ll have certainty going forward.
  • Claim Safe Harbor Protection: If you had a reasonable basis for your classification and treated similar workers consistently, you may qualify for tax relief under Section 530.
  • Use the Voluntary Settlement Program: The IRS Voluntary Classification Settlement Program lets you reclassify workers prospectively while receiving some tax relief.

The Bottom Line

Your worker classification isn’t just an administrative detail – it’s a fundamental business decision with major financial implications. When in doubt, err on the side of caution or consult with employment law and tax professionals.

The cost of getting expert advice upfront is minimal compared to the potential cost of getting it wrong.

Decoding Net Realizable Value (NRV)

Decoding Net Realizable Value (NRV)Whether it’s maintaining compliance with accounting standards or ensuring asset values are not overvalued for internal stakeholders or external existing or potential new investors, looking at net realizable value (NRV) is an important concept to understand and discuss how it’s implemented.

Defining NRV

Net realizable value examines what an asset can be sold for after accounting for selling or disposal costs. This results in the final value of inventory or accounts receivable. Used by both the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), it embodies the concept of accounting conservatism that compares NRV to the inventory’s cost. This notion leads accountants to value assets to produce lower profits and not overvalue assets when expert analysis is mandated for the deal review.

NRV is used in the lower-cost or market method of accounting reporting. The market method reporting approach requires a business’ inventory must be reported on the balance sheet at a lower value than either the historical cost or the market value. If there’s no known market value of the inventory, the NRV value can be used to approximate the market value.  

Calculating NRV

Step 1: The asset’s projected selling price or market value must be determined.

Step 2: The manufacturing and sales expenses connected with the asset must be determined. This also includes advertising and conveyance fees, for example, when factoring in costs.

Step 3: Determine the gap between the asset’s projected asking amount and the fees the company incurs to finish the goods and sell it.

This is calculated via the following formula:

NRV = Expected Selling Price – Total Production and Selling Costs

If a company is looking to sell a percentage of its inventory, it needs to figure out the NRV of the inventory that will be sold.

Assuming the selling price is $10,000, it needs to spend $1,500 on finishing costs and another $750 in transportation expenses. Therefore, NRV is calculated as follows:

NRV = $10,000 – ($1,500 + $750) = $7,750

When it comes to valuing current assets such as accounts receivable (AR), this approach can similarly determine the NRV of the unpaid invoices from their clients. This is accomplished by summing their ARs and then subtracting the uncollectible accounts. For example, if there’s $100,000 in outstanding invoices, but $20,000 is uncollectible due to clients’ inability to pay or otherwise cannot be collected. In this type of calculation, instead of determining the production and sales amounts, a business’ allowance for doubtful accounts is substituted. 

Conclusion

While these calculations assist investors and business owners in determining accurate costs of current assets, there are some considerations. For example, in periods of inflation or deflation, businesses must continually evaluate the net amount of the resulting calculation instead of the gross figures. Along with the increased and continual updating of NRVs, since the future price discovery of asset prices is unknown, there’s always room for uncertainty, which investors are constantly trying to determine how efficiently the market is presently pricing things.

While NRV is a single type of calculation, it’s an important one that can help businesses make the most of their inventory, accounts receivable, and similar accounting entries.

New Tax Cut & Spending Bill, Protecting Law Enforcement, VA Benefits and Semiconductor Supply Chains

New Tax Cut & Spending BillOne Big Beautiful Bill Act (HR 1) – Introduced by Rep. Jodey Arrington (R-TX) on May 20, this tax bill supports the president’s tax and immigration agenda. The legislation includes:

  • Making permanent the income and estate tax cuts passed in the Tax Cuts and Jobs Act of 2017
  • Waiving income taxes on cash tips, overtime pay and interest on some auto loans (ends 2028). The tip waiver would be a tax deduction of up to $25,000/year on cash-only tips for workers making less than $160,000/year; FICA taxes would still apply to tips.
  • Temporarily increasing the standard deduction (ends 2028)
  • Reducing the amount of income subject to income taxes
  • Temporarily increasing the child tax credit to $2,500 (ends 2028)
  • Increase the estate tax exemption to $15 million and adjust for inflation going forward
  • Increase the SALT cap to $40,000 for incomes up to $500,000, phasing downward for higher incomes, but increasing the cap and income threshold by 1 percent a year over 10 years

To offset the tax cuts, the bill proposes the following spending cuts:

  • Repeal or phase out clean energy tax credits
  • Reduce Supplemental Nutrition and Assistance Program (SNAP) funding by $267 billion over 10 years (and shift a higher percentage of program benefits and administration costs to states)
  • For able-bodied, food-aid beneficiaries without dependents, work requirements would increase from age 54 to 64
  • Increased work requirements for aid to parents based on the child’s age, from 18 down to 7
  • Reduce funding for Medicaid by $700 million
  • Require able-bodied Medicaid beneficiaries without dependents to engage in work, education, or service for at least 80 hours a month beginning in 2026
  • Revamp the student loan program to yield $330 billion in savings
  • Repeal the regulation that allowed students to cancel loans if their college defrauded them or closed suddenly
  • Increase leasing of public lands for drilling, mining, and logging

Additional components of the bill include:

  • Imposing stricter eligibility and income verifications for ACA exchange customers
  • Shortening the ACA enrollment period by one month
  • Prohibiting Medicaid funds from going to Planned Parenthood
  • Canceling a current regulation for minimum staffing in nursing homes
  • $46.5 billion to construct a wall along the U.S.-Mexico border
  • $6.1 billion to fund Border Patrol agents, customs officers, and investigators
  • Impose a $1,000 fee on migrants seeking asylum
  • Remove 1 million immigrants a year and house 100,000 people in detention centers
  • Eliminate the $200 tax on gun silencers
  • $150 billion in new funding for the Defense Department and national security, such as building a missile defense shield (Golden Dome), restocking the nation’s ammunition arsenal and expanding the Navy’s fleet of ships
  • New parents will receive $1,000 from the federal government via a “Trump” account for each baby born during Trump’s second term. Parents may contribute an additional $5,000 a year to the account, earnings would grow tax-deferred in a broad stock index, with qualified withdrawals (higher education, starting a business or purchasing a home after age 18; any purpose after age 30) taxed at the long-term capital-gains rate; nonqualified withdrawals taxed as ordinary income.

The House bill was passed on May 22 and now undergoes scrutiny in the Senate, where there will likely be considerable changes.

Securing Semiconductor Supply Chains Act (S 97) – This bill would enable state-level economic development organizations to increase foreign direct investment in semiconductor-related manufacturing and production. It was introduced by Sen. Gary Peters (D-MI) on Jan. 15 and passed in the Senate on May 20. The legislation is currently under review in the House.

VA Budget Shortfall Accountability Act (HR 1823) – Introduced on March 4 by Rep. Jack Bergman (R-MI), this act would instruct the secretary of the VA and the U.S. comptroller general to report on Veterans Benefits Administration funding shortfalls for fiscal year 2024 and expected funding shortfalls of the Veterans Health Administration in fiscal year 2025. The bill passed in the House on May 19 and is under consideration in the Senate.

Improving Law Enforcement Officer Safety and Wellness Through Data Act (HR 2240) – This bill would require the attorney general to provide regular reports on violent attacks perpetrated against law enforcement officers, as well as for other purposes. Introduced by Rep. Tim Moore (R-NC) on March 21, the bill passed in the House on May 15, and its fate currently lies in the Senate.