Key Considerations When Starting a Family Office

Are You Considering Starting a Family Office? If so, learn more about the key consideration to make when launching.

Managing the financial, investment, accounting, reporting, and giving needs of a high-net-worth family can be a challenging task. Not only are there compliance issues to manage, but time must also be spent on ensuring investment activities facilitate wealth growth and protection. The expertise necessary to properly achieve these objectives means families often have several advisors working independently. Unfortunately, this often results in a lack of oversight leaving many without the necessary structure to guide efforts. For this reason, many consider starting a family office to provide the streamlined, coordinated guidance and oversight needed. For those unfamiliar with family offices, there are several important start-up issues to consider. To help clients, prospects and others, Selden Fox has provided a summary of the key considerations below.

Why is the family office being created?

This is an important question to answer prior to considering the creation of a family office. The answer to this question will serve as a mission statement and can direct the activities of the office from the start. For some, the purpose may be risk management, while others may simply want a single point to access and manage family investments, taxes, and other wealth drivers. Whatever the reason, it is important to be clear about the purpose upfront, so both the service provider and individual family members, start out on the same page.

Who should be involved?

For some this is an easy question because the office is designed to serve the needs of the initiating members and their children. However, the question becomes more complicated and sensitive when evaluating the long-term nature of the family office. It is important to manage the expectations of other family members such as spouses, adopted children, stepchildren, and others as early in the process as possible. Establishing clear guidelines about participation will make it easier to navigate certain issues as they arise.

What is the governance process?

In the early days of a new family office many rely on informal practices. Typically, decisions are made when issues or challenges arise, and meetings often occur in an informal setting. However, as the office grows so does the need for documented and written governance policies. Items such as bylaws, shareholder agreements, and succession plans are essential to a healthy family office. These policies make operations clear and limit the potential for family conflict which can arise when operating with an informal policy.

What services will be needed?

For most Chicago family offices, the services needed can be categorized as administrative support, financial management, strategic planning, and advisory services. To start, most family members will require information and ongoing reporting on family investments, a review of trusts and estate plans, and assistance with day-to-day issues such as bookkeeping and bill pay. Other needs may include business and individual tax planning/compliance, philanthropic planning, investment management, insurance reviews, and coordination with third party advisors. It is important to note that over time it is likely that service needs will change and evolve.

Where should office be located?

Location and structure decisions are ones that are made hand in hand. The best approach is to first consider the location for the office—assuming a physical office is necessary. Some families elect to establish operations in Chicago since it is where most family members live and work. Others elect to establish out of state or even offshore depending on objectives. When making location and entity structure decisions it is important to assess access to needed professional services (CPAs, investment advisors, etc.), state and local tax laws, access to skilled staff, political stability, and legal structure.

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There are several important decisions to make when starting a family office. For this reason, it is important to consult with a qualified advisor that can review your situation and determine the best way forward. If you have questions about the information outlined above or need assistance with another family office issue, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forwards to speaking with you soon.

Limited Accounting Staff: Time to Consider Outsourced Accounting

The COVID-19 pandemic created several new and unforeseen challenges for Chicago businesses. The combination of initial stay-at-home orders combined with forced business closures caught many by surprise. Almost overnight businesses were shut down or forced to operate under modified rules and hours. The result was a wide disparity between income and expenses forcing tough business decisions, including those related to employee cutbacks. For many, there was no other choice but to furlough or terminate employees and narrowly focus on revenue generation to bolster financial vitality. Unfortunately, this has left many departments, including accounting, with a limited number of full-time staff. To resolve the challenges presented by limited resources many have turned to outsourced accounting (i.e., virtual accounting) to bridge the gap. To help clients, prospects, and others, Selden Fox has provided a summary of the benefits of outsourcing during this difficult time.

Benefits of Outsourced Accounting

  • Cost Savings – The most important benefit to outsourcing during the COVID-19 pandemic is very likely going to be cost savings. Since many businesses were forced to terminate all but essential staff to cope with the new business environment, outsourcing is a practical, economical alternative to hiring internal staff. Not only does the business save on hiring and benefit costs but will have access to experienced professionals with collective knowledge and the full resources of an accounting firm.
  • Accuracy & Consistency – As businesses plan for the post-COVID-19 world, it is imperative to have access to the latest and most updated financial reports. Making important strategic decisions based on information that is inaccurate or outdated will only lead to unexpected outcomes. The speed at which market conditions are changing, especially during the pandemic, means management needs access to the latest financial reports to inform decisions. Outsourcing ensures accurate reports will be delivered when needed.
  • Save Time – Even if a business is in recovery mode and may be able to hire new full-time professionals to fill accounting team vacancies, there is a time consideration that needs to be assessed. There will be a considerable time investment to get the new professional up to speed and familiar with processes and procedures. It could be several months before they are able to perform at the desired level. This is a time investment that many are simply unable to make right now. Outsourcing allows management to circumvent this issue by relying on an outside team to manage essential duties while time and attention are focused elsewhere.
  • Accounting Software – Maintaining the accounting software and other technology assets needed to properly maintain financial records can be an ongoing source of stress for many businesses. Since outsourced providers work with dozens of companies, they rely on the latest versions of the most popular accounting software which offers the most features and flexibility. This allows companies to rely on the latest accounting software without having to be responsible for the ongoing maintenance and related technology investments.
  • Process redesign – While most businesses do not spend much time thinking about how to make their accounting operation more efficient, especially these days, outsourcing presents an opportunity to gain insightful knowledge on various ways to structure your accounting processes. An outsourced provider can leverage their experience with other clients in similar industries to implement new and more efficient processes inside the organization. This allows the organization to be leaner and more cost-effective with their accounting departments for years to come.

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The pandemic has certainly changed the priorities of many businesses resulting in a more revenue intense focus. For this reason, it is important to ensure that essential activities, such as accounting and financial reporting, are not neglected. If you have questions about the information outlined above or need assistance with outsourced accounting or interim staffing, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.

Business Opportunities Abound in Latest COVID-19 Relief Bill

Many Chicago businesses have been struggling for months to overcome the economic challenges created by the COVID-19 pandemic. The combination of modified operating rules and customer safety regulations has left many with limited revenue potential. As the months have passed, it has led to additional layoffs, terminations, and expense reductions. The good news is on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARP), into law providing over $1.9 trillion of relief. For businesses, it means an extension of the Employee Retention Credit, expanded grant and loan opportunities, and multi-employer pension plan relief. To help clients, prospects, and others, Selden Fox has provided a summary of the key changes below.

Key Business Provisions for ARP

Expanded PPP Eligibility – While the Act did not extend the March 31 Paycheck Protection Program (PPP) application deadline, there were important changes made to expand eligibility. Under prior regulations, only certain nonprofits could receive a PPP loan. This has been expanded to include “additional covered nonprofit entities” which now includes most nonprofit types. Certain exclusions apply to organizations involved in lending, selling life insurance, or private clubs. In addition, the Act also creates access for larger 501(c)(3), 501(c)(19), and 501(c)(6) entities assuming they have no more than 500 employees per physical location. Finally, there are restrictions on eligibility based on whether certain lobbying activities are undertaken by the organization.

Shuttered Venue Operators Grant – The Act permits eligible PPP loan borrowers received after December 27, 2020, to receive a Shuttered Venue Operators Grant. However, the amount of the grant will be reduced by the amount of approved PPP funds.

Restaurant Revitalization Fund – The Act creates a new $28.6B fund designed to provide immediate financial assistance to restaurants and other foodservice companies. The amount of the grant is determined by the amount of the pandemic-related losses incurred. Only those with less than 20 separate locations may apply and publicly held entities are excluded. Proceeds may be used to cover a number of expenses including payroll, rent, mortgage principal or interest, utilities, and food and beverage costs.

Employee Retention Tax Credit (ERC) – This popular payroll-based tax credit was extended by the Consolidated Appropriations Act, 2021, and was scheduled to expire on June 30, 2021. However, it has been extended to December 31, 2021. The credit was also changed to be applied against an employer’s share of Medicare rather than Social Security taxes. There were two other important changes, including:

  • Expanded Credit – Severely financially distressed employers are permitted to treat all wages paid as qualifying wages rather than only wages paid to employees not providing services. A distressed employer is an eligible employer whose gross receipts for the first quarter of 2021 are less than 10% for the same period in 2019.
  • Start-Up Businesses – The credit is expanded to include “recovery startup businesses”. This is an employer that started operations after February 15, 2020. While additional guidance for these businesses is expected, the maximum credit amount per calendar quarter is $50,000.

Multi-Employer Pension Plans (MEPPs) – A new financial assistance program was created to provide support to MEPPs facing solvency issues. The $85 billion fund will be administered by the Pension Benefit Guaranty Corporation (PBGC) and provide troubled plans with a means of covering benefit payments and plans expenses. While the application details have not yet been developed there is eligibility criteria that must be met in order to participate, including:

  • A plan must be in critical and declining status.
  • For plan years between 2020 and 2022, the plan is certified to be in critical status, has a modified funding percentage of less than 40% and has a ratio of active to inactive participants less than two to three.
  • Finally, any MEPP which was insolvent after December 16, 2014, but did not terminate the plan prior to the Act’s enactment.

Family & Sick Leave Credits – While the Act did not renew the requirement for companies to provide paid family and sick leave benefits originally required under the CARES Act, there was an extension of available tax credits for qualifying wages and benefits paid for those who voluntarily participate. Credit availability was originally scheduled to expire on March 31, 2021 but has been extended to September 30, 2021. The Act also makes other modifications, including:

  • The Act expands qualifying situations to include leave provided to employees obtaining an immunization or recovery from a condition related to immunization and those awaiting the results of a COVID-19 test after exposure or at the employer’s request.
  • Expands employer eligibility to include 501(c)(1) governmental organizations.
  • Increases the total number of eligible paid family leave from 10 weeks to 12 weeks.
  • Resets the date for counting paid sick leave to March 31, 2021. This means that employees that previously took ten days of emergency paid sick leave can receive an additional 10 days in 2021.

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The relief offered through the American Rescue Plan Act of 2021 is welcome news for Chicago businesses that continue to struggle against the pandemic. Given the number of changes, it is important to consult with a qualified tax advisor to determine the best savings options for you. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Selden Fox can help. For additional information call us at 630-954-1400 or click here to contact us. We look forward to speaking with you soon.

IRS Officially Changes Tax Day for Individuals to May 17

UPDATE: Illinois Governor J.B. Pritzker has announced that the State has changed the state tax filing deadline to May 17 from April 15 to match the changed deadline for federal tax filing. Like the change on the federal due date, this only impacts Form 1040. Additionally, this change by Illinois does not apply to estimated 2021 tax payments due on April 15, 2021.

On March 17, the IRS officially announced that the federal income tax filing due date for individuals–Form 1040–will be changed from April 15, 2021, to May 17, 2021. Additional details expected to come from the IRS shortly. This does not change the 2021 Q1 estimates for individuals, which remain due on April 15, 2021. Additionally, the IRS has NOT indicated that U.S. Income Tax Return for Estates and Trusts Form 1041 and U.S. Corporation Income Tax Return Form 1120 due on April 15, 2021, will be changed.

We will continue to provide updates via our website and newsletters as the IRS provides additional guidance on this latest announcement.

House Committee Issues Statement that April 15 Tax Day Now May 17 for 2021

The House Ways and Means Committee (the Chief tax-writing body in congress) has issued a statement that the tax filing deadline will be extended from April 15, 2021 to Monday, May 17, 2021. This will provide taxpayers additional time to file their returns after mounting pressure from lawmakers and organizations.”

“This extension is absolutely necessary to give Americans some needed flexibility in a time of unprecedented crisis,” Committee Chairman Richard E. Neal (D-MA) and Oversight Subcommittee Chairman Bill Pascrell, Jr. (D-NJ) said in a statement on Wednesday. “Under titanic stress and strain, American taxpayers and tax preparers must have more time to file tax returns. And the IRS itself started the filing season late, continues to be behind schedule, and now must implement changes from the American Rescue Plan.”

The IRS has yet to officially announce the extension, and more details will follow once they become available.

Individual Taxpayer Relief Under the American Rescue Plan Act of 2021

On March 10, 2021, Congress passed a final version of the $1.9 trillion relief bill entitled the American Rescue Plan (ARP), and President Biden signed the legislation this afternoon. The ARP has several facets to it that are going to affect most Americans. This bill provides money for COVID vaccines and testing, relief to state budgets, and various other pet projects. To help clients, prospects, and others, Selden Fox has provided a summary of the relevant portions of the ARP related to individual taxpayers.

Recovery Rebates (aka Stimulus Payments)

The most significant aspect of the ARP is the third round of stimulus payments for Americans. This time the checks are going to amount to up to $1,400 per taxpayer and dependent. There are some crucial differences between the previous stimulus checks and these new payments that will hopefully be sent out over the course of the next two weeks.

ALL dependents are now eligible for stimulus payments. Previously, if you had a child over the age of 16 or if you had an adult-dependent, that dependent did not receive a stimulus. This time, you will receive $1,400 for all dependents.

This stimulus also significantly narrowed the phase-out range. Previously, if you made more than $75,000 (single) or $150,000 (married), you saw a reduced stimulus payment until you reached the top end of the phaseouts at $99,000/$198,500 for the first stimulus payments. Now, the phase-out happens a lot quicker so once you make $80,000 (single)/$160,000 (married), you will receive no payment.

The IRS is going to base your recovery rebate on your most recently filed tax return. For those who made more money in 2020 than 2019, refraining from filing your taxes until you get your stimulus money is the best course of action.

In the alternative, if you made less money in 2020 than in 2019 and are now under the threshold for receiving a stimulus payment, you will want to file your 2020 taxes in order to get your recovery rebate payment.

To that end, the ARP states that stimulus payments will be paid out in two phases. In Phase I, the IRS will use data that it already has and pay stimulus payments out based on that information. For anyone who earned less in 2020 than in 2019 and has not filed a tax return yet, there will be a Phase 2 in which the IRS will pay additional funds to everyone who should have received a larger rebate based on their 2020 filing. That date is going to be the earlier of 90 days after tax deadline day OR September 1, 2021. The takeaway to the 2-Phase payout: We do not have to rush to get your taxes filed for 2020 just so you can get your stimulus. Whatever you do not get in the first phase, you will get in the second phase, 90 days later.

When is my Recovery Rebate Coming?

If you are eligible for this stimulus payment based on the data the IRS already has, you will likely receive it in the next few weeks. The IRS pushed its first stimulus payments out in a matter of six days from the point that President Trump signed the Consolidated Appropriations Act in late December, and we can probably expect payments to start going out as soon as next week.

Unemployment Benefits Are Now (Partially) Non-Taxable

The ARP allows for the first $10,200 in unemployment benefits as non-taxable, but only for people who made less than $150,000 in 2020.

If you or someone you know has filed their 2020 tax return already and was on unemployment in 2020, there is a good chance they are going to have to amend their tax return to recoup these taxes. However, the IRS could conceivably “automatically adjust” these returns, once the IRS systems are re-programmed. That process has not been detailed yet but likely will be addressed by the IRS given the number of people it could impact.

Expanded Child Tax Credit

If you have a child under the age of 17, you typically receive a Child Tax Credit (CTC) of $2,000. The ARP is extending that Child Tax Credit to $3,600 per child under the age of 6, and $3,000 per child between the ages of 6 to 17. Dependents who are 18+ remain worth a $500 credit. This change is for Tax Year 2021 only.

The expanded CTC also comes with another bonus. The IRS is going to be paying out half of the CTC monthly from July 2021 to December 2021. This means that if you qualify, you will receive $300 per month per child under the age of 6 or $250 per month per child between 6 to 17 years old from July 2021 to December 2021.

As with the stimulus payments, you will not receive the expanded CTC or the advance if you make more than $75,000 (single)/$150,000 (married). Taxpayers over the threshold will still receive CTC of $2,000 on their 2021 return, but they will not receive the advance or the extra money.

Unlike the Recovery Rebates, this CTC advance WILL be “trued up” on your 2021 tax return, so if you receive the advance payments in 2021, but your income for 2021 ends up being over the threshold, you will be required to pay that excess back.

Other Items

In addition to these provisions, the ARP also has some tax implications for lower income Americans, including Expansion of the Earned Income Credit, extension of the $300/week federal unemployment assistance through September 6, 2021, and expansion of the Health Insurance Premium Tax Credits that benefit those who purchase a health plan through Obamacare.

What does this mean for tax filing season?

For filing your 2020 taxes, given the ARP and all that is involved it is likely your tax return, even if filed on time, will experience delays in processing. The Treasury and the IRS must implement changes from the ARP, halt their e-filing systems, reprogram computers, and the deal with the already voluminous mail backlog that will only grow in the interim. This may increase the probability that Tax Deadline Day may once again be extended as it was last year but only time will tell if that is the case. If Tax Day does get extended, similar to last year, we will be faced with states making decisions to follow suit or non-conform.

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Selden Fox will continue to stay abreast of the ARP and will post additional news as appropriate. If you have questions on the above information or need assistance with another tax or accounting issue, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.

Chicago Issues Guidance on Nexus for Remote Sellers

Nexus is a technical tax term referring to the connection between a seller and a state, or other local jurisdiction that requires the seller to collect and remit taxes. In most circumstances and historically nexus is established when a business has a physical location (such as an office or warehouse) or when a certain sales threshold has been met. The rules surrounding nexus significantly changed with the U.S. Supreme Court ruling on South Dakota v Wayfair striking down the physical presence requirement. Since the 2018 ruling, many businesses have been seeking guidance on how to comply with local tax rules, including those with the City of Chicago. In late January, the City of Chicago issued an Information Bulletin Nexus and Safe Harbor, outlining how nexus matters will be approached going forward. To help clients, prospects, and others, Selden Fox has provided a summary of the key details below.

Nexus Safe Harbor

The bulletin includes the introduction of a safe harbor program for remote sellers. Under the program, out-of-state entities with less than $100,000 in sales, over the past four consecutive quarters, will not be required to collect the Chicago Amusement or the Personal Property Lease Transaction Tax for the current calendar quarter. The program is offered with the following conditions and limitations, including:

  • The entity has no other significant contacts with Chicago such as a physical presence, local employees, or agents acting in their interest.
  • The program will apply on a prospective basis starting July 1, 2021. No refunds will be given, or credits granted for taxes paid prior to that date.
  • If a business initially qualified for the program but no longer does, it is required to register with the Department of Finance within 60 days, begin collecting taxes within 90 days, and continue collecting for at least one year.
  • The safe harbor program is focused only on the issue of whether a business has to collect taxes and does not impact whether a company has payment responsibility.

Nexus Determination

In cases where the safe harbor does not apply, the Bulletin confirms that businesses with Chicago activity are expected to comply with tax collection and payment regulations. Several factors will be reviewed when determining whether a business has collection and payment responsibilities. The factors include whether the state’s economic nexus threshold has been met, whether agreements with other Chicago businesses have been made, any local employee activity, local advertising programs, and any other activity aimed at conducting business in Chicago. Ultimately, whether nexus has occurred will be evaluated on a case-by-case basis. 

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While many remote sellers have focused on complying with state tax rules, it is important not to neglect local jurisdiction requirements as well. Since there is often lack of conformity around nexus rules it is important to carefully review guidance in jurisdictions where the business may have exposure. If you have questions about the information outlined above or need assistance with a state or local tax issue, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.

Auto Dealerships: An Economic and Tax Outlook for 2021

With a new President and a democratic majority control of the U.S. House of Representatives, the Senate, and the Presidency, more initiatives are likely to get accomplished in the President Biden’s tax plan. Here we look at some potential impacts on auto dealerships considering this new majority.

President Biden’s tax plan on auto dealers

In a fall 2020 NAADA webinar, Rick Lazio, senior vice president of alliantgroup and former U.S. Congressman, and Dean Zerbe, national managing director of alliantgroup shared their predictions, based on their experiences, on Biden’s tax plan will impact auto dealerships and their owners, including which measures have the greatest likelihood of passing under a Democratic Senate majority.

These are only predictions and should not be considered as fact. Any number of potential changes and circumstances could impact future changes to tax law.

Impacts to businesses likely to pass:

  • Corporate tax rate increase from 21% to 28%
  • Tax on book income and international tax
  • Expansion of the new market credit
  • Job investment credits

Impacts to businesses that are less likely to pass:

  • Financial transaction tax and carried interest
  • Elimination of tax preferences for fossil fuels
  • Worker classification (may depend on a California referendum to set precedent)

Impacts to individuals that are likely to pass

  • Restoration of pre-tax cut income tax rates for the top brackets
  • Increase of capital gains tax
  • Estate tax changes and the repeal of the stepped-up basis rule which would raise rates and lower exclusions

Impacts to individuals that are less likely to pass:

  • Cap of itemized deductions at 28%
  • Repeal of SALT limitation – Not likely to get an outright repeal, some limitations possible
  • Increase of Social Security tax

 Potential Compliance Impact for Auto Dealerships

While President Biden has and will continue to appoint new staffers to senior levels, the term rollovers will dictate when and how. Therefore, auto dealerships should prepare now for these potential changes in compliance, although timing is still uncertain. Each compliance body that oversees the auto dealership industry are likely to see an evolutionary overhaul and a resulting tightening of compliance under the Biden administration. Here’s what you should know:

Consumer Financial Protection Bureau (CFBP) – Under the Obama administration, auto dealerships came under fire for disparate impact credit discrimination from the agency. However, in 2018, the bulletin was disproved because there was not proof of intent to discriminate. Expect to see the CFBP be more active in the Biden administration as one of its architects, Sen. Elizabeth Warren, is likely to be a key player.

Federal Trade Commission (FTC) – The FTC has oversight over auto dealers and auto finance, but since FTC commissioners serve staggered terms, a mix of political parties will remain in place until 2023. However, a more activist FTC should be expected over time as it is likely the Biden administration will appoint left-leaning commissioners.

The Department of Justice (DOJ) – With President Biden’s selection of Merrick Garland for Attorney General, it is likely the DOJ will have a greater focus on auto dealers who commit fraud, misrepresent transaction information, or any other federal law will likely see more investigations, enforcements, and criminal proceedings.

State Attorneys General – Your state attorney general is likely to be the most active consumer protection body you will face. It is likely states, with backing from the CFPB, will pursue more claims against auto dealers. Therefore, ensure you have a sound policy and procedure for handling consumer complaints.

In preparation for these evolutionary changes, your dealership should:

  • Train and update your employees and policies
  • Ensure your privacy notice is sufficient and clearly states your sharing practices
  • Adopt and implement the NADA Fair Credit Compliance Program and NADA Voluntary Protection Products policy and program, if not already done 

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Much is yet to be determined as changes continue to take place in Washington. If you need assistance or have questions about these potential impacts, Selden Fox can help. Our team has considerable experience in this area and can identify the appropriate solution for your needs. For additional information please call us at 630.954.1400 or click here to contact us.