Biden’s Proposed Tax Agenda: American Families Plan

Overcoming the financial difficulties created by the COVID-19 pandemic has been quite challenging for Chicago families and businesses. Although widespread vaccine distribution has eased many of the government restrictions, corresponding economic improvements have been slow to improve. In fact, it was recently reported that April unemployment in Illinois remained at 7.1% and is a percentage point higher than the national average. In other words, the road to recovery may be longer than any of us hope.

To help rebuild and reposition the economy, the Biden Administration introduced its proposed tax agenda—the American Families Plan (AFP), which would provide $1.8T in investments and tax credits for families and children over the next 10 years. The comprehensive plan focuses on childcare, universal pre-kindergarten, free community college and makes higher education affordable for low- and middle-income students. It also includes enhanced tax incentives and tax cuts for American families. To help clients, prospects, and others, Selden Fox has provided a summary of the key details, including tax provisions, below.

Key AFP Provisions

  • ACA Premium Tax Credits – The American Rescue Plan provided two years of reduced premiums for those who purchase healthcare coverage independently. The AFP seeks to make this change permanent permitting over nine million people to save on healthcare costs and making coverage affordable for many of the uninsured.
  • Extension of the Child Tax Credit –The American Rescue Plan temporarily expanded the Child Tax Credit from $2,000 per child to $3,000 per child six years old and above and $3,600 for each child under six. It also made the credit refundable as well. The AFP calls for an extension of these changes through 2025 and makes the refund provision permanent.
  • Child and Dependent Care Credit – The AFP calls for Congress to make permanent the changes to the Child and Dependent Care Credit approved under the American Rescue Plan. Families will receive a credit for up to 50% of expenses on qualified childcare, up to $4,000 for one child, and $8,000 for two or more children. A 50% reimbursement will be allowed for those making less than $125,000 per year and partial credit for those making between $125,000 and $400,000 per year.
  • Earned Income Tax Credit Expansion – The AFP would also make permanent the Earned Income Tax Credit increases outlined in the American Rescue Plan, which tripled the benefit amount for qualifying families.
  • IRS Regulation Paid Tax Preparers – Finally, there is a provision that would allow the IRS to regulate paid tax preparers. Unfortunately, tax returns prepared by certain types of preparers have a very high error rate. Not only do they charge for the erroneous work, but they also subject taxpayers to costly audits. To remedy the issue and ensure consistency in training and quality, the AFP calls for the IRS to be empowered to regulate paid tax preparers.

Key Tax Reform Provisions

  • Increase in the Top Tax Bracket – There would be an increase in the top federal income tax bracket from 37% to 39.6% for taxpayers earning over $400,000. This modification would undo the top rate reduction made in the American Tax Cuts and Jobs Act of 2017.
  • Raise Capital Gains Taxes – There would also be an increase in the capital gains tax rate for taxpayers with a gain in excess of $1M. Under the AFP, the tax rate would be raised to 39.6% on investments, which represents an almost 100% increase in the capital gains tax rate.
  • Eliminate the Carried Interest Loophole – The AFP also calls for Congress to close the carried interest loophole, so hedge fund partners pay ordinary income tax rates on their income.
  • 1031 Exchange Limitations – These exchanges allow real estate investors to defer capital gains on the sale of property or assets. Under the AFP, exchanges would be limited to gains of up to $500,000, requiring taxes to be paid on other amounts.
  • Eliminate Medicare Tax Loopholes – While high-income earners and investors generally pay 3.8% Medicare tax on earnings, the application is inconsistent because of loopholes. The proposed changes would eliminate these loopholes and ensure those earning $400,000 would be taxed consistently. 

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The American Families Plan is an integral part of the Administration’s legislative agenda and has been called a once-in-a-generation investment in American families. While key elements will certainly be changed and compromises made as this goes through Congressional negotiation, the details provide important insight into the changes that the Administration is proposing. We will continue to provide updates if and when some of the provisions get closer to becoming reality. 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.

2021 Child Tax Credit Advance Q&A

The American Rescue Plan Act, which was passed in March 2021, temporarily expanded, and enhanced the Child Tax Credit. On July 15, 2021, certain taxpayers will begin receiving the first automatic deposits of the expanded Child Tax Credit. Many taxpayers have lingering questions about whether they qualify and if they need to do anything. As is the case with most IRS issues, the answer depends. Here we look at some of the questions that continue to arise.

How much is the tax credit?

For this year only, it has been increased from a base of $2,000 per child to $3,600 for children aged 5 and under and $3,000 for children aged six to 17. New for this year, 17-year-olds qualify for the credit; in normal tax years, the child tax credit only applies to children up to age 16.

When and how will taxpayers receive payments?

The monthly payments will occur between July and December. The payments are a partial advance of the expected full credit that taxpayers will receive on the 2021 annual tax return. Taxpayers should have received a letter from the IRS in June alerting them of the upcoming automatic deposits and offering information on how to unenroll. The default status, provided eligibility requirements are met, are the automatic monthly deposits. To change the default status and unenroll, taxpayers must visit the IRS website.

Why are these payments a partial advance of full credit?

Splitting up the child tax credit in half was meant to help alleviate taxpayers’ potential financial burdens this year as the economy still recovers from the pandemic. As a result, the monthly installment payments equal half of the total credit; the other half will be received when taxpayers file their 2021 returns next year.

As an example, a family with two children ages 4 and 6 years old would be eligible to claim up to $6,600 in total. This includes $3,600 for the four-year-old and $3,000 for the six-year-old. Half of that amount – $3,300 – will be split evenly between six payments July through December resulting in monthly payments of $550.

Who qualifies for these tax credits?

Taxpayers qualify for the child tax credit if they meet certain requirements, including:

  • Filed a 2019 or 2020 tax return and claimed the child tax credit or used the IRS’s non-filer tool to receive economic impact payments.
  • Owned a main home in the U.S. for more than half the year or file jointly with a spouse who did.
  • Have a qualifying child under the age of 18 as of 2021 with a valid Social Security number.
  • Meet income thresholds below a certain amount.

These requirements apply to both single filers and married taxpayers filing jointly.

To qualify for the full credit, taxpayer’s modified adjusted gross income must be $150,000 or less for married filing jointly, $112,500 for Head of Household, and $75,000 for single filers. Taxpayers with income above these limits may still qualify for a partial credit.

The IRS will use information contained in the most recent tax return on file, either 2019 or 2020, to determine eligibility. Thus, if a taxpayer has filed their 2020 return and income levels have substantially changed in 2021, it is possible for their eligibility to change.

Taxpayers do not need to owe tax or earn income to qualify for the child tax credit. These payments do not count as 2021 income.

What if adjusted gross income is higher than qualifying amount?

There are two income phaseouts. The first one reduces the credit amount by $50 for each $1,000 in income over the threshold for a total maximum credit of $2,000 per child. The second phaseout can reduce the credit amount to less than $2,000 per child for income levels above $400,000 for married filing jointly or $200,000 for all other taxpayers.

What do I need to do to get these payments?

Generally, if income thresholds and other requirements are met as of the 2019 or 2020 tax return, taxpayers do not need to do anything to receive the advance monthly payments. Non-filers will need to use this tool on the IRS’s website to start the process.

In some situations, taxpayers may want to unenroll from the advance monthly payments. This would be wise if taxpayers know they will not qualify for the credit in 2021 and want to avoid paying the IRS back. Sometimes, it is a matter of personal preference, and some would rather receive the full credit in one installment next year rather than spread out the payments.

How will tax credit impact my 2021 tax return?

When filing the 2021 tax return, you should compare amount of the advance payments with the amount of the child tax credit that can be properly claimed. If the credit exceeds the amount of the advance, then the remaining balance can be claimed. Conversely, if the credit payments are more than what can be properly claimed, you may need to repay the IRS some or all of the excess amount.

 In a few cases, some taxpayers might not have to repay excess amounts. Repayment protection is offered to taxpayers whose main home was in the United States more than half of 2021 and whose modified adjusted gross income for 2021 is at or below certain thresholds. These are:

  • $60,000 for married filing jointly or widow/er
  • $50,000 for head of household
  • $40,000 for single filers or married filing separately

In January 2022, Letter 6419 from the IRS will have the total amount of advance monthly payments from this year; keep it handy until it is time to file 2021 taxes.

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The Child Tax Credit advance is welcome news to Chicago families that may still be facing challenges as a result of the pandemic. If you have questions about the information outlined above or need assistance with a tax planning or compliance need, 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.

The Lingering Impact of COVID-19 on Valuations

The COVID-19 pandemic created several significant challenges for Chicago businesses. From shelter at home, forced business closures to modified operating hours and consumer concerns about virus transmission, it has not been an easy journey. As the widespread distribution of the vaccine continues, government regulations are gradually being lifted permitting a return to pre-pandemic norms. One of the “side effects” of the pandemic was an increase in M&A activity as new opportunities began presenting themselves. In fact, M&A activity rebounded in the second half of 2020 and isn’t showing any signs of slowing down. However, what has changed is how business valuations are conducted, including how company and intangible assets value is determined. To help, clients, prospects and others, Selden Fox has provided a summary of the key COVID-19 valuation considerations below.

Valuation Methodologies

There are two basic approaches to business valuations: income and market-based. Income-based methodologies include discounted cash flow analysis or net income. Market-based methodologies range from market multiples, like price-to-earnings, using data from similar companies.

Both approaches have had to shift since the start of the pandemic, and some may be more appropriate than others as the pandemic becomes a thing of the past. It is more common now to use the discounted cash flow method to better capture short-term marketplace changes. The timeframe to use in the valuation can vary between two or three years, or longer.

In the pandemic’s early months, valuation guidance centered around more frequent valuations, known liquidity risks, and reassessing assumptions. Even now, uncertainty is risk when it comes to valuations, and there is plenty of it. But the focus has shifted to informed decisions and more judgment. Arriving at a fair valuation is arguably harder in most industries than pre-COVID, but not impossible.

COVID-19 Valuation Considerations

Chicago business owners and investors must keep in mind that valuations measure future projections, not current operating conditions. Three factors to consider when approaching valuations post-COVID are uncertainty, inputs, and new operating models.

Uncertainty

Many valuation experts can compare the uncertainty of COVID-19 to the aftermath of the 2008 financial crisis. Fortunately, valuations conducted after industries largely reopened are operating under better known circumstances than those in 2020. Despite that, U.S. tax laws and regulations continue to change, supply chain disruptions persist, and revenue still may not reflect pre-pandemic levels. It is unclear how long the return to normal will take, or what normal will even look like.

One way valuation experts are approaching uncertainty is to evaluate the average range between the highest and lowest profit estimates for a group of similar companies in an industry. Unsurprisingly, the industries experiencing the highest ranges in profit estimates are airlines, oil, gas and consumable fuels, hotels, restaurants and leisure, and specialty retail. More stable industries are software, biotechnology, and pharmaceuticals.

Inputs

One of the most difficult parts of valuations during COVID-19 has been forecasting expected cash flows. Concurrently, cash flow is one of the most important inputs in the valuation process. Since little is known about how and when a full recovery will occur, it is difficult for speculative information to be used in the valuation determination process.

New Operating Models

Since the start of the pandemic, most businesses had to pivot to meet the changing demands of a new economy. Restaurants shifted to online ordering and delivery, healthcare providers pivoted to remote visits, and education went remote. Many businesses no longer have the need to maintain as large of office space, and even patient facilities may be reconsidered in the future given remote options that may continue in our new normal. The resulting effect is that cost structures may be materially impacted due to what will be long-term, possibly permanent changes.

 Impact of COVID-19 Relief Legislation

COVID-19 legislation like the CARES Act and its related financial support packages including the PPP, EIDL, other SBA-related programs, and subsequent legislation created one-time cash flow events that altered company valuations. For example, the Net Operating Loss deduction that was temporarily repealed caused some businesses to receive immediate tax refunds. These types of one-time changes increased expected cash flows, which affect net income and certain valuation methodologies.

Key Considerations Related to COVID-19 Relief Legislation

  • The treatment of PPP loans and whether they were forgiven or if portions are to be treated as low-interest loans.
  • If the company received a temporary loan deferral from an existing SBA loan, which then altered cash flow, increased net income, and affected cost of capital.
  • Whether certain CARES Act provisions altered company multiples due to industry-wide changes.
  • If the company accepted CARES Act-related funds and whether that meant the company was in financial distress
    • Along the same point, whether accepting CARES Act funds would indicate future financial position.
  • If the company used or is using certain tax credits, like the Employee Retention Tax Credit or other payroll tax credits.

With COVID-19, the valuation date is important in terms of what was known or what was still uncertain. An understanding of how the industry was impacted as a whole and continues to recover will be helpful in determining value. Any one-time revenue or expense events should be removed from the company’s income stream and corresponding adjustments made to account for them.

Recommendations

Given the ongoing uncertainty of a post-COVID economy, businesses can take some steps to improve their valuations over the next several months. This includes reviewing their current cash balance and preparing cash flow projections monthly over the next year, especially for businesses looking to sell. Additionally, companies can perform financial projections and business plans for the next three years, so that some post-COVID scenarios are easier to project.

Businesses will need to continue to pivot, adjust, and be proactive as new and emerging opportunities emerge. Two lessons that COVID-19 taught us are the value of listening to the needs of the audience and adapting to changing conditions.

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The pandemic certainly created new and challenging circumstances for Chicago business owners, especially for those looking to sell a business. Despite the unprecedented situation, business valuation methods and assumptions can be revised to paint an accurate value of a business or asset. If you have questions about the information outlined above or need assistance with a valuation, 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.

SECURE Act 2.0 – More Retirement Saving Opportunities Ahead

Expanding the retirement saving opportunities available to American workers has been a Congressional priority for several years. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 made several important changes to increase access to workplace retirement saving plans amongst other provisions. However, the arrival of the COVID-19 pandemic not only prevented workers from taking advantage of the new changes but forced them to reassess financial priorities. To rekindle interest in retirement savings, the Securing a Strong Retirement Act of 2021 (Act), was recently approved by the House Ways and Means Committee. Key provisions for SECURE Act 2021 include an increase in the RMD age to 75, new automatic enrollment rules, expanded catch-up contribution limits, new hardship distribution rules for 403b plans, and expanded tax incentives. To help clients, prospects, and others, Selden Fox has provided a summary of the key details below.

  • Automatic Enrollment – The Act would require a mandatory auto-enrollment for new employees (when eligible) for any defined contribution plan started after 2021. Employers would be required to set up enrollments with a 3% pre-tax contribution limit of employee pay. The contribution amount would increase annually by 1% up to at least 10% but may not exceed 15%. Participants will still be able to opt out of automatic enrollment. Finally, small businesses with less than 10 employees, church, and governmental plans would be exempt from this provision.
  • Expanded PartTime Employee Participation – The SECURE Act of 2019 made important changes that created access to retirement plans for part-time employees under certain conditions. The new Act proposes reducing the eligibility waiting period to two years. This would allow part-time employees that have worked at least 500 hours per year for two years and have been with the same employer for two consecutive years to qualify.
  • Required Minimum Distributions (RMD) – The Act proposes increasing the minimum age for taking RMDs to 75, reduces the penalty for not taking an RMD to 25 percent, and eliminates the RMD requirements for individuals with a retirement account balance of less than $100,000.
  • Increase Catch Up Contribution Limits – To help create new saving opportunities for those nearing retirement, the Act calls for an increase in catch-up contribution limits. Currently, catch-up contributions can be made by employees who are 50 and older, limited to $6,500 for 2021. The Act calls for the introduction of a higher contribution limit, $10,000 per year, for participants between the ages of 62 and 64 starting in 2023.
  • Expanded Qualified Charitable Distributions (QCDs) – The Act calls for a limit increase on QCDs from $100,000 to $130,000 per account owner and expands access beyond IRAs to include retirement plans. There would also be a modification that allows a one-time distribution to charities through charitable gift annuities and charitable remainder trusts.
  • Student Loan Payments – Many younger workers are unable to commit to retirement savings because of student debt obligations. The Act creates the option for employers to make matching retirement plan contributions for participants making qualifying student loan payments. This will help to ensure savings can start even while student loans are being repaid.

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The SECURE Act 2.0 has the potential to offer new retirement saving opportunities and benefits across the board. While it is likely there will be changes as the Act goes through Congressional approval, this pending legislation does provide insight into the changes currently under consideration. If you have questions about the information outlined above or need assistance with a benefit plan audit or 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.

Employee Tax Retention Credit (ERC) Updates

The American Rescue Plan Act (ARPA) provides significant relief for businesses through expanded funding, and the renewal of federal loan and tax incentive programs. While Chicago has committed $146.6M in business loans and grants and is currently supporting more than 4,000 businesses, the ARPA is needed to help many to the other side of this pandemic. Initially when support began from the federal government, the popular Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) program were top of mind for many businesses. However, changes and continued evolution of the Employee Retention Credit (ERC) create an additional dimension of savings for businesses. To help clients, prospects and others, Selden Fox has provided a summary of the key details below.

Employee Retention Credit Updates

  • Deadline Extension – ARPA extended the ERC to include eligible wages and health benefit expenses through December 31, 2021. This is the second extension Congress has made to ERC following the initial 6-month extension approved in the Consolidated Appropriations Act (CAA).
  • Applicable Employment Taxes – Prior to June 30, 2021, the ERC is claimed against the employer’s share of Social Security taxes. However, the ARPA changes the definition of applicable employment taxes to the employer’s share of Medicare taxes owed per employee.
  • Eligibility – There were several changes made to eligibility which permits startups and financially disadvantaged companies to receive new or additional benefits. The current eligibility requirements which impact most businesses will remain the same. However, there are two important changes which include:
    • Recovery Start Up Businesses – These are businesses which started on or after February 15, 2020, have no more than $1M in average annual gross receipts in the last three years and are otherwise not eligible to claim the credit. These businesses will be eligible for an expanded credit maximum of $50,000 per quarter, even if there was no decline in gross receipts or suspension of operations.
    • Severely Financially Distressed – As the name suggests these are businesses that have suffered significant declines due to the COVID-19 pandemic. Any company that has experienced a quarterly decline in gross receipts of 90%, or more, when compared to the same calendar quarter of 2019, will be permitted to treat all wages paid as eligible for the credit regardless of the size of the employer. This is welcome relief for large employers facing tough conditions to claim employee wages regardless of whether services are being provided or not.
  • PPP Recipients – When the CARES Act was passed, a business that received a PPP loan was not eligible to claim the credit. However, this was changed by the CAA which permits the ERC to be claimed on qualifying wages not paid from PPP loan proceeds. The ARPA made an additional change disallowing wages paid for by the Restaurant Revitalization Program or Shuttered Venue Operators Grant from being included in the credit calculation.
  • Extended Enforcement – An atypical change was made to the statue of limitation rules under which the IRS is permitted to review ERC claims. The ARPA extended the review timeline to five years which means proper reporting, calculation and documentation of credit take on even greater importance.

Effective Date

The changes outlined above are effective July 1 through December 31, 2021.

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The changes to the ERC are welcome news for many Chicago businesses facing ongoing pandemic challenges. Given the complexity of the program including the recent changes, it is important to consult with a qualified tax advisor to guide you through the process. If there are questions about the changes or if you 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.

DOL Issues Cybersecurity Guidance for Plan Fiduciaries

As the number of cybersecurity incidents continue to climb, it is important for businesses to maintain and improve cybersecurity processes and controls. Cybercriminals are constantly developing new techniques for stealing personally identifiable information (PII) such as social security numbers, bank account information, credit card account numbers, name, address, date of birth details, and more. According to the Employee Benefits Security Administration (EBSA), there are more than 140 million retirement plans with over $9 trillion in assets currently in operation. If this data is not properly protected through appropriate cybersecurity measures, it can create exposure for plan fiduciaries. Given this, the Department of Labor (DOL) recently released guidance on cybersecurity program best practices to help plan fiduciaries when selecting third-party plan vendors. To help clients, prospects, and others, Selden Fox has provided a summary of the key details below.

Cybersecurity Guidance Summary

Formal, Well Documented, Cybersecurity Program

When evaluating a potential vendor, it is important to ensure there is a well-documented cybersecurity program in place to protect plan participants. The plan should include components that:

  • Protect the infrastructure, information systems and information itself from unauthorized access or other criminal acts. The vendor’s plan should allow them to identify system risks, detect, and respond to cybersecurity issues, recover from the unexpected, disclose the breach as appropriate, restore normal operations and services, and be reviewed at least annually by a third-party auditor.
  • Establish strong security policies. This includes guidelines that are approved by senior leadership, reviewed at least annually, and are adjusted to ensure maximum protection. There should also be an annual independent audit to confirm compliance with established standards.
  • Formal policies and procedures that govern plan components. This may include data classification, business continuity and disaster recovery, asset management, risk management, physical security and environmental controls, data privacy, cybersecurity awareness training and data encryption.

Independent Third-Party Audit

Ensure the vendor undergoes a regular independent audit of cybersecurity controls and policies. An unbiased audit creates a clear picture of the existing risks, vulnerabilities and weaknesses that may need to be addressed.  It is common for these audits to include a summary report, penetration testing reports and supporting documentation. The vendor should document how they’ve responded to all issues identified in the independent audit analysis.

Strong Access Control Procedures

Ensure potential vendors have controls that ensures user authentication and authorization. There are several best practices for access control which include:

  • Access privileges are limited on the individual’s role (general user, administrator, etc.) and comply with the need-to-access principle. It is also important these privileges are reviewed at least quarterly.
  • All employees have unique and complex passwords.
  • Uses multi-factor authentication when possible.
  • Policies and procedures to monitor the activity of authorized users and detect unauthorized access, use of, or tampering with sensitive data.
  • Procedures that ensure participant PII in the service providers records matches the same plan information.

Cybersecurity Training Programs

Since employees are often the weakest link when it comes to data protection, it is important to review a provider’s employee cybersecurity training programs. Remember a comprehensive cybersecurity training program educates everyone to recognize attack vectors, help prevent cyber-attacks and how to respond to potential threats. The program should focus on current trends to exploit unauthorized access to systems. The more training conducted the less likely it is an employee will make a mistake that endangers plan data.

Cybersecurity Breach Response Plan

Although it is never expected, if a breach does occur, the provider should have a set of established procedures outlining how the organization will respond. Key items to look for include identifying when law enforcement is contacted, when user notification will be made, incident investigation, when and how breach notification will be made and steps the provider will take to fix the breach and prevent it from happening again.

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The DOL guidance provides important technical information to help Chicago plan fiduciaries carefully evaluate potential vendors. To protect plan data, it is essential to use the guidance as starting point when reviewing cybersecurity measures. If you have questions about the information outlined above or need assistance with a 401k or other benefit plan audit, 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.

New Survey Shows Manufacturing Optimism on the Rise

A recently published report by the National Association of Manufacturers shows that optimism is on the rise amongst American manufacturing companies. This stands in sharp contrast to the last year where many Chicago manufacturers were forced to operate at reduced capacity due to government orders and supply chain issues. The Manufacturer’s Outlook Survey, First Quarter 2021, reflects the highest optimism rate since the first quarter of 2019. It is fueled by expected increases in new sales, overall production, capital investments, inventory, and product prices. Despite the good news, there remain many challenges including continuing cost increases of raw materials, insurance expenses, transportation, and workforce management issues which represent real obstacles. To help clients, prospects, and others, Selden Fox has provided a summary of the survey results below.

About the Survey

The survey was conducted between February 19 and March 5, 2021. It includes responses from 450 manufacturers ranging in size from small to large. Specifically, responses were gathered from 102 small manufacturers, 240 from medium-sized manufacturers, and 108 from large manufacturers. In terms of employee size, 24% have more than 500 employees, 53.33% have between 50 to 499 employees and 22.67% have less than 50 employees.

Key Survey Findings

  • Overall Business Outlook – As the impact of the pandemic continues to subside, the survey wanted to understand the overall outlook for industry companies. Results were that 27.3% reported having a very positive outlook, 60.22% somewhat positive, 10.67% somewhat negative, 1.78% very negative. It appears that confidence is returning as more than 87% of respondents have a positive outlook.
  • Current Business Challenges – Despite the positive outlook, there are still significant business challenges that must be addressed. The survey found that 76.22% of respondents identified increased raw material costs as a top issue, 50.89% rising insurance costs, 50.22% rising transportation costs, 44% an unfavorable business climate, 29% trade uncertainties (including tariffs), and 17.33% weaker global demand and slower export sales.
  • Overall Sales – To understand how manufacturing companies will perform despite identified challenges, the survey wanted to identify how respondents saw overall sales being impacted because of these challenges. The survey found that 22.49% of respondents expect sales to increase more than 10 percent, 32.52% expect sales to increase between 5 and 10 percent, 24.28% expect sales to increase up to 5 percent, and 13.81% expect no changes. Less than 7% expect there to be any level of decline in sales.
  • Full-Time Employment Changes – Given the increasing demand for services, the survey inquired about expected employment changes in the coming year. It found that 8% of respondents expect an increase of more than 10 percent, 17.78% expect an increase between 5 to 10 percent, 34.44% expect an increase of up to 5 percent, and 35.66% expect no change. Conversely, less than 6% expect to experience any decline in full-time employment needs.
  • Production Level Changes – The survey looked to compare production level changes between the fourth quarter of 2020 and the first quarter of 2021. It was discovered that 49.89% of respondents reported higher production, 33.18% no change, 15.59% lower production level, and 1.34% are uncertain. The quarter-over-quarter comparison illustrates why many manufacturers have become optimistic about the future.

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It is clear from the findings that the Chicago manufacturing industry will continue to grow. Increased sales will continue to propel production which will drive new employee hiring. The result is more profit potential. If you have questions about the information outlined above or need assistance with an audit or 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.

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.