Category: Blog

Productive Month Passing Domestic Manufacturing and Prescription Drug Allowances, Climate and Gun Violence Mitigation, and Veteran Burn Pit Healthcare Legislation

3 min read

Productive Month Passing Domestic Manufacturing and Prescription Drug Allowances, Climate and Gun Violence Mitigation, and Veteran Burn Pit Healthcare LegislationInflation Reduction Act of 2022 (HR 5376) – This legislation was originally introduced as the Build Back Better Act, President Biden’s signature bill of 2021. After suffering defeat in the Senate, the bill was later revised with fewer provisions to enhance its likelihood of passage, and renamed the Inflation Reduction Act. The bill authorizes funding for investments in domestic energy production and manufacturing with the goal of reducing U.S. carbon emissions by 40 percent by 2030. The bill provides tax credits for clean energy home enhancements and electric vehicle purchases, permits Medicare to negotiate prescription drug prices,and extendslower healthcare premiums for insurance purchased via the Affordable Care Act program through 2025. Also billed as a deficit reduction tool, the legislation imposes a minimum 15 percent corporate tax rate on large businesses with more than $1 billion in reported income, and a 1 percent excise tax on corporate stock buybacks. Furthermore, the bill increases previously reduced funding for the IRS in order to help track down and recoup taxes unlawfully skirted by high income earners. Initially introduced on Sept. 27, 2021, the Act was passed by both the House and the Senate in August and signed into law on Aug. 16.

CHIPS and Science Act of 2022(HR 4346) – This legislation includes $280 billion in funding to build a domestic supply chain for semiconductor chips as well as scientific and technological research to help keep U.S. industries competitive. The bill authorizes new and expanded investments in STEM education for K-12 to community college, undergraduate and graduate education.The bill was enacted on Aug. 9.

Bipartisan Safer Communities Act (S 2938) – Introduced by Sen. Marco Rubio (R-FL) on Oct. 5, 2021, this Act expands background checks for anyone under age 21 who seeks to purchase firearms, and offers incentives for states to pass red flag laws to remove weapons from people deemed a threat to themselves or others. The bill provides $11 billion in funding for mental health services in schools and local clinics, and to support mental health courts, drug courts, veterans’ courts and extreme risk protection orders. The final version of the bill passed in the Senate on June 23 and in the House on June 24. President Biden signed the bill into law on June 25.

Honoring our PACT Act of 2022 (S 3373) – This legislation, which expands healthcare benefits for veterans who were exposed to burn pits and other toxic substances while on active duty, was introduced by Sen. Tim Kaine (D-VA) on Dec. 9, 2021. Amid much fanfare and controversy this summer, this bipartisan bill was finally passed in both the House (July) and the Senate (August, requiring a second vote) and was signed into law by President Biden on Aug. 10.

PPP and Bank Fraud Enforcement Harmonization Act of 2022 (HR 7352) – Introduced by Rep. Nydia Velazquez (D-NY) on March 31, this bill amends the Small Business Act to extend the statute of limitation to 10 years for criminal charges and civil enforcement against borrowers under the Paycheck Protection Program, enacted during the early stages of the COVID-19 pandemic. The bill passed in the House on June 8 and in the Senate on June 28. It was enacted on Aug. 5.

How Cost Accounting Helps Businesses Measure Performance

4 min read

Cost AccountingCost accounting is a type of accounting that analyzes a business’ complete production costs by looking at both variable and fixed costs. This includes the concepts of marginal costing, lean accounting, standard costing and activity-based costing. It’s used by a business’ management to evaluate fixed and variable costs involved in the manufacturing operations.

The initial step is to assess and document such costs one-by-one. Once production is finished, it will contrast projected costs to what actual costs ended up being and see how processes can be improved. Management gleans information on how funds are used, revenue is earned, and where funds might be misdirected. It can help businesses create greater productivity and financial efficiencies after analyzing such information.

Looking at it more in-depth, there are different types of costs analyzed. The first is fixed costs, such as a monthly mortgage or lease payment, or those that are static regardless of the production level. The next is a variable cost that correlates directly with the production level. Operating costs can be either fixed or variable, depending on each business’ type of operation. Other types of costs include direct or directly connected; and indirect costs, which are costs such as administrative expenses that are less directly associated with production.  

Variable Cost Ratio

Variable Cost Ratio (VCR) looks at what percentage a business’ variable production costs is of its net sales. Businesses can calculate the VCR by:

VCR = Variable Costs / Net Sales. Net sales is a business’ gross sales after subtracting any discounting, customer returns and allowances.

It can also be calculated this way: VCR = 1 – Contribution Margin

If each widget’s variable unit cost is $40 and it sells for $200 individually, the VCR equals 0.2 or 20 percent. It’s also possible to be completed within a certain time frame. For example, if a single month’s total variable production costs are $6,000, and the business has revenues of $30,000 within that same month, the variable cost ratio is 0.2 or 20 percent.

The VCR shows if a company is able to earn a higher rate of revenues and a slower growth in input costs. It can help businesses determine when it hits an equilibrium between a loss and profit. It’s also important to note that fixed costs are excluded.

Marginal Costing

Marginal costing, or cost-volume-profit analysis, is a way to determine how much more it would cost a company to increase its manufacturing by one more widget.

It helps analyze the impact of varying levels of costs and volume on operating profit. This calculation looks at potentially profitable new products, sales prices to establish for existing products, and the impact of marketing campaigns. It assumes that the retail price and the variable and fixed costs per unit don’t change. It’s a way for businesses to calculate when they’ve developed a price point to cover all expenses. It also can indicate when the business can obtain profits at a particular price point and mix of manufacturing output. It’s a way for businesses to determine which levels are unprofitable, break-even and make a profit.

When it comes to determining how much sales volume a business needs to break even, the formula is as follows:

Sales Volume = Fixed Costs / Contribution Margin (Contribution Margin = Sales – Variable Costs)

If a business is looking to determine its break-even sales revenue figure, it must determine what its fixed costs are and its contribution margin. This calculation would be as follows:

$210,000 in fixed costs and a contribution margin of 30 percent = 210,000 / 0.30 = $700,000

However, it’s important to note that there’s no profit with the first calculation. If the business wanted to make $100,000 in profit, it would add that to the $210,000 in fixed costs. This would be calculated as follows: $310,000 / 0.30 = $1,033,333.33

Considerations of Marginal Costing/Cost-Volume-Profit Analysis

This formula tells a company if a widget is profitable. The contribution margin is what’s left over after each item or a lot of items is sold after deducting the variable costs for the respective number of units sold. When the contribution margin exceeds the fixed cost for the item or respective number of units sold, this signifies a profit. 

Companies that have the time and resources to analyze their performance beyond the traditional financial statements can see what’s right with their processes; but can more importantly, they can find out what’s wrong and how to fix it going forward.

Electric Vehicle Tax Credits and the Future of the Automotive Industry

3 min read

Electric Vehicle Tax CreditsOne highlight of the recently passed Inflation Reduction Act of 2022 (IRA; HR 5376) includes modifications to what is more commonly referred to as EV credits. Specifically, Section 30D of the Act is where the most important modifications are, and where the present tax credit for electric vehicles is spelled out in the U.S. Code. There is also new stimulus for previously owned electric vehicles, industrial vehicles and “alternative fuel refueling property.”

According to the Joint Committee on Taxation’s estimates, in lieu of what was previously known as the credit for plug-in electric vehicles, there is now a new clean vehicle credit. It is expected to be worth $7.5 billion over the next decade. Other noteworthy tax credits include $1.7 billion for “alternative fuel refueling property,” $1.3 billion available for buying a previously owned qualified plug-in EV, and $3.6 billion in tax credits for qualified commercial clean vehicles.

How the IRA Changes Section 30D and EV Tax Credits

For eligible, new clean vehicles, purchasers may receive $7,500 in federal tax credits and $4,000 for similarly used vehicles. It is important to note that taxpayers who purchase such vehicles are eligible for this tax credit if their modified adjusted gross income (MAGI) during the current or preceding tax year is no greater than $300,000 for joint filers; $225,000 for heads of household; and $150,000 for single filers. It is also limited to pickup trucks, vans, and sport utility vehicles up to a MSRP of $80,000. All other vehicles costing up to $55,000 are similarly eligible.

Critical Mineral Standards

Another important qualification for this tax credit is if the vehicle’s battery has a minimum threshold of critical minerals and if it has been processed in the required geographies. Section 30D(e) requires progressively increasing percentages of critical minerals either processed or extracted in the United States or another country the U.S. has an existing free-trade agreement with. If the stated percentages are recycled in North America, a vehicle’s battery components may also qualify for the tax credit.

Once guidance is issued by the U.S. Treasury and before the start of 2024, there must be at least 40 percent of eligible critical minerals to qualify. Vehicles placed in service in 2024 must have at least 50 percent critical minerals in their batteries. Critical minerals must be 60 percent, 70 percent and 80 percent of a battery’s components in 2025, 2026 and after Dec. 31, 2026, respectively. Dependent on future guidelines developed by the Internal Revenue Service, manufacturers will have to sign off on battery component makeup.

Requirements for Battery Manufacturing/Assembly Requirements

According to Section 30D(e)(2), prior to Jan. 1, 2024, at least half of the components of an EV battery must be assembled or manufactured in North America. Starting in 2024 and through 2025, 60 percent of a battery must meet such requirements. Beginning in 2026 through 2028, this requirement will increase by 10 percent annually, eventually requiring 100 percent of a battery’s construction to meet these standards beyond Dec. 31, 2028.

Other Considerations for Tax Credit Eligibility

If any critical minerals were extracted, handled or recycled by a “foreign entity of concern,” it is prohibited by the IRA for tax credit eligibility. Similarly, final assembly also must take place within North America to retain eligibility for the tax credit. Being considered a “qualified manufacturer” is another requirement that is necessary to maintain tax credit eligibility. This is any manufacturer that adheres to the EPA’s Title II Clean Air Act rules.

With the push for cleaner and greener energy evolving, this is one of many tax credits for consumers and businesses alike to reduce emissions and navigate the U.S. Tax Code.

Understanding Free Cash Flow

3 min read

Understanding Free Cash FlowAccording to JP Morgan Chase & Co., there are some sobering statistics for businesses’ cash flow challenges. Understanding how cash flow is measured and analyzed is an important step for businesses to monitor and adjust their operations plan to increase the chances of becoming and staying cash flow positive. For median small business, JPM sees the middle amount of daily cash outflows being $374 and average daily cash inflows of $381. The middle statistics for small businesses hold an average daily cash balance of $12,100 and an average of 27 cash buffer days in reserve.

Defining Free Cash Flow to Equity

The Free Cash Flow to Equity (FCFE) calculation measures how much money a company produces that can be dispersed to equity holders. One way to determine this figure is to subtract Capital Expenditures from Cash from Operations and add Net Debt Issued to the remaining figure.

FCFE = Money from Operations – Capital Expenditures + Net Debt Issued

Interpreting the FCFE’s Results

This metric helps businesses, investors and professional financial experts determine how much money is available for a business’ disbursement of dividends and/or share buybacks. The more easily dividends and share buybacks are available via a better FCFE, the better a company is performing financially.

Even though the FCFE can tell how much shareholders may receive, there is no requirement that any of that amount be paid to shareholders. This valuation is preferred for companies that do not pay a dividend. One alternate source of funding buybacks or dividends is through retained earnings from past quarters.

Free Cash Flow to the Firm (FCFF)

Looking at how well a business runs, this calculation examines a company’s cash flow health once taxes, investments, depreciation and working capital are deducted, along with factoring in costs for current and long-term assets. It evaluates how much money the business can disburse to equity and debtholders once the company satisfies these financial obligations.

It shows a company how much it has available to issue dividends, buy back shares or satisfy debt obligations. If the FCFF is negative, there is no consideration for investors as the business cannot meet existing bills and capital expenditures. When a negative result is found, there is reason to see if and why there’s not enough revenue; if it is a short-term need; or if the business model needs to be re-tooled.

How FCFF is Calculated

Free cash flow to the firm can be calculated with the following formula:

FCFF = Operating Cash Flow + [Interest Expense × (1 – Tax Rate)] – Capital Expenditures

Putting FCFF in Perspective

FCFF must be taken as a part of a holistic analysis whether it is an investor or the business itself analyzing numbers. If a business is reporting high FCFF figures, analysis must be taken to ensure long-term investment in business structures, cars/trucks, tooling and business development are accurately reported. If businesses institute collection protocols sooner than standard, run low inventories or extend satisfying their own financial obligation, it can lower what a business owes and revise its working capital numbers – but that is generally temporary.

With cash flow’s impact on a business’ operation so integral, understanding how it is calculated is the first step to making smarter operational and investment decisions.

Should You Upgrade Your Homeowners Insurance?

5 min read

Should I Upgrade Your Homeowners Insurance?During the first year of the pandemic, many homeowners spent their down time upgrading their homes. The year 2020 alone experienced at 3 percent uptick in spending on home improvements – to the tune of nearly $420 billion nationwide. This included modifications for remote work, online schooling and leisure activities at home.

Between remodeling, high inflation and today’s elevated real estate prices, it’s important to review your homeowner’s insurance policy to ensure it’s up-to-date. Does it include enough coverage for recent upgrades to your home? Does it carry an inflation factor to ensure coverage is on par with more expensive building material costs and labor increases? Do you have coverage for ancillary factors, such as the cost of meeting local building ordinances, or flood insurance for today’s extreme weather events?

Replacement vs. Actual Value

One term to check on your policy’s declaration page is whether your coverage is determined by replacement cost or actual cash value. Replacement cost will pay for repairs to your home or replace your personal property (e.g., laptop, television) up to coverage limits, regardless of its current value. In other words, the policy will pay for a new computer even if your old one was 3 years old.

Actual cash value refers to a cash payout equal to the current value of your property. In other words, if your computer was 3 years old, you will receive the cash value of a 3-year-old computer – which will not likely cover the cost of a new replacement.

Guaranteed Replacement

In lieu of upgrading your home’s cost coverage each year, you might have the option to pay for guaranteed replacement, which is an extra fee that ensures the policy will cover the entire cost to rebuild your home. Extended replacement cost coverage pays out a certain percentage above your policy’s stated dwelling coverage limit if the cost to rebuild is higher than the face amount. For example, a policy with $200,000 coverage and 25 percent extended replacement coverage will pay up to $250,000 to rebuild your home.

Ordinance Coverage

Homeowners who live in older homes should consider adding ordinance coverage if it is not standard under your policy. Ordinance coverage pays for the cost to meet current building codes should you need to rebuild. These fees can be substantial and would have to be paid out-of-pocket if you don’t have this form of coverage. Note, too, that although guaranteed replacement cost coverage might offer a higher payout, that is only for the material and labor costs to rebuild – not local ordinance fees, licenses or inspections.

Inflation Impact

As you review your current policy, note that the section labeled Coverage A represents the amount available to rebuild your home. It generally rises by 2 percent to 3 percent each year for basic cost-of-living increases. However, it is worth noting that building materials, such as lumber and steel, increased by 19 percent in 2021, and in June the general inflation rate increased to 9.1 percent, its highest level in more than 40 years.

Because home building costs, the inflation rate and the increasing number of weather events have plagued the home insurance industry, policy premiums are starting to increase at a higher rate each year than in the past. In additional to higher costs due to supply chain disruptions and inflation, the home building industry is hampered by a lack of qualified workers – and experienced workers are demanding higher pay. This is yet another component that is factored into calculating insurance premiums. Basically, anything that would lead to a higher cost to repair your home will result in higher rates.

Insurance companies calculate your policy premiums by multiplying your home’s replacement rate with your home’s current value. Therefore, a combination of higher building costs and higher real estate values have contributed to higher insurance premiums. Some states have set an annual percentage cap on how much insurance companies can raise homeowner rates each year. However, given the increasing number of extreme weather events (e.g., storm surge, wildfires) in recent years, state legislators also have increased those rate caps so that insurers have the latitude to cover excess payouts. Note that rate increases vary by geographical area, based on local weather activity, labor costs and building supplies.

Some insurance policies offer an inflation guard, which automatically increases coverage limits to match inflation rates when the policy is renewed.

Flood Damage

Be aware that homeowners insurance does not cover flood damage. Mortgage lenders require homes located in government-designated Special Flood Hazard Areas (SFHA) to purchase a separate flood insurance policy. However, we have seen inland and even metropolitan areas that are not located in flood zones be devastated by the effects of storm surge following a hurricane. Homeowners who live in these higher-risk areas should consider purchasing a separate flood insurance policy as well. 

Top Side Hustles

4 min read

Top Side HustlesIn our current economy, or anytime actually, it can’t hurt to have a side hustle to bring in extra cash. Some of these options can be quite lucrative, but like everything, it takes a little work to create a steady income stream. However, with a little pre-planning, you can do it. Let’s take a look.

Become a Tutor

Are you a math whiz? A wordsmith? History nut? Whatever your specialty, you can earn between $10 and $75 an hour. You might vary your price based on whether you’re tutoring high school, college or adult education classes. You can conduct your sessions online or in-person –totally up to you and your comfort level. All you have to do is create a lesson plan, then spread the word on social media, contact your local high schools and universities, or tack a notice near a central location such as a local coffee shop. When you’re sharing your knowledge and helping others, it might not feel like work at all.

Deliver Groceries with Instacart

If you haven’t heard of this, you might have seen people in grocery stores with their carts stuffed with brown paper bags full of items, list in hand – these are most likely Instacart workers. In sum, this gig is a same-day grocery delivery app. You shop for other folks; you don’t have to pay out-of-pocket when you’re at the store; and you can start earning money the very first week. Oh, and you get tips. According to ridester.com, you can make anywhere from $200 to $1,000 a week. Pretty easy and cool, right?

Rent an Extra Room Through Airbnb

While this might require some prep like buying extra towels and toiletries, as well as communicating with customers, you can make a lot in the long run. It might take a couple of months to get up and running, but you can bring in around 7 percent to 12 percent of your property value per year.

Help with Finances

If you have a background in accounting or finances, you might start up a business doing someone’s books, taxes or other services that have to do with money and/or budgeting. You can make from $20 to $100 an hour. Be sure to check with your city and state to find out what licenses and certifications you need.

Walk Dogs

Yes, dog walking can bring in more than you think. And you’ve probably seen these hearty souls on the sidewalks, sometimes with more than one furry friend in tow. If you live in a big city, there’s ample opportunity to make this work: you can make between $10 and $100 per day. And this is just a ballpark estimate. Plus, you’ll get your steps in. It’s healthy both fiscally and physically.

Write Resumes and Cover Letters

With all the job seekers out there, you could make a good chunk of change doing this. And you don’t necessarily need to be a writer. If you have a background in HR, recruitment or you’ve worked as a hiring manager, you’ll be ready to go. Hesitant about all that punctuation? One word: grammarly.com. This app will help you navigate all those writing questions you might have that inevitably come up when you’re composing. The average you might earn is somewhere in the neighborhood of $500 or more.

One Thing to Note

If you make more than $600, you must report it to the IRS. If you see that your side hustle is booming, if you start making thousands or tens of thousands of dollars a year, you might want to start a business. You could enjoy additional tax write-off opportunities so you can keep more of what you earn.

So start exploring, hang those shingles and watch the extra dough come rolling in.

Sources

https://careersidekick.com/side-hustle-ideas/

https://time.com/nextadvisor/financial-independence/best-side-hustles/

https://www.ridester.com/how-much-can-you-make-a-week-with-instacart/#:~:text=As%20an%20Instacart%20shopper%2C%20you,orders%20will%20earn%20more%20money.

Risk of Browser Extensions and How to Stay Safe

4 min read

Risk of Browser ExtensionsWeb browsers such as Google Chrome, Firefox, Safari and Edge, among others, play an essential role in enabling access to websites on the internet. Most browsers allow users to install extensions, also referred to as add-ons or plug-ins. These extensions are applications or small software modules that add functionality and other useful features to a browser.

By means of the extensions, users can carry out various tasks such as password management, cookie management, ad blocking, interface modification, productivity tracking, grammar and spell-checking, etc.

However, although the extensions offer different useful functionalities, cybercriminals have taken advantage of them, creating a security risk to users and their data.

The Need to Beware of Browser Extensions

Browsers enable websites to collect information such as viewing history, adding cookies, etc. Also, when installing the extensions, some require to be allowed various permissions, like the ability to read or change data. For instance, according to a recent study by Talon, a digital security company, most Chrome Web Store extensions (62.43 percent of extensions) require dangerous permissions, including permission to read or change user data and activity. This means that an extension can see the sites visited, keystrokes, login credentials and private data, such as payment card details.

Since this information is readily available on a user’s web browser, cybercriminals can use a malicious extension to collect the data for their gain. At the same time, the data collected is sold without user consent or knowledge and used by third-party data brokers to send users tailor-made ads.

Although not all browser extensions are a security risk, some might be built to impersonate legitimate extensions, especially those from third-party resources. In other cases, legitimate extensions have been compromised or bought by a developer who uses them for malicious purposes.

Some browser add-ons are built to download malware onto your device, redirect search traffic to malicious websites or download ad ware and Trojan horse viruses.

The extensions can automatically update without requiring any action from a user. This means that if a legitimate extension is compromised, it can be used to install malware without user knowledge. Even secure extensions are prone to attacks or can be compromised, enabling attackers to gain access to data stored by browsers.

Additionally, malicious extensions can be built to bypass fraud detection by official Web stores. For instance, in 2020, Google removed over 500 extensions from its web store that violated policies, with some already having infected users and stolen their data. This followed the discovery of some malicious extensions that users had already downloaded.

A recent report released by Kaspersky, a cybersecurity firm, shows just how dangerous malicious add-ons are. After the firm analyzed data from January 2020 to June 2022, it discovered that over this time frame, 4.3 million users were attacked by adware hiding in browser extensions. This put adware as the highest representative of browser extension risks, with malware coming second. The report also indicates that Kaspersky products prevented more than 6 million users from downloading adware, malware or riskware disguised as browser extensions.

Such figures from just one cybersecurity firm are worrying, considering the study focused only on users that use their security solutions. This creates a need for users to be more vigilant when using browser extensions.

How to Make Sure Browser Extensions Are Safe

There are various ways to help reduce the risks posed by browser extensions:

  1. Ensure the extension is from an official web store. Since these extensions can also be compromised, it is best to find out more information about the developer.
  2. Check reviews as they help to know what other users think of the extension and if there have been any complaints. However, users should be cautious of identical comments or too many 5-star reviews, as these could be fake.
  3. Check whether the extension is updated regularly. An extension last updated many years ago might not be reliable.
  4. Review extension permissions for each extension.
  5. Check that you are not installing clones of the original extension. For instance, if you search for an extension, you can find other similar ones that look legit.
  6. Uninstall browser extensions that you don’t recognize or those you no longer need.
  7. Use browsers that have the features you want.
  8. Install reliable antivirus software that will help spot malicious activities or applications.

Conclusion

Browser extensions play an important role in the user browsing experience. Although not all extensions are dangerous, users must conduct due diligence to ensure they install legitimate extensions.

Strengthening the Supply Chain, the Professional Workforce, Cybersecurity and Coastal Ecosystems

4 min read

Strengthening the Supply Chain, the Professional Workforce, Cybersecurity and Coastal EcosystemsSupply Chain Security Training Act of 2021 (S 2201) – This legislation is designed to identify supply chain risks and develop a government program to train federal officials with supply chain risk management responsibilities to prepare and mitigate those risks. The training program would cover the complete acquisition life cycle, including funding for data access and processing as well as appropriate technology and communication vehicles. The bill was introduced by Sen. Gary Peters (D-MI) on June 23, 2021. It passed in the Senate on Jan. 11 and in the House on May 10. It was signed into law by the president on June 16.

Bridging the Gap for New Americans Act (S 3157) – Introduced by Sen. Amy Klobuchar (D-MI) on Nov. 3, 2021, this bill recently passed in the Senate on June 23 and is in the House for consideration. The bipartisan bill would authorize a study on employment opportunities for naturalized and lawfully present non-U.S. citizens who hold professional credentials from non-U.S. countries. For example, the opportunity to employ doctors with medical degrees to help meet U.S. demand in the growing shortage of physicians. The Department of Labor would identify and recommend how to address factors that affect their qualifications for U.S. jobs in various fields of expertise.

State and Local Government Cybersecurity Act of 2021(S 2520) – This legislation expands the Department of Homeland Security (DHS) responsibilities for mitigating cybersecurity threats, risks and vulnerabilities with more proactive and defensive measures.The Act was introduced by Sen. Gary Peters (D-MI) on July 28, 2021. It passed in the Senate on Jan. 11 and in the House on May 17. It was signed into law on June 21.

South Florida Clean Coastal Waters Act of 2021 (S 66) – An algal bloom is a rapidly growing algae that can produce toxic conditions harmful to humans, animals, aquatic ecosystems and the economy. They are most prevalent in South Florida. The bill, introduced by Sen. Marco Rubio (R-FL) on Jan. 27, 2021, directs the Inter-Agency Task Force on Harmful Algal Blooms and Hypoxia to develop a plan to address how to reduce and control theeffects of the blooms throughout the South Florida ecosystem. This legislation passed in the Senate on March 8 and in the House on May 11. President Biden signed the bill into law on June 16.

Active Shooter Alert Act of 2022 (HR 6538) – Introduced by Rep. David Cicilline (D-RI) on Feb. 1, this bill would direct the Department of Justice to set up a national alarm system specifically to warn citizens of an active shooter event. The DOJ also would work with state, tribal and local governments to coordinate networks and establish procedures for how to respond to active shooters. The bill passed in the House on July 13. It is presently under consideration in the Senate, where it faces opposition because many believe it duplicates the existing Integrated Public Alert and Warning System (IPAWS). The premise is that a separate system for active shooter events would risk desensitizing citizens with false alarms.

Advanced Air Mobility Coordination and Leadership Act (S 516) – This bill was introduced by Sen. Jerry Moran (R-KS) on March 11, 2021. It passed in the Senate on March 23, 2022, and in the House on June 14, but the House made changes and returned it to the Senate. The purpose of this legislation is to establish an Advanced Air Mobility (AAM) interagency task force to plan and coordinate efforts for urban-based cargo and passenger aircraft (e.g., drones, air taxis, air ambulances) in the United States. The program would address matters related to safety, infrastructure, physical security, cybersecurity and federal investment in order to integrate these new aircraft into existing airspace operations.

Women’s Health Protection Act of 2022 (HR 8296) – Introduced by Rep. Judy Chu (D-CA) on July 7, this bill passed the House on July 15 and is currently with the Senate. The bill would prohibit state governments from restricting access to abortion services (via drug prescription, telemedicine or immediate action) in situations where the provider determines that birth would endanger the mother’s life.

How Businesses Can Mitigate Inflation & Maintain Pricing Power

5 min read

Mitigate Inflation, Maintain PricingWhether it’s tariffs, trade wars, or post-pandemic inflation caused by kink-ridden supply chains and what many experts believe to be excess money printing, inflation is an insidious drag on businesses’ operations. When it comes to energy’s contribution to inflation, the U.S. Energy Information Administration (EIA) reports that crude and natural gas prices in 2022 have increased on an annualized and weekly basis. Looking at the snapshot of 7/21/2022, WTI crude on the futures market was $96.35 a barrel. This was up more than $26 compared to 12 months ago, and $0.57 higher than a week earlier. For the same time frame, natural gas futures were $7.932/MMBtu, an increase of $3.973 from 12 months ago and an increase of $1.332 from a week earlier.

When it comes to businesses using any type of commodity, they’re faced with the question of how to raise retail prices when their prices increase. However, many business owners are hesitant to increase prices on their goods and services as they fear it will drive away customers. But in light of increasing input prices, not implementing price increases correctly will impact a business’s earnings and profitability.

As McKinsey & Company explains, there are many considerations why businesses have had trouble with mitigating costs in light of rising input costs. It’s important to monitor raw material costs with a fine-tooth comb. Businesses that bury costs of commodities, labor or tariffs under general accounting categories hide spikes in input costs due to factoring ancillary costs. If volatile input or uncontrollable factors, however, like tariffs can be monitored independently and in real time, businesses are more likely to be able to increase prices – and do so more gradually. With this in mind, McKinsey & Company highlighted four practices that businesses can implement to combat pressure from input costs and pushback from customers who question the reason for price increases.

1. Create a Database of Dynamic Costs

By looking at historical records going back as far as 36 months, businesses can determine trends and keep track of increases or decreases of input materials to share with the sales and customer service department, who can then communicate with customers. Along with looking at how contracts are written and if there are escalator clauses that permit conditions to adjust for increases in input materials, taking steps to accurately measure the impact of raw material costs can be helpful for price increase considerations.

It could look at costs by department. If a plating department at a manufacturing company plates 50,000 pieces of metal a month, incurs $200,000 of direct material costs and has $50,000 in labor and overhead costs, it can be broken down into a per unit cost of $4 for materials and $1 of labor and overhead costs. If the per unit cost of materials fluctuates, investigation can occur through the supply chain from the supplier to the price of futures contracts to see if prices can be negotiated or must be increased for customers.

2. Mind the Economy

Businesses are advised to keep an eye on current economic conditions. This is how companies can set a dynamic pricing strategy. Building on the first step, it’s advised to index prices to those of commodities to reduce the lag time between when companies experience changes in costs for their input materials and when retail prices actually reflect the true cost to the company. Be it fuel, wood, coffee or metals, understanding how the price of commodities fluctuates in real time is essential to determine when and how to adjust prices for retail customers. It also can help businesses determine how competitors are adjusting their pricing to customers, how far prices could increase, and how to augment delivery of goods or services to stay competitive and profitable.  

In addition to escalation clauses, companies adapting to changing input material prices could, for example, introduce shorter-term contracts, look for more competitive suppliers, or substitute different but equal quality/performance materials.

3. Coaching Staff to Educate and Explain Price Fluctuations

Continual evaluations for sales teams are imperative. Supervisors must see what accounts have (and have not) been informed of price increases. They should focus on what accounts have accepted price increases (and what level of price increases have been accepted). They also should look at what accounts are likely to accept price increases and what accounts are not likely to accept price increases. Businesses also must factor in the business cycle for the sales process and how each account is performing relative to its price increase targets due to cyclical increases in input commodity prices and interest rates for financing availability. Ongoing coaching should be implemented to identify major issues and ways to resolve them. Anticipating and preparing sales representatives for customer questions through role playing can help better prepare employees to explain why price increases are a part of doing business.

4. Managing Performance

Businesses must play the long game after products or services have been priced accordingly to commodity and input prices. Since inflation follows the economic cycle, upside and downside pricing dynamics can catch companies off guard. Consistently updated product or service pricing systems and prepared sales teams can lead to more profitable margins and hopefully the ability to weather volatile and long-term price spikes.

Much like the price of commodities and labor fluctuate based on dynamic market conditions, finding ways to adapt one’s business practices can increase chances of surviving and thriving in a challenging economy.

Sources

https://www.bls.gov/news.release/ppi.nr0.htm

https://www.eia.gov/

https://www.mckinsey.com/business-functions/growth-marketing-and-sales/our-insights/defying-cost-volatility-a-strategic-pricing-response

Expanding the Net Investment Income Tax

3 min read

Net Investment Income TaxDespite borrowing massive amounts of money, the government still needs to find ways to raise revenue to pay for new programs and spending. The current democratically controlled Congress is looking to potentially implement new social programs and a climate bill. As a way of funding these initiatives, they are considering an expansion of the Net Investment Income Tax (NIIT).

The NIIT is proposed to raise revenue since it is seen as politically more palatable, given that it typically only impacts a small group of wealthier taxpayers. Critics, however, say the plan in its current form would also hurt small family businesses.

Who Pays NIIT Now?

Under the Affordable Care Act (ACA), the NIIT applied a 3.8 percent tax on investment income. Investment income includes both passive sources like dividends, capital gains, interest, royalties, and rents as well as passive business income. Under the ACA, the NIIT applied only to single taxpayers earning $200k or more and joint filers with $250k or more.

When it comes to the taxability of business income under the NIIT, because the law only captures passive business income, most owners of pass-through entities must pay the NIIT; however, active owners of S-corporations are exempt. Likewise, if someone qualifies as a real estate professional, their income is considered active and so their rental income is also exempt.

Who Would Pay Under the New Proposed Law?

The current version of the House bill makes two major changes. First, the NIIT expands to capture all business income. Essentially, S-corporation shareholders, limited partners, and pass-through entity owners that are currently exempt would be impacted.

Second, when it comes to removing the exemption on this business income, the income threshold rises from $200k to $400k for single filers and from $250k to $500k for taxpayers filing jointly. The effect of this would be to exclude most business owners from the tax, but make filing more complex for those impacted.

Under the new rules, the Tax Policy Center projects that in 2023 the tax hike would fall on those in the top 1 percent of household incomes or those making approximately $885k or more. Further, even among the top 1 percent, more than 50 percent of the tax increase would be borne by the top 0.1 percent for those making $4 million and up.

Impact No Small Businesses

Overall, about 14 percent of taxpayers report some form of business income on their federal tax returns. The amount reported, however, is usually not a material amount for most as a percentage of their income. For example, only approximately 5.5 percent of taxpayers with reported business income had this as the source of 50 percent or more of their total income. As a result, the impact will be mostly on a small percentage of small businesses. At the same time, as business income is far more variable than employment income, someone could easily fall in and out of the tax range.

Conclusion

Overall, the House bill looks to raise the threshold of where the NIIT expansion applies by the type of income it captures. We will have to wait and see if there are changes as the bill makes its way through – if it even passes at all. No matter what happens, there will certainly be tax increases of some kind.