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2025 Federal Income Tax Brackets

2 min read

2025 Projected Tax BracketsAccording to estimates, inflation adjustments to the Internal Revenue Code are expected to yield increases of 2.8 percent compared to 2024 amounts. This means wider tax brackets and increased exemptions, among other things. With the U.S. Bureau of Labor Statistics consumer price index (CPI) moderating, this increase is about 50 percent less than 2024’s inflation adjustment. Below, we’ll look at what the projected 2025 inflation adjustment means in terms of dollars and cents for you and your taxes.

Individual Income Tax Brackets

The tables below illustrate the individual income tax rates and brackets for 2025.

Individual Income Tax Brackets & Rates: Tax Year 2025

Single Taxpayers
10% 0 – $11,925
12% $11,926 – $48,475
22% $48,476 – $103,350
24% $103,351 – $197,300
32% $197,301 – $250,525
35% $250,526 – $626,350
37% $626,351 and Over

 

Married Filing Jointly
10% 0 – $23,850
12% $23,851 – $96,950
22% $96,951 – $206,700
24% $206,701 – $394,600
32% $394,601 – $501,050
35% $501,051 – $751,600
37% $751,601 and Over

 

Married Filing Separately
10% 0 – $11,925
12% $11,926 – $48,475
22% $48,476 – $103,350
24% $103,351 – $197,300
32% $197,301 – $250,525
35% $250,526 – $375,800
37% $375,801 and Over

 

Heads of Household
10% 0 – $17,000
12% $17,001- $64,850
22% $64,851 – $103,350
24% $103,351 – $197,300
32% $197,301 – $250,500
35% $250,501 – $626,350
37% $626,351 and Over

 

Trusts & Estates Tax Brackets

The table below illustrates what the income rates and brackets are expected to look like for Trusts and Estates in 2025.

Projected Trusts and Estates Tax Brackets & Rates: Tax Year 2025
10% 0 – $3,150
24% $3,151- $11,450
35% $11,451 – $15,650
37% $15,651 and Over

 

Standard Deduction Amounts

The table below illustrates what the projected standard deduction amounts will be for 2025, with a comparison to 2024.

Projected Standard Deduction Amounts
  2024 2025
Single $14,600 $15,750
Married Filing Jointly $29,200 $31,500
Married Filing Separately $14,600 $15,750
Head of Household $21,900 $23,625

 

Alternative Minimum Tax (AMT)

The table below illustrates the anticipated AMT exemptions for 2025.

AMT Exemption Amounts
Tax Year 2025
Single $88,100
Married Filing Jointly $137,000
Married Filing Separately $68,500
Trust & Estates $30,700

 

Capital Gains

The rates applied to long-term capital gains are not expected to change for 2025; however, the brackets that apply to different rates will expand. Note that, in considering the table below, a 20 percent tax rate applies to capital gains that are over the 37 percent ordinary tax rate threshold. Furthermore, capital gains on art and collectibles are subject to other exceptions.

Maximum Capital Gains Rates for 2025
  Zero Rate 15% Rate
Single $48,350 $533,400
Married Filing Jointly $96,700 $600,050
Married Filing Separately $48,350 $300,000
Head of Household $64,750 $566,700
Trusts & Estates $3,250 $15,900

 

Conclusion

First, it’s important to remember that all the figures above are only projections. The IRS will not publish the official numbers until later this year. Moreover, as these rates and brackets have increased, they have done so significantly less than in 2024 and 2023, largely driven by lower inflation.

Cash Conversion Cycle (CCC) Defined

3 min read

Cash Conversion Cycle (CCC) DefinedThis metric, which is also referred to as the cash cycle or the net operating cycle, looks at the time a business takes to recover its investment in inventory to eventually sell. The process starts from selling its goods, collecting on outstanding receivables or invoices, and satisfying its operating costs with the sale proceeds. It’s normally measured in days to determine the company’s financial health.

The less time necessary to complete the CCC, the healthier a company is financially because it means the business’ money spends less time tied up in inventory or collecting on outstanding inventory. It’s important to be mindful that different industries have different CCC time frames. Generally speaking, most calculations are done on either a quarterly (90 day) or an annual basis (365 days).

How to Calculate CCC

The formula is as follows:

(CCC) = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) − Days Payable Outstanding (DPO)

It can be broken down into three different stages:

Stage 1

Days Inventory Outstanding (DIO) looks at how many days the inventory takes to sell to customers. It’s calculated as follows:

DIO = (Average Inventory (AI) / COGS) x Time-Frame (In Days)

AI = 1/2 x (BI + FI)

BI = Beginning Inventory

FI = Final Inventory

It’s important to define COGS, taken from the Income Statement, which is Cost of Goods Sold or the costs personally connected to creation of goods or services (raw materials, labor or electricity). The lower the number, the faster a business is selling its goods.

Stage 2

Days Sales Outstanding (DSO) measures the time it takes the business to collect payment from all outstanding sales completed.

DSO = Average Accounts Receivable (AAR) / Daily Revenue

AAR = 1/2 x (SAR + FAR)

SAR = Starting AR

FAR = Final AR

Accounts Receivable are what companies record on their balance sheet to keep track of what customers owe for the goods delivered or services rendered. The lower the results, the better the company’s cash position is because they’re able to satisfy outstanding invoices.

Stage 3

Days Payable Outstanding (DPO) is the third and final stage that calculates how much businesses owe to their suppliers the business has sourced input materials from, within the time frame the suppliers’ invoices are due.  

DPO = Average Accounts Payable (AAP) / Daily COGS

Where:

AAP = 0.5 x (SAP + FAP)

SAP = Starting AP

FAP = Final AP

COGS = Cost of Goods Sold

There are different ways to interpret the DPO result. A low DPO means the business is taking care of its bills from suppliers. However, potential investors, internal managers, and supervisors can see if the business can either negotiate lengthier payment terms while still maintaining good terms or if the company negotiates early payment terms or invests the money on a short-term basis to earn more for the company before paying suppliers’ bills. A high DPO, after an investigation of a company’s financials, might show the company is taking longer than its peers to pay creditors.

While calculating the CCC is relatively straightforward, the more complex process is interpreting it correctly and using judgment for a business based on industry averages and how the numbers relate to current economic conditions.

Protections for Election Candidates and the Electoral Process; Improving Programs for Veterans and American Indians

3 min read

hr9106, hr6513, s1549, s656, s70Enhanced Presidential Security Act of 2024 (HR 9106) – During an election year, the Department of Homeland Security identifies major presidential and vice-presidential candidates in consultation with a committee of congressional leaders. This bipartisan bill instructs the U.S. Secret Service to use the same criteria for establishing the level of protection for major candidates as provided for presidents and vice presidents. The bill was introduced by Rep. Michael Lawler (R-NY) on July 23. It passed in the House on Sept. 20, in the Senate on Sept. 24, and was signed into law by the president on Oct. 1.

COCOA Act of 2024 (HR 6513) – This bipartisan Act, titled the Confirmation of Congressional Observer Access Act, was introduced on Nov. 30, 2023, by Rep. Mike Carey (R-OH). It was passed in the House on Sept. 9, in the Senate with changes on Sept. 24, and cleared the House with changes on Sept. 25. The president signed it into law on Oct. 4. The bill requires states to designate congressional election witnesses to observe the administration procedures of federal elections, including casting, processing, scanning, tabulating, canvassing, recounting, auditing and certifying ballots during the pre-and post-election period. However, the bill prohibits the observers from handling any ballots or equipment, advocating for a particular candidate, issue, or party, or interfering with the election process in any way. Election officials are further authorized to remove any designated observer who does not follow the guidelines detailed in this bill.

Congressional Budget Office Data Access Act (S 1549) – The Privacy Act of 1974 generally requires written consent before a federal agency is allowed to disclose certain personal records. However, some agencies are exempt from this requirement, including the Government Accountability Office and the National Archives and Records Administration. This bill designates the Congressional Budget Office (CBO) to be exempt as well in an effort to expedite sharing between the CBO and federal agencies. The bill passed in the Senate on June 22, 2023, in the House on Sept. 23, 2024. It was signed into law on Oct. 2, after having been introduced by Sen. Gary Peters (D-MI) on May 10, 2023.

Veteran Improvement Commercial Driver License Act of 2023 (S 656) – This Act was introduced on March 6, 2023, by Sen. Deb Fischer (R-NE). It provides guidelines to approve assistance by the Department of Veterans Affairs (VA) for commercial driver education programs. The requirements include appropriate licensing and usage of the same commercial driver education curriculum as other approved institutions. The bill passed in the Senate on Nov. 2, 2023, the House on Sept. 25, 2024, and was enacted into law on Oct. 1.

Tribal Trust Land Homeownership Act of 2023 (S 70) – This bill was introduced by Sen. John Thune (R-SD) on Jan. 25, 2023. It requires the Bureau of Indian Affairs (BIA) to process and complete all residential and business mortgage packages within 20 or 30 days, depending on the type of application. It also establishes the position of Realty Ombudsman within the BIA’s Division of Real Estate Services. This is a bipartisan bill that passed in the Senate on July 18, 2023, and currently sits in the House, where it has a high probability of passing before the end of the current Congressional session.

Pre-Retirement Planning Guide – Legacy Planning

5 min read

Pre-Retirement Planning Guide - Legacy PlanningStep 6: Looking to Legacy Planning to Address Future Needs of Family

How do you want to be remembered? People often view their legacy as a way of disseminating assets to charitable venues to be remembered as passionate and generous supporters. That is one aspect of a legacy.

But perhaps the most important legacy plan is how you want to be remembered by your family, friends and loved ones. If you do not develop an estate plan and communicate it with your loved ones, if you leave your financial accounts and investments in a state of disarray by not keeping files organized and beneficiaries updated, then you leave a huge burden behind when you pass away.

This may very well mar the fine memory your loved ones have for you. After all, having to manage a complex or messy estate over a long period of time could overwrite the previously fond memories they had for you. No one wants their legacy blemished by administrative chaos, so now is the time to get your financial house and estate plan in order. Don’t let the last memories of you be ones of aggravation and bitterness.

Repair and Strengthen Relationships

If you are estranged or have an uncomfortable relationship with someone close to you, do yourself and them a favor by rectifying the situation. This may take time, so begin the process during your pre-retirement planning phase. Remember, no one wants to die having said harsh last words or having not seen a loved one for a long time.

Make part of your plan a commitment to shore up relationships. You can start by making a list of people with whom you should contact, jotting down a few thoughts about what you want to communicate, and devising a plan for how to accomplish this. It might be a special weekend with each of your children, or inviting a long-lost sibling to take a vacation with you, or taking your spouse out to dinner and reiterating your love for one another. Remember, your legacy is about how you want to be remembered, so make some new memories to crowd out any poor ones.

First, Loved Ones; Then Philanthropy

Once your relationships are in good shape (which takes ongoing maintenance – it’s not a one-shot deal), turn your attention to your philanthropic legacy. This includes how you want to distribute your assets to both your family and the causes you care about.

The following are some key components of a legacy plan:

Wealth Transfer

Be sure that your estate plan efficiently communicates and transfers your assets to the appropriate heirs. It also should incorporate prudent tax planning so that your beneficiaries do not pay more in taxes than required. Remember, part of your legacy will be determined by how well you protect your assets, not just from taxes but also from creditors, divorce settlements, and other potential risks.

Education

Leaving a large sum to heirs can be overwhelming. It’s a good idea to help them learn about financial responsibility, wealth management and philanthropy. By helping them understand tactics about which assets to leave intact, which to transfer to other accounts and which they can liquidate for their own use – in a tax-proficient manner – is key to ensuring they’re ready to manage the legacy you pass on.

Charitable Giving

There is a range of sophisticated vehicles that allow you to maximize the long-term value of gifted assets to charitable and passion causes. For example, a donor-advised fund (DAF) enables you to donate cash or securities to a charity-sponsored fund and help direct where charitable grants are distributed. Another option is to set up a private foundation. This is a public 501(c)(3) organization that invests, manages, and distributes your donations to charities; however, this option is really only viable and cost-efficient if you have substantial assets (multi-millions) in your estate.

There are also trust vehicles designed to balance your philanthropic goals with leaving enough assets for your own living expenses and/or an inheritance for heirs. Fortunately, these also may enjoy tax benefits, such as an upfront tax deduction, removing assets from your taxable estate, or avoiding capital gains taxes on donated securities. Here are some examples:

  • Charitable Lead Trust (CLT) – The charity of your choice receives trust income (fixed payment or fixed percentage) for a specified term/or your lifespan, after which the remainder goes either back to you or another trust beneficiary.
  • Charitable Remainder Trust (CRT) – The trust distributes income to you or another beneficiary for a specified term or your lifespan, after which the remainder goes to a designated charity.
  • Charitable Remainder Unitrust (CRUT) – The trust distributes a fixed percentage of its balance to you or a beneficiary for a specified term or your lifespan, after which the remainder goes to a designated charity.
  • Charitable Remainder Annuity Trust (CRAT) – The trust distributes a fixed payment to you or a beneficiary for a specified term or your lifespan, after which the remainder goes to a designated charity.

Setting up a trust to meet a variety of goals is very complex. Be sure to work with an experienced and qualified estate planner to set this up or, again, your legacy could be tarnished if your estate is not disseminated as planned.

5 Tips to Keep End-of-Year Spending Under Control

4 min read

5 Tips to Keep End-of-Year Spending Under ControlIt’s that time of year again. Halloween has just come and gone – and now we’re hurtling headlong into Thanksgiving and Christmas. For holiday shopping, it’s tempting to turn a blind eye and put everything on your credit cards. However, if you don’t want to have a financial hangover in January, February (and so on), you might want to take a look at these tips.

Create a Budget and Stick To It

The earlier you sit down and do this, the better. Decide on a financial cap per gift per person, then shop. Then, get creative. For instance, what if you bought a pre-loved item for someone? Made something for someone? You might also decide on a gift, then shop around and compare. So, when Black Friday and Prime Days raise their heads, you’ll already have made your selections. More on that below.

Put a Lid on Impulse Buying

This is a tough one. As mentioned above, Prime Day and Black Friday are hard to avoid. They scream at you on your TV and phone scroll, so it’s easy to get off track. If you want to avoid runaway spending, here are two ways to approach these retail spectacles. First, you can keep an eye on which item you want – then plan and research. Buy it when the price is crazy low, and walk away from all the frenzy, all the while tracking your spending. Second, you can dive right in, browse all you want, then put some things in your cart. But don’t buy it then. Come back a day later and decide if the purchase is really necessary. At this moment, you might also imagine the pain you could feel in 2025 with a bunch of debt hanging over your head. Employing this mindset could make all the difference.

Use Your Credit Cards Wisely

According to Jennifer Ellis, senior consumer manager at BOK Financial, credit card debt is on the rise. And with high interest rates, if you do have a balance, you’re going to pay more for your items. Before you set out to buy gifts, try to pay your credit card balances in full to avoid big fees. This way, you won’t carry the burden of a lot of debt into the new year.

Try Envelope Stuffing

This is an old trick, but a good one. Get envelopes, put the name of your giftee on the front, then put the amount of money you’re going to spend in it. Once you’ve used up the cash in the envelope for said person, you’re done. Also, using cash is more startling – you see the money go bye-bye! It’s so easy to gloss over the actual cash amount when you’re using plastic, as it almost doesn’t seem real. Working with real moolah is a tried-and-true technique, a wake-up call that you’ll appreciate.

Plan Early for Travel

Buy your tickets early for Thanksgiving and the December holidays. Monitor airline, bus, and train websites. Set alerts to notify you when the prices go up or down. All it takes is a little time and elbow grease. In the end, it’s worth it.

Most importantly, having a financial plan during this time of year is key. Yes, life is busy, but if you want to step into the new year without carrying the shackles of debt, using some of these ideas might be your saving grace.

Sources

https://thestatement.bokf.com/articles/2024/10/the-spookiest-trend-spending-too-much-on-the-holidays 

 

Zero Trust Security Models: The New Standard Against Data Breaches?

4 min read

Zero Trust Security Models: The New Standard Against Data Breaches?As technology evolves, so have data breaches, which have become a significant threat to businesses of all sizes. We frequently hear reports of high-profile attacks on major organizations, global corporations, and even government agencies. Emerging technologies such as generative artificial intelligence and machine learning make cybersecurity more challenging. They enable cybercriminals to automate attacks, create sophisticated phishing schemes, and develop advanced malware to evade traditional security measures. Hence, companies have no choice but to change how they approach cybersecurity.

To deal with these modern threats, Zero Trust security models are gaining widespread adoption as the preferred standard for effectively protecting against data breaches.

What is Zero Trust?

Zero Trust is a cybersecurity framework based on the “never trust, always verify” principle. Unlike traditional models that grant access based on network location, Zero Trust requires continuous verification of each user, device, and application attempting to access resources.

Instead of assuming that someone within the network can be trusted, Zero Trust demands constant authentication and least-privilege access. This means users are granted access to only the data and resources they need to perform their tasks. Basically, every interaction is assumed to be a breach.

How Zero Trust Differs from Traditional Security Models

Historically, businesses operated on a “perimeter-based” approach – trusting everything inside their network and guarding against threats from the outside. However, the once-clear network boundary has become unclear with the rise in remote work, cloud computing, and mobile devices. Breaches today can occur internally, often by compromised accounts, rogue insiders, or lateral movement of malware.

Cyberthreats have become such a huge problem that the U.S. government issued an executive order to help improve the nation’s cyber security by mandating that federal agencies adopt the Zero Trust architecture. This further pushes businesses to rethink their cybersecurity strategies.

Key Components of a Zero Trust Model

Zero Trust models are built on several core principles:

  • Continuous verification – Authentication is ongoing, requiring verification for every request made by a user or device.
  • Least-privilege access – Users receive only the minimum level of access needed to perform their jobs.
  • Micro-segmentation – Networks are divided into smaller zones, limiting the lateral movement of potential threats.
  • Contextual monitoring – Continuous monitoring of users and devices based on context – such as location, device health, and behavior – to identify abnormal activities.
  • Multi-factor authentication (MFA) – MFA requires users to provide two or more forms of authentication, such as a password combined with a biometric factor or a security token.
  • Encryption – All data must be encrypted to protect it from unauthorized access or interception. Encryption ensures that even if attackers manage to capture data, they cannot read or exploit it without the appropriate decryption keys.
  • Access Controls – Applying strict policies to determine who can access specific data and systems based on their role and identity.

Benefits of Zero Trust

  1. Stronger protection against data breaches – Zero Trust models significantly reduce the risk of data breaches by enforcing strict identity verification and limiting access to only necessary resources. Even if an attacker gains entry, micro-segmentation ensures limited movement, containing threats, and minimizing damage.
  2. Enhanced regulatory compliance – Zero Trust helps businesses meet regulatory requirements like GDPR and HIPAA by enforcing strict access controls and continuous monitoring. This approach simplifies compliance and ensures that only authorized users can access sensitive data, reducing the risk of fines.
  3. Improved visibility and control – With continuous monitoring, Zero Trust provides better visibility into network activity, making detecting suspicious behavior in real-time easier. This added control enhances security and operational efficiency, allowing immediate responses to potential threats.
  4. Reduction of insider threats – Zero Trust minimizes insider threats by requiring strict identity verification and limiting access, even for internal users. This makes it harder for malicious insiders or compromised accounts to cause significant damage within the network.
  5. Support for remote work and cloud environments – Zero Trust offers safe access to resources from any location. This flexibility ensures that businesses maintain strong security for both in-office and remote teams.

Conclusion

Zero Trust security models represent a significant shift from traditional perimeter-based defenses to a more dynamic and resilient approach. For business owners, adopting Zero Trust principles can provide peace of mind and enhanced protection in today’s unpredictable cyber landscape. With time, emerging technologies like artificial intelligence, IoT, and cloud computing will continue to shape the evolution of Zero Trust, making it an essential part of a robust cybersecurity strategy.

How to Account for Stranded Assets

4 min read

How to Account for Stranded AssetsWith more than 14 million electric vehicle (EV) registrations in 2023 worldwide and 2023 seeing an increase in EV sales over 2022 by 35 percent, manufacturers are probably happy – but not those producing the traditional internal combustion engine (ICE) vehicles. This is according to the International Energy Agency’s Global EV Outlook 2024: Trends in Electric Cars.

This statistic is important because it illustrates how assets can be rendered less useful and potentially turn into stranded assets. A stranded asset, defined, is an asset that’s no longer able to provide its owner the profitable payback they originally expected. The difference is based on shifts, primarily negative, that impact the asset’s expected productive performance.

How & Why Assets Become Stranded

When an asset loses its earning power, normally due to extraneous circumstances, like the invention of a more efficient battery, it can become stranded. For example, a machine that’s exclusively capable of making an internal combustion engine (ICE) vehicle can be considered stranded as the transition to electric vehicles (EV) is made. Since the machine is less valuable because it makes fewer and fewer ICE vehicles, it could be impaired or stranded.

This example illustrates that new technology, especially one that moves forward, can render equipment less useful than previously expected. Other ways assets can be stranded include administrative modifications, evolving societal conventions, etc.

Considerations for Stranded Assets by Testing an Asset for Impairment

The primary way to establish if an asset is stranded is to run an impairment test on it. Stranded assets impact the income statement via a non-cash loss, along with impacting the balance sheet by reducing asset value. Therefore, companies must report a loss on the income statement as it’s completely written off the balance sheet.

Whether it’s through the lens of International Financial Reporting Standards (IFRS) or generally accepted accounting principles (GAAP), whether an asset is intangible or tangible, when its value issue is less than book value or impaired, it must be written down.

GAAP Standard

The first step is to determine the carrying value. This is calculated by subtracting the accumulated depreciation from the asset’s original cost. From there, the asset’s projected undiscounted future cash flows (UFCF) are analyzed against the asset’s carrying value. If the total UFCF is less than the carrying value, an asset is considered impaired.

IFRS Standard

The first step also looks at an asset’s carrying value. From there, if either of the following two values is lower than the carrying value, it’s considered impaired:

  • Present value of future cash flows generated by the asset (the so-called “fair value in use” consideration)
  • Fair value less costs to sell the asset

Financial Statement Considerations

If an asset is impaired or stranded, whatever amount the asset drops by, it lowers the business’ asset’s value on the balance sheet. Looking at the income statement, it’s considered a loss. Additionally, since a devaluation is not considered a cash event, it doesn’t trigger any cash outflows. A real-world example can better illustrate this.

The following assumes a business reports its accounting under GAAP. It could be a company that produces fracking equipment to recover natural gas and crude oil. With the uncertainty of domestic fossil fuel policy, specifically where land can be explored, the threat of OPEC and/or Iran being able to determine their production, and the threat of increased government spending on green energy, fracking equipment has a current carrying value of $10 million. However, with increased competition from the three different factors, the same assets can produce an aggregate of $7.5 million in undiscounted future cash flows.

Based on GAAP, since the carrying value is $2.5 million more than the total undiscounted future cash flows, the business would need to record the same amount for an impairment loss. The journal entries would be:

Loss from Impairment Debit:. $2.5 million

Provision for Impairment Losses Credit:  $2.5 million

Conclusion

When it comes to accounting for stranded assets, it’s important to ensure guidelines are followed based on the type of accounting standards businesses must follow.

The New Era of “No Tax” Policies: Selective Tax Exemptions and Their Side Effects

4 min read

No Tax on Tips, No Tax on Over TimeFormer President and current candidate Donald Trump introduced a new policy of his in a recent Arizona rally: No more income tax on overtime pay. This follows both Trump and Vice President Harris’ proposal for a no income tax on tips policy, as well.

Below we will look at the two recent proposals and what they could mean for both taxpayers and businesses.

No Tax on Tips

The no tax on tips policy looks to lighten the tax burden on service industry workers. According to the Fair Labor and Standards Act, anyone who “customarily and regularly” receives $30 or more in tips per month is considered a tipped worker. The mechanism to exempt tip income could possibly come through three different mechanisms.

One option would be to categorize tips as gifts. Service employees are often paid wages lower than the minimum wage (as low as $2.31 per hour), with employers required to “top-up” an employee to the federal minimum wage of $7.25 if tips don’t at least make up the difference themselves. As a result, considering tips as gifts may not legally work.

A second option is to treat a specified amount of tips as non-taxable income. Consider a policy, for example, in which up to $25,000 in tips is treated as non-taxable income. Legally, this is straightforward, but it could have various knock-off effects on those it is intended to help. For example, a taxpayer’s gross income could fall so low they no longer qualify for the earned income tax credit and end up being a net negative.

Finally, there is a third option of creating a new deduction; allowing taxpayers to first claim the income and then take a deduction to offset it. The issue here is that given the claimed income level of most tipped workers, an additional deduction may not be one-for-one incrementally beneficial to the standard deduction. In other words, so much of their income is already non-taxable, this wouldn’t make much of a difference.

Side-Effects

Depending on how the policy is structured, there are negative side effects that could accompany the policy change. Compliance with reporting tip income is already spotty at best. It’s not uncommon for tipped workers to underreport their tip income, especially for cash tips. The main concern is that employers and employees may try to game the system. There is a real chance that who is tipped changes and people may try to change compensation schemes so that other types of income are then changed to tip income to take advantage of the changes; especially for taxpayers for whom the law was never intended to help.

Non-Taxable Overtime

The second proposal is to exempt overtime wages from income taxation. The idea is that it would help workers who get to keep more of their money; and at the same time helping businesses, since employees would be incentivized to work more hours, thereby negating the need to hire more employees. While on the surface it seems like a policy to help the hardest working, there are potential problems.

Unfair to Regular Wage Earners

There are two possible issues. First, it leaves behind hourly workers who cannot work overtime due to other responsibilities, health or their job’s duties. It also disadvantages those who have to work multiple jobs (because their job doesn’t offer overtime, but they need the money).

Second, it doesn’t consider salaried positions. There are many salaried positions, where workers are exempt from overtime laws – and a large swath of these are not highly paid positions.

Administrative Complications

Employers and the IRS would need to deal with distinguishing between regular wages and overtime earnings. What is considered overtime is not always clear when there are pay concepts such as bonuses, shift differentials, commissions or other alternative payment arrangements. It would also add significant complexity to payroll systems.

Conclusion

While both policies are well intended, the devil is in the details. Implementation would need to be carefully considered; the intended taxpayers might not be the main beneficiaries; and there is room for fraud.

How to Measure the Quality of Accounts Receivable

4 min read

How to Measure the Quality of Accounts ReceivableAnalyzing a company’s Accounts Receivables is an effective way to measure its current cash flows and the likelihood of maintaining healthy cash flows. According to the U.S. Chamber of Commerce’s Small Business Index (Third Quarter 2024), 68 percent of small business owners reported being content with their third quarter cash flow performance. This illustrates the importance for small business owners to do everything possible to maintain healthy cash flows, including evaluating the quality of accounts receivables (A/R).

Defining Accounts Receivables

This account or line item on the balance sheet gives the business’ managers/owners and investors a measure on how much money a business expects to receive from selling goods or services. It’s an important metric because it’s a measure of what’s owed, but not yet collected from rendered services/goods.

Consideration for Uncollectable Accounts Receivables

While businesses hope to collect 100 percent of their A/Rs, businesses take a realistic view that not everyone will pay up. For whatever reason, A/Rs aren’t always collected and must be accounted for as uncollectable. Therefore, a contra account is setup to account for accounts receivables that turn into bad debt. This contra account is linked to the accounts receivable, an asset reported on the balance sheet, offsetting the accounts receivable balance. However, there are many metrics for companies to manage their health internally, and some of these metrics are discussed below.

Accounts Receivable-to-Sales Ratio

This is determined by taking a “snapshot” of the ratio or division of the accounts receivables divided by sales over a period of time. The resulting calculation is the percentage of a business’ unpaid sales. The higher the accounts receivable-to-sales ratio, the riskier the company’s financial health. It indicates a business has accounts receivables with a low likelihood of being collected. It’s calculated as follows:

AR to Sales = AR / Sales

Since it measures the mix of how much a business relies on cash versus credit, it can prompt an analyst to determine whether a company is able to operate on minimal cash with low fixed costs and limited outstanding debt. It can also prompt an analyst to determine if a company is subject to cyclical sales and is dependent on the business cycle and whether it’s the right time to invest in a company or hold off until a better entry point is established.

Accounts Receivable Turnover Ratio

This calculation determines how fast a business can convert its accounts receivables into cash. It calculates this over a discrete period, be it a month, quarter, year, etc. It’s calculated as the sales over a period divided by the average accounts receivables balance over the same period. It’s calculated as follows:

ARTR = Net Credit Sales / Average Accounts Receivable

Net Credit Sales = Sales on Credit – Sales Returns – Sales Allowances

Average Accounts Receivable = (Starting + Ending A/R Over a Fixed Time) / 2

The higher the ratio, the less friction businesses have in converting their accounts receivables into cash. One important consideration to keep in mind is that if total sales are used for this calculation, which some business do, the results don’t reflect the original formula because it doesn’t remove the sales on credit or sales allowances.

Days Sales Outstanding (DSO)

This metric reveals how fast (in average number of days) a company is able to turn its receivables into cash. It’s the average accounts receivables divided by net credit sales multiplied by 365. It’s calculated as follows:

DSO = (A/R / net credit sales) x 365 days

The lower the DSO, the better quality and the more efficient a company is in converting its accounts receivables into cash. The higher the DSO, and especially when it goes beyond 90 days, can represent two different financial measures. The first is that the business’ accounts receivables might not be collectable. The second is that the company might be able to make sales but with deteriorating earnings.

While there are many ways to analyze a company’s health, along with many ways to analyze the quality of existing and future accounts receivables, these are a few ways to evaluate a company’s present financial health and prospects for the future.

Sources

https://www.uschamber.com/sbindex/key-findings

Keeping the Government Open, Stopping the Flow of Synthetic Drugs, and Improving Wireless Communications on Land and in Space

4 min read

Keeping the Government Open, Stopping the Flow of Synthetic Drugs, and Improving Wireless Communications on Land and in SpaceContinuing Appropriations and Extensions Act, 2025 (HR 9747) – This continuing resolution was introduced on Sept. 22 as a “clean” extenuation of the federal budget to fund the government until Dec. 20. Up until this point, a handful of Republicans had attached unrelated bills pertaining to November election restrictions, which they did not have the votes to pass in the House and would never have passed in the Senate. After several weeks of threatening to shut down the government by not passing a continuing appropriations bill, the House Speaker proposed this “last-minute” tied over with the minimum appropriations necessary to keep the government up and running. While it still does not solidify the federal budget for the 2025 fiscal year (Sept. 29, 2024, through Sept. 27, 2025), this bill is expected to pass in the House on Sept. 25 and to clear the Senate and be signed by the president by Sept. 29.

Preventing the Financing of Illegal Synthetic Drugs Act (HR 1076) – Introduced by Rep. Mónica De La Cruz (R-TX) on Feb. 17, 2023, this bill directs the Government Accountability Office to conduct a study on illegal funding sources related to the trafficking of synthetic drugs such fentanyl and methamphetamine. The bill passed in the House on May 22, 2023, in the Senate on July 23, 2024, and was signed into law by the president on Sept. 13.

Launch Communications Act (S 1648) – This act will update ground-to-space rocket communications going forward. Presently, commercial missions are required to use the government-owned spectrum to communicate during launches, including special temporary authority for private companies. This bill permits the Federal Communications Commission (FCC) to facilitate seamless access to broadband spectrum frequencies for commercial space launches and re-entries. The bill, which was introduced on May 17, 2023, by Sen. Eric Schmitt (R-MO), passed unanimously in the Senate on Oct. 21, 2023, and in the House on Sept. 17. It is currently awaiting signature by the president for enactment.

FUTURE Networks Act (HR 1513) – The acronym stands for Future Uses of Technology Upholding Reliable and Enhanced Networks Act. Introduced by Doris Matsui (D-CA) on March 9, 2023, this act would instruct the Federal Communications Commission (FCC) to establish a 6G Task Force comprised of private, academic and government experts to monitor the status of sixth-generation wireless technology, including its possible uses. The House passed the bill on Sept. 18, and the bill now rests with the Senate.

Violence Against Women by Illegal Aliens Act (HR 7909) – This bill would amend the Immigration and Nationality Act to make non-U.S. nationals (aliens) convicted of or having admitted to committing sex offenses or domestic violence (including conspiracy to commit a sex offense) be ineligible for country admission and deportable. Introduced by Rep. Nancy Mace (R-SC), the bill passed in the House on Sept. 18 and currently lies in the Senate.

Intergovernmental Critical Minerals Task Force Act (S 1871) – Introduced by Sen. Gary Peters (D-MI) on June 8, 2023, this bill would enable coordination among state, local, tribal and territorial jurisdictions with the federal government to mitigate national security risks related to the current U.S. critical mineral supply chains. Specifically, the intent is to make the United States less reliant on China and other countries for critical minerals and rare earth metals. Provisions of the bill allow for development, mining and strengthening of our domestic workforce and to improve partnerships with allied countries for dependable mineral supply chains. The bill passed in the Senate on Sept. 8 and is currently with the House.

SMART Leasing Act (S 211) – Introduced on Feb. 1, 2023, by Sen. Gary Peters (D-MI), this bill would launch a program to lease underutilized properties owned by the federal government. The net funding would then be used for capital projects and to help offset the national deficit. The act passed in the Senate on Aug. 1 and is currently under consideration in the House.