Single Taxpayers
2020	2021	2022
10%	0 – $9,875	10%	0 – $9,950	10%	0 – $10,275
12%	$9,875 – $40,125	12%	$9,951 – $40,525	12%	$10,276 – $41,775
22%	$40,126 – $85,525	22%	$40,526 – $86,375	22%	$41,776 – $89,075
24%	$85,526 – $163,300	24%	$86,376 – $164,925	24%	$89,076 – $170,050
32%	$163,301 – $207,350	32%	$164,926 – $209,425	32%	$170,051 – $215,950
35%	$207,351 – $518,400	35%	$209,426 – $523,600	35%	$215,951 – $539,900
37%	$518,401 and Over	37%	$523,601and Over	37%	$539,901 and Over

Married Filing Jointly and Surviving Spouses
2020	2021	2022
10%	0 – $19,750	10%	0 – $19,900	10%	0 – $20,550
12%	$19,751 – $80,250	12%	$19,901 – $81,050	12%	$20,551 – $83,550
22%	$80,251 – $171,050	22%	$81,051 – $172,750	22%	$83,551 – $178,150
24%	$171,051 – $326,600	24%	$172,751 – $329,850	24%	$178,151 – $340,100
32%	$326,601 – $414,700	32%	$329,851 – $418,850	32%	$340,101 – $431,900
35%	$414,701 – $622,050	35%	$418,851 – $628,300	35%	$431,901 – $647,850
37%	$622,051 and Over	37%	$628,301and Over	37%	$647,851 and Over

Married Filing Separately
2020	2021	2022
10%	0 – $9,875	10%	0 – $9,950	10%	0 – $10,275
12%	$9,875 – $40,125	12%	$9,951 – $40,525	12%	$10,276 – $41,775
22%	$40,126 – $85,525	22%	$40,526 – $86,375	22%	$41,776 – $89,075
24%	$85,526 – $163,300	24%	$86,376 – $164,925	24%	$89,076 – $170,050
32%	$163,301 – $207,350	32%	$164,926 – $209,425	32%	$170,051 – $215,950
35%	$207,351 – $311,025	35%	$209,426 – $314,150	35%	$215,951 – $323,925
37%	$311,026 and Over	37%	$314,151and Over	37%	$323,926 and Over

Heads of Housholds
2020	2021	2022
10%	0 – $14,100	10%	0 – $14,200	10%	0 – $14,650
12%	$14,101 – $53,700	12%	$14,201 – $54,200	12%	$14,651 – $55,900
22%	$53,701 – $85,500	22%	$54,201 – $86,350	22%	$55,901 – $89,050
24%	$85,501 – $163,300	24%	$86,351 – $164,900	24%	$89,051 – $170,050
32%	$163,301 – $207,350	32%	$164,901 – $209,400	32%	$170,051 – $215,950
35%	$207,351 – $518,400	35%	$209,401 – $523,600	35%	$215,951 – $539,900
37%	$518,401 and Over	37%	$523,601and Over	37%	$539,901 and Over

How Cost Accounting Helps Businesses Measure Performance

4 min read

Cost 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.

2020 Vs 2021 Vs 2022 Federal Income Tax Brackets

3 min read

The US tax system is progressive, meaning that the more you earn the more you pay. For the years 2020-2022 there are seven different brackets for each year. Which bracket you are in depends on your taxable income; however, your bracket does not equal your tax rate.

Tax brackets work so that you pay part of your income at each level bracket as you move-up in income. In other words, someone in the 24% marginal rate bracket will pay 10% on part of their income, 12% on another part, 22% on yet another and finally 24% on everything else. In other words, moving into a higher tax bracket does NOT mean you pay higher taxes on all your income.

Below we will present comparative tables, so you change see the changes across the years, but before we do let’s look at how the rates and brackets have changes over the periods.

Evolution of Tax Rates and Brackets

The tax rates over the period are the same. There are seven brackets with progressive rates ranging from 10% up to 37% and they are the same over all three years.

Federal income tax rate brackets are indexed for inflation. The brackets are adjusted using the chained Consumer Price Index (CPI). There were no structural changes to the tax brackets in any of the periods, so the only impact are increases year-over-year due to the inflation indexing.

The inflation adjustment factor for 2022 was 3.1% for example. This caused the 22% rate bracket for single filer to increase from $81,051 up to $83,551.

Tax Rates and Brackets

Below are the 2020-2022 tables for personal income tax rates. Note, that the 2020 figures below are the amounts applicable to the income earned during 2020 and paid in 2021 when you file your taxes.

Tax Brackets & Rates

Single Taxpayers
2020		2021		2022
10%	0 – $9,875	10%	0 – $9,950	10%	0 – $10,275
12%	$9,875 – $40,125	12%	$9,951 – $40,525	12%	$10,276 – $41,775
22%	$40,126 – $85,525	22%	$40,526 – $86,375	22%	$41,776 – $89,075
24%	$85,526 – $163,300	24%	$86,376 – $164,925	24%	$89,076 – $170,050
32%	$163,301 – $207,350	32%	$164,926 – $209,425	32%	$170,051 – $215,950
35%	$207,351 – $518,400	35%	$209,426 – $523,600	35%	$215,951 – $539,900
37%	$518,401 and Over	37%	$523,601and Over	37%	$539,901 and Over

Married Filing Jointly and Surviving Spouses
2020		2021		2022
10%	0 – $19,750	10%	0 – $19,900	10%	0 – $20,550
12%	$19,751 – $80,250	12%	$19,901 – $81,050	12%	$20,551 – $83,550
22%	$80,251 – $171,050	22%	$81,051 – $172,750	22%	$83,551 – $178,150
24%	$171,051 – $326,600	24%	$172,751 – $329,850	24%	$178,151 – $340,100
32%	$326,601 – $414,700	32%	$329,851 – $418,850	32%	$340,101 – $431,900
35%	$414,701 – $622,050	35%	$418,851 – $628,300	35%	$431,901 – $647,850
37%	$622,051 and Over	37%	$628,301and Over	37%	$647,851 and Over

Married Filing Separately
2020		2021		2022
10%	0 – $9,875	10%	0 – $9,950	10%	0 – $10,275
12%	$9,875 – $40,125	12%	$9,951 – $40,525	12%	$10,276 – $41,775
22%	$40,126 – $85,525	22%	$40,526 – $86,375	22%	$41,776 – $89,075
24%	$85,526 – $163,300	24%	$86,376 – $164,925	24%	$89,076 – $170,050
32%	$163,301 – $207,350	32%	$164,926 – $209,425	32%	$170,051 – $215,950
35%	$207,351 – $311,025	35%	$209,426 – $314,150	35%	$215,951 – $323,925
37%	$311,026 and Over	37%	$314,151and Over	37%	$323,926 and Over

Heads of Housholds
2020		2021		2022
10%	0 – $14,100	10%	0 – $14,200	10%	0 – $14,650
12%	$14,101 – $53,700	12%	$14,201 – $54,200	12%	$14,651 – $55,900
22%	$53,701 – $85,500	22%	$54,201 – $86,350	22%	$55,901 – $89,050
24%	$85,501 – $163,300	24%	$86,351 – $164,900	24%	$89,051 – $170,050
32%	$163,301 – $207,350	32%	$164,901 – $209,400	32%	$170,051 – $215,950
35%	$207,351 – $518,400	35%	$209,401 – $523,600	35%	$215,951 – $539,900
37%	$518,401 and Over	37%	$523,601and Over	37%	$539,901 and Over

Conclusion

There are no dramatic changes in the rates or brackets for the years 2020-2022, nor are there structural changes currently expected from congressional action.

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

3 min read

Inflation 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.

Should You Upgrade Your Homeowners Insurance?

5 min read

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.

Expanding the Net Investment Income Tax

3 min read

Despite 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.

4 Common Depreciation Methods and Their Uses

5 min read

Depreciation is the accounting concept that evaluates an asset’s useful life. As the Internal Revenue Service explains, depreciable property – which could include equipment, structures, means of transportation, fixtures, etc. – is examined to see how many years the purchase price can be averaged and “deducted from taxable income.” This is in contrast to “full expensing,” which allows companies to write off investments straight away. For dual use property (personal and commercial), only the proportion of property that’s used for business may be depreciated. Property eligible for depreciation must be owned by the business, be used for business purposes/income-producing activity, and have a determinable useful life.

1. Straight Line Depreciation Method

This method of depreciation determines a constant amount to expense annually over the useful life of the property. It’s calculated as follows, with the following example circumstances assumed:

Machinery costing $50,000 with a life of 12 years and $2,500 in salvage value.

= (Cost – Salvage Value) / Useful life

= ($50,000 – $2,500) / 12

= $47,500 / 12

= $3,958.33

Considerations

When implementing this method of depreciation, if the asset’s useful life and salvage value is assumed incorrectly, it could skew results. For assets that become outdated prematurely and/or require higher maintenance costs toward the end of its useful life, this method can lead to improper results.

2. Double Declining Balance Depreciation Method

This method, generally speaking, is double that of the straight-line rate.

Annual Depreciation Rate = (100% / Useful life of asset) x 2

Annual Depreciation Rate = (100% / 10) x 2 = 20%

Let’s assume that property, plant and equipment (PP&E) costs $75,000, will produce for 10 years and have a salvage value of $6,000.

From there, we work to establish the Periodic Depreciation Expense (PDE) = Beginning Book Value x Rate of Depreciation

Using the formula for PDE, we get: $75,000 x 0.20 (20 percent) = $ 15,000 for the first year’s depreciation expense.

Then, the first year’s depreciation expense is subtracted from the item’s beginning book value. Ending Book Value = $75,000 – $15,000 = $60,000

To determine each subsequent year’s ending book value, it begins with last year’s ending book value minus the newly calculated annual depreciation expense.

Year 2 Calculation for Ending Book Value: $60,000 – ($60,000 x 0.20 = $12,000) = $48,000

Considerations

This method expenses a greater proportion in the earlier years compared to the later years. This is attributable to assets that produce more for a business in their earlier years compared to later years. This method can help businesses depreciate items that lose value quickly, such as electronics, and similar items that become obsolete due to improving technology. It’s not necessarily double or 200 percent of the straight-line rate. It could be more or less than double of the straight-line rate. However, the double depreciation rate does remain constant over the depreciation process.

3. Units of Production Depreciation Method

This takes either the amount of discrete time utilized for production or the tally of items to be manufactured with the production equipment subject to depreciation. It’s calculated as follows:

Depreciation Expense = ((Cost – Salvage value) / (Life in Number of Units)) x Number of Units Produced During Accounting Time Frame.

Let’s assume a piece of equipment costs $100,000, has a projected lifetime production ability of 150 million widgets and will salvage for $10,000. It’s projected to create an output of 25 million widgets within the accounting year.

Depreciation Expense = (($100,000 – $10,000) / (150 million)) x 25 million

= (($90,000) / (150 million)) x 25 million

= 0.0006 (unit) x 25 million

= $15,000

Considerations

This method can help businesses such as manufacturers that produce discrete items that can be counted and expensed per piece. Depreciation starts when the manufacturer begins to make items and stops when the unit has produced all of its life’s items within a pre-defined time frame.

4. Sum-of-the-Years Digits Depreciation Method

It’s calculated as follows:

Remaining Life (RL) of an asset is divided by the sum of the years digits (SYD) x Depreciation Base. The Depreciation Base = (Cost – Salvage Value)

Assuming there are equipment costs of $50,000, with a useful life of 12 years and a salvage value of $3,500. Depreciation Base = $50,000 – $3,500 = $46,500

RL = the remaining life of the asset. When the item starts running, it will have 12 years of a remaining life. One year later, or 12 months after usage began, the asset will have 11 years remaining, and so on. For an item with 12 years of useful life, it will be “the sum of the years” or 1+2+3+4+5+6+7+8+9+10+11+12.

The first year of use or the item’s Remaining Life will be 12 / 78 = 0.1538. Then 0.1538 x $46,500 = $7,153.85.

Year 2 would be calculated as 11 / 78 = 0.1410. Then 0.1410 X $46,500 = $6,557.69.

Considerations

This method is another way to speed up the percentage of depreciation sooner, instead of toward the end of the asset’s useful life. The longer the asset is used, the less the asset provides utility to the business. Therefore, it helps businesses take advantage of depreciation sooner. It’s a trade-off for items that require more maintenance as time goes on, as the item’s value drops inversely.

Conclusion

Depending on the type of business and what it produces or provides as a service, understanding how depreciation works can give an accurate picture of the company’s finances and help navigate tax laws efficiently.

Stock Splits, Explained

5 min read

Imagine selling slices of a large pizza. You can cut it into four even slices and charge $2 a slice. Or, you can cut it into eight even slices and charge $1 per slice. Either way, the total value of the pizza will still be $8.

That’s what happens when a stock splits. Let’s say a stock’s market price is $100. With a 2-for-1 split, each current owner receives one additional share for each share he owns. Now, each share is worth $50. If you had one share to start, you now have two, but the total value of the investment remains $100.

A stock split differs from when a company decides to issue new shares, wherein new shares flooding the market can dilute the value of existing shares. With a stock split, the value of existing shares do not decrease. The total market value of a shareholder’s holdings will remain the same.

There are different forms of stock splits, such as the 2-for-1, 3-for-1, or 3-for-2 stock split. They all work the same way: You get two shares for everyone you hold, or three shares for everyone you hold, or three shares for every two shares you own.

Another, the less common form is called the reverse stock split. This is when a company decides to reduce the number of outstanding shares, which in turn will increase the stock price of shares held by stockholders. This strategy is generally used to boost the price of a stock that has lost value over time.

It is important to recognize that the stock split is a simple strategy designed to affect the stock price. It in no way changes the company’s market capitalization (i.e., total value of all outstanding shares) or other fundamental metrics. In order to issue a stock split, it must be approved by both company management and the board of directors. Furthermore, the company must publicly announce its intention to conduct a stock split within days or weeks of implementation.

The timing of the announcement is important because some investors try to take advantage of a stock split, believing that the value of the stock will increase as a result. This has more to do with market sentiment than any change in company fundamentals.

For example, in the past when a stock split its value often returned to its pre-split price within a year. This is not necessarily because the company has improved fundamentals, but rather because the investor market simply believes that stock is worth that price — it’s a form of confirmation bias. However, in recent years it is not as common for split stocks to climb back to their original price as it was in the past.

Why Conduct a Stock Split?

Again, the reason for a stock split is largely driven by market sentiment. For example, some investors may not have a lot of discretionary income to invest, so they look for a lower-priced stock. While they might not consider a stock valued at $100 per share, they may be interested in the company at $50 a share. In fact, following a recent stock split, investors may see it as getting a bargain price for that stock. As such, they might buy two shares. Now they’ve spent $100 on two shares whereas they were reluctant to buy one share for $100. The value is the same, but psychologically, that stock now seems like a great buy. This is referred to as unit bias. Psychologically, most people perceive lower per share prices to mean that a stock is “cheaper” and therefore may have more room to make gains.

In addition, now they can further diversify their portfolio with different stocks, whereas before those high-priced shares may have dominated their portfolios, exposing them to greater market risk.

A stock split also gives current shareholders the opportunity to increase their holdings at half price. While the value hasn’t changed when they make the buy if the stock increases in the future their portfolio will increase in value because they have more shares of that stock. For example, let’s say you have 10 shares of a stock priced at $10, for a total value of $100. The stock splits 2-for-1, so now you have 20 shares priced at $5, still valued at $100. In a few years, the stock price grows to $20 per share. Had the stock not split, your total value would grow to $200. But because you now own 20 shares, the total value of those shares would grow to $400.

Clearly, the true value of a stock split comes from holding those shares until the price increases substantially.

Mutual Fund Split

Some mutual funds also engage in the split strategy, but instead of splitting an individual stock, the fund company issues additional shares of the fund at a reduced price. In all other ways, a mutual fund share split works like an individual stock split.

If you’d like to learn the history of a company’s stock splits, consider the following resources:

Click on the investor relations tab on the company website, which often provides a history of the company, including dates of past stock split activity.

stocksplithistory.com or Morningstar.com.
Another option for both stocks and mutual funds is to search by the stock symbol at Yahoofinance.com. On the stock’s performance chart, look for the Events tab and check the Stock Splits option. You may need to reduce the historical time frame to see splits marked clearly.
You also may be able to search for stock split history on the website of your online broker. Many outfits offer these types of research tools.

Powell CPA PLLC

Stock Splits, Explained

August 1, 2022 · Blog, Financial Planning

5 min read

Stock Splits, What is a Stock Split Imagine selling slices of a large pizza. You can cut it into four even slices and charge $2 a slice. Or, you can cut it into eight even slices and charge $1 per slice. Either way, the total value of the pizza will still be $8.

Why Conduct a Stock Split?

In addition, now they can further diversify their portfolio with different stocks, whereas before those high-priced shares may have dominated their portfolios, exposing them to greater market risk.

Clearly, the true value of a stock split comes from holding those shares until the price increases substantially.

Mutual Fund Split

If you’d like to learn the history of a company’s stock splits, consider the following resources:

Click on the investor relations tab on the company website, which often provides a history of the company, including dates of past stock split activity.
Search by the ticker symbol at stocksplithistory.com or Morningstar.com.
Another option for both stocks and mutual funds is to search by the stock symbol at Yahoofinance.com. On the stock’s performance chart, look for the Events tab and check the Stock Splits option. You may need to reduce the historical time frame to see splits marked clearly.
You also may be able to search for stock split history on the website of your online broker. Many outfits offer these types of research tools.

Disclaimer

How Businesses Can Mitigate Inflation & Maintain Pricing Power

5 min read

Whether 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

8 Ways to Save on School Supplies

3 min read

Even though summer is still somewhat in full swing, school will be starting soon. Yes, you heard that right. This means that you probably need to get prepared for the inevitable cash outlay ahead. But it doesn’t have to cost an arm and a leg. Here are some ways to navigate the upcoming expenditures and save a penny or two.

Start Early

We’re talking a few weeks ahead, if possible. If you wait until the last minute, supplies might run out. You may have to spend time online searching and/or driving from store to store – and paying the premium both in terms of products and gas. If you spread out purchases a little at a time, you won’t feel the financial hit so severely. Dive in early and you’ll thank yourself when it’s all over.

Conduct a Supply Audit

Dig into those drawers, closets and storage bins for school supplies from last year. Chances are, you bought a set of, say, pencils and all are not used. When you’re done, put what you’ve found in a central location and make your shopping list. Be sure to keep this list handy (on your phone, or in your bag if you’ve handwritten it). Another way to keep track of what you already have is to snap a pic of it.

Swap With Friends

Do this before you spend any money. Organize a small gathering with other parents, trade your wares, figure out what you need, then get going.

Head to the Dollar Store

After you’ve audited and swapped, check out these bargain basement stores. Here, you’ll find big savings on basics like notebooks, pencils, plus hand sanitizer and facial tissues.

Scour Thrift Stores

While thrift stores might not have supplies in terms of schoolwork, they’ll definitely have back-to-school clothes you can buy for a song – aka pretty darn cheap. You might look for backpacks here, too, which are a must-have. Tip: Don’t let your kiddos wear their new duds immediately. Save them for the first day (and days after) so they’ll feel like they’re starting the new year with a 100 percent fresh start.

Shop on a Sales Tax Holiday

state sales tax holiday list for you.

Follow Popular Stores on Social Media

Many companies send their followers coupon links and advance notice about juicy sales. Several to watch on Facebook and Twitter are Staples, Office Depot, Target, Best Buy, as well as Coupons.com and RetailMeNot.

Make One Trek Solo

While taking the kiddos along can be fun and a great bonding experience, chances are they’ll plop things in your cart you might not want – and run up the bill. By yourself, you can get in and out quickly and control the cost.

Going back to school can be a challenging transition, both for kids and parents. However, if you plan ahead and stay on track, you can give yourself an A+ for all you’ve accomplished.

Sources

https://www.moneycrashers.com/back-to-school-supplies-list-tips/

Powell CPA PLLC

8 Ways to Save on School Supplies

August 1, 2022 · Blog, Tip of the Month

3 min read

8 Ways to Save on School Supplies Even though summer is still somewhat in full swing, school will be starting soon. Yes, you heard that right. This means that you probably need to get prepared for the inevitable cash outlay ahead. But it doesn’t have to cost an arm and a leg. Here are some ways to navigate the upcoming expenditures and save a penny or two.

Start Early

Conduct a Supply Audit

Swap With Friends

Do this before you spend any money. Organize a small gathering with other parents, trade your wares, figure out what you need, then get going.

Head to the Dollar Store

After you’ve audited and swapped, check out these bargain basement stores. Here, you’ll find big savings on basics like notebooks, pencils, plus hand sanitizer and facial tissues.

Scour Thrift Stores

Shop on a Sales Tax Holiday

Lots of states have these and during this time (or day or weekend), you can buy computers, clothing and school supplies without paying sales tax. Here’s a state sales tax holiday list for you.

Follow Popular Stores on Social Media

Make One Trek Solo

Going back to school can be a challenging transition, both for kids and parents. However, if you plan ahead and stay on track, you can give yourself an A+ for all you’ve accomplished.

Sources

https://www.moneycrashers.com/back-to-school-supplies-list-tips/

Disclaimer

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

4 min read

Supply 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.

Powell CPA PLLC

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

Author: Service2Client

How Cost Accounting Helps Businesses Measure Performance

2020 Vs 2021 Vs 2022 Federal Income Tax Brackets

Tax Brackets & Rates

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

Should You Upgrade Your Homeowners Insurance?

Expanding the Net Investment Income Tax

4 Common Depreciation Methods and Their Uses

Stock Splits, Explained

How Businesses Can Mitigate Inflation & Maintain Pricing Power

8 Ways to Save on School Supplies

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

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