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Ideas for Small Business Succession Planning

4 min read

Small Business Succession PlanningIt can be hard to build up your own business, but it can be harder to sell it for what it’s worth. In fact, only around three in 10 family-owned businesses survive for the next generation. Whether family-owned or in a partnership of non-family owners, business succession is no easy feat.

Succession Planning

It is very important to have a succession plan, even if the business is fairly new. That’s because it gives heirs a roadmap for what to do if the owner dies unexpectedly. The first step is to figure out who you want to run the business after you. If you want to pass it on to one or more family members, be sure to ask if they’d like to own it. Note that the family route may need to be considered a year or more before the transfer to ensure the successive owner has time to learn the ropes.

If you decide to sell the business to a third party, consider if you want to sell it outright or retain partial ownership and continue to get a share of the profits. Also, think about whether or not you want to participate in running the business once ownership changes hands.

Business Owner Partners

In the case of a shared business, a succession plan can help clarify the intent of both owners and provide a legal path of succession if one owner dies. In a worst-case scenario, instead of the surviving partner taking the reins to run the business on his own, he may end up having to run it alongside the deceased owner’s spouse, who might not possess the skills, experience, or proclivity for the business. Or maybe the surviving spouse decides not to sell the business but receive a share of the profits without doing any work.

Key Man Insurance

If the surviving owner would simply like to buy out the deceased owner’s interest in the business, there are certain financial strategies available in the event he doesn’t have the assets to do so. One vehicle is called key man insurance, which refers to policies paid for by the business to cover the death of the business owner. Death proceeds are specifically earmarked to keep the business operating upon the death of the owner.

Buy-Sell Agreement with Life Insurance

A succession plan that includes a Buy-Sell Agreement contract specifies what will happen to the business shares of the owner upon his death. In most cases, the surviving business partner will use the life insurance proceeds to buy the shares at a predetermined value, which ensures that the deceased’s family is adequately paid for his share of the business upon his death.

Family-Owned Business

In the case of a family-owned business, a family member who is active in the business may take out an insurance policy on the owner and use the proceeds to buy out the interests of the non-active family members after the owner dies.

Private Annuity

Another option is a private annuity, in which the owner sells his business to his children in exchange for a fixed annuity income, based on IRS interest rates, for the rest of the owner’s life and, if elected, that of his spouse. If the owner outlives his life expectancy, the children may end up paying him more than the business is worth. However, if the owner dies sooner, they may pay less than the business is worth.

Family Limited Partnership

With a family limited partnership, the business owner transfers some or all of his business to individual family members while he is alive. When the owner dies, the portion of the business that has been transferred is no longer considered a part of the owner’s estate and is therefore not subject to estate taxes.

Seller Financing

If the owner has trouble selling the business to a third party, including perhaps a valuable employee who would like to take over, consider a seller financing agreement. Instead of paying the owner a lump sum, the buyer pays him a fixed, regular payment over a set number of years. Future business revenue secures the note, and the current owner would be qualified to know how well business revenues might hold up under the new ownership. Some sellers set up a finance agreement for just five years or so, after which time the buyer is expected to qualify to refinance with a conventional loan. It’s also possible for the financier to sell the new owner’s note if he decides down the road to get out of the financing role. The good news is that, should the buyer default on the loan, the seller would still own the company.

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A Look at the Nonaccrual Experience Method

3 min read

Nonaccrual Experience MethodWhen it comes to running a business, having outstanding invoices that turn into uncollectible receivables or simply bad debt is a fact of life. The Internal Revenue Service (IRS) has a safe harbor that permits businesses to reduce consideration of such bad debt from taxation if it qualifies. However, understanding how to determine if a business is eligible is essential to making the most of it when a business files its taxes.

Defining the Nonaccrual Experience Method (NAE)

When businesses perform a service, they expect to be paid. However, they sometimes have unpaid invoices that are uncollectible. One provision within the IRS’s Internal Revenue Code (IRC) is that of the nonaccrual experience method (NAE) and how it intersects with bad debts.

How It Works      

Once a company sees bad debt in its system after customers fail to pay their invoices, it calculates the amounts it projects it won’t be able to collect. Projecting bad debt is accomplished by the company looking at previous experiences with its payees. It’s important to note that this accounting is used by businesses for only a portion of their projected uncollectable customer bad debt; businesses similarly project the remaining percentage they expect to collect from outstanding invoices in the future.   

One important step for businesses to determine their eligibility for relief from the accrual segment of uncollectible revenue, per the U.S. Securities & Exchange Commission (SEC), is by determining their industry classification. Sample industries include legal professionals, engineers, performance art professionals, architects, and actuaries.

It’s important to note that if businesses don’t use this method, they may charge off such debts. Charge-offs are when a company writes the debt off its balance sheet and expenses the uncollectible funds on the income statement. Companies must also adhere to the following criteria to take advantage of the safe harbor:

  • The company must currently use the accrual method of accounting when recording revenues, and not the cash method to account for revenue.
  • The company, in a single year, within the past 36 months, has earned up to, but no more than $5 million in gross receipts.

IRS Guidance

Beginning in September 2011, the Internal Revenue Service permitted taxpayers to use the NAE method to determine applicability by applying a factor of 95 percent to their allowance for bad debts via their past 60 months of financial documents. This permits businesses to exclude qualifying uncollectible revenues from their taxable income, which is beneficial for lowering the amount of taxes owed. It is often easier for NAE-specific designated industries to qualify; however, only companies with the appropriate amount of historical information to substantiate are eligible.

Further Considerations and Conclusion

One example of this safe harbor includes having financial information that’s expertly tracked for the past 60 months via financial statements. If the company can’t substantiate it, they won’t be able to qualify. Similarly, eligible services provided or the resulting receivables that have interest and/or financial penalties attached are ineligible.

When it comes to navigating the IRS code, the NAE can provide another way for eligible companies to maximize filings and tax obligations.

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Initial Look at the New Tax Form Schedule 1-A: Four Key Deductions for 2025

3 min read

Tax Form Schedule 1-AThe IRS has released draft Schedule 1-A, introducing four new temporary deductions within the One Big Beautiful Bill Act. If you are wondering what the new form looks like and how the calculations work, read on as we explore each below.

Modified Adjusted Gross Income (MAGI)

It is important to note that all four deductions require calculating your MAGI first, which determines eligibility and phaseout amounts for each deduction.

The Four New Deductions and How the Calculations Work

These deductions are all referred to on the schedule by their colloquial names, for example: “No Tax on Tips,” “No Tax on Overtime” and “No Tax on Car Loan Interest.” The sole exception, however, is popularly referred to as the “No Tax on Social Security” provision, which is called the “Enhanced Deduction for Seniors” on the form.

1. Tips Deduction

  • Maximum: $25,000 annually
  • Eligibility: Must receive qualified tips in customarily tipped occupations
  • Phaseout: Begins at $150,000 MAGI ($300,000 joint filers)
  • Rate: $100 reduction per $1,000 over threshold
  • Requirements: Valid Social Security number; married couples must file jointly

2. Overtime Deduction

  • Maximum: $12,500 single ($25,000 joint filers)
  • Eligibility: Only the premium portion of overtime pay (the “half” of time-and-a-half)
  • Phaseout: Same as tips deduction – begins at $150,000 MAGI
  • Rate: $100 reduction per $1,000 over threshold

3. Car Interest Deduction

  • Maximum: $10,000 annually
  • Eligibility: Interest on loans for new vehicles under 14,000 pounds and assembled in the United States
  • Phaseout: Begins at $100,000 MAGI ($200,000 joint filers)
  • Rate: $200 reduction per $1,000 over threshold
  • Requirements: Must provide VIN; loan must originate after Dec. 31, 2024

4. Enhanced Deduction for Seniors

  • Amount: $6,000 fixed deduction
  • Eligibility: All taxpayers (replaces “No Tax on Social Security” promise)
  • Phaseout: Begins at $75,000 MAGI ($150,000 joint filers)
  • Rate: 6 percent reduction of excess income over threshold

Key Points to Remember

  • All deductions are available whether you itemize or take the standard deduction
  • All require valid Social Security numbers
  • Married couples must file jointly to claim these benefits
  • Income limits mean higher earners receive reduced or no benefits
  • These are deductions, not exclusions – income is still reportable for state/local taxes

Final Steps

After you have calculated everything applicable for the four possible deductions, you will enter the total on the new line 13b on Form 1040. The total amount of the deductions entered here is removed from your income prior to calculating your tax. Remember, these are deductions and not credits, so they only reduce your taxable income and are not a direct reduction in your tax due.

You can see an example of the new draft Form 1040 illustrating this below.

Screenshot of new Form 1040

Conclusion and Draft from Status – and IRS Warning

The above provides guidance to taxpayers and professionals on how both the deductions calculations work and flow through Form 1040. The IRS warns, however, that the forms and instructions currently released are in draft form at this point. Before any forms or instructions can be released in their final state, they need to be approved by the OMB. It is not unusual for draft releases of instructions and publications to have some changes before their final release, even if only minor.

 

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How to Save Money with the Half Rule

3 min read

What is the Half Rule?What if you could lower your grocery bill without giving up the things you love, fight inflation, and have some money left at the end of the month? Sounds too good to be true? It’s not. It’s the Half Rule. This means cutting the amount of product you use in half and seeing what happens.

Truth is, most of us probably use too much of the things we love. Here are several reasons why:

  • Manufacturers often ask you to use more of the product than you need.
  • You’ve probably gotten used to using a certain amount of a product;
  • And finally, product inflation. Specifically, you might think that if you get pleasure out of something, you might need to use more of it. For instance, why get a tall vanilla latte when you can get a grande, right? But ask yourself: Is it really that much better?

To this end, here are some things you can easily use half of and never miss the other half:

  • Shampoo. Try using half the amount and adding more water, especially if it’s concentrated.
  • Laundry detergent. Try a half cup. A little goes a long way, especially if it’s a small load.
  • Dryer sheets. These are so easy to tear in half.
  • Cooking oil. Use an oil mister instead of pouring it into your pan or skillet.  
  • Restaurant meals. Eat half or a third and save the rest for another meal. Or better yet, split a meal with your partner, friend or work colleague. Bonus: you’ll also save calories.
  • Bagels. Just eat half! Save the other half for your next snack or breakfast.
  • Starbucks order. Try a tall. Or if you get a vente, try a grande. Give it a whirl. See what happens.
  • Glass stovetop cleaner. If you use less, you might have fewer streaks.
  • Tape. When you’re wrapping gifts, give string a try.

When you change a few things here and there, over time, you’ll really see the difference in your bank account. Also, imagine how nice it’ll feel not to have to buy these items so often. That’s a big change in spending.

The Half Rule is not for everything. While it works on so many things, there are some things you cannot to apply it to – like filling up your gas tank or cutting a prescription in half. Never do that.

Overall, it’s a good rule. And when you’re persistent over time, you’ll start to develop a habit – one that will help you see a difference quickly and save you money in the long run. It’s a ripple effect that might expand into other areas of your life. In sum, the Half Rule is so effective, you just might go all in – and stay there.

Sources

“The Half Rule” – A Frugal Hack I Live By

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Beyond the Hype: A Strategic Blueprint for AI Investment in 2025 and Beyond

4 min read

AI Investment in 2025Artificial intelligence (AI) is one of the most talked-about technologies today. It has taken a shift from the broad general-purpose tools to specialized innovations that promise real impact. AI is dominating headlines with investor pitches. There has also been a surge in startups promising AI-powered solutions. However, some businesses have already adopted and invested millions into AI projects with little return. As AI advances, business owners and investors need to stop chasing the latest headlines and consider how to best integrate AI to create lasting value.

Understanding the AI Investment Landscape in 2025

Since the AI breakout, it has advanced dramatically. There are three forces that are reshaping the investment and adoption of AI.

  1. Maturation of Foundation Models
    The large language models (LLMs) are now cheaper and faster. They are also customizable. This means that businesses no longer need to build from scratch and can just adapt existing models in their industry.
  2. Regulations and Accountability
    Governments are tightening frameworks around data privacy, transparency, and responsible AI. Compliance has become a key competitive differentiator.
  3. Sector-Specific Applications
    Advancements in AI have given way to specialized use cases. For example, fintech AI can track fraud, while manufacturing AI optimizes the supply chain.

The AI Hype Cycle

According to Gartner’s 2025 “Hype Cycle for Artificial Intelligence.” AI technologies move through predictable stages. These include the innovation trigger, peak of inflated expectations, trough of disillusionment, slope of enlightenment, and plateau of productivity. Between 2023 and 2024, generative AI dominated the headlines. It has now entered the trough of disillusionment as organizations confront their limitations, governance risks, and the difficulty of proving ROI. However, this is not to be seen as a setback, but rather a turning point as businesses shift focus from experimentation to scaling reasonably. Investment is now focused on foundational enablers such as ready data, ModelOps for lifecycle management, and AI agents. By 2025, businesses will be realizing that quick wins are harder than expected. On the bright side, businesses have an opportunity to build sustainable systems that offer measurable business value.

Lessons Learned from the First Wave of AI Adoption

The promises that came with AI led some businesses to invest heavily. This resulted in several mistakes:

  • Chasing innovation over value
    Many businesses rushed to invest in AI-powered projects like chatbots without linking them to actual business goals. For instance, customers have raised concerns about frustration with bank AI bots that confuse rather than help customers, according to the Consumer Financial Protection Bureau (CFPB).
  • Falling for AI hype
    Some businesses invested in companies branding themselves as AI-driven, even when the solutions offered relied on basic automation.
  • Ignoring integration
    Failing to consider that AI is not a plug-and-play solution. This saw some early adopters underestimating the cultural, technical, and operational changes required to integrate AI into workflows.

A Strategic Blueprint for AI Investment

For businesses to invest wisely:

  1. Start with the problem, not the tool
    Instead of shopping for tools to adopt, a business should first ponder what problem it wants to solve. This means clearly defining the problem to solve, such as personalizing marketing campaigns or predicting supply shortages. Clarifying a problem ensures the AI investment is focused and not an experiment.
  2. Build a portfolio approach
    Borrowing from how investors diversify portfolios, a business should also diversify its AI initiatives. They can do this by balancing short-term projects, such as automating repetitive tasks, with long-term projects like predictive analytics. This is to ensure there is a steady return on investment.
  3. Prioritize responsible and compliant AI
    Reputation is crucial, and businesses should avoid mishandling customer data. To do this, companies must invest in compliance, transparency, and explainability as part of their AI strategy.
  4. Invest in people, not just technology
    AI does not replace talent. Companies should invest in training and upskilling their workforce. This prepares employees to work well with the new technology to ensure adoption is smooth and effective.
  5. Build scalable infrastructure
    Even with the most advanced AI model, failing to have the right foundation will result in unsuccessful implementation. The lesson? Companies must invest in flexible systems that can grow with them.

Conclusion

AI is no longer a futuristic concept. It is a business reality. Adopting AI alone is not enough, and businesses need to do it wisely. Businesses should refrain from jumping on the latest trends. Instead, make strategic choices that align with long-term goals. The focus should be on the problems to be solved and not the tools.