Three Business Insurance Risks You Need To Know About In 2024

Non-Modeled Catastrophe Exposures

Three Business Insurance Risks You Need To Know About In 2024. Events such as severe storms, wildfires and other disasters that aren’t easily predicted have become a concern for insurance companies. These used to be considered “secondary” risks but are now troubling as they’re causing significant losses covered by insurance in the U.S.

shows that the first nine months of 2023 had a record number of billion-dollar disasters in the U.S.—the most in one year since 1980. Out of the 24 disasters confirmed this year, 18 were severe storms.

Unlike more predictable events such as hurricanes, these disasters are difficult to model or foresee. If the current trend of losses from these unpredictable events continues, it could lead to changes in commercial property insurance rates. Businesses need to be aware of this possibility and keep an eye on it, especially since these types of events were once considered less important risks.

Per- And Polyfluoroalkyl Substances (PFAS)
PFAS, also known as “forever chemicals” for their strong and long-lasting properties, are causing uncertainty in the insurance world. These chemicals are creating concerns due to their ability to persist in the environment, their toxic nature, and their accumulation in the body. Researchers still need to do more studies to understand the full impact of these chemicals.

Many countries, including the U.S., are making rules for PFAS contamination. They are setting maximum levels for specific PFAS compounds in drinking water, food, and consumer products. Steps are also being taken to limit or stop the use of PFAS in certain products, such as firefighting foam and textiles.
Insurance companies are cautious about these risks and often exclude coverage for PFAS in general liability policies. They’re also offering only limited coverage in policies related to pollution liability. This response is similar to how insurers dealt with asbestos in the past. Companies are being advised to take action to prevent future losses related to PFAS wherever they can.

Environmental, Social And Governance (ESG) Risk Reporting
Investors are often interested in how companies affect society and the world around them. They rely on ESG risk reporting to get information about climate sustainability and other aspects of an organization. This is especially important when companies file documents with the Securities and Exchange Commission. Many companies share details about how much greenhouse gas they produce and are trying to reach net-zero targets. Some are just starting to figure out how to be more environmentally friendly.

Larger companies usually have the resources to follow the rules about reporting. However, smaller companies might not be ready for these reporting requirements and could be surprised by them. Even if the regulations don’t directly affect them, these smaller companies might have to make quick changes to maintain good relationships with customers and partners who are publicly traded.

Three Business Insurance Risks You Need To Know About In 2024.

In California, there’s already a big wave of these and it’s expected to spread across the whole U.S. It’s unsure how fast this will happen, but these laws can be one of the rogue waves that can catch companies off guard.

These reporting rules might seem simple, but there are hidden challenges. Also in California, two important laws passed in September (Senate Bill #253 and Senate Bill #261) will make it mandatory for companies doing business in the state to report their impact on the climate. It’s expected that these new requirements might face legal challenges because of the costs they may incur for organizations of all sizes.

Turn Challenges Into Opportunities
For any of these potential risks, the first step is to understand how your organization is positioned to address them. Before the year fully gets into swing, be sure to review where your potential exposures could be with an insurance professional. There’s plenty to look forward to in 2024. Don’t let avoidable risk get in the way of a great new year.

The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

You might be able to save yourself tens of thousands of dollars by reshuffling positions between taxable and tax-sheltered accounts.

The first decision for investors: is allocation. What percentages of your net worth do you want in stocks, bonds, cash, or exotic things?

The second decision, following right behind: is location. Where do you put this stuff? You have to determine which holdings go inside tax-sheltered accounts and which are outside.

If all of your investment money is in one place or the other, of course, there’s nothing to decide. But most savers nearing or in retirement have assets divided between retirement accounts and taxable accounts.

Allan Roth is a Colorado Springs, Colorado financial planner whose clientele runs to very prosperous people who are accomplished in their careers but inattentive to their portfolios. They may show up holding municipal bonds in a taxable account while at the same time holding stocks in a tax-sheltered account. “That’s stupid,” he says. The cure is simple: sell the monies and invest the proceeds in a stock index fund. Sell a large amount of stocks in the IRA and invest in high-grade bonds.

What’s the point? The client will now be getting a higher and tax-sheltered return on the fixed income. Taxes will be due on the stock index fund but those taxes will be low.

Therein is the first and simplest rule of location: Bonds, which throw off high-taxed ordinary income, need shelter the most. Stocks, by and large, are taxed at very low rates and should be last in line for the IRA. Note: “IRA” is intended as a catchall term for tax-favored retirement accounts, including 401(k)s and 403(b)s.

You may think of municipals as being tax-exempt, but they aren’t. Their taxes are built into the coupons, in the form of lower yields than are paid on taxable bonds of similar credit quality. That’s why the muni-to-taxable-bond-to-stock switcheroo puts the client ahead.

Big money is at stake. A commentary at Vanguard posits a hypothetical investor who has $1 million, divided equally between an IRA and a taxable account, and who wants a 50/50 split between stocks and bonds. A naïve allocation has each account 50% in stocks and 50% in bonds. Rearranging to have all the bonds under the shelter delivers an expected $74,000 benefit over 30 years.

The best kind of tax shelter to have is an after-tax IRA, also known as a Roth (after a U.S. senator who was no relation to the guy in Colorado). Withdrawals are tax-free. One Illinois CPA, who asks not to be named, says that among his clients is an agricultural professional who has a sideline trading cattle futures. This fellow has turned several hundred thousand Roth dollars into several million. All this moonlighting income is tax-exempt.

The graphic displays a hierarchy of investments, from those most in need of tax sheltering to those least appropriate for an IRA. Ideally, you fill-up the retirement accounts by starting at the top and working down the list. But sometimes a legacy position gets in the way. Let’s say you have an actively traded stock fund acquired in a taxable account long ago. It is aching to be moved into an IRA, but you can’t get it there without selling appreciated fund shares and incurring a capital gain tax. So you let it sit.

Besides tax, there is a psychological component to the decision-making. “Asset allocation is more art than science,” says Chris Benson, a Towson, Maryland planner with a master’s degree in taxation. He will leave some high-taxed but safe bonds in a taxable account for the client who may someday need to raise cash in a depressed stock market and would rather not be liquidating stocks expected to rebound. If all of the bonds are in the IRA, there’s no way to get at them without creating a taxable distribution from the account.

Another problem with an all-out location split, Benson says, is that it can get in the way of rebalancing. Suppose there’s a bull market, you want to shift some money from stocks to bonds, and all of your stocks are located outside the IRA. You can’t lighten up without incurring a capital gain tax.

Our ranking of shelter necessity makes no distinction between pretax IRAs and completely tax-free Roth IRAs. If you have both kinds, there’s something to be said for putting the assets with the highest expected returns in the Roth. But, for investors whose tax brackets are likely to stay put, the choice here is less compelling than it is often assumed to be.

Suppose you have $1 million in a pretax IRA, your marginal tax rate for ordinary income (state and federal combined) is 35%, and there is no reason to expect that your tax rate will change. Then you don’t possess $1 million. What you have, in effect, is a $650,000 Roth IRA that belongs to you alongside a $350,000 trust fund that belongs to the tax collectors.

Now suppose this IRA is destined to triple before you spend the money. Meanwhile, a $650,000 chunk of your Roth is invested in something tamer that will only double. Left as is, the pretax pile yields an after-tax $1.95 million and the Roth an after-tax $1.3 million. Swap the holdings and the payouts become $1.3 million and $1.95 million. The sum is the same.

The Roth does have the advantage of not having mandatory distributions beginning at age 73. On the other hand, a pretax IRA is a great way to fund a bequest to a charity, since it will inherit not just your money but also the money that the tax collectors thought was theirs.

Herewith, a ranking of assets on their benefit from sheltering.

1. K-1-free commodity fund
   This popular vehicle for investing in futures (for example: Granite Shares Bloomberg Commodity Broad Strategy No K-1) is toxic in a taxable account. The peculiar Cayman Islands holding company structure means that the fund may have to dish out highly taxed ordinary income at a time when it is losing money. Hold this hot asset in an IRA or don’t hold it at all.

Junk
A fund holding high-yield corporate bonds is likely to throw off coupon income of 7.5%, taxable as ordinary income, offset by capital losses of 1.5%. Capital losses are worth less than ordinary losses and, if you have too many of them, worth nothing. You’re earning only 6% but paying taxes on more than that. Bad combination. Junk is IRA-only material.

Income stocks
Some prefer reds, many real estate investment trusts, and all business development companies pay fat dividends that don’t qualify for the favorable capital gain tax rates. Example: Ares Capital Corporation. Shelter if possible.

Preferred stock funds are a mixed bag. If yours has a low percentage of dividends qualifying for the low rates, it’s about as bad as one of those BDCs. But the GlobalX U.S. Preferred ETF, with 71% of dividends last year qualifying, is perhaps tolerable in a taxable account.

High-grade bonds
Same tax treatment as junk bonds, but the default losses are smaller and the coupon less painful at tax time. That is, the whipsaw of highly-taxed income offset by not-very-useful losses is not nearly as severe as in #2 junk. Still, most people will want these in a tax-sheltered account.

CD ladders
A series of bank certificates of deposit with staggered maturities is similar, and inferior, to a collection of Treasury notes. At tax time, CDs display their inferiority by getting hit with state income tax. They probably should be in your IRA.

U.S. Treasuries
You’ll usually want to keep these in the IRA. But outside they don’t fare too badly. Interest is exempt from state tax.

Growth REITs
Digital Realty Trust has delivered most of its terrific return over the past decade in the form of share appreciation, which doesn’t get taxed outside an IRA if you’re a buy-and-hold investor. Its dividend last year consisted almost entirely of low-taxed capital gains and so-called “pass-through” income. On the other hand, you can’t count on future appreciation and the pass-through dodge is going away in 2026.

Actively managed mutual fund
This costly object will disgorge taxable gains. It’s a foolish thing to own, but if you must have it, put it in your retirement account.

K-1 commodity fund
This older style of futures pool (example: Invesco DB Commodity Tracking) is taxed as a partnership, with most profits getting 60/40 treatment (meaning, they are presumed to consist of 60% long-term gains taxed at the favorable rates).

High-dividend stocks
We’re talking about the ones that (unlike those in #3 above) pay dividends qualifying for the low cap gain rates. Examples: Verizon, Altria.

Foreign stocks
Inside an IRA the dividend yield on these things, higher on average than on the U.S. market, incurs foreign income tax, typically at a 15% rate. Outside, the dividends incur U.S. income tax, most of the time at favorable cap-gain rates. Outside you owe the same 15% foreign withholding tax but you get back some (in rare cases, all) of this as a credit against your U.S. tax bill. There’s no way to get a credit for foreign tax collected from the IRA.

Stock index fund
The annual tax damage from the dividends on a total U.S. market ETF will be something like 0.3%. You have a capital gain problem only if you sell the thing.

Low-dividend stocks
Here is the sweet spot for taxable investors. The dividends incur federal income tax at low rates (usually between 15% and 23.8%). The appreciation is never taxed if you behave yourself. Capture capital losses on the stocks that go down and let the winners ride. If you have stocked up on loss carryforwards then you can cash in a few winners without paying tax. As for the rest of the stocks that went up: Duck capital gain tax by giving shares to charity, giving them to zero-bracket relatives, or holding them until you’re gone.

If most of your money is in a retirement account (not uncommon for youngsters), you’ll have some stock market exposure there. For that account, disregard the instructions about loss harvesting. Don’t own individual stocks. Own a cheap exchange-traded fund.

Master limited partnerships
These collections of oil pipelines (for example: Enterprise Products Partners LP) deliver fat dividends that go largely untaxed in the early years of your holding period. They don’t work inside an IRA because there they create “unrelated business taxable income” headaches.

20 Growth Strategies To Elevate Your CPA Practice

Certified public accountants (CPAs) who run their businesses must constantly adapt and enhance their operations to improve client services. Doing so can ensure longevity and help them thrive over time.

From creating better experiences for staff to delivering more effective services, there are many practical solutions CPAs can implement to improve workflows and increase profits. To that end, members share practical tips for elevating your practice.

Embrace A ‘Human-First’ Culture
CPAs are brilliant at numbers and that’s what we have grown to expect from them. As CPAs begin to focus not only on their craft but building a business, I would encourage them to embrace a “human-first” culture. Viewing both staff and clients from this perspective allows for deeper relationships and communication to emerge, leading to more fruitful business outcomes. –

FORBESMONEY
20 Growth Strategies To Elevate Your CPA Practice
Forbes Finance Council
Expert Panel®
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COUNCIL POST| Membership (Fee-Based)

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Mar 18, 2024,08:30am EDT
Business Invoice Tax Management

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Certified public accountants (CPAs) who run their businesses must constantly adapt and enhance their operations to improve client services. Doing so can ensure longevity and help them thrive over time.

From creating better experiences for staff to delivering more effective services, there are many practical solutions CPAs can implement to improve workflows and increase profits. To that end, Forbes Finance Council members share practical tips for elevating your practice.

Embrace A ‘Human-First’ Culture
CPAs are brilliant at numbers and that’s what we have grown to expect from them. As CPAs begin to focus not only on their craft but building a business, I would encourage them to embrace a “human-first” culture. Viewing both staff and clients from this perspective allows for deeper relationships and communication to emerge, leading to more fruitful business outcomes. – Malka Tankan, GA insight

PROMOTED

Adopt Advanced Software And Analytics Tools
By adopting advanced accounting software, cloud computing, and data analytics tools, CPAs can streamline their operations, improve efficiency, and enhance the accuracy of their work. This technological integration not only benefits the CPA firm by reducing manual tasks and allowing staff to focus on higher-value activities but also significantly improves the client experience.

Leverage AI Copilots
AI copilots, recognized for boosting productivity, have garnered substantial attention in the past year, making it difficult to delay their adoption. CPAs should leverage these AI copilots, allowing them to focus their energy on substantive tasks instead of mundane ones. –

Focus On Fostering Partnerships, Not Sales
Stop trying to “sell” to me. I get pitched something every day by people who are way better at it than you. Focus on becoming my partner and my council by not making it feel like I’m being charged by the minute. If you become the firm that I first think about when I need answers or strategic issues addressed, then I promise you’re going to thrive.

Disperse Income To More Than One Family Member
One of the problems that many small to medium-sized business owners create is overloading income to one family member. This might minimize the total Social Security Income that a family can achieve. Taking time to talk about Social Security, wage history and the effect of future wages can be a meaningful discussion for many business owners. Lost Social Security Income negatively impacts families.

Deeply Understand Clients’ Goals To Maximize Returns
Lean into strategic relationships that correlate to their focus group—such as working with financial advisors, estate attorneys, clients, and bankers to get a better understanding of the client’s goals and how to most effectively maximize their current tax situation. Implement updated tax software that helps provide tips or recommendations.

Integrate Automation
Integrate automation for streamlined operations, freeing up time for staff development and personalized client services. Invest in continuous learning to enhance expertise, nurturing a dynamic and efficient environment that drives both your team and business clients toward success.

FORBESMONEY
20 Growth Strategies To Elevate Your CPA Practice
Forbes Finance Council
Expert Panel®
Forbes Councils Member
Forbes Finance Council
COUNCIL POST| Membership (Fee-Based)

Click to save this article.
You’ll be asked to sign into your Forbes account.
Got it
Mar 18, 2024,08:30am EDT
Business Invoice Tax Management
GETTY
Certified public accountants (CPAs) who run their businesses must constantly adapt and enhance their operations to improve client services. Doing so can ensure longevity and help them thrive over time.

From creating better experiences for staff to delivering more effective services, there are many practical solutions CPAs can implement to improve workflows and increase profits. To that end, Forbes Finance Council members share practical tips for elevating your practice.

Embrace A ‘Human-First’ Culture
CPAs are brilliant at numbers and that’s what we have grown to expect from them. As CPAs begin to focus not only on their craft but building a business, I would encourage them to embrace a “human-first” culture. Viewing both staff and clients from this perspective allows for deeper relationships and communication to emerge, leading to more fruitful business outcomes. – Alma Tandang, Gain sight

PROMOTED

Adopt Advanced Software And Analytics Tools
By adopting advanced accounting software, cloud computing, and data analytics tools, CPAs can streamline their operations, improve efficiency, and enhance the accuracy of their work. This technological integration not only benefits the CPA firm by reducing manual tasks and allowing staff to focus on higher-value activities but also significantly improves the client experience. – Magdy Hassan Fayed, Forex Gump SRL

Leverage AI Copilots
AI copilots, recognized for boosting productivity, have garnered substantial attention in the past year, making it difficult to delay their adoption. CPAs should leverage these AI copilots, allowing them to focus their energy on substantive tasks instead of mundane ones. – Anil Stood, Ernst & Young

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Focus On Fostering Partnerships, Not Sales
Stop trying to “sell” to me. I get pitched something every day by people who are way better at it than you. Focus on becoming my partner and my council by not making it feel like I’m being charged by the minute. If you become the firm that I first think about when I need answers or strategic issues addressed, then I promise you’re going to thrive. – Ken Hodgins, Metro Testing & Engineering

Disperse Income To More Than One Family Member
One of the problems that many small to medium-sized business owners create is overloading income to one family member. This might minimize the total Social Security Income that a family can achieve. Taking time to talk about Social Security, wage history and the effect of future wages can be a meaningful discussion for many business owners. Lost Social Security Income negatively impacts families. – Mike McGlothlin, Ash Brokerage

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning, and wealth management firms. Do I qualify?

Deeply Understand Clients’ Goals To Maximize Returns
Lean into strategic relationships that correlate to their focus group—such as working with financial advisors, estate attorneys, clients, and bankers to get a better understanding of the client’s goals and how to most effectively maximize their current tax situation. Implement updated tax software that helps provide tips or recommendations. – Letitia Erbium, The Zandbergen Group

Integrate Automation
Integrate automation for streamlined operations, freeing up time for staff development and personalized client services. Invest in continuous learning to enhance expertise, nurturing a dynamic and efficient environment that drives both your team and business clients toward success. – Michael Fought, Foguth Financial Group

Offer Embedded Payment Solutions And Banking
CPAs are evaluating not only taxes; for SMBs, they could also be acting as CFOs. Offering embedded solutions for payments and banking could create not only customer stickiness but also another revenue stream for the accountant that has never been possible.

Adopt A Collaborative Approach
CPAs must adopt a collaborative approach. Working closely with clients and actively engaging with them can provide valuable insights into their needs, wants, and expectations. This approach can help their clients succeed. By identifying clients’ pain points and offering solutions to address them, businesses can build trust and establish themselves as reliable partners.

Hire A Global Team To Enable Growth And Enhance Profitability
CPA firms, irrespective of their size, are struggling due to the talent shortage in the profession. Having a global team to tide over this challenge to enable growth and enhance profitability, coupled with changing the business model from outputs (e.g., tax returns, financial statements, and so on) to an outcomes-based model (positive impact on client’s business and financial lives), is the key.

Offer Tailor-Made Services To Clients
Elevate the relationship both internally and externally. Get strategic with your clients. Offer tailor-made services to fit their specific needs. Be the go-to person. Encourage staff to level up this year. Utilize any spend available for continuing education, 401(k) matches, tuition reimbursement programs, conferences, and so on. Staying relevant in your industry is always a win for staff and clients.

Embrace Technology To Enhance Client Services
Embrace technology and automation to streamline operations and enhance client services. By leveraging technology and focusing on value-added services and client education, CPAs can enhance their business models to provide better experiences for their staff and more effective services, helping their business clients survive and thrive in today’s competitive landscape.

Be Empathetic
SMB CPAs need empathy to build workplace support in today’s fast-paced workplace. Leaders may motivate employees by understanding their needs and celebrating their successes. Kind employees earn loyalty and referrals. Talent- and interest-specific training and one-on-ones empower employees. Celebration inspires thankfulness. Empathy helps CPAs and businesses compete today.

Focus On Both Tax Planning And Tax Preparation
Top CPA firms focus on tax planning as much as tax preparation in 2024 for their business owner clients. There are strategies where CPA firms and financial advisors can help business owner clients minimize their yearly tax burden. A great strategy for profitable business owners is opening a SEP IRA for the business owners to save up to 25% or $69,000 for 2024 to reduce reported income for 2024.

Adapt To Digital Transformation
One tip for CPAs aiming to elevate their practice is to embrace technology and digital transformation. By adopting cloud accounting software, automated processes, and data analytics, they can streamline operations, improve accuracy, and offer real-time financial insights. This not only enhances efficiency and reduces errors but also frees up time to focus on strategic advisory services.

Partner With Other Professional Advisors
Partner with other professional advisors to address unmet needs. CPAs have visibility into their clients’ situations better than almost any type of advisor. But do CPAs recognize unmet needs and then have a shortlist of providers to recommend to clients? This simple act—recommending an advisor when you see an unmet need—can differentiate your business.

Automate Routine Tasks

Automation transcends mere operational streamlining; it emerges as a strategic necessity, reshaping client value. CPAs and their teams can concentrate on more significant services by automating routine tasks like invoicing and data entry. This shift distinguishes and uplifts the business and boosts employee fulfillment.

Offer New Technologies To Clients
The stats are clear: Accounting firms need to offer new tech to their clients to keep them happy. Data shows that 79% of small businesses would fire or stop recommending their firm if they didn’t stay up-to-date on new technology. My suggestion? Check out instant payments and help your clients get paid in seconds instead of waiting around. It helps you and your clients get paid faster, and it reduces manual work.

Adopt A Multidisciplinary Approach
CPAs are the trusted advisors. Clients seek CPAS not just for traditional accounting but for comprehensive advice across various areas. It’s advantageous for them to collaborate with other professionals such as lawyers, bankers, and financial advisors. This multidisciplinary approach can significantly enhance the quality and value provided to clients.

Specialize In A Niche Market
To elevate firms, CPAs should focus on specialization. Identifying niche markets or industry expertise allows for targeted and high-value services. Investing in staff training within these areas enhances competency and enables better client solutions. This strategic approach not only differentiates the firm but also fosters a reputation for expertise, attracting and retaining clients for growth.