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Vol. 73, No. 1, January 2019
FOCUS ON FOCUS ON Gender Issues, Small Business & Financial Planning
The Effects of the Tax Cuts and Jobs Act on Small Businesses
In December 2017 Congress passed the first major tax reform since 1986, the Tax Cuts and Jobs Act. The bill introduced by President Trump and the Republican party promised to simplify the tax code and tax filing process as well as bring lower taxes to nearly all Americans. The primary accomplishment of the bill is the lowering of the corporate tax rate to a flat 21 percent. Since most small businesses are not able to take advantage of this rate reduction due to their tax structure, Congress introduced other tax breaks in order to lower the effective tax rate on small businesses. This paper discusses how the Tax Cuts and Jobs Act affects American small businesses and their owners.
Diversity Continues to Challenge the Financial Services Industry: Benefits, Financial Performance, Demographics, Impediments to Progress, and Best Practices
James J. Tucker III, PhD, CPA
Scott Jones, PhD
Financial service firms continue to invest substantial resources in diversity-related efforts to achieve a more diverse workforce. Nevertheless, progress has been slow, and gains have been marginal. This study examines recent progress of the financial services industry regarding diversity and a number of related issues through which firms must navigate and manage. These issues include the benefits of a diverse workforce, financial performance, recruiting and retention challenges and best practices, the benefits of analyzing firm-specific employee demographic data, and the conflicting views surrounding the decision to publicly disclose this data.
Women and Diversity—Why the Conversation Must Continue in Financial Services
Jill Bisco, PhD
Suzanne Gradisher, JD
Barry Mulholland, PhD, CFP, ChFC
The financial advising professions are concerned that not only will there be insufficient talent in the workforce to replace those professionals who will soon retire and to meet the expected growth in the need for advisors over the next decade, but the profession is also lacking in diversity. This paper focuses on The University of Akron’s Women and Diversity Symposium, which is the result of the alignment of industry initiatives to increase the number of women and people of diverse backgrounds in the financial services industry. The secondary goal is to increase the number of undergraduate students choosing financial planning as a degree. Through an analysis of surveys completed by attendees at the symposium, this research has shown that the symposium improved the impression of the financial services industry among those who attended.
Implications of the New Flow-Through Deduction for Financial Service Professionals
Anthony P. Curatola, PhD
J. William Harden, PhD, CPA, ChFC
The Tax Cuts and Jobs Act added a new deduction for the years 2018 to 2025 to effectively lower the tax rates of many proprietorships and flow-through entities. The provision has many complexities associated with it, including a wage requirement for taxpayers above certain income levels. It also prohibits the deduction for certain service businesses, again where income exceeds certain levels. Financial professionals must be aware of the use and limitations of this deduction in order to properly assist clients.
By the Numbers: The 2019 Indexed Retirement and Social Security Numbers
Kenn Beam Tacchino, JD, LLM
We present the 2019 indexed retirement and Social Security numbers in an easy-to-read table. Feel free to photocopy this table and keep it handy.
Accounting & Taxation
Planning for Hobby Loss
Kevin Tacchino, MSTFP
Stephanie Wendling, CPA, MSTFP
As most planners are aware, clients who own their own business are entitled to deduct any losses incurred as a result of running the business (IRC Sec. 162(a) and IRC Sec. 212(a)(1)-(2)). However, if clients misclassify their operations as a business, when the IRS would classify them as a hobby, they could be on the hook for back taxes, as the IRS will disallow their loss deductions (IRC Sec. 183(a)). Within the IRS regulations, there are nine factors which, when applied to a client’s situation, will point in the direction of either a business or a hobby. Planners can create value for their clients by implementing strategies around these nine factors to help prove a clear, intentional profit motive if a client’s business is ever under review. This paper seeks to explain the purpose and use of each factor, as well as highlight planning opportunities that each factor presents.
Economics & Investment Management
A New Method for Anticipating Changes in Investment Market Conditions
Wookjae Heo, PhD
John E. Grable, PhD, CFP
In an almost never-ending quest, financial advisors and researchers have spent thousands of hours over the past century attempting to predict stock market price changes. Anticipating, let alone predicting, changes in market index values is extremely difficult. This column adds to the anticipation/prediction discussion by introducing a new methodology that offers great promise in providing insights into future market returns: aggregated risk-tolerance scores. As described in this column, there is evidence to suggest that the risk tolerance of investors can be used as an indicator of future market performance.
Tax Law Remix May Shift Priorities for Business Owners
Dennis C. Reardon, JD, LLM, CLU, ChFC
It is now a year since the changes to the tax law emerged in the form of the Revenue Reconciliation Act of 2017, otherwise known as the Tax Cuts and Jobs Act. During the past year, estate planning professionals have had the chance to get accustomed to the new law. What have we learned? How will that knowledge and experience influence our professional advice and our clients’ actions in the future? In this column, we address planning with the new estate and gift tax provisions and how that may change the tax planning perspective of business owners who address succession planning.
Ethics & Regulation
Gender and Fair Treatment
Ronald F. Duska, PhD
We examine some fundamental distinctions that might be necessary in sorting out gender-related ethical issues. A financial service professional should strive to be fair toward both genders. Since this is the case an important question becomes, “Who deserves what?” To understand the issue we should consider whether we should treat people equally, or whether we can reward on the basis of merit; and finally, we can look at whether we should help people in need. Using a case study we explore fair and equal treatment.
IRS Issues Guidance on Two of the Changes Made to Section 162(m) by the Tax Cuts and Jobs Act
Paul J. Schneider, JD, LLM
The IRS recently issued new guidance to help corporations that are subject to the broader scope of Section 162(m) implement two aspects of that provision. These two aspects relate to the identification of covered employees and the operation of the grandfather rule. In connection with the application of the grandfather rule, the IRS explains what constitutes a grandfathered contract, what is the amount of the grandfathered compensation, what effect the corporation’s retention of negative discretion may have on a contract’s grandfathered status, and what material modifications may negate that grandfathered status.
Adjusting to Widowhood: What Financial Service Professionals Need to Know
Sandra Timmermann, EdD
A recent study by The American College of Financial Services indicates that nearly 50 percent of widows leave their advisor on the death of their husband. However, there are many ways—both financially and nonfinancially—that financial service professionals can best serve their clients as soon as they become widows, and then travel with them as they create new lives for themselves. We look at the psychological impact of becoming a widow, the financial readiness of widows, and the implications that these factors have for the financial planner.
Medicare Advantage Plans and the Evolution of Health Insurance
William S. Custer, PhD
The Medicare Advantage program is likely to continue to be a fulcrum for change in health insurance markets. It is a highly regulated private market. Policymakers have and will continue to experiment with its design to attempt to lower costs and improve access to higher-quality care.
Guideline-Premium-Tested Universal Life Insurance Policy Decisions: Caveat Emptor
Douglas B. Richards, JD, MBA, CLU, ChFC
The purpose of this column is to increase the level of understanding of the financial service professional who is called upon to help a client decide whether it is appropriate to lower the face amount and/or change the death benefit option of an increasing death benefit guideline-premium-tested universal life insurance policy.