Sauder & Stoltzfus Blog

Preface: “I have had many anxieties for our commonwealth, principally occasioned by the depreciation of our money.” – Patrick Henry

Accelerated Depreciation Rules for 2024: A Comprehensive Guide

Depreciation is an essential concept for businesses when it comes to managing assets and maximizing tax savings. In 2024, accelerated depreciation rules continue to play a critical role in providing tax relief by allowing businesses to write off the cost of capital assets more quickly than under traditional depreciation methods. This results in reduced taxable income in the earlier years of an asset’s life, improving cash flow for businesses.

This blog explores the accelerated depreciation rules for 2024, with a particular focus on key provisions such as Bonus Depreciation and Section 179 Expensing. By understanding how these rules work, businesses can make strategic decisions on purchasing equipment, property, and other capital assets.

1. What is Accelerated Depreciation?

Accelerated depreciation allows businesses to deduct a larger portion of an asset’s cost in the earlier years of its useful life. This is in contrast to straight-line depreciation, where the cost is spread evenly over the asset’s life. Accelerated depreciation can offer significant tax advantages by reducing taxable income in the short term.

The two main methods of accelerated depreciation used in the U.S. tax system are Bonus Depreciation and Section 179 Expensing, both of which allow businesses to deduct significant amounts of the cost of assets in the year they are placed in service.

2. Bonus Depreciation in 2024

One of the most impactful provisions of the Tax Cuts and Jobs Act (TCJA) was the expansion of Bonus Depreciation, which allows businesses to deduct a significant portion of the cost of qualified property in the first year of service.

Under current rules, Bonus Depreciation has been set at 60% for 2024, which represents a reduction from the 100% level available in 2022. This means that businesses can immediately deduct 60% of the cost of eligible assets in the year they are purchased and put into service, with the remaining 20% depreciated over the asset’s useful life.

What Qualifies for Bonus Depreciation?

To qualify for Bonus Depreciation, a property must meet specific criteria:

• • • The property must be new or used (as long as it’s the first time the asset is used by the taxpayer).
    • Eligible property includes tangible personal property such as machinery, equipment, computers, furniture, and certain building improvements.
    • The asset must have a useful life of 20 years or less. This includes equipment, vehicles, and office furniture, but excludes most buildings.

Key Changes for 2024

The phased reduction of Bonus Depreciation continues, with the rate set to decline to 40% in 2025. This gradual decrease emphasizes the importance of timing for businesses planning major purchases. Accelerating capital investments in 2024 could help businesses take advantage of the higher deduction rate before it drops further.

3. Section 179 Expensing

Another essential provision that works alongside Bonus Depreciation is Section 179 Expensing. Under Section 179, businesses can elect to deduct the full cost of qualifying equipment and software in the year the asset is purchased and placed in service, up to a certain limit.

Section 179 Limits for 2024

For 2024, the maximum deduction businesses can take under Section 179 is expected to be around $1.22 million, with a phase-out threshold of $3.050 million. This means that businesses can immediately expense up to $1.22 million of qualifying property, but if the total cost of qualifying property exceeds $3.050 million, the amount eligible for deduction begins to phase out dollar for dollar.

What Qualifies for Section 179?

To be eligible for Section 179 Expensing, the property must be tangible and used in business. Some examples include:

• • • Equipment and machinery used for business purposes
    • Computers and office furniture
    • Software (off-the-shelf)
    • Certain improvements to nonresidential property, such as HVAC systems, fire protection, and alarm systems

One major benefit of Section 179 is that it allows businesses to take the deduction for both new and used property. Additionally, businesses have more flexibility with Section 179 because it is an election they can choose to make, unlike Bonus Depreciation which is automatic.

4. The Interaction Between Bonus Depreciation and Section 179

While Bonus Depreciation and Section 179 can both provide substantial tax savings, businesses need to understand how they interact. Section 179 is generally applied first, allowing businesses to immediately expense up to the limit. After the Section 179 deduction, Bonus Depreciation can be applied to the remaining eligible basis of the property.

For example, if a business purchases $1.5 million worth of equipment in 2024, it can deduct $1.22 million using Section 179, and then apply Bonus Depreciation to the remaining $280,000. With 60% Bonus Depreciation, the business can deduct an additional $168,000, leaving only $112,000 to be depreciated over time.

5. Key Considerations for Businesses

Businesses looking to invest in capital assets in 2024 should carefully consider the timing of their purchases to maximize their tax benefits. With Bonus Depreciation set to phase down in future years, and Section 179 thresholds changing with inflation, 2024 represents an important year to take advantage of accelerated depreciation options.

It’s also important to note that while accelerated depreciation provides immediate tax relief, it reduces future depreciation deductions. Businesses need to weigh the benefits of short-term tax savings against long-term planning considerations.

Conclusion

Accelerated depreciation rules for 2024 offer businesses the opportunity to reduce their tax burden and increase cash flow by expensing a large portion of capital investments in the year they are purchased. By understanding the mechanics of Bonus Depreciation and Section 179, businesses can strategically plan their asset purchases to optimize tax savings. As always, consulting with a CPA or tax professional is recommended to ensure compliance with the latest regulations and to make the best use of these provisions.

Preface: “Taxes are not trivial – they’re a huge portion of this overall economy. And that’s why I focused on them.”  -Arthur Laffer

Arthur Laffer’s Taxes Have Consequences: A Dive into Economic History and Taxation

Arthur Laffer, widely known for the “Laffer Curve” concept in economics, has long been a thought leader on tax policy, growth, and the interplay between taxation and economic activity. His book Taxes Have Consequences provides a deep historical analysis of the impact taxes have had on American society and economic development over centuries. Co-authored with Brian Domitrovic and Jeanne Cairns Sinquefield, the book isn’t just a theoretical exploration of tax policy but an empirical one, backed by a wealth of historical data and economic insights. Through it, Laffer and his co-authors explore pivotal moments in U.S. history to illustrate the profound consequences taxes have had on the country’s economic trajectory.

Key Themes of the Book

1. The Laffer Curve in Historical Context

At the heart of Taxes Have Consequences lies the Laffer Curve, a concept that Laffer is famous for popularizing. It posits that there is an optimal tax rate that maximizes government revenue without stifling economic growth. Too high a tax rate discourages productivity and can reduce tax revenue, while too low a rate doesn’t capture enough revenue to fund essential government services. The authors use this model as a guiding principle to explore various historical tax policies and their outcomes. The curve isn’t presented as a static formula but as a dynamic principle, dependent on the time, economic environment, and political context.

One of the key points in the book is that U.S. economic growth has often been directly impacted by changes in tax rates. High tax rates, particularly on income, have consistently led to slower economic growth, reduced investment, and often less tax revenue than anticipated. Meanwhile, when taxes are reduced, the economy has generally experienced periods of growth, higher employment, and, in some cases, increased government revenues due to a larger tax base.

2. The Historical Impact of Taxation

The authors provide a chronological tour of American history, highlighting the profound impact that taxation has had on various eras. One of the most striking observations they make is that the modern era of high taxation (particularly the mid-20th century) is an anomaly when compared to the broader history of taxation in America. For much of the nation’s early history, federal taxes were minimal, and income taxes, in particular, were rare and low.

The book discusses key periods in U.S. history where tax policy played a defining role, such as the post-World War II era and the tax cuts of the 1980s under President Ronald Reagan. The 1920s are cited as a critical example where, following tax cuts by Treasury Secretary Andrew Mellon, the economy boomed. Conversely, the authors argue that the high tax rates imposed in the late 1960s and 1970s were responsible for the stagflation and economic stagnation of that period. The lesson is clear: taxes do have significant consequences, and history provides numerous examples of how tax policy can either boost or hinder economic performance.

3. Tax Cuts and Economic Growth

A key theme in the book is the positive impact that tax cuts can have on economic growth. Laffer and his co-authors repeatedly show how lower tax rates have historically led to increased investment, job creation, and overall prosperity. This point is driven home with detailed discussions on the tax cuts of the 1920s, 1960s, and 1980s. The book highlights the actions of policymakers like John F. Kennedy and Ronald Reagan, both of whom embraced lower tax rates as a means of stimulating economic activity.

The 1980s tax cuts under Reagan, which were influenced in part by Laffer’s own economic theories, serve as a centerpiece for this argument. The authors explain that not only did the cuts lead to robust economic growth, but they also increased federal revenue as the economy expanded and more people were employed. This period is contrasted with the high-tax, high-inflation years of the 1970s, showing the sharp differences in outcomes.

4. The Moral Argument Against High Taxes

Beyond the economic rationale, Taxes Have Consequences also makes a moral argument against high taxes. Laffer and his co-authors suggest that taxation should be viewed as a moral issue because it involves the government taking the earnings of individuals. They argue that excessively high taxes discourage individual initiative and entrepreneurship, which are the engines of innovation and economic progress. When the government overtaxes its citizens, it not only harms the economy but also limits personal freedom and autonomy.

Important Historical Quotations

Laffer and his co-authors use a range of historical quotations throughout the book to reinforce their points. One particularly notable quote is from John F. Kennedy, who famously said, “It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise revenues in the long run, is to cut rates now.” This quotation encapsulates the central message of the book: lower tax rates can lead to higher government revenue, as they stimulate economic activity.

Another key quote comes from Treasury Secretary Andrew Mellon, a staunch advocate of low taxes in the 1920s, who stated, “An industrious people increases the wealth of a nation. The government should not unnecessarily impede that growth.” This perspective aligns with the authors’ argument that governments should focus on policies that encourage growth rather than burdening citizens with excessive taxes.

Conclusion

Taxes Have Consequences is a comprehensive and insightful exploration of tax policy in the United States. Arthur Laffer, along with Brian Domitrovic and Jeanne Cairns Sinquefield, uses historical evidence and economic theory to demonstrate the profound impact taxes have had on American economic development. The book highlights that while taxes are necessary for funding government functions, there is a delicate balance that must be struck. Too high a tax rate can stifle growth, while too low a rate can underfund essential services. Ultimately, the authors argue that history teaches us one crucial lesson: taxes do indeed have consequences, and wise policy must account for them.

Preface: “Taxes are what we pay for civilized society.” — Oliver Wendell Holmes, Jr., U.S. Supreme Court Justice

2024 Tax Planning – Ideas for Business Owners to Save on Taxes

As a business owner, you’re always looking for ways to reduce costs, and taxes can be one of the biggest expenses you face each year. While paying taxes is inevitable, there are numerous strategies to reduce your tax burden legally and efficiently. By understanding the tax code, planning, and leveraging available deductions, you can retain more of your profits. Here are several creative and effective ways business owners can save on taxes:

1. Take Advantage of Business Deductions

One of the most straightforward ways to save on taxes is by maximizing your business deductions. 

Any expense that is “ordinary and necessary” to running your business is typically tax-deductible. These can include:

• • • Office supplies, equipment, and software
    • Marketing and advertising costs
    • Utilities and rent for office space
    • Insurance premiums
    • Professional services like legal and accounting fees

The key here is diligent record-keeping. By tracking all of your expenses, you can ensure that you capture every deduction available.

2. Claim Home Office Deduction

If you operate your business from a home office, you can claim a portion of your home expenses as a deduction. The IRS allows you to deduct expenses related to your home office, such as a percentage of your mortgage or rent, utilities, and maintenance. The space must be exclusively used for business purposes to qualify. This deduction can be substantial, especially for business owners who work primarily from home.

The home office deduction can be calculated using either the simplified method (a flat rate of $5 per square foot of your home used for business, up to 300 square feet) or the regular method, which involves calculating actual expenses based on the percentage of your home devoted to business.

3. Set Up a Retirement Plan

Business owners can reduce their taxable income by contributing to retirement accounts. There are several retirement savings options available for small business owners:

SEP-IRA (Simplified Employee Pension): Allows you to contribute up to 25% of your net earnings from self-employment, up to $69,000 for 2024.

Solo 401(k): Ideal for sole proprietors or businesses without employees, allowing contributions up to $69,000 (or $76,500 if you’re over 50).

SIMPLE IRA: A good option for businesses with employees, where you can contribute up to $16,000 ($19,500 if over 50) as an employee and provide matching contributions.

By setting up a retirement plan, not only are you investing in your future, but you’re also reducing your taxable income in the present.

4. Take Advantage of Section 179 Deductions

Section 179 of the tax code allows businesses to deduct the full purchase price of qualifying equipment and software in the year it is placed in service. This immediate deduction can be a huge tax saver for business owners, especially those making significant equipment purchases. For 2023, the maximum deduction is $1,220,000, with a spending cap of $3,050,000. This deduction is designed to encourage businesses to invest in equipment and technology that will drive growth.

Whether you’re buying machinery, computers, or vehicles for business purposes, Section 179 is an excellent way to lower your tax liability quickly.

5. Hire Family Members

Hiring family members, such as your spouse or children, can be a savvy tax-saving strategy. If your spouse works in the business, you can contribute to retirement accounts on their behalf, thereby doubling your contributions.

For children, the IRS allows business owners to employ their children without being subject to payroll taxes, as long as they are under 18 and the business is a sole proprietorship or partnership. The wages you pay your children are tax-deductible, reducing your business’s taxable income.

The income paid to your children can also be taxed at their lower income tax rate, which could further reduce the overall family tax burden.

6. Utilize the Qualified Business Income (QBI) Deduction

The 199A tax deduction, also known as the Qualified Business Income (QBI) Deduction, is a tax provision that provides a potential tax break for business owners by allowing them to deduct up to 20% of their qualified business income (QBI) from certain pass-through entities. The deduction is available through 2025 unless extended by future legislation.

Here’s what you need to know about the 199A tax deduction for 2024:

1. Eligibility for the 199A Deduction

The 199A deduction is available to owners of pass-through businesses. These include:

• • • • • • Sole proprietorships
          • Partnerships
          • S Corporations
          • Limited Liability Companies (LLCs)
          • Certain trusts and estates

Pass-through businesses are those where the income “passes through” to the owner’s personal tax return, rather than being taxed at the corporate level.

2. Qualified Business Income (QBI)

The 199A deduction is based on Qualified Business Income (QBI), which is the net income earned from your business, excluding certain items like:

• • • • • • Capital gains and losses
          • Interest income
          • Dividends
          • Wages earned as an employee

In simple terms, QBI is the profit from your business after deducting ordinary expenses. The deduction allows you to potentially exclude up to 20% of this income from taxation.

7. Deduct Health Insurance Premiums

Self-employed business owners can deduct health insurance premiums for themselves, their spouses, and their dependents. This deduction is “above the line,” meaning you don’t need to itemize to claim it. For businesses with employees, providing health insurance can also result in additional deductions and tax credits, such as the Small Business Health Care Tax Credit, which can cover up to 50% of health insurance premiums paid for employees. To qualify in Pennsylvania, you must meet the following parameters:

• • • Have fewer than 25 full-time employees;
    • The average employee salary for your business is roughly $50,000 per year or less;
    • You offer health insurance coverage to full-time employees through the SHOP Marketplace;​
    • You pay at least 50 percent of your full-time employee’s premium costs.​

8. Leverage Depreciation Deductions

In addition to Section 179, businesses can also benefit from bonus depreciation. For 2024, businesses can write off 60% of the cost of qualifying assets in the first year. Depreciation deductions apply to assets with a useful life of more than one year, such as vehicles, machinery, and buildings. By accelerating depreciation, you can reduce taxable income now, rather than spreading the deduction over several years.

9. Charitable Contributions

If your business supports charitable causes, you can deduct charitable contributions made to qualifying organizations supporting your local community or overseas. Businesses structured as corporations can deduct up to 10% of their taxable income to these organizations and non-profits, while pass-through entities can deduct donations through the individual tax return of the business owner on Schedule A.

10. Keep an Eye on Tax Credits

Tax credits are often more valuable than deductions because they directly reduce the amount of tax owed, rather than just lowering taxable income. Some credits available to businesses include:

• • • Research and Development (R&D) Credit: For businesses investing in new technologies or improving products.
    • Work Opportunity Tax Credit: For hiring individuals from certain target groups, such as veterans or long-term unemployed.
    • Energy Efficiency Credits: For businesses that invest in energy-efficient buildings or renewable energy.

Conclusion

As a business owner, there are countless ways to save on taxes through careful planning and smart financial decisions. By understanding the deductions and credits available to you, leveraging tax-advantaged retirement plans, and being strategic about your purchases and staffing, you can significantly reduce your tax liability while ensuring the long-term success of your business. Always consult with a CPA or tax professional to ensure you are compliant with IRS regulations and are making the most of the tax-saving opportunities available to you.

Preface: “The Bible tells us that God ordains the powers that be. Our confidence is not in the outcome of an election, but in the unchanging purposes of God.”  – Alastair Begg

10 Best Words of Advice on Tax Planning for Business Owners During a Presidential Election

Presidential elections often bring significant shifts in policy, and tax laws are frequently at the forefront of these changes. For business owners, staying ahead of potential tax law changes and making informed financial decisions is crucial. A proactive approach to tax planning can help mitigate risks, optimize savings, and prepare your business for any eventual outcomes. Here are ten essential pieces of advice for business owners charting a course for tax planning during a presidential election cycle.

1. Stay Informed on Policy Proposals

During a presidential election, candidates often propose significant tax reforms that could impact businesses. These proposals might include changes to corporate tax rates, deductions, credits, or other tax-related incentives. Stay updated on each candidate’s tax platform, and consult with a tax professional to assess how potential changes might affect your business. Keeping an eye on these developments and the tax implications to you, helps you anticipate future scenarios and adjust your planning strategies accordingly.

2. Evaluate the Impact of Corporate Tax Rate Changes

One of the most common changes discussed during presidential elections is the corporate tax rate. These shifts can dramatically affect the bottom line for businesses, particularly corporations. If tax cuts are on the table, it could mean additional liquidity for reinvestment. On the other hand, if tax rates are set to rise, it might be wise to accelerate income or defer expenses to manage your tax burden efficiently. Planning for these tax scenarios can save you significant amounts in taxes.

3. Consider Accelerating Deductions or Income

In an uncertain political climate, consider adjusting the timing of income and deductions based on anticipated tax reforms. If you expect tax rates to increase in the near future, you might want to accelerate income recognition or delay certain expenses to reduce your taxable income under the current, lower rates. Conversely, if lower tax rates are likely, deferring income and accelerating expenses may be a sound strategy to take advantage of favorable future tax conditions.

4. Maximize Available Tax Credits

During an election cycle, many discussions center around tax credits and incentives for businesses. Potential changes could include new or expanded credits for research and development, clean energy investments, or hiring. It’s crucial to make full use of any credits you’re eligible for while they’re still available. Work closely with your accountant or tax advisor to identify and claim any credits or incentives that apply to your business before they potentially change or expire under a new administration.

5. Focus on Retirement Plan Contributions

Retirement plan contributions are a powerful tool for reducing taxable income while securing your financial future. Depending on the election outcome, retirement savings rules and limits could change. Maximizing contributions to retirement plans such as 401(k)s, SEP IRAs, or SIMPLE IRAs can reduce your current taxable income and prepare you for potential changes in contribution limits or tax treatment in the future. It’s a tax-saving strategy that also enhances your long-term financial health.

6. Keep an Eye on Payroll Taxes

Payroll taxes are often a topic of debate during election cycles, with proposals ranging from payroll tax holidays to increases in Social Security and Medicare taxes. These changes can significantly affect both your business and employees. If a candidate proposes increasing payroll taxes, be prepared for how this will impact your overall labor costs. On the other hand, if a payroll tax cut is imminent, you may want to strategize around how to best use the extra cash flow in your business.

7. Prepare for Possible Changes in Depreciation Rules

Tax rules around depreciation often change with new administrations, especially concerning the deduction of capital expenditures. Current rules under Section 179 and bonus depreciation allow businesses to deduct large portions of their capital investments in the year they’re made. If these rules are under threat, consider purchasing equipment or other qualifying assets before the laws change, allowing you to take advantage of more favorable deductions before they potentially disappear or are reduced.

8. Review Your Entity Structure

A presidential election is a good time to evaluate your business’s legal structure. Changes to tax rates for corporations, pass-through entities (like LLCs and S corporations), or sole proprietors may impact which structure is most advantageous for your business. Depending on the policy proposals, you may find that switching to a different business entity could result in significant tax savings. For instance, lower corporate tax rates could make a C corporation structure more appealing, while changes to pass-through taxation may impact LLCs and partnerships.

9. Understand the Impact of Estate and Gift Tax Proposals

Election cycles often bring discussions of estate and gift tax reforms, which can affect long-term wealth planning for business owners. If a candidate is proposing to lower the estate tax exemption or increase the estate tax rate, it may be wise to consider estate planning strategies such as gifting assets, transferring shares, or setting up trusts before these changes take effect. Understanding how estate tax policies could shift can help protect your business’s future and your family’s legacy.

10. Consult with a Tax Professional Regularly

Above all, work closely with a qualified tax professional who can guide you through these uncertain times. Tax law is complex, and election cycles can introduce significant changes in a short period. A tax advisor who stays updated on both current laws and potential future changes can help you make strategic decisions to optimize your tax position. They can assist with everything from entity restructuring to capital investments and retirement contributions, ensuring your business is prepared for any tax law changes that follow the election.

Conclusion

A presidential election introduces a period of change, particularly often regarding tax policy. By staying informed, reviewing your business’s tax strategies, and working closely with a tax professional, you can make proactive decisions that safeguard your financial well-being. Whether it’s adjusting your income and deductions, maximizing credits, or preparing for changes in payroll or corporate tax rates, strategic tax planning is essential to successfully navigating the tax landscape during an election cycle. Proper planning ensures your business remains resilient, no matter the political outcome.

Preface: “Giving does not only precede receiving; it is the reason for it. It is in giving that we receive.” – Israelmore Ayivor

What Every Generous Business Owner Should Know

Would you like to give more but simply don’t have the cash flow? What if your most valuable asset – your business – could be leveraged to dramatically increase, even double, your giving? This is the secret of business-interest giving. Explore this case study to discover how it works, and see if this strategy could be right for you.

Many Christian business owners have a heart for charitable giving. As men and women who view themselves as stewards, rather than owners, they see the assets they manage as God’s and believe profits should serve a higher purpose.

The good news is that, with the right strategy, owners are transforming millions of dollars from their business into vital support for ministry work … and their personal lives, families, employees, and communities have been changed in the process.

What’s the secret?

1. 1. Most business owners are not aware they can give a portion of their business to charity.
   2. Giving an interest in a business allows income from the gifted portion to flow directly to charity, which often results in more charitable giving and lower income tax for the giver.
   3. Giving an interest in a business may enable owners to double their current cash giving by giving from the tax savings produced by the business-interest gift to charity.

Successful business owners throughout the country are discovering the unique ways in which they can use their companies as engines for generosity. Let me explain it using an example, a real-life couple we’ll call the Keplers.

Bill and Katrina Kepler own and operate a water damage restoration company. The company produced about $1 million of net profit last year and was recently valued at $10 million. The business has grown by double digits from its inception 12 years ago, and it’s expected that the company’s performance will continue for the foreseeable future.

The Keplers are a generous family who give approximately $100,000 annually to various charities. In addition to supporting their local church, they are actively involved in supporting missions helping their city’s homeless community, and they have a deep passion for combating human rights abuses globally – especially human trafficking. They also give very generously of their time.

Considering their healthy annual income, Bill and Katrina live a relatively modest lifestyle. They live exclusively on the $200,000 salary that Bill receives from the company. Because of the high growth prospects the business has enjoyed from its inception, Bill has always reinvested most of his profits in the business. However, reinvestment has limited the Keplers’ capacity for charitable giving. They would love to give more, but they simply lack the available cash resources with which to do so. Or so they thought.

An engine that accelerates generosity

Then, a savvy advisor shared a strategy with the Keplers that allowed them to increase their annual giving dramatically, even doubling their current cash giving, by using their most valuable financial asset – their business.

The Keplers’ advisor explained how they could gift a minority interest in their business and take a charitable deduction for the fair market value of this gift. When giving both cash and non-cash assets to charity, taxpayers can generally deduct up to 50 percent of their income each year for their charitable contributions. Of that total allowable deduction, they may deduct up to 30 percent of their income for the non-cash gift portion of their giving.

So, the Keplers’ advisor encouraged them to make a charitable gift of an interest in their business equal to $300,000, which is 30 percent of their $1 million in income (including wages and income passed through to them from their business). Based on the value of their business, this represented a gift of a three-percent interest ($10 million divided by $300,000).

Why make a gift to benefit your Giving Fund (donor-advised fund)

The gift was made to NCF for two primary reasons:

1. 1. Because NCF is classified as a public charity under the tax rules, Bill and Katrina receive a full fair market value deduction for their gift. Had they made a gift to a private foundation, their deduction would have been limited to their income tax basis in the business – which is quite low compared to the value of the business.
   2. And NCF provides a mechanism allowing the Keplers to make a single charitable gift that ultimately supports numerous charities. As cash flows from the business to NCF – derived either from annual distributions of income from the business or proceeds from an eventual sale of business interest – it is distributed to the Keplers’ Giving Fund. Bill and Katrina can then recommend grants of cash from their fund to any number of charities.

By making a gift of business interests worth $300,000, the Keplers went from giving 10 percent to 40 percent of their income. With estimated tax savings of $111,000 resulting from this gift ($300,000 x 37 percent), the Keplers now have an additional 11 percent of retained income they could use to make an additional gift to charity.

Since the Keplers still had the opportunity to give and deduct an additional 10 percent of income, their advisor suggested they take a portion of the income tax savings that they had just realized from the business-interest gift and make an additional cash gift to maximize their charitable giving.

So, Bill and Katrina made an additional cash gift of $100,000 from the $111,000 of tax savings. The additional cash gift also provided a charitable deduction, saving $37,000 more in taxes and taking their total giving to the maximum deductible amount for that tax year, 50 percent of income.

The giving strategy described above had no adverse impact on the capitalization and cash flow of their business. In addition, although Bill and Katrina indeed gave away valuable assets to charity, their personal cash flow actually increased due to the tax savings they realized. After the Keplers gave an additional $100,000 to charity, they still had $48,000 ($11,000 + $37,000) of additional cash flow from making these gifts.

Combining a vacation and mission

The Keplers used some of this $48,000 to fund a two-week combined vacation and mission trip to Africa that had an unexpected, transformational impact on their lives. In addition to experiencing the beautiful sights and sounds of Africa, including an unforgettable safari, they had a unique opportunity to meet their “adopted” daughter, nine-year-old Christina, whom they’ve supported for years through a child sponsorship program with an international charity that combats child poverty. The Keplers’ trip marked the first time in more than 12 years that Bill had taken a full two-week reprieve from the demands of running a successful business.

Bill and Katrina are planning to continue this pattern of giving by combining cash and non-cash gifts to maximize their giving and fully utilize the opportunity to give 50 percent of their income every year. In fact, since their business has been growing at a rate higher than the three percent business interest they are now planning to give annually, they are actually giving their business interest from only a portion of the growth each year.

Coming alongside charities to transform lives

The Keplers’ greatest joy comes from witnessing the lives that are touched and transformed by the charities whose mission they share. The business-interest giving strategy they’ve implemented has enabled them to more than double their support for their charitable endeavors. Not only does charity receive a portion of the income from their business, but their current cash giving has correspondingly doubled as a result of giving the tax savings generated from their business-interest gift. The Keplers are also excited about the fact that at some point in the future, when their business is sold or liquidated, very significant additional assets will be available to support the charities they care about. This is a result they had never imagined possible until a creative advisor shared with them how their business could be a powerful engine, both now and into the future, for greater impact and generosity.

Connect with an NCF team near you.

Preface: “Forgiveness is the economy of the heart… forgiveness saves the expense of anger, the cost of hatred, the waste of spirits.” — Hannah More

What Does and Does Not Constitute Cancellation of Debt Income

This blog provides information about Cancellation of Debt (COD) income. If a lender forgives part or all of a debt you owe, you might have to pay income tax on the forgiven amount. This is because canceled or forgiven debt is considered taxable income, even if you didn’t receive any money directly.

Key Points:

Taxable Income: Generally, canceled debt must be included in your taxable income. This is known as COD income. Unless an exception applies, forgiven debt is considered income.

Form 1099-C: If the forgiven amount is $600 or more, the lender must issue Form 1099-C to you and the IRS, showing the canceled amount. You might be able to exclude this from income under certain conditions.

Exclusions from Income: COD income isn’t always taxable. Common exclusions include:

• • • Bankruptcy under Title 11
    • Insolvency (when your total debts exceed your total assets)
    • Qualified principal residence debt (up to $750,000, or $375,000 for married filing separately, forgiven before January 1, 2026)
    • Qualified farm debt
    • Qualified real property business debt

Other exclusions may apply to student loans, disaster victims, gifts, general welfare payments, and deductible payments.

Reduction of Attributes: If debt is excluded from income, you may need to reduce tax attributes, like the basis of property. This must be reported on Form 982 with your tax return.

Non-Recourse Loans: For non-recourse loans (where the lender can only repossess the property and not pursue you personally), forgiveness doesn’t result in COD income but may have other tax implications.

Mortgage Debt Forgiveness: Certain mortgage debt forgiven by the lender is excludable from COD income if it’s related to your principal residence and forgiven before January 1, 2026. This is limited to $750,000 ($375,000 for married filing separately).

Credit Card and Car Loan Debt: Forgiven credit card or car loan debt is generally taxable unless you’re bankrupt or insolvent. The lender will report this on Form 1099-C.

If you have questions about COD income, exclusions, or your reporting responsibilities, please contact our office.

Preface: “what we choose to focus on and what we choose to ignore—plays in defining the quality of our life.” ― Cal Newport

Book Report on “Deep Work” by Cal Newport

Introduction: “Deep Work: Rules for Focused Success in a Distracted World” by Cal Newport is a compelling exploration of the power of focused, distraction-free work. Newport, a professor and author, argues that the ability to concentrate deeply on demanding tasks is becoming increasingly rare and valuable in our modern economy. This book provides a comprehensive guide to understanding and cultivating the practice of deep work, which Newport believes is essential for achieving high levels of productivity and professional success.

The Concept of Deep Work: Newport defines deep work as professional activities performed in a state of distraction-free concentration that push cognitive capabilities to their limit. These efforts create new value, improve skills, and are hard to replicate. In contrast, shallow work consists of non-cognitively demanding tasks that are often performed while distracted and do not create much new value. Newport posits that deep work is like a superpower in the twenty-first-century economy, where the ability to focus intensely is increasingly rare and valuable.

The Importance of Deep Work: The book emphasizes that to produce the best work possible, one must commit to deep work. Newport argues that the ability to quickly master hard things and produce at an elite level, both in terms of quality and speed, is crucial for thriving in today’s competitive landscape. He explains that deep work allows individuals to learn complex skills quickly and produce high-quality work efficiently. Newport also highlights that deep work is not just a nostalgic concept but a skill with significant value in the modern world.

The Deep Work Hypothesis: Newport introduces the Deep Work Hypothesis, which states that the ability to perform deep work is becoming increasingly rare at the same time it is becoming more valuable in our economy. As a result, those who cultivate this skill and make it the core of their working life will thrive. Newport supports this hypothesis with examples from various fields, demonstrating how deep work has enabled individuals to achieve remarkable success.

Strategies for Cultivating Deep Work: To help readers develop a deep work habit, Newport provides several practical strategies. He emphasizes the importance of moving beyond good intentions and incorporating routines and rituals into one’s working life to minimize the willpower needed to transition into and maintain a state of unbroken concentration. Newport outlines different philosophies for integrating deep work into one’s schedule, including:

1. 1. The Monastic Philosophy: This approach involves eliminating or radically minimizing shallow obligations to maximize deep efforts. Newport cites the example of Donald Knuth, a computer scientist who avoids email and other distractions to focus on his work.
   2. The Bimodal Philosophy: This philosophy asks individuals to divide their time, dedicating some clearly defined stretches to deep pursuits while leaving the rest open to other activities. Carl Jung’s practice of retreating to a secluded tower to write is an example of this approach.
   3. The Rhythmic Philosophy: This approach argues that the easiest way to consistently start deep work sessions is to transform them into a simple, regular habit. Newport suggests scheduling deep work sessions at the same time each day to build a routine.
   4. The Journalist Philosophy: This philosophy involves fitting deep work wherever possible into one’s schedule, similar to how journalists work on stories whenever they have spare time. Newport acknowledges that this approach requires a high level of discipline and adaptability.

Overcoming Obstacles to Deep Work: Newport addresses common obstacles to deep work, such as task switching and attention residue. He explains that when individuals switch from one task to another, their attention does not immediately follow, leading to a residue of attention that can impair performance on the next task. Newport cites research by Sophie Leroy, which shows that people experiencing attention residue after switching tasks are likely to perform poorly on the next task. To mitigate this, Newport advises minimizing task switching and batching shallow work into smaller bursts at the peripheries of one’s schedule.

The Role of Willpower and Routines: Newport emphasizes that willpower is a finite resource that becomes depleted as it is used. Therefore, developing a deep work habit requires minimizing the amount of willpower needed to start and maintain deep work sessions. Newport suggests creating rituals and routines that specify a location, time frame, and structure for deep work efforts. By doing so, individuals can reduce the cognitive load associated with transitioning into deep work and maintain a state of unbroken concentration.

The Benefits of Deep Work: The book highlights the numerous benefits of deep work, including the ability to master complex skills quickly, produce high-quality work efficiently, and achieve greater satisfaction in one’s professional life. Newport argues that deep work allows individuals to experience a state of flow, where they are fully immersed in a challenging task and perform at their best. He also suggests that deep work can generate meaning and fulfillment, as individuals hone their abilities and apply them with respect and care.

Conclusion: “Deep Work” by Cal Newport is a thought-provoking and practical guide to achieving greater productivity and success through focused, distraction-free work. Newport’s insights and strategies provide valuable tools for anyone looking to cultivate the habit of deep work and thrive in today’s competitive economy. By committing to deep work and integrating it into their professional lives, individuals can unlock their full potential and achieve remarkable results.

Preface: “original, n. A thing of singular or unique character; a person who is different from other people in an appealing or interesting way; a person of fresh initiative or inventive capacity.” – Adam Grant

Book Report on “Originals” by Adam Grant

Introduction: “Originals: How Non-Conformists Move the World” by Adam Grant is a profound exploration of how individuals can champion new ideas and drive innovation. Grant, a renowned organizational psychologist, delves into the challenges of identifying and nurturing original ideas, the importance of producing a large volume of work, and the role of feedback and collaboration in refining those ideas. He also examines how birth order and parenting practices influence creativity and risk-taking and offers strategies for fostering originality in both individuals and organizations.

Generating and Selecting Original Ideas: Grant emphasizes that while people are capable of generating a substantial number of original ideas, they often struggle to identify which ones will be successful. This difficulty arises from our inherent bias towards our ideas and our misguided perceptions of their quality. Grant argues that conviction in our ideas can be dangerous, as it leaves us vulnerable to false positives and prevents us from generating the variety needed to reach our creative potential. To overcome this, he suggests turning to colleagues who have no particular investment in our ideas and enough distance to offer honest appraisals. These individuals, often other creators, are the most accurate forecasters of an idea’s potential.

The Importance of Quantity: One of the key insights from “Originals” is the importance of producing a large volume of work to increase the chances of hitting on successful ideas. Grant points out that even the most eminent creators, such as Thomas Edison and Mozart, produced a vast quantity of work, much of which was unremarkable. Edison filed nearly 1,100 patents, and Mozart composed 600 pieces of music, but they are remembered for only a handful of their creations. This highlights that producing a huge volume of work is the single most important thing someone can do to be original. By continually generating new ideas, individuals increase their chances of finding those that will be successful.

The Role of Feedback and Collaboration: Grant stresses the importance of seeking feedback from others to assess the merit of our ideas. Since we are not reliable judges of the quality of our own ideas, it is crucial to turn to colleagues who can provide objective evaluations. This feedback helps refine ideas and identify those with the most potential. Additionally, Grant warns against relying solely on intuition, especially when lacking experience in a particular domain. Intuition is only trustworthy when people have built up experience making judgments in a predictable environment. Therefore, analysis and feedback from experienced colleagues are far better sources of insight when considering new ideas.

Raising Original Children: Grant explores the impact of birth order and parenting practices on creativity and risk-taking. He notes that laterborns consistently show greater ease with taking risks, accepting radical ideas, and embracing societal progress compared to firstborns. However, Grant argues that these patterns are more influenced by parenting practices than birth order itself. Parents tend to be more flexible and relaxed with later borns, allowing them more freedom to explore and take risks. To raise original and creative children, Grant suggests giving them the freedom to take risks and encouraging constructive rebellion. This involves steering children towards honorable and proactive behaviors while avoiding destructive paths.

Combating Groupthink: Groupthink, the tendency to seek consensus instead of fostering dissent, is identified by Grant as the enemy of originality. He argues that traditional theories of cohesion breeding conformity are a myth and examines the real causes of groupthink. To prevent groupthink, leaders should hire and solicit input from a diverse set of team members. Dissenting viewpoints, even when wrong, stimulate divergent thinking and lead to innovative solutions. Grant also advises against relying too heavily on assigning a purposeful “devil’s advocate,” as this often lacks sincerity and fails to draw out a diversity of ideas. Instead, leaders should unearth genuine dissenters and create opportunities for open-minded debate.

Fostering Originality in Organizations: Grant discusses the concept of “commitment firms,” organizations that value culture over all and hire people who conform to established characteristics. While these firms may initially outperform others, they eventually suffer from a lack of diversity in thoughts and values, leading to stagnation and failure to adapt in volatile markets. To foster originality, leaders should promote the expression of original ideas and create an environment that values dissent and diverse perspectives. This involves moving away from the maxim that team members should only bring up problems when they have solutions. Instead, leaders should invite complaints and feedback, creating an invaluable safeguard for the organization.

Conclusion: “Originals” by Adam Grant provides a comprehensive guide to identifying, nurturing, and championing original ideas. By emphasizing the importance of producing a large volume of work, seeking feedback from others, and fostering a culture of dissent and diversity, Grant offers valuable insights for individuals and organizations looking to drive innovation and creativity. The book also highlights the role of parenting practices in raising original children and the dangers of groupthink in stifling originality. Overall, “Originals” is a must-read for anyone seeking to understand and cultivate the habits of successful non-conformists.

Preface: “For by Him were all things created, that are in heaven, and that are in earth, visible and invisible, whether they be thrones, or dominions, or principalities, or powers: all things were created by Him, and for Him” -Colossians 1:16

Preface: “The way to get started is to quit talking and begin doing.” — Walt Disney

Being a successful entrepreneur requires more than a great idea; it takes determination, resilience, and the ability to adapt to an ever-changing landscape. For those looking to understand what sets successful entrepreneurs apart, this insightful article from Harvard Business School outlines the key characteristics that drive entrepreneurial success. [Read more here].