How likely are tax increases for capital gains, and should I consider “locking in” profits now?

Current tax rates of 15 percent for capital gains are scheduled to expire at the end of 2010. They are almost guaranteed to increase. Long-term capital gains will probably increase to at least 20 percent in 2010 if Sen. John McCain wins the Presidency and a Democratic Congress allows the tax cuts to lapse. The rates may increase even more if Sen. Barack Obama wins; he has suggested a capital gains rate of up to 28 percent. An investor with large capital gains should consult with his or her financial advisor and consider taking some profits in 2008 to avoiding paying higher capital gains taxes.

Does my estate plan and trust need to be reviewed and updated for changes in Federal and Kentucky laws?

Yes! Both sides of Congress have indicated that they are planning to allow the $3.5 million estate tax exclusion, which is effective January 2009, as well as the 45 percent estate tax rate to continue in 2010 and later years. I am actively working with my clients to review their estate plans for the increase in the estate tax exclusion from $2 million in 2008 to $3.5 million in 2009, and also look at avoiding the Ohio 7 percent estate tax by moving from Ohio to Kentucky.



What is the key to retaining non-family executives in a family business?

Foremost is making certain that non-family member executives have authority commensurate with their position. Next, pay must be linked to performance, since none of the profits leave the family. Also, in order for family businesses to compete with public companies and their stock option plans, family businesses must create an opportunity for their executives to build wealth as they increase the value of the company. This can be done with a deferred compensation arrangement such as a phantom stock plan.

I am hearing a lot about International Financial Reporting Standards (IFRS). Will this impact my company?

In November 2007, the U.S. Securities Exchange Commission (SEC) adopted a rule that permits foreign private issuers to file financial statements using IFRS without a reconciliation to U.S. Generally Accepted Accounting Standards (GAAP). By all indications, this was the precursor to the SEC permitting and eventually mandating all filers to use IFRS for their financial statements. For that to happen, U.S. GAAP will need to converge with IFRS, and U.S. GAAP as we know it will cease to exist. Although it will take several years, it is likely to impact both public and private companies.

Have you seen any common problems among entrepreneurs in rapidly growing firms?

Many such entrepreneurs feel like they are succeeding in some areas of their life, but failing in others. I ask our clients the question that was posed to me many years ago: Do you have a goal large enough to demand your best, and one that will get you where you want to be when your business life is over? This will help you avoid a situation I’ve seen happen with many who spend their lives climbing a tall building only to reach the top and realize they climbed the wrong one.

Financial reporting has been moving towards fair value accounting. What Effect will the subprime lending crises have on this trend?

The subprime mortgage meltdown will intensify the debate regarding fair value accounting. These financial instruments were value-based on an active market. Once concerns were raised about the value of these instruments, an active market did not exist and values for accounting purposes were developed based on valuation models. The result was sudden and large write-downs in the value of the financial instruments. Essentially, the market overvalued these financial instruments, and once the bubble burst, the price dropped substantially. Fair value accounting reflected this economic result. While fair value accounting poses many challenges for the accounting industry, in this case, it provided useful financial information to the public.

What is business succession planning?

Business succession planning consists of the important decisions of when and how a business owner should leave his or her business. Do you expect to retire? Is there a plan? What happens to your business if you die? Will your children be in the business? The answers to these questions will help develop a plan of action. Business owners must first choose whether sell their business, or give it away. Once that decision is made, owners may structure their plans for their lifetime or at their death.


What are the implications of the recent legislative changes to limits on business expensing and investment?

In early 2008, the expensing and investment limits in the Internal Revenue Code under Section 179 were significantly increased. The expensing limit was increased from $128,000 to $250,000, while the investment limit was increased from $510,000 to $800,000. As a result, many more businesses will be able to take advantage of Section 179 and deduct the full cost of purchasing machinery, equipment and other fixed assets that qualify under Section 179 in the year of purchase.