After more than a year’s worth of wrangling (and our yapping about it here and here), our elected officials in Washington finally made a deal to settle the uncertainty surrounding the estate tax. Naturally, they could not come to a long term agreement. But, they patched the hole, and at least until the end of 2012, we know what the federal tax will look like.
The estate tax now in place includes an exclusion of $5 million – that is, no estate worth less than $5 million is subject to the tax and estates worth more are not taxed on the first $5 million. The maximum tax rate for taxable estates is 35%. But, like the last time this deal came around, it isn’t permanent – it applies only through the end of 2012. Come January 1, 2013, the law reverts to its old formula, with a $1 million exclusion and a 55% top tax rate. It seems like a pretty safe bet, then, that we’ll be having this fight again at the end of next year.
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While it’s an article of faith for most lawyers, we are not fans of billing our clients by the hour. We come right out and say it on our firm website: billing by the hour makes clients worried about calling their lawyer and makes lawyers less efficient. Since that is not the kind of relationship we want with our clients, we avoid billing by the hour wherever we can.
Now it’s easy, and fun, to bash lawyers. But, what about all the other businesses that charge by the hour? What about web designers and freelance engineers, or business consultants? Does the same reasoning apply to non-lawyers? “6 Reasons to Stop Charging by the Hour,” an article in yesterday’s Small Business Trends, strongly argues that hourly billing is a bad practice that all businesses should curtail or eliminate.
Some of the author’s reasons match ours: hourly billing erodes the lines of communication and rewards inefficiency. But there were a few other reasons we didn’t touch on:
1. It Limits Your Income Potential: If you bill by the hour, your income will never be greater than the number of hours in the day (unless you raise your rates, which comes with its own backlash).
2. It Creates a Negative Cash Flow Cycle: You have to work the hours before you can send a bill, meaning it could be months between the time you perform the work and time you get paid.
3. It Adversely Affects Your Business’ Valuation: Since an hourly billing business’ profits are nothing more than the hours worked by its employees, the business itself has no predictable future profits. The employees, not the business, have future value. This makes sales, mergers and financing transactions more difficult.
To be fair, there are plenty of folks out there who are hourly billing adherents. We just don’t think their arguments make much sense. What do you think?
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The Rhode Island Economic Development Corporation is up and running its part of a new federal program to detail and enhance Rhode Island’s internet infrastructure. The EDC believes, as do we, that expanding the availability and speed of internet access will serve as a positive step to give our economy, now and in the future, a shot in the arm. To that end, the EDC is managing Rhode Island’s portion of the national Broadband Data and Development Program, a program of the U.S. Department of Commerce. EDC’s role is twofold: first, to map existing broadband access in the state; and, second, to plan its expansion.
To fulfill the first step, EDC needs your help. All you have to do is go to the Broadband Rhode Island website and click “Test Your Internet Speed.” This gives EDC a mechanism to verify the data on its burgeoning map. It’s pretty simple – even we figured it out. You can learn more about the project on the Broadband RI website or through this post on RINexus.
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The Rhode Island government has created an online information clearinghouse for all the assistance programs available for those who suffered from our recent historic flooding. Rhode Island Flood Recovery contains resources for both individuals and businesses who sustained damage. It includes links to assistance provided by or through the Federal Emergency Management Agency.
If you, your loved ones or your business were affected, we hope that you can find comfort in the fact that you don’t need to face the aftermath alone.
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Back in January, we wrote a piece called “Detecting and Preventing Fraud.” In it, we warned of the special vulnerabilities of small businesses to fraud (especially employee fraud), the extensive damage fraud can cause and gave some tips about how to prevent it. We think it’s a subject worth covering again, and so we’re happy to point you to a new post from the New York Business Law Blog titled “4 Ways to Protect Your Small Business From Fraud.”
We know it’s tax season and you’ve probably had enough quality time with your accountant to last you for a while – we’re quite certain our accountant has had more than enough of us. But, as we wrote back in January and the linked article supports, having your accountant perform both regular and random audits can prevent a fraud and serve to save you a pile of time, money and grief in the long run. The article also recommends establishing an anonymous reporting system, since most fraud is uncovered by fellow employees, and employees are more likely to report anonymously.
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Earlier today, Secretary of State Mollis issued a statement reminding Rhode Island corporations to file their annual report with the Secretary of State’s office on or before March 31. The reports technically are due March 1, but the law allows a 30 day grace period for filing. Failure to file before March 31 subjects the corporation to a $25.00 fine for late filing (the fee to file the report on time is $50.00). If the corporation fails to file a report at all, the Secretary may revoke the corporation’s Certificate of Organization or Certificate of Authority. The annual report may be filed online, by mail or in person at the Secretary’s offices at 148 West River Street in Providence.
Next week’s deadline applies only to for-profit corporations. Other business entities file at different times. Non-profit corporations must file annual reports in June, and limited liability companies (LLC’s) must file between September 1 and November 1.
For those who do not wish to file online, a blank annual report form is available on the Secretary’s website. The website also contains a “Top 10” list of the most common reasons why reports are rejected by the system. As always, if you have any questions about preparing or filing the report, feel free to contact us.
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Finally, the debate is over and Congress passed a health insurance reform bill. Whether or not the Senate passes the companion reconciliation bill passed by the House of Representatives, insurance reform is now the law. There are plenty of folks willing to tell you why the new law is the best thing since sliced bread or the worst thing since nails on chalkboard (a USA Today columnist took both sides and said that while the reform bill “stinks,” the status quo “stinks worse”), but that’s not why we’re here. We want to talk to you about what the bill means – and does not mean – for small business owners.
First off, small business owners do not have to buy insurance for their employees. If your small business has fewer than fifty employees, there is no obligation or penalty for failing to provide insurance. If a small business has more than fifty employees, then there is a penalty per employee, per year (depending on what the Senate does, the penalty will be either $750 or $2,000). But, while that number sounds scary – it is a bit misleading – more than 95% of all small businesses have fewer than fifty employees and more than 97% of businesses with more than fifty employees already offer coverage to their employees. So, this fee will hit a tiny fraction of small businesses (We couldn’t find any hard numbers showing Rhode Island employers that might fit into this classification). And, the businesses it does hit will be able to exclude their first thirty employees from the penalty calculation.
So, small businesses are not required to buy coverage, but the bill provides subsidies for those who choose to do so. Small businesses are eligible for tax credits of 35% of their employees’ premiums this year, expanding to 50% over the next two years. After that, beginning in 2014, small businesses will be able to buy coverage on state exchanges, where small businesses will be able to pool together to use their combined purchasing power to get rates more in line with those paid by big businesses.
There is a lot of information – and, sadly, a lot of misinformation – out there about the bill and its effects. In addition to the pieces linked above, Small Business Majority wrote a good summary that is worth your time. As always, if you have any questions, feel free to contact us.
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