Category: Blog

New Tax Cut & Spending Bill, Protecting Law Enforcement, VA Benefits and Semiconductor Supply Chains

4 min read

New Tax Cut & Spending BillOne Big Beautiful Bill Act (HR 1) – Introduced by Rep. Jodey Arrington (R-TX) on May 20, this tax bill supports the president’s tax and immigration agenda. The legislation includes:

  • Making permanent the income and estate tax cuts passed in the Tax Cuts and Jobs Act of 2017
  • Waiving income taxes on cash tips, overtime pay and interest on some auto loans (ends 2028). The tip waiver would be a tax deduction of up to $25,000/year on cash-only tips for workers making less than $160,000/year; FICA taxes would still apply to tips.
  • Temporarily increasing the standard deduction (ends 2028)
  • Reducing the amount of income subject to income taxes
  • Temporarily increasing the child tax credit to $2,500 (ends 2028)
  • Increase the estate tax exemption to $15 million and adjust for inflation going forward
  • Increase the SALT cap to $40,000 for incomes up to $500,000, phasing downward for higher incomes, but increasing the cap and income threshold by 1 percent a year over 10 years

To offset the tax cuts, the bill proposes the following spending cuts:

  • Repeal or phase out clean energy tax credits
  • Reduce Supplemental Nutrition and Assistance Program (SNAP) funding by $267 billion over 10 years (and shift a higher percentage of program benefits and administration costs to states)
  • For able-bodied, food-aid beneficiaries without dependents, work requirements would increase from age 54 to 64
  • Increased work requirements for aid to parents based on the child’s age, from 18 down to 7
  • Reduce funding for Medicaid by $700 million
  • Require able-bodied Medicaid beneficiaries without dependents to engage in work, education, or service for at least 80 hours a month beginning in 2026
  • Revamp the student loan program to yield $330 billion in savings
  • Repeal the regulation that allowed students to cancel loans if their college defrauded them or closed suddenly
  • Increase leasing of public lands for drilling, mining, and logging

Additional components of the bill include:

  • Imposing stricter eligibility and income verifications for ACA exchange customers
  • Shortening the ACA enrollment period by one month
  • Prohibiting Medicaid funds from going to Planned Parenthood
  • Canceling a current regulation for minimum staffing in nursing homes
  • $46.5 billion to construct a wall along the U.S.-Mexico border
  • $6.1 billion to fund Border Patrol agents, customs officers, and investigators
  • Impose a $1,000 fee on migrants seeking asylum
  • Remove 1 million immigrants a year and house 100,000 people in detention centers
  • Eliminate the $200 tax on gun silencers
  • $150 billion in new funding for the Defense Department and national security, such as building a missile defense shield (Golden Dome), restocking the nation’s ammunition arsenal and expanding the Navy’s fleet of ships
  • New parents will receive $1,000 from the federal government via a “Trump” account for each baby born during Trump’s second term. Parents may contribute an additional $5,000 a year to the account, earnings would grow tax-deferred in a broad stock index, with qualified withdrawals (higher education, starting a business or purchasing a home after age 18; any purpose after age 30) taxed at the long-term capital-gains rate; nonqualified withdrawals taxed as ordinary income.

The House bill was passed on May 22 and now undergoes scrutiny in the Senate, where there will likely be considerable changes.

Securing Semiconductor Supply Chains Act (S 97) – This bill would enable state-level economic development organizations to increase foreign direct investment in semiconductor-related manufacturing and production. It was introduced by Sen. Gary Peters (D-MI) on Jan. 15 and passed in the Senate on May 20. The legislation is currently under review in the House.

VA Budget Shortfall Accountability Act (HR 1823) – Introduced on March 4 by Rep. Jack Bergman (R-MI), this act would instruct the secretary of the VA and the U.S. comptroller general to report on Veterans Benefits Administration funding shortfalls for fiscal year 2024 and expected funding shortfalls of the Veterans Health Administration in fiscal year 2025. The bill passed in the House on May 19 and is under consideration in the Senate.

Improving Law Enforcement Officer Safety and Wellness Through Data Act (HR 2240) – This bill would require the attorney general to provide regular reports on violent attacks perpetrated against law enforcement officers, as well as for other purposes. Introduced by Rep. Tim Moore (R-NC) on March 21, the bill passed in the House on May 15, and its fate currently lies in the Senate.

Decoding Net Realizable Value (NRV)

3 min read

Decoding Net Realizable Value (NRV)Whether it’s maintaining compliance with accounting standards or ensuring asset values are not overvalued for internal stakeholders or external existing or potential new investors, looking at net realizable value (NRV) is an important concept to understand and discuss how it’s implemented.

Defining NRV

Net realizable value examines what an asset can be sold for after accounting for selling or disposal costs. This results in the final value of inventory or accounts receivable. Used by both the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), it embodies the concept of accounting conservatism that compares NRV to the inventory’s cost. This notion leads accountants to value assets to produce lower profits and not overvalue assets when expert analysis is mandated for the deal review.

NRV is used in the lower-cost or market method of accounting reporting. The market method reporting approach requires a business’ inventory must be reported on the balance sheet at a lower value than either the historical cost or the market value. If there’s no known market value of the inventory, the NRV value can be used to approximate the market value.  

Calculating NRV

Step 1: The asset’s projected selling price or market value must be determined.

Step 2: The manufacturing and sales expenses connected with the asset must be determined. This also includes advertising and conveyance fees, for example, when factoring in costs.

Step 3: Determine the gap between the asset’s projected asking amount and the fees the company incurs to finish the goods and sell it.

This is calculated via the following formula:

NRV = Expected Selling Price – Total Production and Selling Costs

If a company is looking to sell a percentage of its inventory, it needs to figure out the NRV of the inventory that will be sold.

Assuming the selling price is $10,000, it needs to spend $1,500 on finishing costs and another $750 in transportation expenses. Therefore, NRV is calculated as follows:

NRV = $10,000 – ($1,500 + $750) = $7,750

When it comes to valuing current assets such as accounts receivable (AR), this approach can similarly determine the NRV of the unpaid invoices from their clients. This is accomplished by summing their ARs and then subtracting the uncollectible accounts. For example, if there’s $100,000 in outstanding invoices, but $20,000 is uncollectible due to clients’ inability to pay or otherwise cannot be collected. In this type of calculation, instead of determining the production and sales amounts, a business’ allowance for doubtful accounts is substituted. 

Conclusion

While these calculations assist investors and business owners in determining accurate costs of current assets, there are some considerations. For example, in periods of inflation or deflation, businesses must continually evaluate the net amount of the resulting calculation instead of the gross figures. Along with the increased and continual updating of NRVs, since the future price discovery of asset prices is unknown, there’s always room for uncertainty, which investors are constantly trying to determine how efficiently the market is presently pricing things.

While NRV is a single type of calculation, it’s an important one that can help businesses make the most of their inventory, accounts receivable, and similar accounting entries.

Understanding the Goodwill to Assets Ratio

4 min read

Understanding the Goodwill to Assets RatioThe goodwill to assets ratio measures how much of a company’s total assets come from goodwill – an intangible asset like brand value or customer loyalty – and it plays a role in assessing the company’s overall value. It provides a ratio or percentage of the amount of intangible versus tangible assets. Understanding what the ratio represents, how it is calculated, and how to interpret it is essential for effectively applying it to business operations and investment decisions.

Goodwill Defined

Goodwill can be defined as an intangible asset that comes about when the acquiring firm obtains such assets from the acquired firm at a higher value. When it comes to accounting standards, both International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), intangible assets must be evaluated for impairment, but don’t need to be amortized. Based upon IFRS 38, goodwill is generated solely during an acquisition and is defined as the amount of the acquisition price for the acquired company over its book value. IFRS 38 does not recognize goodwill generated by the company internally.

Calculating Goodwill

Goodwill = Liabilities – Assets + Purchase Price

If a company looks at acquiring another company for $750,000, and the company being acquired has assets of $900,000 and liabilities of $450,000, the net assets would be $450,000. Based on the goodwill formula:

Goodwill = $450,000 – $900,000 + $750,000 = $300,000

Once the goodwill has been established, the Goodwill to Assets Ratio Formula is used as follows:

Goodwill to Assets Ratio = Unamortized Goodwill / Total Assets

If one company is putting itself up for sale with a selling price of $75 million, it would have to establish its book value, based on recent financial statements, along with its goodwill value. Factors that go into calculating a company’s goodwill include if the company has prime real estate, a well-known brand, a rich list of clients, or intellectual property that sets itself apart from competitors in the industry that won’t expire for years. For example, if its intangible assets are $15 million, subtracted from its selling price of $75 million, its tangible assets or book value would be $60 million.

Based on the ratio, it’s calculated as follows:

$15 million / $75 million = 20 percent

Therefore, the ratio is 20 percent for the company’s goodwill as part of the company’s valuation. Otherwise, if the purchase goes through, whoever buys the company spends 20 percent on the company’s goodwill.

Analyzing the Goodwill to Assets Ratio

This ratio gives an overview of a business’s financial health. The lower the ratio, the more tangible or physical assets that can be sold. Conversely, the higher the ratio, the fewer intangibles a company has. Much like assets that can be written down, so can a company’s goodwill.

This ratio is not one-in-all and should be measured against businesses within the same industry. Based on this analysis, if a company has a large amount of goodwill on its financial statements, if it’s written down, it could still result in a lower valuation despite the company having a large amount of assets.

Looking over time, it shows the importance of ongoing evaluations. In 1975, according to the University of California, Los Angeles, companies on the Standard and Poor’s 500 (S&P 500) had $122 billion of intangible assets and $594 billion of tangible assets, or about a 21 percent intangible to tangible assets ratio. These companies included most industrial and energy sector names like GE, Procter & Gamble, 3M, Exxon Mobil, along with IBM, based on market capitalization. However, in 2018, the ratio increased to 84 percent of intangible to tangible assets. Intangible assets accounted for $21.03 trillion and $4 trillion when looking at most of the companies on the S&P 500, which included Apple, Alphabet, Microsoft, Amazon, and Facebook, based on market capitalization.

While the growth of technology and communication services has risen and skewed the tangible to intangible ratio, it shows the importance of evaluating companies and sectors individually, not just with a broad brush.

Sources

Boom of Intangible Assets Felt Across Industries and Economy

Quantum Computing: Separating Hype from Real-World Business Value

4 min read

Quantum ComputingLately, there has been a lot of talk about quantum computing, drawing interest from many, including business leaders. Quantum computing promises to solve previously unsolvable problems and revolutionize entire industries. As a result, excitement around its potential is rapidly growing. However, it is important to first ask where the hype ends and the real business value begins.

What is Quantum Computing?

Simply put, quantum computing is a new way of processing information. Unlike classical computers that use bits that are either 0 or 1, quantum computers use qubits (quantum bits). Qubits can exist in multiple states simultaneously as enabled by the principles of superposition and entanglement. This allows quantum computers to process vast amounts of information in parallel. Hence, quantum computers can theoretically tackle certain classes of problems that would take classical computers years to solve.

The Hype: Quantum’s Promised Revolution

Quantum computing is said to have the potential to perform tasks such as cracking encryption, revolutionizing drug discovery, optimizing global supply, and transforming artificial intelligence. Forecasts like one from Boston Consulting Group (BCG) project that quantum computing could unlock up to $850 billion in economic value by 2040. As a result, major industries are investing heavily and hoping to be among the first to benefit from a potential industrial revolution.

The Reality: Technical and Practical Challenges

The reality tells a different story. Today’s quantum hardware is still in its infancy, with most of these computers having fewer than 100 reliable qubits. They face issues such as noise and error rates that make large-scale practical applications elusive. Unlike classic chips that can be stacked for scaling needs, quantum systems can’t be easily scaled and need major advances in architecture and interconnects. Specialized expertise is also required to develop software for quantum machines. Besides, the algorithms that fully exploit the quantum advantage are still being researched. McKinsey estimates that while there may be many operational quantum computers by 2030, their ability to solve complex problems will take more time to mature.

This isn’t to say there is no hope as more improvement is made to quantum computing every day. Consider Google’s Willow, a 105-qubit processor introduced in December 2024. Willow addresses the error correction challenge and performs certain computations in under five minutes, which would take a supercomputer 10 septillion years.

Real-World Business Applications

Despite these challenges, quantum computing has demonstrated potential in real-world use cases. One example is Volkswagen who partnered with quantum computing firms to optimize traffic flow in Lisbon. This demonstrated how quantum algorithms can improve urban mobility. In finance, quantum-inspired algorithms are being tested for portfolio optimization and risk analysis by companies like JPMorgan Chase. Pharmaceutical companies are also testing molecular interactions with quantum simulation to potentially accelerate drug discovery. It’s worth noting that these applications are mainly hybrid solutions that use both quantum and classical computing. Even so, it signals there is potential in future breakthroughs.

Cloud-based quantum computing availed by platforms like IBM, Microsoft and Google have greatly contributed to this venture. These resources have made experimentation possible without the need for in-house quantum hardware. Therefore, businesses have a chance to innovate solutions to complex problems more affordably.

An example of a strategic framework that can help business leaders is the “quantum economic advantage” developed by MIT and Accenture. It requires two conditions: a quantum computer capable of handling the problem’s size (feasibility) and a quantum algorithm that outperforms a similarly priced classical solution (algorithmic advantage). Only when both conditions are met does quantum computing become economically beneficial.

How Businesses Should Get Ready for Quantum Computing

Preparing for quantum computing doesn’t require immediate transformation; however, it does call for strategic foresight. Here’s how businesses can begin laying the groundwork today.

  • Create a Quantum Strategy: Identify potential long-term use cases where quantum could offer an edge, and develop a roadmap aligned with industry trends and business goals.
  • Invest in Collaboration and Research: Partner with universities, quantum startups, and industry groups to stay updated and explore early-stage innovations.
  • Start Quantum-Proofing Security: Begin evaluating quantum-resistant encryption methods to safeguard future data as quantum threats to cybersecurity emerge.
  • Experiment Safely: Use cloud-based quantum platforms to run small pilots or simulations, gaining hands-on experience without major commitments.
  • Build Internal Capability: Upskill current staff in foundational quantum concepts to ensure your team can engage with this evolving technology when the time is right.

Final Thoughts

Quantum computing is in its early stages, but its disruptive potential and rapid development give businesses a reason to start planning on its adoption, or risk falling behind. Integrating quantum has the potential to boost efficiency, cut costs, and enable innovative products and services. To stay competitive, businesses should start building a quantum-ready workforce through training, hiring, and academic partnerships.

Strategic Roth IRA Conversions: Maximizing Retirement Income While Minimizing Taxes

4 min read

Strategic Roth IRA ConversionsFor many high-income earners and those approaching retirement, a Roth IRA conversion represents a strategic financial move that can significantly impact long-term wealth preservation. This approach allows you to restructure your retirement savings in a way that could potentially reduce your overall tax burden while creating more flexibility in your golden years.

Understanding Roth IRA Conversions

A Roth IRA conversion is when you transfer funds from traditional tax-deferred retirement accounts – such as a 401(k) or Traditional IRA – into a Roth IRA. While this transaction triggers an immediate tax obligation on the converted amount, it eliminates future taxation on both the principal and all investment growth, provided you follow IRS guidelines. The IRS website offers comprehensive information on the specifics of this process.

The primary advantage lies in strategic tax planning: paying taxes now at a potentially lower rate than you might face in the future.

Traditional vs. Roth: Understanding the Tax Timing Difference

When saving for retirement, the choice between traditional and Roth accounts fundamentally comes down to tax timing:

Traditional 401(k): Contributions reduce your current taxable income, increasing your take-home pay today. However, all withdrawals in retirement will be subject to ordinary income taxes, potentially at higher future rates.

Roth 401(k): Contributions are made with after-tax dollars, reducing your current take-home pay. The significant benefit comes later: tax-free withdrawals throughout retirement.

To illustrate, consider a $10,000 contribution while in the 24 percent federal tax bracket:

With a traditional 401(k), your take-home pay only decreases by $7,600 because you save $2,400 in immediate taxes.

With a Roth 401(k), your take-home pay decreases by the full $10,000 as you’re paying taxes upfront.

While traditional accounts offer immediate tax relief, Roth accounts provide tax-free income during retirement and important flexibility that extends beyond just avoiding income taxes.

The IRMAA Factor: A Hidden Retirement Expense

One often overlooked aspect of retirement planning is IRMAA – Income-Related Monthly Adjustment Amount. This Medicare surcharge applies to higher-income retirees, increasing their Medicare Part B and Part D premiums substantially.

For 2025, married couples filing jointly with income exceeding $206,000 could face premium increases of hundreds of dollars monthly. By strategically converting traditional retirement funds to Roth accounts before retirement, you can potentially keep your future taxable income below IRMAA thresholds, avoiding these additional healthcare costs entirely.

The Long-Term Impact: Required Minimum Distributions

Without implementing Roth conversions, retirement accounts can accumulate substantially larger taxable balances. By age 75, Required Minimum Distributions (RMDs) from traditional accounts can be three times higher than for those who gradually converted assets to Roth accounts.

These larger RMDs can create cascading financial challenges:

  • Pushing income above Medicare IRMAA thresholds
  • Significantly increasing Medicare premiums by thousands annually
  • Creating higher tax burdens for surviving spouses who must file as single taxpayers

Early Roth conversions – performed strategically during years with stable tax rates – can dramatically reduce future taxable income while creating greater financial flexibility throughout retirement.

Legacy Planning Benefits

Roth IRAs offer substantial advantages for estate planning. The accounts pass tax-free to heirs (provided the five-year holding requirement is met). For surviving spouses, Roth IRAs provide financial security without RMD concerns. When both spouses have passed, beneficiaries inherit completely tax-free income.

Is a Roth Conversion Right for You?

While powerful, Roth conversions aren’t universally beneficial. Consider this strategy if:

  • You anticipate higher tax rates in your future
  • You have several years before RMDs begin (typically at age 73)
  • You have sufficient savings to cover the conversion taxes without depleting the retirement accounts themselves.
  • You want to minimize potential IRMAA surcharges or tax implications for a surviving spouse.

Conversions tend to be most advantageous when you can maintain a reasonable tax bracket (24 percent or lower) during the conversion process.

Conclusion

When approaching Roth conversions thoughtfully and as part of a comprehensive retirement strategy, you can potentially create more tax-efficient income streams, avoid Medicare premium surcharges, and leave a more valuable legacy for your loved ones.