The topics covered at this year’s Cohen & Company CPE Day certainly spanned the gamut. From captive insurance companies, the post-election markets and a slew of FASB updates, to taxes, big data and the fate of our health care regulatory environment — we offered our CFO and controller clients an interesting and informative day. Below is a brief look at what was covered.
Taxes were on everyone’s mind. The tax plan President-elect Trump has set out as part of his first 100 days is aggressive. He wants to grow the economy 4% per year, create 25 million new jobs and achieve all of this through massive tax reduction and simplification, including tactics such as moving to only three tax brackets, repealing the net investment income tax and reducing the business tax rate to 15%. The question becomes if these and his other tax ideas make it through, will it be early enough in 2017 to be retroactive back to January 1, 2017? Time will tell.
What we do know is that the Protecting Americans from Tax Hikes Act (PATH) President Obama signed at the end of last year extended key tax provisions for multiple years and made others permanent, like the research and development credit. So for the first time in years we actually know the tax rules and can plan at year-end without speculating, at least in the areas covered by the Act.
Ed McNamara of Armada Risk International discussed captive insurance companies, helping to clarify an often confusing but popular idea for business owners. A captive is an insurance company you create to provide your own insurance coverage, often broadening your coverage, giving more control over your coverage or providing coverage in unique areas, such as terrorism, cybersecurity or employee-related issues. However, there are tax benefits, too, which include the opportunity to convert what would typically be taxed as ordinary income to qualified dividends. Of course there are costs and potential risks in creating a captive, but McNamara offered that it’s worth checking into this flexible tool — if you have the cash flow, a willingness to share risk and a focus on loss control. He recommends starting the exploration process by having a third party conduct a feasibility study.
Stan Milovancev of Sequoia Financial Group provided an economic update. With all of the uncertainty in the markets today, from post-election results to global unrest, one of the key areas Sequoia is watching is the business cycle, which is often consistent in its cyclical nature. Milovancev reiterated that we are not in a recession but are in the late stages of a fairly tepid expansion that isn’t likely to go beyond 2017. He says to keep an eye on the Federal Reserve Bank, noting that business expansions throughout history have often ended due to overtightening of monetary policy, e.g., raising interest rates, and that the key indicators of inflation and full unemployment rates are inching closer to the level at which the Fed may act. Additionally, Sequoia is monitoring the U.S. Treasury yield curve, initial jobless claims and, of course, the Trump/post-election factor and other geopolitical factors around the globe.
Depending on what the incoming U.S. president and Congress truly accomplish, Milovancev noted that capital markets could get a boost if we experience a fiscal stimulus in the form of increased government spending, e.g., infrastructure, and lower corporate or individual tax rates. Increased growth is generally positive for equities, but that growth could mean an increase in inflation. With inflation comes a negative impact on bonds and ultimately could lead to higher interest rates from the Fed. Stay tuned…
Marie Brilmyer and Beth Reho of Cohen & Company provided an in-depth report on the relatively recent flurry of FASB standards with effective dates of 2016, 2017 and beyond. Standards going into effect in 2016 include those related to Stock Compensation (ASU 2014-12), Going Concern (ASU 2014-15), Business Combinations (ASU 2014-18), Extraordinary and Unusual Items (ASU 2015-01), Debt Issuance Costs (ASU 2015-03), Pension Plan Accounting (ASU 2015-12) and PCC Alternatives (ASU 2016-03). Those effective in 2017 and beyond include areas such as revenue recognition, consolidation, defined benefit plan obligation, net asset value, inventory, deferred taxes, leases, equity method investments, not-for-profit entities, and cash flows. The presenters pointed out it’s never too early to start thinking about standards not yet in effect and what they may mean to you and your planning. Read more about the standards effective in 2016.
Jim Boland of Cohen & Company and Cal Al-Dhubaib of Pandata peeled back the layers on Big Data, which is the large volumes of information we have at our fingertips to better improve business performance. But data is just data unless we are strategic in how we use it. Many companies are happy to use data for historical and transactional reporting purposes, while others take it to the next level of metrics and forecasting. The ideal scenario is to use information for predictive analytics to improve internal operations, overall customer experience and, ultimately, sales and revenue. Using such large amounts of data to your advantage though can be daunting due to the many types of data coming in all at once (images, text, email, etc.); the increasing velocity at which we receive it (there are half a million Facebook updates each minute); the accuracy of the information being received; and the sheer volume of data received on any given day. Challenges in any of these four areas means you have a Big Data challenge. It may be time to rethink how you approach and use such a critical business tool.
Robert Klonk and Andrea Esselstein of Oswald Companies gave an update on the Affordable Care Act, now in the cross hairs of an all-Republican government. President-elect Trump has vowed to repeal (at least parts) of the Act, but Klonk and Esselstein caution it certainly can’t all unwind in a month or two. As they laid out facts as to why the ACA is unsustainable, they also discussed what may realistically be coming down the road, which includes a repeal of specific provisions of the Act; a reconciliation in congress for tax and spend legislation only, which prevents filibustering in the senate; a transitional high-risk pool providing coverage for chronic conditions; and tax reform that provides fairness in the tax code for individual health plans.
Provisions likely to stay in the presenters’ estimation: coverage for those with preexisting conditions, coverage for adult children via a parent’s plan through age 26, no lifetime coverage limits and Medicaid expansion. Items they identified as likely to be repealed or phased out: federal exchanges (phased out with power shift to states), premium tax credits/subsidies (phased out to lower thresholds), health insurance tax (repeal), Cadillac tax (repeal), individual and employer coverage mandates (repeal), essential health benefits (fewer requirements), and age rating bands (larger premium bands may be permissible, allowing to price based on risk).
We sincerely thank all of our speakers for a great CPE day and for lending both their time and expertise to us and our clients!
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.
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