President Biden campaigned on a promise to accomplish his progressive agenda by never raising taxes on citizens making less than $400,000 annually. However, his recent proposal to tax unrealized capital gains at death may impact a broader group. Here’s what to know.
What Are Capital Gains?
A capital gain is the rise in the value of an asset over time. For example, if you buy stock for $50 and its value increases to $200, you have accumulated a capital gain of $150. If you were to sell that stock, the $150 gain is said to be “realized”, but if you were to hold onto it, the gain would be considered “unrealized”.
Biden’s plan to levy a tax on unrealized appreciation of assets passed on at death would be done in a move that eliminates a tax-planning tactic known as a “step-up in basis”. The “step-up in basis” permits heirs to minimize taxes when they sell holdings they’ve inherited because current law dictates that any gains accrued during their lifetimes go tax-free. By taxing the unrealized gain at death, this loophole would be closed and heirs would get hit with taxes upon the transfer. This means that appreciated assets transferred at death would be subject to two taxes: a capital gains tax and an estate tax. While it’s possible that the capital gains tax could be deductible in calculating the estate tax, the total tax increase would be substantial for appreciated assets held at death.
Increasing the Capital Gains Tax
The capital gains tax under Biden’s plan would be more severe than the current framework. The plan would raise the total top rate on capital gains, currently 23.8% for most assets, to 40.8%. It would apply the same tax to unrealized capital gains at death, exempting the first $1 million ($2 million for a married couple) plus $250,000 for a personal residence.
Exceptions and Special Rules
- As noted above, the first $1 million of unrealized gains ($2 million for married couples) would be exempt, as would gains on a personal residence of up to $250,000 ($500,000 for a married couple).
- Taxes on assets transferred to a spouse would be delayed until the surviving spouse dies or sells the inherited assets. Assets donated to charity would be exempt.
- Personal property like household furnishings and personal effects (not including collectibles) would be exempt.
- Some small business stock could be exempt.
- Taxes would be deferred for most family-owned companies until the business is sold or no longer controlled by the family.
- Assets held by trusts and partnerships would be subject to different rules.
- Generally, the tax would pertain to those who die after December 31, 2021.
A Small Number of the Under-$400,000 Set Could be Affected
This plan could interfere with Biden’s oath to avoid increasing taxes on those with incomes below $400,000. Although most descendants will inherit estates far less than the $1 million threshold, there is a subset of citizens with large unrealized gains who live on relatively low incomes. Think of a retiree who depends on Social Security and various savings, but still holds decades-old high-earning stocks. Or consider a widow who has very little assets other than the house that has appreciated in value significantly during the years she’s lived there. If the “step-up in basis” is eliminated by the time an heir inherits the house, they may be subject to significant taxable gains.
Clients consistently turn to veterinarians for advice and assurance on products, pet food, and pharmaceuticals for their pets, so a retail business that can add to your clinic’s bottom line is a natural step for many. Below are some tips to help implement a retail business for your practice.
Be Selective with Products
Evaluate your product offerings and determine which ones move quickly. Focus on items that are backed by your medical team, turn over quickly (less than six months but ideally in a month or two), and are favored by clients. If you routinely recommend over-the-counter products during appointments, have them accessible for your clients to take home that day. Limiting choices to what your team specifically and commonly recommends helps to manage inventory and develop trust with clients. Even in the case of products that clients can buy at a pet store or grocery store, like Nylabone chews or nail trimmers, if they are readily available at their vet’s office, clients are typically happy to check that item off their list and support a small business in the process.
Implement a Loyalty Program
Consider implementing a loyalty program where clients receive a “freebie” when they reach a certain dollar amount. These freebies could be an account credit, a service such as a free nail trim, or a product that retails for under a certain threshold. This is a simple strategy to boost sales in a way that will help staff guide clients to products that they would likely buy anyway while helping them reach their dollar goal for the loyalty program.
Keep It Focused
Keep it small in the beginning by viewing your retail offerings as an expansion to the services you’re already providing. Focus on stocking products that are important to your clients and esteemed by doctors and staff. This approach will help garner more repeat clients, more foot traffic, and a better-established relationship with clients.
In addition to over-the-counter healthcare products and general pet merchandise, be sure not to discount in-clinic pharmacy sales. Veterinarians do the work of attending conferences, communicating with drug manufacturers, and determining which products are best for their clients and pets. Instead of directing clients to drugstore pharmacies or, worse, online sites where they could unknowingly purchase less-than-ideal products to save some money, why not stock the products you’re recommending? This isn’t to say you should stock every product ever mentioned in every appointment, but it should be fairly easy to run some reports through your software to determine which products have the highest turnover. This will tell you which products are important to have on hand for customers.
The Bottom Line
Though you may not be able to increase your cost more than 35% of wholesale value in order to be in range with competitors, a positive cash flow on product sales is worth it in the end for your bottom line. Perhaps most importantly, clients and their pets are getting exactly what they need from the veterinarian they trust.
The COVID-19 pandemic altered the way Americans shop. It also affected the way retail businesses reach customers and position their businesses for growth and prosperity. Looking forward, some of these changes are likely to stick around. Here are the trends small businesses in the retail industry can likely count on for the foreseeable future.
Online shopping was certainly not a new concept when the pandemic hit, but nationwide lockdowns forced more consumers to shop online, and accelerated the rate at which business owners opened e-commerce sites. The shift to more digital business is likely here to stay, even as the world economy begins to recover. A recent study conducted by the United Nations Conference on Trade and Development (UNCTAD) and the NetComm Suisse e-Commerce Association found that online sales have increased across the majority of product categories. This suggests that consumers are increasingly content to shop online, and retail companies with dedicated e-commerce presences will be able to thrive in a post-pandemic era.
The Effect of e-Commerce on Brick-And-Mortar Stores
Retail strategist and experiential designer, Melissa Gonzalez, believes brands and retailers will be taking a close look at the role of physical stores.
“Capital allocation will have a tiered process where flagship destinations will exist in locales where there is evidence that a physical presence is justified or critical 12 months a year,” Gonzalez said. “Flagship locations will be complemented with smaller-format, specialty locations anchored around a specific purpose or localized effort. Partnering with department stores will also continue to be reimagined as they restructure and reposition as collaborative marketplaces, and there will be a deeper dedication to pop-in-shop retail.”
The pandemic ushered in new safety requirements, changing regulations, and unpredictable staff availability. These changes are leading companies to think about tech-driven solutions that can support growing requirements and evolve with their business. Some of these tools include mobile payments, online shopping, and mobile scheduling. While the pandemic demanded the urgency of customer-driven solutions, like convenience and touchless transactions, they are proving to increase efficiencies as well as customer and employee experiences, and they are likely here to stay.
Personal Shopping Services
The role of a personal shopper, where a store employee shops for a customer, isn’t a new concept, but more retailers implemented this service to compensate for the loss of foot traffic during pandemic lockdowns. While this method is being embraced across the board, personalized experiences are especially well-suited to local and small retailers, who have an opportunity to lead the industry in this area.
A number of factors go into determining an item’s price, but more retailers are depending on automated technology to establish proper pricing. Expect to see more and more automation solutions implemented for small businesses, such as online pricing automation and inventory management systems.
Social Media’s Role
The pandemic accelerated the need for retailers to reach consumers through online and mobile-friendly methods. Social media is a major stimulator of online sales, and consumers want to interact with brands through these platforms. Experts even suggest that hashtags and memes could be just as effective as traditional advertising avenues. Small businesses should think about creative social programming to boost online shopping through avenues like shoppable TikTok and Instagram. This is especially important to reach and maintain younger consumers.
The COVID-19 pandemic has been more than a health crisis—it’s been a financial crisis as well. Business closures, job loss, reduced hours, and limited financial relief led to many savings accounts taking a major hit. As a result, more than 2 million Americans took advantage of the waived penalty for early withdrawal from a 401(k) or other qualifying account set forth in the CARES Act of 2020. This benefit may have been a financial life raft for some, but the move to tap into retirement funds isn’t without short- and long-term impact.
401(k) Early Withdrawal in 2020
Dipping into a retirement savings plan such as a 401(k) before age 59 ½ typically is not without penalty. However, in response to the ongoing COVID-19 crisis, the CARES Act of 2020 made it possible for retirement savers younger than 59 ½ to withdraw, for Covid-related reasons, up to $100,000 from qualified accounts without paying the usual 10% early-withdrawal penalty. For Americans who took a withdrawal, the money is yours and you don’t need to figure out a repayment plan. However, the flip side to this move is that retirement funds you’d planned to live on in the future are now diminished.
Taxes Upon Withdrawal Still Apply
The CARES Act temporarily eliminated the 10% early-withdrawal penalty, but the legislation didn’t pardon the taxes due. While you don’t generally pay taxes on contributions to traditional 401(k)s and IRAs, you do need to report income and pay taxes upon withdrawal. This holds true even though the CARES Act canceled the 10% early-withdrawal penalty for a short time. The temporary rules allow for the distribution to be spread across three years, but you need to account for a least one-third of the taxes due on that amount on your 2020 tax return.
Paying it Back is Recommended
Though you’re not required to pay back this type of withdrawal, experts agree that it’s generally in the saver’s best interest. Doing so allows you to avoid the taxes and to replenish your retirement account. If you pay back the full distribution amount within the three years, you can amend your tax returns and get all the money back paid in taxes.
For those who took a plan loan, you generally have five years to pay it back. You’ll need to be diligent in sticking to the plan’s repayment schedule. A loan that isn’t paid back could be counted as a distribution, therefore taxes (and possibly a penalty) will apply.
Savers who took a coronavirus-related distribution have more leeway in developing repayment strategies that best serve their personal situations. Those who took a plan loan have less flexibility, but some repayment strategies could be advantageous, including:
- A mortgage refinance. Given the current low interest rates, refinancing might save a few hundred dollars a month. That savings could then be redirected to repay the 401(k) funds.
- A home equity line of credit. Take advantage of low interest rates, with the ability to pay back the line of credit over at least 10 years.
- Student loans. For savers with college-age children, don’t count out the possibility of relying on federal student loans to help fund college costs while using the freed-up out-of-pocket cash to help pay back funds taken from a 401(k), perhaps in a lump sum. A federal undergraduate loan interest rate of 2.75% through June 30, 2021 combined with conventional thinking that you can borrow to pay for college make a potentially attractive avenue. Just be aware to not overborrow and dig yourself deeper into debt.
Some people may need to apply more than one strategy to return the money to their 401(k), relying on different options that will get them through the next few years. Work with a financial advisor to help determine the best path forward to getting back on track.
According to a recent study, smaller nonprofits are largely missing opportunities to share their message online. While budgeting is certainly an issue, the benefits of online marketing and an online presence for nonprofits can’t be overstated. Below is a quick guide to various means of digital marketing and why they’re vital for nonprofit organizations.
Email Marketing for Nonprofits
Looking to increase newsletter subscribers, launch a fundraising campaign, keep supporters and volunteers in the know, or share recent developments? Email is one of the most effective, direct, and inexpensive ways to accomplish all this and more. The key is to capture your reader with engaging content, both in words and images, and always end your emails with a call to action, inviting the reader to reach out to your organization. Consider someone on staff who has the writing chops to accomplish this task, or think about hiring a freelance writer. Aim for sending two-four emails a month.
In addition to having a website that is straightforward and easy to navigate, you want it to function as a tool that maximizes lead generation and gift revenue in ways that email can’t. For instance, adding pop-ups to your site can help gain newsletter subscriptions as well as collect contact information for potential donors.
Establishing a presence on social media and engaging with your audience on individual platforms are no-brainer ways to share your organization’s purpose, campaign materials, involvement in the community, etc. A social media manager on staff could prove to be invaluable. Be sure to add social sharing buttons to your website and emails in order to grow an organic following. Greater outreach equals donations.
The key with donation pages is simplicity, so cut the lengthy information and instructions. You want to encourage two main actions with your donation page:
- Give donors a clear path to give to your organization
- Make sharing the page with friends, family members, and social media networks easy
You will also want to include a recurring donation option for those who prefer to contribute smaller amounts on a monthly basis. This donation approach can be beneficial to both the donor and your organization because:
- Donors aren’t likely to notice or take issue with a recurring $5 or $10 out of their monthly budget for a cause they’re drawn to, but your organization will appreciate these monthly contributions as every dollar adds up.
- Recurring donations create long-term connections between supporters and your organization.
If your organization can establish a position of having a finger on the pulse of current news, knowledge, and facts surrounding its particular cause, donors who share an interest with your cause are going to want to support you, and feel confident doing so. In order to achieve this, you will want to create regular and quality content in the form of informative articles, fact sheets, and other applicable digital resources, all of which convey not just that your organization is a top source of information about your particular cause, but how it’s impacting and changing your community and even beyond.
Gratitude for Supporters
Organizations that recognize the patronage and loyalty of their supporters are more likely to receive follow-up donations and social media mentions than those that fail to acknowledge their supporters, or do so intermittently. This fix can be as simple as creating an automated but personal email response to each donor, professing thanks and gratitude on behalf of the organization.
Generating more organic traffic and engagement on your website and across social media platforms will set your organization on a path for long-term growth and success.