Category: Uncategorized

2019 Tax Filings: Business Mileage Deductions and Educator Expenses

IRS rules provision businesses with the opportunity to deduct the entire cost of operating a vehicle for business purposes. Alternatively, entrepreneurs can use the business standard mileage rate, subject to some specific exceptions. The mileage deduction is calculated by multiplying the standard mileage rate with the number of business miles traveled. Self-employed individuals also may use the standard rate, as can employees whose employers do not reimburse, or only partially reimburse, them for business miles driven.

Many taxpayers use the business standard mileage rate to help simplify their recordkeeping. Using the business standard mileage rate takes the place of deducting almost all of the costs of your vehicle. The business standard mileage rate takes into account costs such as maintenance and repairs, gas and oil, depreciation, insurance, and license and registration fees.

Beginning on January 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) is:

• 57.5 cents per mile for business miles driven, down from 58 cents for 2019
• 17 cents per mile driven for medical or moving purposes, down from 20 cents for 2019
• 14 cents per mile driven in service of charitable organizations, no change from 2019

Mileage related to unreimbursed business expenses and moving expenses are limited to certain taxpayers as a result of the Tax Cuts and Jobs Act for taxable years 2018 through 2025.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers may have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. If instead of using the standard mileage rate you use the actual expense method to calculate your vehicle deduction for business miles driven, you must maintain very careful records. You must keep track of the actual costs during the year to calculate your deductible vehicle expenses. One of the most important tools is a mileage log book.

Tax Deductions for Teachers with Educator Expenses

Now that tax season is here, many teachers are looking for tax deductions for the expenses from dipping into their own pockets to buy classroom supplies. Doing this throughout the year can add up fast. For those who have already filed, fortunately, eligible educators may be able to defray qualified expenses they paid in 2020 when they file their tax return in 2021.

Educators who work in schools may qualify to deduct up to $250 of unreimbursed expenses. That amount goes up to $500 if two qualified educators are married and file a joint return. However, neither spouse can deduct more than $250 of his or her qualified expenses when they file.

Taxpayers qualify for this deduction if they:

• Teach any grade from kindergarten through twelfth grade.
• Are a teacher, instructor, counselor, principal or aide.
• Work at least 900 hours during the school year.

• Work in a school that provides elementary or secondary education.

 

Qualified expenses include:

• Professional development courses;
• Books;
• Supplies;
• Computer equipment including related software and services;
• Supplementary materials, and;
• Athletic supplies only for health and physical education.

Eligible taxpayers can claim this deduction when they file their taxes. We encourage teachers to consider tracking their qualified education expenses incurred throughout the school year to obtain this easy tax filing deduction.

 

Preface: Accurate tax preparation begins with good record keeping. Small business owners often neglect this area of operations. This blog outlines a few of the reasons why investing in good record keeping is worth the effort.

Small Business Tax Record Keeping and Home Office Deductions

Small business owners should always keep good financials records. This applies to all businesses, whether they have a couple dozen employees or just a few. Whether you install software or make soft-serve. Whether they cut hair or cut lawns. Keeping good records is an important part of running a successful business. Here are some questions and answers to help business owners understand the ins and outs of good recordkeeping.

Why should business owners keep records?

Good records will help you as a business owner:

1. Monitor the progress of business financial performance;
2. Prepare financial statements for banks, creditors, and management;
3. Identify concentrations of income sources;
4. Keep track of expenses and assist with budgeting;
5. More accurate tax returns and support items reported on tax returns;

What kinds of records should you keep?

Small business owners may choose any recordkeeping system that fits their business. They should choose one that clearly shows income and expenses. Except in a few cases, the law does not require special kinds of records. QuickBooks is a good choice for many small businesses.

How long should your business keep financials records?

How long a document should be kept depends on several factors. These factors include the action, expense and event recorded in the document. The IRS generally suggests taxpayers keep records for three years.

How should your business record transactions?

A good recordkeeping system includes a summary of all business transactions. For beginners, these are usually kept in books called journals and ledgers, which business owners can buy at an office supply store. All requirements that apply to hard copy books and records also apply to electronic business records.

What is the burden of proof?

The responsibility to validate information on tax returns is known as the burden of proof. Small business owners must be able to prove expenses to deduct them.

How long should businesses keep employment tax records?

Business owners should keep all records of employment taxes for at least seven years.

Tax Deduction for Home Office

Taxpayers who use their home for business may be eligible to claim a home office deduction. It allows qualifying taxpayers to deduct certain home expenses on their tax return. This can reduce the amount of the taxpayer’s taxable income. Here are some things to help taxpayers understand the home office deduction and whether they can claim it:

1. The home office deduction is available to both homeowners and renters.
2. There are certain expenses taxpayers can deduct. They include mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent.
3. Taxpayers must meet specific requirements to claim home expenses as a deduction. Even then, the deductible amount of these types of expenses may be limited.

The term “home” for purposes of this deduction:

Includes a house, apartment, condominium, mobile home, boat or similar property. Yes, you can work from a boat in the “Roaring 20’s.”

Also, ” home” includes structures on the property. These are places like an unattached garage, studio, barn or greenhouse, or work ship on the water.

“Home” doesn’t include any part of the taxpayer’s property used exclusively as a hotel, motel, inn or similar business.

There are two basic requirements for the taxpayer’s home to qualify as a deduction:

1. There must be exclusive use of a portion of the home for conducting business on a regularly basis. For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.
2. The home must be the taxpayer’s principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home, but also uses their home to conduct business may still qualify for a home office deduction.

Expenses that relate to a separate structure not attached to the home will qualify for a home office deduction. It will qualify only if the structure is used exclusively and regularly for business.

Taxpayers who qualify may choose one of two methods to calculate their home office expense deduction:

The simplified option has a rate of $5 a square foot for business use of the home. The maximum size for this option is 300 square feet. The maximum deduction under this method is $1,500.

When using the regular method, deductions for a home office are based on the percentage of the home devoted to business use. Taxpayers who use a whole room or part of a room for conducting their business need to figure out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full.

If you would like to discuss tax planning opportunities, small business record keeping, or understand the ways in which you can use your home regularly and exclusively for your business to reduce your tax bill, please call our office at your earliest convenience.

Preface: Since the TCJA tax legislative update beginning with 2018, individual tax filers on Form 1040 have revised attributes including a higher standard deductions, therefore changing the applicability for itemizing.

The threshold for the Form 1040 standard deduction you are allowed in the current year depends on the filing status of your tax return for the year.

For those who are single (or married filing separately), the standard deduction for 2020 is increasing $200 to $12,400. If you file as a head of household, your standard deduction will be increasing $300 to $18,650. For married couples filing jointly, the standard deduction is increasing by $400, up to $24,800 for the tax year 2020.

This the legislated tax rule increase in the standard deduction for 2020, will see more people choosing this tax feature. But for those still interested in itemizing, here are a few key highlights.

Itemized deductions include amounts you paid for state and local income or sales taxes, real estate taxes, personal property taxes, mortgage interest, and disaster losses from a Federally declared disaster. You may also include gifts to charity and part of the amount you paid for medical and dental expenses.

You would usually benefit by itemizing on your individual tax filing if you:

• Can’t use the standard deduction or the amount you can claim is limited

• Had large uninsured medical and dental expenses

• Paid interest or taxes on your home

• Had large “other” deductions

• Had large uninsured casualty or theft losses from a Federally declared disaster

• Made large contributions to qualified charities

The higher standard deduction under Tax Reform means fewer taxpayers are itemizing their deductions. However, taxpayers may have an opportunity to itemize this year by keeping these tips in mind:

Deducting state and local income, sales and property taxes. The deduction that taxpayers can claim for state and local income, sales and property taxes is limited. This deduction is limited to a combined, total deduction of $10,000. It is $5,000 if married filing separately. Any state and local taxes paid above this amount can’t be deducted.

Refinancing a home. The deduction for mortgage interest is also limited. It’s limited to interest paid on a loan secured by the taxpayer’s main home or second home. For homeowners who choose to refinance, they must use the loan to buy, build, or substantially improve their main home or second home, and the mortgage interest they may deduct is subject to the limits described in the next bullet under “buying a home.”

Buying a home. People who buy a new home this year can only deduct mortgage interest they pay on a total of $750,000 in qualifying debt for a first and second home. It’s $375,000 if married filing separately. For existing mortgages, if the loan originated on or before December 15, 2017, taxpayers continue to deduct interest on a total of $1 million in qualifying debt secured by first and second homes.

Donating items and deducting money. Many taxpayers often find unused items in good condition they can donate to a qualified charity. These donations may qualify for a tax deduction. Taxpayers must itemize deductions to deduct charitable contributions and must have proof of all donations.

Deducting mileage for charity. Driving a personal vehicle while donating services on a trip sponsored by a qualified charity could qualify for a tax break. Itemizers can deduct 14 cents per mile for charitable mileage driven in 2020. 

Summary: Itemizing deductions for your 1040 tax filings is best performed by an experienced tax accountant for optimal tax benefits. If you think itemizing for your individual tax filing is the right choice for your 2020 taxes contact your trusted tax accountant.

 

Credit: Jacob M. Dietz, CPA

Imagine you are a business owner, and the time has come to sell the business. You wipe away a few tears, and you begin to negotiate with a potential buyer. How much will you get paid? That answer may depend partially on how you get paid. This blog explores some options for getting paid.

Cash

Getting paid in cash may be attractive for a seller. After the seller has the cash, they can take the money and do with it as they please. They have the security of getting the cash in hand immediately.

One drawback to the cash sale for the seller is that it brings all the income from the sale into one year. That can throw the seller into higher tax brackets, and they may potentially lose out on credits. On the bright side, if they have a large tax bill from the sale, then at least they have cash to pay it.

With a cash deal, there is less risk to the seller. Consequently, they may not get as much cash for the sale. On the other hand, there may be more risk to the buyer. Therefore, the buyer does not want to pay as much.

Although I am calling this cash, it is cash from the seller’s perspective. For the buyer, the cash could be savings, or perhaps bank debt, or some other source of cash. Calling it cash does not mean that the buyer is debt-free. In fact, in a cash sale, the buyer may be deeply in debt, which can be risky.

Seller-Financed Debt

Another option for the sale is where the buyer agrees to pay the seller for the business, in the form of a loan, over time.

This arrangement increases the risk to the seller. What if the buyer defaults on the loan? The economy might go bad, and even an honest buyer may not be able to pay. Worse yet, the buyer may be dishonest and simply refuse to pay. With the increased risk comes the possible opportunity for a higher sales price. The seller incurs more risk, so they may ask for more money. On the other hand, the buyer may have less risk, at least if it is unsecured debt, and they may be willing to pay more. Also, there may be more potential buyers if the seller is willing to finance it.

How could there be more potential buyers? If a business would be for sale for $600,000, then there would be many people who could not afford that price, even if they wanted to buy it. A bank may offer some financing, but if the buyer does not have a significant enough down payment, the bank may not help them. On the other hand, if the seller finances it, then what was impossible may become possible with seller-financing. The seller and buyer might agree to some type of middle ground in which some of the sales price is paid immediately in cash and some is seller-financed. For example, if the total sales price of the business is $600,000, the seller may ask for $300,000 in cash and offer a 7 year note for $300,000.

Contingency

Another part of the sales price could be a contingency. There could be different contingencies, but let’s use revenue as an example. The deal could specify that if revenues in year 1 equal $X, then an additional $20,000 or will be paid to the seller. A contingency can help reduce the risk of the buyer.

How and How Much

How the seller gets paid can affect how much they get paid. If the seller is taking on more risk, then they may want to ask for more money. On the other hand, if the buyer is taking on more risk, then the buyer may want to pay less. How the seller gets paid, therefore, may affect how much they ask to get paid.

If you are selling or buying, remember to think about both how the payments will be made, and how much they will be. Deals can be complex, and you will likely want to consult with your accountant on important deals.

The ideology is among other things to be a small but powerful business.

One specific dream, one night, 1,300 years ago, was the start of one of the world’s oldest businesses. Hoshi Ryokan a traditional Japanese Inn, launched from Taicho Daishi’s dream, has been a family managed business since 718 A.D. The Inn is currently in its 46th generation of Hoshis, with Zengoro Hoshi preparing to transition the business to his grandson. The Hoshi family credits the success of the business and transition longevity to clear succession rules with each passing generation, as well as instilling a motto in each new generation “study the water running down a small current”.

The ideology is among other things to be a small but powerful business. The power of the water was the successful origin of the spa Inn. Taicho’s dream told him specific details where a special hot-spring was located that would serve the village people forever. Taicho sought the help of villagers to locate the hot-spring; the village sick who immerse themselves in the water soon found their health was immediately restored.

While many businesses stories are not that unique, we can learn from the Hoshi Ryokan family succession plan that strict training in family protocol, values and personal ethics has ensured the success of the business transitions for over 1,300 years. The protocol includes a strong set of ethics and values. Each generation has had its own set of idea’s but the Hoshi family hasn’t waivered from their commitment to family succession for 1,300 years. The family knows what made them successful, and they (the Hoshi family) is not permitted to forget.

Planning for the next five or ten years for your business? How important do you think the values of your management culture will be to your businesses continued success?

Preface: Today we reflect on the life of Clayton Christensen, the Gentle Giant of Innovation. In 2019 Clay Christensen was inducted in the Thinkers50 Hall of Fame, honoring the most strategic thinkers in the world. 

 “Clay Christensen’s influence on the business world has been phenomenal.“ Stuart Crainer & Des Dearlove, Thinkers50

Clay’s article “How Will You Measure Your Life?” is one of the most downloaded articles in the history of HBR.

Read Two Master Pieces from a Truth-Seeker:

How Will You Measure Your Life? Clayton M. Christensen

After 25 years studying innovation, here is what I have learned

And we will always remember Clayton with this question, we once heard. “What valuation model does God use for a Soul?”

Preface: Key Lessons From This Story: Here are some important lessons we can learn from Mark’s story:

A Lesson Learned By An Executor—The Hard Way

Careful Planning Is Important. Mark’s mother (or her attorney) failed to ensure that her will and transfer-on-death accounts had consistent directions. If Mark had chosen to do so, he legally could have ignored the directions of the will and kept the 1/6^th share he received from investment account, as well as the entire balance of the “In Trust For” account. (This is also true when a parent and a child jointly own a bank account, and one of them passes away.) This could have led to conflict in the family if Mark had chosen to be greedy and keep the money. If you know you are named as an executor for someone, consider sitting down with them while they are still alive to talk through their expectations and desires. Also, make sure their documents (will, trust, beneficiary designations, etc.) reflect those desires and that their financial accounts are properly titled. It may be appropriate to have an estate planning attorney be part of that conversation.

It Is Easy to Overlook Important Requirements. For states like Pennsylvania that require payment of inheritance tax, filing the tax return can be easy to overlook if no estate is opened. It is not very difficult to avoid probate if a person plans carefully, but after the second spouse dies (and even sometimes at the death of the first one) an inheritance tax return is often required in Pennsylvania (and some other states). This is true even if no estate is opened. The failure to file will likely be noticed by the Department of Revenue at some point, and filing late often results in interest and penalties. Also, estate administration procedures in all states generally require doing things that the average person simply can’t be expected to know about, such as providing notices to beneficiaries, creditors, and certain government entities. What executors don’t know can come back to bite them because they can be held personally liable for mistakes in how an estate is handled.

It Pays to Seek Out Good Counsel. It is valid for executors to be concerned about the cost of having an attorney assist with administering an estate. Depending how an estate attorney charges, and the size and complexity of the estate, the bill can be sizable. But trying to settle an estate without at least some level of professional help is simply not an option for most people. Rather than risking mistakes or oversights that will cost even more to correct, if you are an executor you should seek professional help (usually an attorney) to ensure that things are handled correctly and that all exemptions and deductions are taken.

An executor does not need to use the attorney that drafted the will! This is a big misconception people have, and often it keeps them from shopping around for a competent and reasonably-priced attorney. This makes it too easy for attorneys who prepare a will to charge high fees when settling the person’s estate. Make sure that you talk about fees before hiring an attorney to do anything, but especially when asking for help to settle an estate. Fees can vary widely between attorneys so it is worth your time to ask. Often attorneys will charge the estate a percentage of the estate’s assets (this is permitted in many states, but it can result in unreasonably high fees). Some will charge a flat rate based on the estimated time required to settle the estate, which allows you to know the cost in advance. Some will charge an hourly rate, but they should at least be able to give you an estimate of the time necessary to do the work. (Because I feel that charging a percentage of an estate is often unfair to the client, I generally charge by the hour or a flat rate when settling estates.)

In conclusion, serving as an executor is an important role and it should be taken seriously. It pays to review plans before death when possible, and it is also important to seek out good counsel to ensure things are handled properly. As Mark learned, “little” oversights can have big consequences down the road.

Nevin Beiler is an attorney licensed to practice law in Pennsylvania (no other states). He practices primarily in the areas of wills & trusts, estate administration, and business law. Nevin is part of the conservative Anabaptist community and is committed to practicing law in a way that builds the Kingdom of God and is consistent with Anabaptist values. His office is in New Holland, PA, and he can be contacted by email at info@beilerlegalservices.com or by phone at 717-287-1688. More information can be found at www.beilerlegalservices.com.

 Disclaimer: This article is general in nature and is not intended to provide specific legal or tax advice. Please contact Nevin or another attorney licensed in your state to discuss your specific legal questions. In order to protect confidentiality and provide a better illustration, names in the above story have been changed and some facts may have been changed or added.

Preface: What executors don’t know can come back to bite them because they can be held personally liable for mistakes in how an estate is handled.

A Lesson Learned By An Executor—The Hard Way (Segment II)

Mark wanted to be fair and do the right thing, so when he received the money from the checking account and his share of the investment account, he gave all that money to his siblings. That left only the farm, which was supposed to be transferred to Mark. Mark wondered if he should file the will at the courthouse and open a probate estate for his mother. But he wasn’t sure how to handle all of steps of opening and closing an estate, and he had always heard that probate should be avoided because estate attorneys could be very expensive.

 As with many things in life, “a little later” can be a long time. About six years later, Mark was beginning to think about transferring the farm to his oldest son.

He had given all of the cash he received from his mother’s accounts to his siblings, and he didn’t like the idea of borrowing money or asking his siblings for money to pay an attorney to help settle the estate. Also, he didn’t see why it was necessary since all of his mother’s accounts had been distributed, and all his siblings agreed that the farm was his. He knew that at some point he should update the deed to the farm, but decided that he would take care of that “a little later.”

This was an unpleasant surprise for Mark. When his dad passed away there was no need to open an estate or file in inheritance tax return because Mark’s mother and father had owned all their assets jointly,

 As with many things in life, “a little later” can be a long time. About six years later, Mark was beginning to think about transferring the farm to his oldest son. He remembered that the deed to the farm was still in the names of his parents and decided that it was past time to deal with that issue. He contacted an attorney to draft a new deed for him, but the attorney said that to transfer the property into Mark’s name they would need to open a probate estate and have Mark appointed as the executor so that he would have legal authority to transfer the deed. Furthermore, the attorney informed Mark that an inheritance tax return should have been filed when his mother passed away.

But unfortunately, transferring the farm into Mark’s name would require a probate proceeding, and all of his mother’s assets were subject to inheritance tax when she died.

This was an unpleasant surprise for Mark. When his dad passed away there was no need to open an estate or file in inheritance tax return because Mark’s mother and father had owned all their assets jointly, and joint assets of spouses are generally not reportable for Pennsylvania inheritance tax purposes when the first spouse dies. But unfortunately, transferring the farm into Mark’s name would require a probate proceeding, and all of his mother’s assets were subject to inheritance tax when she died.

If that information wasn’t bad enough, Mark’s attorney told him that if he had properly filed an inheritance tax return by the original due date (nine months after his mother died), he could have claimed a specific exemption from paying inheritance tax on the farm, which would have saved him 4.5% of the value of the farm. Now, the Pennsylvania Department of Revenue would require him to pay that tax on the value of the farm, in addition to requiring his siblings to pay tax on the $350,000 that they had received. And not just 4.5% tax on those assets, but tax, penalties, and interest!

 Disclaimer: This article is general in nature and is not intended to provide specific legal or tax advice. Please contact Nevin or another attorney licensed in your state to discuss your specific legal questions. In order to protect confidentiality and provide a better illustration, names in the above story have been changed and some facts may have been changed or added.

Preface: If you know you are named as an executor for someone, consider sitting down with them while they are still alive to talk through their expectations and desires.

A Lesson Learned By An Executor—The Hard Way

Credit: Nevin Beiler, Attorney

In this article I will tell you the story of Mark, who was named as the executor for his deceased mother. This story is inspired by various true life accounts, but it (like all of my written stories) has been changed and adapted to protect people’s confidentiality and to provide a better lesson to learn from.

Mark was the oldest of six children. His parents were dairy farmers all their lives. When Mark came of age and got married he stayed on the family farm and helped his father. He also worked away some to help pay the bills. His father passed away unexpectedly when Mark was 48 years old, and Mark began working full time on the farm. Mark’s father and mother owned everything jointly, so when Mark’s father died there was no need to open a probate estate or to file in inheritance tax return.

The family discussed having Mark purchase the farm before their mother died. However, they decided as a family that to avoid disruption during their mother’s life, and to avoid capital gains tax, the farm transfer should wait until their mother died.

Mark’s mother continued to own and live on the farm for the next 5 years, and she drew an income from the farm. Mark eventually purchased all of the equipment and cows, but not the real estate. Mark and his wife also provided a significant amount of care for his mother in the later years of her life, which saved her from needing to enter a nursing home. The family discussed having Mark purchase the farm before their mother died. However, they decided as a family that to avoid disruption during their mother’s life, and to avoid capital gains tax, the farm transfer should wait until their mother died. Later, Mark’s mother and siblings also all agreed that since Mark had worked on the farm all his life and provided extensive care for his mother that he should receive the farm for a very low price, or perhaps for free.

When Mark’s mother died she owned two assets in addition to the farm: (1) an investment account with a balance of about $300,000 and (2) a checking account containing about $50,000. The investment account had a transfer-on-death designation that left the account equally to her six children. Her checking account contained an “In Trust For” (ITF) designation naming Mark as the beneficiary of the account. This meant that the bank was supposed transfer the checking account directly to Mark after his mother’s death (this is sometimes done so an account can avoid probate). Mark’s mother left a will naming Mark as the executor and stating that the farm should be given to Mark. The will also stated that all her other assets should be split equally among her other five children (not including Mark).

Mark recognized that the will and the way his mother’s financial accounts were titled contradicted each other. The will indicated that, because he was receiving the farm for free, only the other five children should get the investment account. However, the transfer-on-death instructions on the investment account gave him 1/6^th of the account. Also, the will indicated that the other five children should equally share the checking account, but the bank told him that all the money in the account was legally his because it was titled “In Trust For” his benefit. (In cases like these, how accounts are titled and their transfer-on-death instructions or beneficiary designations override the directions of a person’s will.)

To be continued….

 Disclaimer: This article is general in nature and is not intended to provide specific legal or tax advice. Please contact Nevin or another attorney licensed in your state to discuss your specific legal questions. In order to protect confidentiality and provide a better illustration, names in the above story have been changed and some facts may have been changed or added.

Preface: “How do we value all that obsolete inventory and keep on track with our earnings guidance? No worries, we can value it at a fair price and call it ‘collectors edition’ stock.” — From a business ethics discussion.

Valuing your Business – A Calculation of Value or Conclusion of Value  Valuation 

Credit: Donald J. Sauder, CPA | CVA (2015)

Business valuation is a complex field with multiple aspects in the determination of a business interest’s value. Whether you’re selling a business, buying a business interest, involved in court actions, estate planning, or filing gift taxes, a business valuator can assist you in achieving a realistic and fair valuation.

There are two types of business valuations – a conclusion of value and calculation of value.

A conclusion of value or full valuation begins when a client and valuation analyst determine the valuation approach with an engagement letter. This letter outlines the extent of the valuation with a full report according to the professional standards of the business valuations.

For a CPA certified in business valuation this would be the standards set for by the American Institute of Certified Public Accountants (AICPA). Individual appraisal organizations have their own set of professional standards. An AICPA valuation includes a client request to value a business interest, and an estimate in value according to Statements on Standards for Valuation Services No. 1, The valuation applies any needed valuation methodology as prescribed by the valuator. The valuator then publishes a conclusion of value report. A full valuation report could exceed 45 pages with defensible proofs for the determined value of the business.

A calculation of value is much more limited in scope and nature and does not require any specific methodology beyond those agreed to by the valuator and client. So a calculation of value could overlook important characteristics in valuing your business accurately. With a calculation of value, a detailed value report, providing more depth on valuation numerics, is not prepared. A calculation of value is performed with only an agreement between the valuator and client on the methodology and procedures performed on the business interest, a calculation of the business value according to the agreed upon procedures, and an opinion provided by the valuator to the client on the calculated value, such as a verbal report.

Because of the savings in cost, a calculation of value may be adequate in some instances for determining a business value, depending on why the client needs the valuation.

Calculations of value are less expensive than a comprehensive conclusion of value, but you should have an experienced business valuator advise you on what valuation option will work for your business. The thoroughness of a valuation requires that you provide the valuator with all relevant documents and financial statements to determine an accurate value for your business.

If financial statements are deficient or records inadequate, you may need to choose a calculation of value because the necessary records are not available for a conclusion of value report. Yet, with a full valuation report, there is little room for question on the thoroughness of value, and the report will be defensible in more circumstances.

In summary, business valuation is a field where you are well advised to get an expert to work with you in valuing your business interest. You understand the value of hiring an expert to file taxes for business entities; it’s the same with business valuation. If you need a valuation of your business, for a transaction, for giving, or for estate planning, talk with your CPA or attorney to obtain a trusted referral to a valuation expert.