“Harvest” Losses

Have you recognized significant capital gains this year? If so, consider selling some investments that have declined in value to soften the tax blow. You can use these losses to offset capital gains and, if you end up with a net loss for the year, you can use it to offset up to $3,000 in wages or other ordinary income.

Harvest Gains

If you've recognized a net capital loss this year, consider harvesting some capital gains. If you've been thinking about selling investments that have appreciated in value, doing so now allows you to reduce or eliminate capital gains taxes by offsetting those gains against your losses. If you use this strategy, it's a good idea to leave yourself with a $3,000 net loss to reduce your ordinary income.

Beware the Wash Sale Rule

Some investors sell securities at a loss to harvest the tax benefits and then buy them back to keep their portfolios intact. This can be an effective strategy, but there's some risk involved because of the “wash sale” rule. That rule prevents you from currently deducting a loss on the sale of a security if you purchase a substantially identical security within 30 days before or after the sale. For example, if you sell stock at a loss on October 31, you'll have to wait at least 31 days (until December 1) to purchase the same stock in order to deduct the loss this year. If the stock's price rises sharply during the waiting period, the additional expense of buying it back will reduce or even erase the tax benefit.

The value of a business is a function of two variables:

1. The expected future cash flow of the business, and
2. The present value of the expected future cash flow. Present value is determined by a discount rate, i.e., the rate at which the present value will equal the expected future cash flow. It is the rate a buyer of the business would expect to earn on its investment.

Because future cash flow is difficult to predict, valuation experts often rely on the past as a predictor of future cash flow. They may use a substitute for cash flow called EBITDA (earnings before interest, taxes, depreciation, and amortization) and estimate future EBIDTA using an average of the past years most likely to be repeated.

The present value of future cash flow is somewhat difficult to calculate. A number called a multiple is easier to use. The multiple times the expected cash flow can serve as the present value. A business with an expected future cash flow of $500,000 is worth $2,500,000 if the present value discount rate is 20 percent (0.20). The discount rate divided into 1 is the multiple, in this case 5.

As data breaches continue to make headlines at an alarming rate, no business can afford to ignore cybersecurity. To ensure that your company is taking appropriate steps to protect sensitive information -- both its own and that entrusted to it by customers and business partners -- consider conducting a cybersecurity assessment or audit. An added benefit of these assessments is that it sends a message to your customers and others that you take their data security seriously, which can provide a competitive advantage.

The first step the auditor will take is to take inventory of all your data and determine where it's located. While much of your data is housed on your on-site network or private cloud servers, you might be surprised to learn how much of it resides on the networks of third parties -- such as internet service providers, vendors, customers, financial institutions or business partners -- or is accessible by them. The auditor will also take inventory of your hardware and software and map your network, data flows, and entry points. As the workforce becomes increasingly mobile, it's particularly critical to examine the ways in which your employees gain access to your network. As the number of entry points increases, so does your risk.

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