Understanding Free Cash Flow

Understanding Free Cash FlowAccording to JP Morgan Chase & Co., there are some sobering statistics for businesses’ cash flow challenges. Understanding how cash flow is measured and analyzed is an important step for businesses to monitor and adjust their operations plan to increase the chances of becoming and staying cash flow positive. For median small business, JPM sees the middle amount of daily cash outflows being $374 and average daily cash inflows of $381. The middle statistics for small businesses hold an average daily cash balance of $12,100 and an average of 27 cash buffer days in reserve.

Defining Free Cash Flow to Equity

The Free Cash Flow to Equity (FCFE) calculation measures how much money a company produces that can be dispersed to equity holders. One way to determine this figure is to subtract Capital Expenditures from Cash from Operations and add Net Debt Issued to the remaining figure.

FCFE = Money from Operations – Capital Expenditures + Net Debt Issued

Interpreting the FCFE’s Results

This metric helps businesses, investors and professional financial experts determine how much money is available for a business’ disbursement of dividends and/or share buybacks. The more easily dividends and share buybacks are available via a better FCFE, the better a company is performing financially.

Even though the FCFE can tell how much shareholders may receive, there is no requirement that any of that amount be paid to shareholders. This valuation is preferred for companies that do not pay a dividend. One alternate source of funding buybacks or dividends is through retained earnings from past quarters.

Free Cash Flow to the Firm (FCFF)

Looking at how well a business runs, this calculation examines a company’s cash flow health once taxes, investments, depreciation and working capital are deducted, along with factoring in costs for current and long-term assets. It evaluates how much money the business can disburse to equity and debtholders once the company satisfies these financial obligations.

It shows a company how much it has available to issue dividends, buy back shares or satisfy debt obligations. If the FCFF is negative, there is no consideration for investors as the business cannot meet existing bills and capital expenditures. When a negative result is found, there is reason to see if and why there’s not enough revenue; if it is a short-term need; or if the business model needs to be re-tooled.

How FCFF is Calculated

Free cash flow to the firm can be calculated with the following formula:

FCFF = Operating Cash Flow + [Interest Expense × (1 – Tax Rate)] – Capital Expenditures

Putting FCFF in Perspective

FCFF must be taken as a part of a holistic analysis whether it is an investor or the business itself analyzing numbers. If a business is reporting high FCFF figures, analysis must be taken to ensure long-term investment in business structures, cars/trucks, tooling and business development are accurately reported. If businesses institute collection protocols sooner than standard, run low inventories or extend satisfying their own financial obligation, it can lower what a business owes and revise its working capital numbers – but that is generally temporary.

With cash flow’s impact on a business’ operation so integral, understanding how it is calculated is the first step to making smarter operational and investment decisions.

Details on the Expansion and Clarification of the Employee Retention Credit

Net Investment Income TaxThe CARES Act created the Employee Retention Credit as part of the government’s relief package to mitigate the economic impact of COVID-19. Recently, on December 28, 2020, Congress enacted the Consolidated Appropriations Act, 2021, which clarified and expanded the Employee Retention Credit (ERC) scope.

Below is a summary of the changes in key provisions of the credit and the new guidance. Noteworthy updates include a broader application of the credit and news that changes are retroactive.

Time of Availability

Previously, the credit only applied to qualified wages paid between March 12, 2020, through December 31, 2020. The new legislation extends the credit period for six more months – through June 30, 2020.

Eligibility Requirements

There are two main triggers for eligibility. The first applies in all instances, with the credit available to any business whose operations were partially or totally suspended by a governmental COVID-19 order during the time the order is in effect.

The second option to become eligible differs under the new act. Previously, businesses were eligible if gross receipts were less than half of the same quarter in 2019 and remained eligible until reaching 80 percent – compared to the prior year. Under the revision, gross receipts were still compared to the same quarter in 2019. Still, beginning January 1, 2021, eligibility starts at less than 80 percent for the comparable period (you don’t have to get to less than 50 percent). Further, if a business didn’t begin operations until 2020, they can compare to 2020 instead of 2019.

Percentage of Wages and Maximum Credit

The percentage of wages qualified for the credit increased from 50 percent to 70 percent. The cost of providing healthcare benefits to employees remains deductible as before.

Coupled with this is an increase in the maximum credit amount. Previously, the annual maximum credit per employee was $5,000; but starting January 1, 2021, this increases to $7,000 for both the first and second quarters, for a $14,000 annual maximum.

Employer Size for Whether an Employee is Working or Not

The employer size threshold is another notable change. The original act prevented companies with more than 100 employees from taking the ERC for any employee still performing services – even if at a reduced capacity. Starting in 2021, this increases to 500 employees.

Paycheck Protection Program Loans versus ERC

Previously, companies that participated in the PPP loan program were not eligible for the Employee Retention Credit, including affiliated companies. The updated law retroactively changes this requirement. Companies that received PPP loans are now eligible for the ERC credit, but there are restrictions.

The change applies to wages paid on or after March 13, 2020. Prior PPP loan recipients cannot claim the credit for wages paid with proceeds from a PPP loan receiving forgiveness. If the company paid qualified wages over the amount of the forgiven quantity, they could claim the credit retroactively. The IRS is expected to issue more guidance on this topic.

Advance Payments

There was no advance payment option; employers were required to pay employee wages before they could receive the credit. While this is still not settled, it is expected that the IRS will draft guidance allowing for advance payment of the ERC for companies with 500 or fewer employees based on 70 percent of the average quarterly payroll for the comparable quarter in 2019.

Eligibility of Governmental Entities

Previously, the ERC was not available to governmental agencies at any level; however, starting January 1, 2021, public colleges and universities, agencies that provide medical care, and select other agencies such as federal credit unions are now eligible.


The Consolidated Appropriations Act, 2021 extended and clarified many Employee Retention Credit provisions up through June 30, 2021. Overall, the ERC is expanded in terms of amount, employer size, and more flexible gross receipts test. Further, PPP loan recipients are now also eligible for the credit if they meet certain criteria.

Most likely, employers will need to file amended payroll tax returns for the second and third quarters, but guidance is still pending for this and PPP loan recipients who want to access the credit.

The changes can be complex, and compliance can be cumbersome, so if any of the information outlined above applies to you, be sure to reach out to us to help you capture the most value from the changes to the Employee Retention Credit rules.

Expanding the Net Investment Income Tax

Net Investment Income TaxDespite borrowing massive amounts of money, the government still needs to find ways to raise revenue to pay for new programs and spending. The current democratically controlled Congress is looking to potentially implement new social programs and a climate bill. As a way of funding these initiatives, they are considering an expansion of the Net Investment Income Tax (NIIT).

The NIIT is proposed to raise revenue since it is seen as politically more palatable, given that it typically only impacts a small group of wealthier taxpayers. Critics, however, say the plan in its current form would also hurt small family businesses.

Who Pays NIIT Now?

Under the Affordable Care Act (ACA), the NIIT applied a 3.8 percent tax on investment income. Investment income includes both passive sources like dividends, capital gains, interest, royalties, and rents as well as passive business income. Under the ACA, the NIIT applied only to single taxpayers earning $200k or more and joint filers with $250k or more.

When it comes to the taxability of business income under the NIIT, because the law only captures passive business income, most owners of pass-through entities must pay the NIIT; however, active owners of S-corporations are exempt. Likewise, if someone qualifies as a real estate professional, their income is considered active and so their rental income is also exempt.

Who Would Pay Under the New Proposed Law?

The current version of the House bill makes two major changes. First, the NIIT expands to capture all business income. Essentially, S-corporation shareholders, limited partners, and pass-through entity owners that are currently exempt would be impacted.

Second, when it comes to removing the exemption on this business income, the income threshold rises from $200k to $400k for single filers and from $250k to $500k for taxpayers filing jointly. The effect of this would be to exclude most business owners from the tax, but make filing more complex for those impacted.

Under the new rules, the Tax Policy Center projects that in 2023 the tax hike would fall on those in the top 1 percent of household incomes or those making approximately $885k or more. Further, even among the top 1 percent, more than 50 percent of the tax increase would be borne by the top 0.1 percent for those making $4 million and up.

Impact No Small Businesses

Overall, about 14 percent of taxpayers report some form of business income on their federal tax returns. The amount reported, however, is usually not a material amount for most as a percentage of their income. For example, only approximately 5.5 percent of taxpayers with reported business income had this as the source of 50 percent or more of their total income. As a result, the impact will be mostly on a small percentage of small businesses. At the same time, as business income is far more variable than employment income, someone could easily fall in and out of the tax range.


Overall, the House bill looks to raise the threshold of where the NIIT expansion applies by the type of income it captures. We will have to wait and see if there are changes as the bill makes its way through – if it even passes at all. No matter what happens, there will certainly be tax increases of some kind.

How Businesses Can Mitigate Inflation & Maintain Pricing Power

Mitigate Inflation, Maintain PricingWhether it’s tariffs, trade wars, or post-pandemic inflation caused by kink-ridden supply chains and what many experts believe to be excess money printing, inflation is an insidious drag on businesses’ operations. When it comes to energy’s contribution to inflation, the U.S. Energy Information Administration (EIA) reports that crude and natural gas prices in 2022 have increased on an annualized and weekly basis. Looking at the snapshot of 7/21/2022, WTI crude on the futures market was $96.35 a barrel. This was up more than $26 compared to 12 months ago, and $0.57 higher than a week earlier. For the same time frame, natural gas futures were $7.932/MMBtu, an increase of $3.973 from 12 months ago and an increase of $1.332 from a week earlier.

When it comes to businesses using any type of commodity, they’re faced with the question of how to raise retail prices when their prices increase. However, many business owners are hesitant to increase prices on their goods and services as they fear it will drive away customers. But in light of increasing input prices, not implementing price increases correctly will impact a business’s earnings and profitability.

As McKinsey & Company explains, there are many considerations why businesses have had trouble with mitigating costs in light of rising input costs. It’s important to monitor raw material costs with a fine-tooth comb. Businesses that bury costs of commodities, labor or tariffs under general accounting categories hide spikes in input costs due to factoring ancillary costs. If volatile input or uncontrollable factors, however, like tariffs can be monitored independently and in real time, businesses are more likely to be able to increase prices – and do so more gradually. With this in mind, McKinsey & Company highlighted four practices that businesses can implement to combat pressure from input costs and pushback from customers who question the reason for price increases.

1. Create a Database of Dynamic Costs

By looking at historical records going back as far as 36 months, businesses can determine trends and keep track of increases or decreases of input materials to share with the sales and customer service department, who can then communicate with customers. Along with looking at how contracts are written and if there are escalator clauses that permit conditions to adjust for increases in input materials, taking steps to accurately measure the impact of raw material costs can be helpful for price increase considerations.

It could look at costs by department. If a plating department at a manufacturing company plates 50,000 pieces of metal a month, incurs $200,000 of direct material costs and has $50,000 in labor and overhead costs, it can be broken down into a per unit cost of $4 for materials and $1 of labor and overhead costs. If the per unit cost of materials fluctuates, investigation can occur through the supply chain from the supplier to the price of futures contracts to see if prices can be negotiated or must be increased for customers.

2. Mind the Economy

Businesses are advised to keep an eye on current economic conditions. This is how companies can set a dynamic pricing strategy. Building on the first step, it’s advised to index prices to those of commodities to reduce the lag time between when companies experience changes in costs for their input materials and when retail prices actually reflect the true cost to the company. Be it fuel, wood, coffee or metals, understanding how the price of commodities fluctuates in real time is essential to determine when and how to adjust prices for retail customers. It also can help businesses determine how competitors are adjusting their pricing to customers, how far prices could increase, and how to augment delivery of goods or services to stay competitive and profitable.  

In addition to escalation clauses, companies adapting to changing input material prices could, for example, introduce shorter-term contracts, look for more competitive suppliers, or substitute different but equal quality/performance materials.

3. Coaching Staff to Educate and Explain Price Fluctuations

Continual evaluations for sales teams are imperative. Supervisors must see what accounts have (and have not) been informed of price increases. They should focus on what accounts have accepted price increases (and what level of price increases have been accepted). They also should look at what accounts are likely to accept price increases and what accounts are not likely to accept price increases. Businesses also must factor in the business cycle for the sales process and how each account is performing relative to its price increase targets due to cyclical increases in input commodity prices and interest rates for financing availability. Ongoing coaching should be implemented to identify major issues and ways to resolve them. Anticipating and preparing sales representatives for customer questions through role playing can help better prepare employees to explain why price increases are a part of doing business.

4. Managing Performance

Businesses must play the long game after products or services have been priced accordingly to commodity and input prices. Since inflation follows the economic cycle, upside and downside pricing dynamics can catch companies off guard. Consistently updated product or service pricing systems and prepared sales teams can lead to more profitable margins and hopefully the ability to weather volatile and long-term price spikes.

Much like the price of commodities and labor fluctuate based on dynamic market conditions, finding ways to adapt one’s business practices can increase chances of surviving and thriving in a challenging economy.





Stock Splits, Explained

Stock Splits, What is a Stock SplitImagine selling slices of a large pizza. You can cut it into four even slices and charge $2 a slice. Or, you can cut it into eight even slices and charge $1 per slice. Either way, the total value of the pizza will still be $8.

That’s what happens when a stock splits. Let’s say a stock’s market price is $100. With a 2-for-1 split, each current owner receives one additional share for each share he owns. Now, each share is worth $50. If you had one share to start, you now have two, but the total value of the investment remains $100.

A stock split differs from when a company decides to issue new shares, wherein new shares flooding the market can dilute the value of existing shares. With a stock split, the value of existing shares do not decrease. The total market value of a shareholder’s holdings will remain the same.

There are different forms of stock splits, such as the 2-for-1, 3-for-1, or 3-for-2 stock split. They all work the same way: You get two shares for everyone you hold, or three shares for everyone you hold, or three shares for every two shares you own.

Another, the less common form is called the reverse stock split. This is when a company decides to reduce the number of outstanding shares, which in turn will increase the stock price of shares held by stockholders. This strategy is generally used to boost the price of a stock that has lost value over time.

It is important to recognize that the stock split is a simple strategy designed to affect the stock price. It in no way changes the company’s market capitalization (i.e., total value of all outstanding shares) or other fundamental metrics. In order to issue a stock split, it must be approved by both company management and the board of directors. Furthermore, the company must publicly announce its intention to conduct a stock split within days or weeks of implementation.

The timing of the announcement is important because some investors try to take advantage of a stock split, believing that the value of the stock will increase as a result. This has more to do with market sentiment than any change in company fundamentals.

For example, in the past when a stock split its value often returned to its pre-split price within a year. This is not necessarily because the company has improved fundamentals, but rather because the investor market simply believes that stock is worth that price — it’s a form of confirmation bias. However, in recent years it is not as common for split stocks to climb back to their original price as it was in the past.

Why Conduct a Stock Split?

Again, the reason for a stock split is largely driven by market sentiment. For example, some investors may not have a lot of discretionary income to invest, so they look for a lower-priced stock. While they might not consider a stock valued at $100 per share, they may be interested in the company at $50 a share. In fact, following a recent stock split, investors may see it as getting a bargain price for that stock. As such, they might buy two shares. Now they’ve spent $100 on two shares whereas they were reluctant to buy one share for $100. The value is the same, but psychologically, that stock now seems like a great buy. This is referred to as unit bias. Psychologically, most people perceive lower per share prices to mean that a stock is “cheaper” and therefore may have more room to make gains.

In addition, now they can further diversify their portfolio with different stocks, whereas before those high-priced shares may have dominated their portfolios, exposing them to greater market risk.

A stock split also gives current shareholders the opportunity to increase their holdings at half price. While the value hasn’t changed when they make the buy if the stock increases in the future their portfolio will increase in value because they have more shares of that stock. For example, let’s say you have 10 shares of a stock priced at $10, for a total value of $100. The stock splits 2-for-1, so now you have 20 shares priced at $5, still valued at $100. In a few years, the stock price grows to $20 per share. Had the stock not split, your total value would grow to $200. But because you now own 20 shares, the total value of those shares would grow to $400.

Clearly, the true value of a stock split comes from holding those shares until the price increases substantially.

Mutual Fund Split

Some mutual funds also engage in the split strategy, but instead of splitting an individual stock, the fund company issues additional shares of the fund at a reduced price. In all other ways, a mutual fund share split works like an individual stock split.

If you’d like to learn the history of a company’s stock splits, consider the following resources:

  • Click on the investor relations tab on the company website, which often provides a history of the company, including dates of past stock split activity.
  • Search by the ticker symbol at stocksplithistory.com or Morningstar.com.
  • Another option for both stocks and mutual funds is to search by the stock symbol at Yahoofinance.com. On the stock’s performance chart, look for the Events tab and check the Stock Splits option. You may need to reduce the historical time frame to see splits marked clearly.
  • You also may be able to search for stock split history on the website of your online broker. Many outfits offer these types of research tools.

8 Ways to Save on School Supplies

8 Ways to Save on School SuppliesEven though summer is still somewhat in full swing, school will be starting soon. Yes, you heard that right. This means that you probably need to get prepared for the inevitable cash outlay ahead. But it doesn’t have to cost an arm and a leg. Here are some ways to navigate the upcoming expenditures and save a penny or two.

Start Early

We’re talking a few weeks ahead, if possible. If you wait until the last minute, supplies might run out. You may have to spend time online searching and/or driving from store to store – and paying the premium both in terms of products and gas. If you spread out purchases a little at a time, you won’t feel the financial hit so severely. Dive in early and you’ll thank yourself when it’s all over.

Conduct a Supply Audit

Dig into those drawers, closets and storage bins for school supplies from last year. Chances are, you bought a set of, say, pencils and all are not used. When you’re done, put what you’ve found in a central location and make your shopping list. Be sure to keep this list handy (on your phone, or in your bag if you’ve handwritten it). Another way to keep track of what you already have is to snap a pic of it.

Swap With Friends

Do this before you spend any money. Organize a small gathering with other parents, trade your wares, figure out what you need, then get going.

Head to the Dollar Store

After you’ve audited and swapped, check out these bargain basement stores. Here, you’ll find big savings on basics like notebooks, pencils, plus hand sanitizer and facial tissues.

Scour Thrift Stores

While thrift stores might not have supplies in terms of schoolwork, they’ll definitely have back-to-school clothes you can buy for a song – aka pretty darn cheap. You might look for backpacks here, too, which are a must-have. Tip: Don’t let your kiddos wear their new duds immediately. Save them for the first day (and days after) so they’ll feel like they’re starting the new year with a 100 percent fresh start.

Shop on a Sales Tax Holiday

Lots of states have these and during this time (or day or weekend), you can buy computers, clothing and school supplies without paying sales tax. Here’s a state sales tax holiday list for you.

Follow Popular Stores on Social Media

Many companies send their followers coupon links and advance notice about juicy sales. Several to watch on Facebook and Twitter are Staples, Office Depot, Target, Best Buy, as well as Coupons.com and RetailMeNot.

Make One Trek Solo

While taking the kiddos along can be fun and a great bonding experience, chances are they’ll plop things in your cart you might not want – and run up the bill. By yourself, you can get in and out quickly and control the cost.

Going back to school can be a challenging transition, both for kids and parents. However, if you plan ahead and stay on track, you can give yourself an A+ for all you’ve accomplished.


16 Tips to Save Money on Back-to-School Supplies & Shopping List

What Are NFTs and How Can Businesses Benefit?

What is an NFTNon-fungible tokens (NFTs) are rising in demand, and some brands are already generating great results in their campaigns and providing a unique experience to customers. As the hype around NFTs continues, businesses need to understand how they can benefit.

What is an NFT?

An NFT is a valuable digital asset created using blockchain. Unlike cryptocurrencies, NFTs are not mutually interchangeable as each NFT represents a different asset with a different value. Hence, an NFT verifies the authenticity of a non-fungible asset. This means that the purchaser of the asset/product can only use a product. Unlike other digital products, an NFT can’t be duplicated and sold. This is because the non-fungible asset is made into a token with a digital certificate of ownership, creating authenticity and credibility. NFTs could include videos, music, physical products, services, documents, artwork, and even memes.

A non-fungible asset’s value depends on various factors, such as underlying value, ownership history, perception of the buyer, future value, etc.

How NFTs Have Been Used

So far, some industries are already reaping benefits from NFTs. Various cases of NFTs can be found in gaming, music, fashion, sports, and virtual real estate.

The growth of NFTs has been attributed to the fact that humans like to collect things, and since NFTs are designed to be scarce digital assets, this contributes to the high prices. According to research conducted in March 2021 by Morning Consult, a global decision intelligence company, about half of the people who identified themselves as avid physical collectors were interested in NFTs. In addition, users have more control over the asset bought because it cannot be used in any other way or duplicated, making it more valuable.

It might not be obvious to most when NFTs are worth an investment. However, looking at NFTs that have already been sold, this can present an opportunity that businesses should not ignore. For instance, the first tweet by Twitter CEO Jack Dorsey was sold for over $2.9 million in March 2022. The Nike brand also has been making headlines with its virtual sneakers, with one selling at $134,000.

With such news making the headlines, businesses may wonder how they can benefit from NFTs. 

How Can a Business Benefit from NFTs?

Businesses still hesitant about adopting new technologies should start considering creating NFTs that align with their brand image. Below are some ways in which a business can benefit:

1. Brand Visibility

Aside from digital marketing, NFTs provide another way businesses and corporations can drive attention to their brand. For instance, by creating a digital version of your products, you expose it to NFT enthusiasts, some of who might not be aware of your products. NFTs also can be incorporated as part of your brand storytelling, creating unique experiences for your customers, consequently increasing consumer engagements.

2. Authenticity

Many businesses undergo massive losses of revenue due to counterfeit products. With NFTs, businesses can ascertain the authenticity of their products and services. A digital certificate is issued with every transaction and a record is kept on the blockchain. A customer can check the authenticity since the blockchain can be traced to the original seller.

3. Additional Revenue Stream

Businesses can use NFTs as an additional source of income by selling digital forms of their products or services. One way to do this is by creating an early access opportunity before the official product launches, creating a buzz and ensuring the NFT value will rise.

4. Customer Loyalty Program

The versatile nature of NFTs makes them ideal for use in loyalty programs. The tokens can be used as medals for loyal clients or as membership tokens.

5. Prevent Ticket Scams

Many people fall victim to online ticket scams where they buy fake discounted tickets or duplicate tickets of an original event ticket. The money collected doesn’t go to the business, which also affects the event organizers. Customers also risk their credit card information being stolen by scammers. However, turning a ticket into an NFT makes it easy to verify its authenticity and even prevent ticket black markets.

6. Managing Supply Chain

NFTs are positively disrupting the supply chain. By the use of blockchain technology, it’s now easy to trace the entire process of a product lifecycle, from raw material, transportation, manufacturing, and distribution up to the end consumer. Hence, businesses interested in improving transparency and accountability can embrace NFTs to automate their supply chain.


NFT technology is relatively new, and its practical use is still limited. However, the fact that people are willing to spend on them is reason enough why any business should consider leveraging NFTs in its marketing strategies to help boost brand engagement and drive sales. 

4 Common Depreciation Methods and Their Uses

4 Common Depreciation MethodsDepreciation is the accounting concept that evaluates an asset’s useful life. As the Internal Revenue Service explains, depreciable property – which could include equipment, structures, means of transportation, fixtures, etc. – is examined to see how many years the purchase price can be averaged and “deducted from taxable income.” This is in contrast to “full expensing,” which allows companies to write off investments straight away. For dual use property (personal and commercial), only the proportion of property that’s used for business may be depreciated. Property eligible for depreciation must be owned by the business, be used for business purposes/income-producing activity, and have a determinable useful life.

1. Straight Line Depreciation Method

This method of depreciation determines a constant amount to expense annually over the useful life of the property. It’s calculated as follows, with the following example circumstances assumed:

Machinery costing $50,000 with a life of 12 years and $2,500 in salvage value.

= (Cost – Salvage Value) / Useful life

= ($50,000 – $2,500) / 12

= $47,500 / 12

= $3,958.33


When implementing this method of depreciation, if the asset’s useful life and salvage value is assumed incorrectly, it could skew results. For assets that become outdated prematurely and/or require higher maintenance costs toward the end of its useful life, this method can lead to improper results.

2. Double Declining Balance Depreciation Method

This method, generally speaking, is double that of the straight-line rate.

Annual Depreciation Rate = (100% / Useful life of asset) x 2

Annual Depreciation Rate = (100% / 10) x 2 = 20%

Let’s assume that property, plant and equipment (PP&E) costs $75,000, will produce for 10 years and have a salvage value of $6,000.

From there, we work to establish the Periodic Depreciation Expense (PDE) = Beginning Book Value x Rate of Depreciation

Using the formula for PDE, we get: $75,000 x 0.20 (20 percent) = $ 15,000 for the first year’s depreciation expense.

Then, the first year’s depreciation expense is subtracted from the item’s beginning book value. Ending Book Value = $75,000 – $15,000 = $60,000

To determine each subsequent year’s ending book value, it begins with last year’s ending book value minus the newly calculated annual depreciation expense.

Year 2 Calculation for Ending Book Value: $60,000 – ($60,000 x 0.20 = $12,000) = $48,000  


This method expenses a greater proportion in the earlier years compared to the later years. This is attributable to assets that produce more for a business in their earlier years compared to later years. This method can help businesses depreciate items that lose value quickly, such as electronics, and similar items that become obsolete due to improving technology. It’s not necessarily double or 200 percent of the straight-line rate. It could be more or less than double of the straight-line rate. However, the double depreciation rate does remain constant over the depreciation process.

3. Units of Production Depreciation Method

This takes either the amount of discrete time utilized for production or the tally of items to be manufactured with the production equipment subject to depreciation. It’s calculated as follows:

Depreciation Expense = ((Cost – Salvage value) / (Life in Number of Units)) x Number of Units Produced During Accounting Time Frame.

Let’s assume a piece of equipment costs $100,000, has a projected lifetime production ability of 150 million widgets and will salvage for $10,000. It’s projected to create an output of 25 million widgets within the accounting year.

Depreciation Expense = (($100,000 – $10,000) / (150 million)) x 25 million

= (($90,000) / (150 million)) x 25 million

 = 0.0006 (unit) x 25 million

 = $15,000


This method can help businesses such as manufacturers that produce discrete items that can be counted and expensed per piece. Depreciation starts when the manufacturer begins to make items and stops when the unit has produced all of its life’s items within a pre-defined time frame.

4. Sum-of-the-Years Digits Depreciation Method

It’s calculated as follows:

Remaining Life (RL) of an asset is divided by the sum of the years digits (SYD) x Depreciation Base. The Depreciation Base = (Cost – Salvage Value)

Assuming there are equipment costs of $50,000, with a useful life of 12 years and a salvage value of $3,500. Depreciation Base = $50,000 – $3,500 = $46,500

RL = the remaining life of the asset. When the item starts running, it will have 12 years of a remaining life. One year later, or 12 months after usage began, the asset will have 11 years remaining, and so on. For an item with 12 years of useful life, it will be “the sum of the years” or 1+2+3+4+5+6+7+8+9+10+11+12.

The first year of use or the item’s Remaining Life will be 12 / 78 = 0.1538. Then 0.1538 x $46,500 = $7,153.85.

Year 2 would be calculated as 11 / 78 = 0.1410. Then 0.1410 X $46,500 = $6,557.69.


This method is another way to speed up the percentage of depreciation sooner, instead of toward the end of the asset’s useful life. The longer the asset is used, the less the asset provides utility to the business. Therefore, it helps businesses take advantage of depreciation sooner. It’s a trade-off for items that require more maintenance as time goes on, as the item’s value drops inversely.


Depending on the type of business and what it produces or provides as a service, understanding how depreciation works can give an accurate picture of the company’s finances and help navigate tax laws efficiently.

Strengthening the Supply Chain, the Professional Workforce, Cybersecurity and Coastal Ecosystems

Strengthening the Supply Chain, the Professional Workforce, Cybersecurity and Coastal EcosystemsSupply Chain Security Training Act of 2021 (S 2201) – This legislation is designed to identify supply chain risks and develop a government program to train federal officials with supply chain risk management responsibilities to prepare and mitigate those risks. The training program would cover the complete acquisition life cycle, including funding for data access and processing as well as appropriate technology and communication vehicles. The bill was introduced by Sen. Gary Peters (D-MI) on June 23, 2021. It passed in the Senate on Jan. 11 and in the House on May 10. It was signed into law by the president on June 16.

Bridging the Gap for New Americans Act (S 3157) – Introduced by Sen. Amy Klobuchar (D-MI) on Nov. 3, 2021, this bill recently passed in the Senate on June 23 and is in the House for consideration. The bipartisan bill would authorize a study on employment opportunities for naturalized and lawfully present non-U.S. citizens who hold professional credentials from non-U.S. countries. For example, the opportunity to employ doctors with medical degrees to help meet U.S. demand in the growing shortage of physicians. The Department of Labor would identify and recommend how to address factors that affect their qualifications for U.S. jobs in various fields of expertise.

State and Local Government Cybersecurity Act of 2021(S 2520) – This legislation expands the Department of Homeland Security (DHS) responsibilities for mitigating cybersecurity threats, risks and vulnerabilities with more proactive and defensive measures.The Act was introduced by Sen. Gary Peters (D-MI) on July 28, 2021. It passed in the Senate on Jan. 11 and in the House on May 17. It was signed into law on June 21.

South Florida Clean Coastal Waters Act of 2021 (S 66) – An algal bloom is a rapidly growing algae that can produce toxic conditions harmful to humans, animals, aquatic ecosystems and the economy. They are most prevalent in South Florida. The bill, introduced by Sen. Marco Rubio (R-FL) on Jan. 27, 2021, directs the Inter-Agency Task Force on Harmful Algal Blooms and Hypoxia to develop a plan to address how to reduce and control theeffects of the blooms throughout the South Florida ecosystem. This legislation passed in the Senate on March 8 and in the House on May 11. President Biden signed the bill into law on June 16.

Active Shooter Alert Act of 2022 (HR 6538) – Introduced by Rep. David Cicilline (D-RI) on Feb. 1, this bill would direct the Department of Justice to set up a national alarm system specifically to warn citizens of an active shooter event. The DOJ also would work with state, tribal and local governments to coordinate networks and establish procedures for how to respond to active shooters. The bill passed in the House on July 13. It is presently under consideration in the Senate, where it faces opposition because many believe it duplicates the existing Integrated Public Alert and Warning System (IPAWS). The premise is that a separate system for active shooter events would risk desensitizing citizens with false alarms.

Advanced Air Mobility Coordination and Leadership Act (S 516) – This bill was introduced by Sen. Jerry Moran (R-KS) on March 11, 2021. It passed in the Senate on March 23, 2022, and in the House on June 14, but the House made changes and returned it to the Senate. The purpose of this legislation is to establish an Advanced Air Mobility (AAM) interagency task force to plan and coordinate efforts for urban-based cargo and passenger aircraft (e.g., drones, air taxis, air ambulances) in the United States. The program would address matters related to safety, infrastructure, physical security, cybersecurity and federal investment in order to integrate these new aircraft into existing airspace operations.

Women’s Health Protection Act of 2022 (HR 8296) – Introduced by Rep. Judy Chu (D-CA) on July 7, this bill passed the House on July 15 and is currently with the Senate. The bill would prohibit state governments from restricting access to abortion services (via drug prescription, telemedicine or immediate action) in situations where the provider determines that birth would endanger the mother’s life.

Secure 2.0 Retirement Bill

Secure 2.0 Retirement BillAt the very end of March, the House of Representatives passed a version of the bill known as Secure 2.0. The bill passed the House with overwhelming bipartisan support in a 414-5 vote. The House version still needs to pass in the Senate, where there are differing ideas on exactly what the bill should contain. There is strong support, so it is less of a question of if Secure 2.0 will become law than what exact version.

The Secure 2.0 bill in any version aims to help Americans save for retirement through a variety of mechanisms and changes in tax law. Here are some highlights of what the bill hopes to accomplish and how. We’ll also note differences between the House and Senate plans throughout.

Sign Up More Workers for Retirement Plans

One way the House version of the bill aims to help people save for retirement is to simply get them into a plan. The law would automatically enroll workers in 401(k), 403(b) and SIMPLE IRA retirement plans in their workplace; however, they can opt out. It’s been shown that most people simply won’t take action, meaning they won’t enroll if they have to proactively sign up –  and similarly won’t opt out. The Senate version does not require auto enrollment, but it does give companies incentives to structure plans so that they auto enroll workers.

Auto enrollment in the House version starts at three percent contributions and increases yearly until participants are contributing 10 percent of their pay. Business with 10 or fewer employees are exempt.

Encourage Small Employers

Workplace retirement plans come with administrative, financial and legal burdens just to set up and offer the plan. This is before any type of employer contributions and is often a roadblock to small employers offering plans to their employees. To help encourage small employers, the bill offers a retirement plan start-up tax credit of 100 percent for the first three years to cover these costs.

Bigger Catch-Up Contributions

Right now, 401(k) plan catch-up contributions for workers 50 and older are capped at $6,500 for 401(k) plans. Both the House and Senate versions offer to increase these amounts, but in different ways.

The House version increases 401(k) catch-up contributions up to $10,000 for those 62, 63 or 64 starting in 2024. A more generous version is offered by the Senate, allowing the same $10,000 limit but to all who are 60 or older.

There is a “catch” to the catch-up, however. Under both versions, all catch-up contributions to 401(k) plans will be treated as Roth contributions; i.e., after tax contributions beginning in 2023. Currently, workers can make the contributions on either a pre-tax or post-tax (Roth) basis.

Push-Out Mandatory Required Distributions

The House version would extend the age for taking required minimum distributions (RMD) from retirements plans from 72 up to 75, incrementally over 3 years (73 in 2023, 74 in 2030 and 75 in 2033).

The Senate plan raises the age to 75 by 2032 and also waives RMDs entirely for those with less than $100,000 in aggregate retirement savings. It also reduces the penalty for not taking RMDs down to 25 percent (currently 50 percent).

Expand Employer Matching

The way the vast majority of retirement plans work is that employees contribute a portion of their salary and then the employer contributes a matching amount of  50 percent or 100 percent of what employee saves (up to a limit). The Secure 2.0 bill proposes to make student loan payments qualify as deferrals the same as plan contributions. This means that if you make student loan payments, your employer can now make a matching contribution to your retirement plan account even though you are not actually making any contributions into the plan itself. This is not a requirement, but an option for employers.

Create a Lost and Found for Retirement Plans

It’s common for workers to lose track of retirement plans from previous jobs when they move and change jobs. The bill would create a national lost and found to aid people in locating plans they may have inadvertently left behind or forgotten about.


In whatever form the final bill takes shape, it will give Americans more options to save for retirement and expand access to workplace plans.