By Jill Nagy
Investment strategies in today’s complex economic environment can cause small business people and individuals to pause.
“Every business owner has different issues to deal with and there is no one answer for everybody,” said Kevin Hedley, a principal in Hedley & Co. PLLC, Certified Public Accountants in Clifton Park.
In looking at investment strategies, near the top of his list this year is reviewing the structure of the business in view of recent changes in the tax code, he said.
For example, business owners with a “pass-through” corporation—one which pays income directly to the owners—can take advantage of a new tax provision that will allow them to deduct 20 percent of that income from their net income on their individual income tax returns. That could be more advantageous than the reduced tax rate on corporations’ income coupled with individual taxes on dividends.
Pass-throughs have their income “pass through” to the owners to be taxed under the individual income tax. Pass-through businesses include sole proprietorships, partnerships, and S-corporations.
“Entity planning is always extremely important,” he noted.
While every business owner has different issues to deal with when making investment decisions, Hedley sees the main categories of concern to be tax liability, retirement plans, and excess cash.
In the early years of a business, a Roth IRA may be the only reasonable investment option, he said. As the business matures and earnings increase, the owners may look at setting up 401(k) retirement accounts and other more complex investment vehicles. It depends upon age, risk tolerance and the years before retirement.
Long-term strategies are important, he said. Owners of more mature companies may need advice on trust planning, creating multiple entities and beginning the transition of ownership to the next generation or to trusted employees.
He also urged calm in the face of apparent volatility in the investment markets.
“Volatility is the norm,” Hedley said. “2017 was a very unusual year because of the lack of volatility. 2018, so far, seems more normal.”
It is important to have a solid diversified portfolio—and then relax he said. Don’t get too excited when the market goes up and don’t get depressed when it goes down.
In every case, he emphasized, it is important to have an individual conversation with an accountant, investment advisor, or financial advisor. “It’s a very complicated world.”
“I always try to avoid making six month predictions; it’s going to go up and it will go down,” he said of the market.