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Small business expert Gene Marks discusses some of the top trends and issues for business owners in 2019 to help them plan out the year. These include revisiting the potential impact of last year's tax law on the choice of entity structure, dealing with stock market volatility, and achieving a work-life balance.
He also talks about why it's important for small businesses to invest in technology.
Greg Corombos: Hi, I'm Greg Corombos, our guest this week on Expert Insights is Gene Marks. He's head of the Marks Group, as well as a speaker and writer. He joins us to discuss what he thinks will be some of the top issues for business owners in 2019. And Gene, thanks so much for being with us again. Happy New Year.
Gene Marks: Hey, Greg, thanks for having me on, and Happy New Year to you, as well.
Greg Corombos: Well, the biggest difference this year, I'm guessing for business owners, is the tax code. The law was passed in late 2017. But this is the first time individuals and businesses are actually filing returns under the new provisions. I'm hopeful that most business owners have already had some conversations about the changes with their accounting teams. But what do you see as the biggest changes from this new law now over a year old for business owners going forward?
Gene Marks: Well, first of all, you and me both, we should have been having this conversation like a year ago, right? So we could say to all the business owners, you got to talk to your accountants/ I'm finding, I mean, look, I'm a CPA. But you know, as you know, I also write a lot. I write every week for the Philadelphia Inquirer, in The Guardian, and Forbes. So I speak to a lot to business owners around the country, and a lot of them are still not completely aware of some of the big impact the taxes will have on their businesses going forward.
So, you know, if you haven't done your tax planning for 2018, that kind of ship has sailed. But let me just give me a few hints to some big tax impacts for you in 2019 that you want to talk to your accountant about. The first set, you know, there's been big changes for pass-through organizations. And those are companies that are like S corporations and partnerships and limited liability companies. Well, for many of them, they're looking at a big 20% reduction on their pass-through income, which means that 20% of their income will be taxed this year and years going forward. And on top of that, a lot of people in the range of the typical small business owner are going to be looking at lower individual rates as well.
So if you haven't already, you might want to talk to your accountant about what the impact is of the pass-through deduction. Remember that corporate rates have also dropped 35 to 21%. So one of the things you might want to talk to your accountant about as well as is if you're a pass-through organization, does it make sense to change to a corporation, a C corp? Or if you're a C corp, maybe it makes sense to become a pass through.
So there are some big questions about your tax entity status that you should be having with your accountant. One final thing that I'll mention about taxes, big changes in the deductibility of capital equipment, so you can now deduct up to a million dollars in equipment that you buy. That's equipment, some furniture and fixtures, and computer equipment, as well.
And just remember Greg, you don't have to pay for this equipment, you can buy it, finance it while interest rates are still relatively low. And as long as you put it into service, you can get the full deduction for it as well. So if you've been having a good year, 2018 is good. If you think 2019 is still going to continue to be good, now's a great time to make some investments and get some big tax benefits from doing that.
Greg Corombos: Gene, let's talk briefly about those who have had the conversation with their accounting teams a while ago. Now, whether it's the new rates, whether it's the new advantages on depreciation and so forth, how is that changing how small businesses are prioritizing either short term or long term?
Gene Marks: Well, here's what I think. Whenever I hear people were talking last year about whether or not the tax changes are going to affect them, I found that a lot of my clients weren't, didn't really know until they sat down and talked to us and we could work through the numbers. I am going to bet when the typical small business owner does their taxes in March or April, they're going to find that they saved more than they were expecting to find. And when that happens, that means that they are going to have some excess cash left over. I'm expecting to see a lot of business owners re-invest that cash in their business.
The biggest impact I think we're going to see happen, Greg, this year is the impact on wages. I mean, we are business owners. There was just a report that came out last week that, you know, hiring by small business has dipped a little bit, and some people are reading into that as a potential weakness in the economy. What I see is that we just can't find people. It's a very competitive atmosphere out there. And we're up against big companies and the government that can offer more benefits or more salaries. I think you asked about the tax law, and you know, how that will impact people. I expect to see this year that a lot of business owners are going to be using some of those savings to either bump up some wages for their existing employees to keep them happy and loyal and coming back and maybe use it to hopefully do a little bit more hiring and be more competitive with some of the larger companies they're up against.
Greg Corombos: We're talking with Gene Marks, head of the Marks Group, well-known speaker and writer in the small business community. And Gene, you mentioned that the hiring numbers inside the business community have some folks wondering about the strength of the economy. A lot of folks over the last several weeks are also looking at the volatility in the markets which had been on a steady incline over the past couple of years. But the last few months have been a little bit of a roller coaster, to say the least. So first of all, do you see it more as a correction or ongoing volatility? And how do business owners prepare for that either way?
Gene Marks: I am...my crystal ball, if it was right every time, I would, you know, I wouldn’t be talking to you! I’d be at least retired by now. But listen, we've had a lot of volatility in the markets. I think we're going to continue to see volatility into 2019. Having said that, the fundamentals, Greg, of the economy are still good. And they're still strong. And even though there were some potential challenges—there's some slowdown in global production, there are potential challenges with trade. There's obviously a lot of stuff going on in Washington, between, you know, the White House and Congress, and a lot of potential things that might disrupt some of the certainties that we've been used to. The economy is still fundamentally good. Tax rates are lower, regulations have been pulled back.
Most of the companies I know are still in a growth mode. So when I look at the market for next year, I'm expecting it to rise. It fell about 8% in 2018. But I do expect when the year is over next year for the market itself to have recovered. Just bear in mind, Greg, there's, you know, the interesting thing going on behind the scenes is all about interest. I mean, interest rates have doubled from what they were just 10 years ago. And they're going to continue to go up even more if the fed continues to put, you know, raise rates as they plan. And when you think about it now, you know, we have options. Which means that a lot of investors just a few years ago had few places to put their money in...they could put in under their mattress or put it in the stock market. But now interest rates, because they've gone up, gives options. We can invest in bonds. We can invest in...put money away in savings. We are getting more of a return on that. And I think that's going to pull a little bit of money out of the markets as well and have an impact on the market. So we're certainly not going to see the kind of returns that we saw back in 2016 and 17. But I still think the markets itself will have left decent returns in 2019,
Greg Corombos: We've talked about the tax code, we've talked about the overall health of the economy. What else are you encouraging business owners to focus on here in the new year?
Gene Marks: I think this year if you're going to be making investments, you should be looking at technologies in 2019. The smartest companies that I know, they're looking at a diminished workforce for a more competitive workforce. They're trying to be competitive to try to keep their overhead low. And the smarter people are investing in technologies. And the best technologies that are coming to market over the next couple of years will be leveraging artificial intelligence, will be automating things. So if you're a business owner, and you've got a good accounting system, or customer relationship management system, a communication system, you want to be spending money on upgrading those systems, getting better training. And configuring more and more automation and workflow as they become available so that you can do less, or excuse me, do more with less people. Because that is what larger companies are doing right now. And they know what they're doing, and they see what the future is. And although you and I can argue about what that means for workers in the future, my concern is with the business owners. And the other smartest ones are operating more efficiently with less people and more technology. That should be a big focus in 2019,
Greg Corombos: in addition to the big projects of 2019, there's also the way business owners spend their time. I remember in our previous conversation, we're talking about your recently published book, The Manufacturer's Book of Lists. And you talked about what a big fan of lists you were, and how it helps business owners to be far more efficient and to focus on the things that they're good at. So any particular lists that have you fired up this year?
Gene Marks: Well, no particular list as well. But I can say that, you know, this year in 2000, you know, 19, people are looking, you know, to be fairly busy. But it is a year to take a step back as well. And, and to try and keep things as balanced as possible. I mean, the smartest business earners I know are the ones that do balance their personal time and their professional time, you know, together so that they can be refreshed and feel good and feel better about themselves. The other thing I'm telling a lot of our clients do only ‘cause, Greg, it's worked really well for me, is to try and join like a local business group and association. Or even, you know, a lot of people have mentor groups, you know, like advisory councils that they join up with, networking groups where they can share ideas and thoughts with other business owners that have similar problems, but they might be in different industries. It's a really good, you know, good use of your time is to share and also try and get knowledge from all the other people are going through all the headaches that we're all going through every day. You get good advice from people that have their feet on the ground.
Greg Corombos: Well, terrific advice. And while there certainly are always challenges in the business environment, sounds like you're pretty bullish overall for 2019.
Gene Marks: Yeah, I think 2019 is going to be a good year. I mean, there will be obviously some volatility. You never know what can happen, but the fundamentals are fine. I think you got to keep your eye on the ball. And I also think one final thing is as good a year I think 2019 is going to be, at some point we are going to have a recession. I don't think it'll be a collapse like it wasn't 2009. But it is a normal cyclical thing. So if you're running a business, remember your employees, your customers, your suppliers and all their families that are relying on you to make the right decisions to keep your business in business for the long term. So you have to be preparing for a potential downturn when it's going to happen, and it will happen sometime in the next couple of years. Make sure that you've thought through what you're going to do when you see that happening so you can navigate your business through it and continue to grow.
Greg Corombos: Excellent insight as always, Gene. Where can folks find you or the Marks Group?
Gene Marks: Best place to find me is on Twitter [@genemarks]. That's the best place to connect with me.
Greg Corombos: Fantastic. Well, we appreciate your insights. And we look forward to hopefully a lot of the bright spots panning out for a lot of business owners here in the new year. Thanks for your time today.
Gene Marks: Thanks. Right. Look forward to speaking again.
Thank you. sir. Gene Marks is head of the Marks Group. He's a well-known speaker and writer in the small business community. I'm Greg Corombos, reporting for Expert Insights.
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