Skip to content

The Gig Economy

March 23, 2017

We are at the dawn of the Gig Economy. This is where independent contractors perform services on an as needed basis. Examples are the people that work for Uber, Lyft and Airbnb.

This model is working because there is a paradigm shift by overhead laden companies toward using people that cause, and have, little or no overhead. Further many of the people performing the services are either out of work or underemployed and cost less than a fulltime employee. However, some of these people are highly skilled with the demand for their services fragmented but that are utilized globally creating steady work at premium prices. The Gig Economy also permits a better work-life balance for contractors that have choices.

The Gig Economy is enabling temporary assignments and short-term projects to replace full time positions. Digitization and the Cloud has created a mobile work force that can work almost anywhere. Starbucks, McDonald’s and public libraries have replaced many offices for those that want to get out of their house. Many businesses, particularly professional service firms, have eliminated offices and adopted a hoteling set up with work stations for those that need to be in the office in any given day.

The Gig Economy has created agility for a company where they can seek out and use specialists without having to either hope they have someone with those skills, train someone or add a permanent person that would only use those skills sporadically. Further the web has become a consolidator of worldwide outreach opportunities for user and contractor. Additionally, depending on time zone differences, work with tight deadlines can be turned around quickly – sometimes the next morning.

As a new business model there is great disruption in certain areas. Established taxi and hotel businesses are being displaced with free lancers and people renting their private homes. Newspapers, magazines and publications are releasing long-time staff writers and editors and replacing them with part-timers working on specific assignments. Graphic designers and illustrators are being engaged virtually on a project by project basis. Bookkeeping services and tax return preparation are also being doing globally. We all experienced customer care center personnel from all over the world some of whom work from home. In the “old days,” the piece worker model was popular. It seems it has been resurrected in the form of the Gig Economy.

There is a down side. The lack of a permanent and trained work force in some cases can affect quality. If I wrote this twenty years ago I would have included “loyal” after “permanent” but wide spread layoffs have destroyed much of the employer/employee tit for tat that breeds loyalty. Money saved in payroll costs offset some of the loss in production and quality but with the right oversight and management profits can still result. Systems and processes are stepping up to fill the gap. Contractors lose the security of a steady paycheck, and in many cases working gigs is not their first choice but it fills a great need for them.

The Gig Economy is new, but it is here and growing. How it develops remains to be seen, but for now, it seems to be taking hold.

More thoughts on “The Fourth Quarter” and Downsizing

March 21, 2017

This is a second article by Jim Lee from his “As I See It…” column and was coauthored with his wife Melanie Coffman. See my previous posting for his first article.

“My last “As I See It,” “Kicking and Screaming into the Fourth Quarter of Life” garnered more questions and comments than any previous column except “The Four Freedoms,” which I wrote shortly after 9/11. Based on the age of our readership it was not surprising that most of the questions had to do with “downsizing” and thus an appropriate place to start this column.

Melanie gets all the credit for developing the vision of downsizing. I was late to join the party as I was content to stand pat. However, she mapped out for me all of the advantages. The single most important advantage was to move closer to our daughter, Kristen and her husband. Before the move they were located over an hour away from us and now they are within 15 minutes.

We both strongly recommend that the parents move near the children and not the other way around. Why disrupt their lives? Second, I would be able to give up all of the maintenance and landscaping responsibilities (took up to 12 to 15 hours a week). Third, there appeared to be a very narrow window in the real estate market which had only slightly rebounded from the crash of 2008. Once the decision was made, our house was listed, and it sold within two days (That was a stroke of pure luck). One final point: We made these decisions at a point in our lives when we were still able to make all our own decisions.

Now, what to do with all of your stuff?

This was the most asked question. Think about it. We all accumulate a lifetime of stuff and all of that has memories attached. In our case, Melanie and I brought together many family heirlooms in the way of furniture passed down from parents and grandparents. We absolutely loved this stuff but were faced with parting with at least fifty percent of it. We made up a list and circulated it among our four children. Whatever they chose would be shipped to them at our expense. Hence 31 pieces of furniture wound up being shipped across the country. Now in everyone’s home there’s something we love seeing.

But what about those precious items you thought they might want, that were now our orphans? This is the first hard lesson of downsizing. We are often the bearer of the connections to these heirlooms. They have been in our families for generations. They were bestowed upon us and we cared for them lovingly. And yet, often our children don’t have the space, nor do they have the connection. It pains me to say this, but the reality is that the connection ends with you. Next stop: donate. Yes, I made over 37 trips to local resale shops before moving day. There were some pleasant surprises along the way. As an example: I was the third generation to inherit a set of tables made of hand carved mahogany in the early 1900s. My Grandmother Lee had ordered them from Malaysia to furnish her home in Panama when my Grandfather was there designing electrical systems that went into the construction of the Panama Canal. From my perspective they are beautiful antiques with a great personal story. Well, my sons couldn’t use them – however, Melanie’s daughter, Kristen, stepped up to cherish them. The cross-family save continues to warm my heart.

It is difficult but very important to grasp the fact that if your children don’t want an item the reality is that the connection ends with you.

What to do about your philatelic estate.

There were several clients who requested information along the lines of the handling of their philatelic estates. The deeper we get into the fourth quarter the questions of disposition of your collection looms large. During my 30 years in this business I have been witness to some very sad experiences when it comes to disposing of collections. As a result I have developed some practical points for you to ponder.

First, make sure your spouse understands the value of your philatelic holdings. They are an asset that will become part of your estate. Second, add a philatelic executor to your will and make sure that your spouse has met and is comfortable with the person appointed. Make sure that you have a clear understanding (in writing) as to how this person will be compensated for their time. Third, have a plan to move your collection to a place of safekeeping immediately upon your demise.

I cannot emphasize the first point enough. Unfortunately I have seen cases where the spouse had no idea as to value of the collection and a six figure collection was literally sold for pennies on the dollar.

If you have questions about your philatelic estate, I am always available to consult on this matter. There is no charge for this service and of course all discussions are held in strict confidence.

From our family to yours, both Melanie and I, wish you a joyous Holiday Season and a prosperous New Year.”

Jim Lee is a stamp dealer specializing in essays and proofs and he has a wonderful newsletter where this was originally written that can be accessed at http://www.jameslee.com. Essay and Proofs is an esoteric part of philately that has ardent followers. You can learn a little about them from Jim’s website. Check it out!

Kicking and Screaming into the Fourth Quarter of Life

March 16, 2017

This was written by James E. Lee and is included here with his permission.

“While I was working on preparations for NY2016 this past year a secondary theme had been weaving its way through the back of my mind. How do I spend my time now that I have reached the fourth quarter of my life?

I will turn 68 in November of this year. The stamp business has been a major part of my life since September of 1972. There is still a considerable amount of enjoyment that comes from this passion of mine. However, there are many new and wonderful events that have occurred over the past four plus years that have caused me to reflect on the way I will spend my time going forward.

We were lovingly challenged by our daughter, Kristen, to focus on making memories as a family. Because of Kristen’s great idea, Melanie and I started taking stock long before NY2016 and developed a plan for our “fourth quarter.” It would put family in the first slot and everything else would follow. Some might think of it as a very active bucket list but we prefer to call it a plan for the next 20 years.

We set the stage by downsizing last year from a large single family home in Cary to a town house in Oak Brook, Illinois. This provides us with a low maintenance base of operation. It allows us to spend the winter months with our children and grandchildren in the Atlanta area. We also have easy access to both major Chicago airports to travel to places like Portland, Las Vegas (for restaurants and shows), and to all points in between.

Narrowing the business plan is also an important focus. In the past seven years our philatelic literature business has slowly been divested. This has returned to me a tremendous amount of time and space.

For the most part fancy cancels have just faded away. Postal history has been reduced to classic 19th century with emphasis on the American Civil War period. Essays and proofs are an ever increasing primary focus. In other words, I am left with the areas I truly enjoy. The business is now portable and can go where we go. But most importantly I can still achieve the same level of success that I have enjoyed over the years in half the time.

I plan to spend this last quarter with my family and doing the things that matter to us…family, travel, writing, and business. This is not a swan song but a repurposing of life. One never knows how many years remain so I don’t want to waste it or miss out on anything.

Enough time has been devoted over the years for the good of philately; society boards, ASDA, MSDA, and the like. It is time to pass the reins to the next generation of movers and shakers.

The swan song will not come until Boston 2026 where the booth will be run by Adam, Joel, our other children, and all of our grandchildren. It will be up to them to decide where it goes from there.

Continued good health is the key to all this and I am happy to say we will work hard at it.

Yes the “fourth quarter” is here, alive and well, but we are playing for double overtime.”

Jim Lee is a stamp dealer specializing in essays and proofs and he has a wonderful newsletter where this originally appeared. The newsletter can be accessed at www.jameslee.com. I am an occasional customer of his and make sure I buy enough so I can continue to receive his newsletter. NY2016 was a once every ten year international stamp show that was held in New York in May and June for nine days at the Javits Center. The next international show in the United States is scheduled for Boston in 2026.

Variable annuities

March 14, 2017

Variable annuities, or single payment deferred annuities, provide a tax-sheltered mechanism that allows funds to grow without any tax payments until the income is actually withdrawn.

Variable annuities can be an appropriate investment where the need and intention is to accumulate as much of a capital base as possible to provide cash flow during retirement and possibly for the rest of the owner’s and, if requested, their spouse’s lives. Variable annuities can also include a death benefit for the original amount invested or some other amount. Variable annuities can be applicable for someone of limited means where a guaranteed cash flow is provided that they cannot outlive, as well as someone with a large portfolio that wants an anchor of a guaranteed cash flow and protection against asset decreases. Funds can be withdrawn as an annuity payable for the rest of the owner’s life, at varying amounts or percentages annually, or as a lump sum at any stage where there is a remaining balance. They are not liquid and are private contracts with an insurance company.

Variable annuities provide tax deferred asset accumulation. Income within the annuity is not taxed but is taxed as withdrawals are made. Upon a lump sum withdrawal all of the income will be taxed and possibly at higher rates since the income will consist of many years’ accumulation.

Some negatives of variable annuities is that the accumulation does not qualify for a step up in basis upon death, nor does it qualify for any type of tax-free rollover or stretched out withdrawal as an IRA would. This means that the entire income accumulation would definitely be taxed when withdrawn during life time or after the annuity owner’s death. If the funds are withdrawn before the owner attains age 59 ½, there is a 10% premature withdrawal penalty on any income. When funds are withdrawn part will be taxed and a part will be considered a tax free return of capital. Fees can be charged by the insurance company upon acquisition of the annuity, upon liquidation, or when withdrawals are made in excess or certain predefined amounts or percentages of the asset accumulation. All provisions are stated in the annuity contract.

An annuity is an insurance contract and as such is eligible for a Section 1035 tax free rollover into another similar insurance contract should that occasion arise. While variable annuities are not federally insured they are insured to certain limits by your state’s insurance guaranty fund. When investing, consider keeping the investment and eventual accumulation below those limits.

Variable annuities permit choices of underlying investments that could be for income, growth or a combination of the two. Regardless of the type of investments, all income would be taxed at ordinary rates – there are no capital gains or dividend rates. Furthermore there is no ability to contribute the annuity to a charity during lifetime and get a full deduction while avoiding the capital gains tax on the appreciation. If a charity is the beneficiary upon death, then the income taxes will be avoided.

For those using an investment manager, an advantage of a variable annuity is that it removes those funds from the assets under management pool subject to annual fees. There could be a fee when the annuity is purchased, but it is a onetime payment while the management fees are paid annually.

Variable annuities are complicated and need a thorough understanding of what they are, the benefits and costs and how they fit into an overall investment plan. Use this blog as a brief introduction.

How I Felt on March 9, 2009

March 9, 2017

I felt worse than miserable and terrible. March 9, 2009 was the market meltdown’s low point with the Dow Jones Industrial Average at 6507.

Actually the way I felt was on March 4th. The evening before my wife asked me how we were doing in the market, and I suggested we sit down the next morning and go over everything. That morning I printed out every account statement we had and then reviewed it all with her.

I looked over everything before I sat down with my wife and felt like the bottom dropped out. My financial assets were half of what they were at the beginning of 2008. I spent my entire life accumulating funds for my late in life financial security and saw half of it vanish in the last year. I was totally numb. All my foregone spending, entertainment and traveling were meaningless.

I had a diversified portfolio weighted heavier in stocks. Of course they dropped, but in the whole scheme of things they were stocks and there was no guarantee against that happening. I am a big boy and understood that. For the previous five months as the market dropped, I was struck with an overwhelming feeling of inaction, so I did nothing. I stopped putting new money in the market, but continued my dividend reinvestments – that was on auto pilot and I was literally frozen in decision making.

Looking at the bond portion of my portfolio was more devastating giving me a feeling of despair that I did not have with the stocks. The bonds were “conservative” investments, supposed to be an anchor, stable, and income producing and many bonds dropped 60% or more in value. That wasn’t supposed to happen. With stocks – it had to be somewhat expected, maybe not so much, but still expected in the recesses of my brain. But bonds? Totally not expected!

Luckily my inaction paid off since I sold nothing and the market recovered and the bonds lived to continue paying interest and eventually their face when they came due.

A lesson here is to not count on anything except perhaps 100% government insured bonds or bank certificates of deposits; and even with that you cannot count on a guaranteed cash flow except at very low rates. Unexpected things can happen and dreams can be destroyed. What you need to do is understand the markets, what your cash flow needs are and what can occur that can cause losses or diminution of the cash flow. What you also need to do is determine which is more important – asset values or cash flow? And build a portfolio that can give you the best chance of attaining your goals – and also hold something back in liquid cash – I call that a rainy day fund. If you do not feel fully confident doing it by yourself, then find an advisor you can completely trust and seek their guidance. After your decisions are made you then need to regularly monitor what you have, hope you made the right choices and act to minimize mistakes. And also do not panic!

Form 8300 Audits

March 7, 2017

Businesses that receive cash in excess of $10,000 need to report this on IRS Form 8300 (“Report of Cash Payments Over $10,000 Received in a Trade or Business”).

The IRS regularly conducts regional compliance audits of businesses that are required to file or are likely to have to file Form 8300. Typically a sample of retail businesses and auto dealerships in a particular area are audited to determine whether or not they are complying with the cash reporting laws. The local IRS office contacts the business by letter and requests that it make available certain records – cash receipts records, journals, ledgers, bank deposit slips, and other records based on the type of business.

For purposes of reporting, cash or cash equivalent means 1) United States and foreign currency in excess of $10,000, and 2) cashier’s checks (by whatever name they are called, including treasurer’s checks and bank checks), bank drafts, traveler’s checks or money orders having a face amount of not more than $10,000 are considered reportable when two or more (as well as cash) are presented to a business and the total amount exceeds $10,000. Under IRS regulations, personal checks, checks drawn on the account of a business, certified personal and business checks, and amounts charged to credit cards are not considered cash.

To comply and also to protect the business, businesses and dealerships should develop a written policy statement that explains how cash transactions over $10,000 are to be handled in the organization. Make sure that all affected employees (salespeople, managers and office staff) are aware of, and fully understand, their responsibilities set out in the statement. The policy should include a statement instructing salespeople not to discuss the cash reporting law with customers at any time or for any reason. All cash reporting inquiries should be referred to a designated person (i.e., the dealer, the general manager) who fully understands all aspects of the cash reporting laws. Fines for noncompliance can be quite substantial reaching $25,000 per violation.

Once a plan is put into place there should be periodic meetings with staff to make sure they fully understand and comply with the policies. Businesses should consider having their independent accountants review the procedures and filings at least once a year as a further protective measure.

Proper cash reporting is a high priority of the IRS and businesses and dealerships should establish a plan to fully comply with the rules. Businesses handling cash should always be prepared for some type of cash reporting audit in the future.

If you have any questions you are welcome to contact me or Louis Young in our New Brunswick office. He can be reached at lyoung@withum.com.

Meg Whitman on Squawk

March 2, 2017

Last Friday Meg Whitman appeared on CNBC’s Squawk on the Street and was grilled about the poor performance and guidance downgrade of Hewlett Packard Enterprises (HPE). She fielded every question with frank and direct responses. She certainly had nerve appearing there and also showed that she had a firm grasp of what was going on at HPE.

My thoughts were how owners of closely held businesses would hold up under such questioning, and whether they should subject themselves to this ordeal. Obviously they will not be on national television, but they can replicate the situation, and I believe they should try to. Here is why and how.

  1. Owners of their own business frequently do not have anyone they are answerable to, have to account to or justify their actions. This removes a critical and possibly beneficial voice in assuring the best leadership and management for the business.
  2. I have found that when people are answerable for what they do they usually take an extra thought before committing to a path.
  3. Knowing that actions will need to be explained can provide some extra care or caution before a decision is made or acted on.
  4. An effective way to accomplish this is for a business’ owner to assemble an independent Board of Directors or Advisory Board. This could be made up of your accountant, attorney, insurance agent, marketing consultant or advertising agency account executive, some key customers, suppliers or employees, and maybe a family member that is not involved in the business. The maximum workable group should be about five people with the hope that they all could attend every meeting but with the possibility that at least three would attend the meetings which could be held quarterly or semi-annually.
  5. Note that if your accountant is your independent auditor, they should not be included, although having a quarterly meeting or lunch with the engagement partner is advisable.
  6. For the meetings to be effective, financial data would need to be shared, so you should not include anyone that you do not want to have access to such information.
  7. An agenda should be prepared for each meeting and circulated in advance as should the financial summaries.
  8. Some of the issues that can be discussed besides past performance are future plans, innovative initiatives, a SWOT analysis (see my blog posted Nov 7, 2013), staff and capital needs, business value drivers and creation, and succession or exit strategies.

This is not easy, but can be very effective in helping the owner develop a more macro outlook toward their business. An alternative is an annual retreat with key staff and possibly segments with key customers and suppliers and professionals the business works with. Another alternative is to have the accounting staff put together a “package” similar to what a public company’s board of directors might receive to review the annual performance and projected operations for the next year and succeeding five or so years.

All of these work – some are more effective than others, but they all are helpful in moving the owner away from being mired in the “get through the day” tasks to being a leader and driver of the business toward future stability, growth, profitability, success and enhanced value. I believe Meg Whitman and HPE is better off because of the process and so could you be.