Dashboard: Gene Marks on Florida’s New Immigration Law

[Music] welcome to another 21 hats dashboard brought to you by our sponsor the great game of business I'm Lauren Feldman and I'm here with Gene marks to talk about the things we think business owners should be following this week welcome Jean hello Lauren how are you I'm doing great great to have you here thanks for making time Jean you're always writing and talking about the stuff that matters to business owners I want to start today with a piece you wrote uh about a new immigration law that's due to take effect in Florida on July 1 uh it will require businesses with more than 25 employees to use the federal ever verify system to make sure job applicants are eligible to work in this country it also expands reporting requirements and penalties for those businesses that fail to to comply you have a problem with this law G and you don't think it goes far enough correct yeah it's true I mean you know what I um what I see among my clients and obviously I'm not located in Florida I'm in Philadelphia but um you know I have lots of clients there in the construction and the you know landscaping and Commercial Services businesses and you know they constantly come across uh competitors of theirs that um use you know illegal immigrants or undocumented immigrants in their businesses and when they do that um they pay these people less you know sometimes a lot less and that way they can go and bid on jobs and win jobs that some of my clients can't win you know because they clearly have you know a leg up on their on their costs and when I look at those companies I mean they're like the smallest of companies I mean when you when you become a company of which companies are the smallest of companies the companies that are doing this that are that are hiring these undocumented immigrants you know it's like the smallest of small businesses you know I'm not saying that like larger companies don't do that but for the most part is as businesses get bigger 25 50 100 200 employees you know you start building in some internal controls there's more uh exposure to being whistle blown there's more uh I don't know there's you become a little bit more um formalistic in your approach and like I said I'm not saying that some of these companies don't hire undocumented immigrants I'm sure you know I'm sure companies do but I to me I think the biggest violators I see is is is smaller businesses really small businesses and that's why when we cap it at just 25 employees or above I I don't think it goes far enough I think that that you know every business should have to verify their workers with e verify and make sure that they are legal and lawful for workers and documented you know I'm surprised that uh that you're seeing evidence that the undocumented workers are being paid less by these businesses we've been through this you know acute labor shortage it's still ongoing uh I think the unemployment rate in Florida is you know 2.6% or something um why are those businesses able to pay them less because the undocumented immigrants have no legal standing so what are they going to do complain they're going to go to the police they're going to go to another employer maybe but I mean again you know those other employers depending on the size not everybody hires undocumented immigrants I mean you know most of my clients you know most of the business I know don't do that um it's not like it's a common practice um this law is out for those companies that well it's more common in some Industries and and you know I mean keep in mind we're not just talking about recent immigrants I mean there there's the DACA cohort and you know they're people who've been here for for decades who you know don't have documentation right but you see it's more common in some Industries but that doesn't mean that it's common so you know some Industries themselves you know like construction Commercial Services I you see more evidence of that in some cases retail and restaurants but it's it's not really a common you know it's common a thing you wrote in your column that uh it could be represent 6% of the workforce in in Florida you know that's that's significant especially at a time of such low unemployment and you know in in in in reality a real labor shortage it could be as much as 6% that's exactly right but then again 94% of the workforce is not undocumented imrat so you know it's it's it's not a small number but I don't know if I would say it's common I mean something common would be more like you know half of the businesses are doing this you know what I mean well the other way to look at it is what the impact would be and as you acknowledge in your piece it it could have a dramatic uh economic impact if uh I mean even if it's enforced just the way the law is written and goes into effect July 1 let alone if it goes further the way you're suggested yeah I mean it would have an economic impact I mean first of all it would hold employers to the letter of the law and hire documented you know documented people that are here legally um and I think that that would you know provide a better playing field for all employers as well but I think that ignoring the point of the column though is that by ignoring those those small businesses that have less than 25 employees I think you know those are the ones at least I see with my own eyes those are the ones that are like perpetrating this the most because you know they're the ones that sort of go under the radar screen and try to flout the law um and are are less you know authorities don't go after these companies as much because they they seem to be smaller pickings but I I I think that this law should apply to everybody well we can all agree that the immigration system we currently have is broken and desperately uh in need of Reform I guess I I'm concerned and and I would think you would be too that you know the the solution that you're proposing and even just the one that's slated to go into effect uh could cause a drop of uh I think you you quoted a figure in your column of 12.6 billion do in GDP for Florida that's a that's a huge impact yeah some people are estimating that's the way it is but I think a lot of you know I think a lot of of of what needs to happen is by passing laws like this it forces the issue with immigration and I think that's what's going on in Florida as well like you said I think we all agree there was a need for immigration reform um and if we do have laws like this and if they do have a big economic impact and if small businesses who make up the majority of businesses in Florida are are angered because they not only have to comply more but now they've got a smaller pool of uh you know of people to hire well hopefully they'll make their voices known to their politicians and the laws will change I I think you kind of you favor those changes I think you've said here previously that you think that you know the real solution to this issue is we need more immigrants because we need more potential employees 100% we need more legal immigrants we need we need we need immigrants that that have been you know blessed by the government to work and right now while there's such an impass that's not happening and something's got to force the issue I guess I just I'm concerned that if we force the issue this way that a a lot of people uh and a lot of small businesses could really be hurt in in the process before we get to the solution that we'd like to see could be painful it could be painful but again you know what isn't painful and what what solution isn't is is not going to be looked upon happily by all groups that are involved I mean this is an issue that's not one that whatever compromise if there's ever a compromise um people are not going to walk away happy um but I think that the only way like you said Necessities a mother of invention and it you know things like this that could be painful I think is what incentivizes um you know people to vote for legislatures that will fix problems like this and if there is enough economic pain and there is enough small businesses that are unable to get workers um you know I think that that will that will resonate well I certainly agree we need something to uh to get us to take this issue seriously and come up with a with a real reform yeah next topic uh you recently wrote uh another piece in which you warned that business owners are about to be hit by two huge tax increases can you tell us what you're referring to yeah sure um the first one has actually already hit us it's just going to continue into 2023 which is um research and development expenses right now if you're a business and you take a tax deduction for your research and development work um which is any work that you're doing to develop new products even services and these are expenses like materials contractors employees related overhead to that outside services that are being done um before you were able to fully deduct them now um starting last year you can't fully deduct them you have right away you have to advertise them so before just to make sure I'm clear you could deduct all of them in the year they were incurred now you have to advertise them over five years so if somebody had a $1,000 in research and development expenses you know two years ago they could take the full thousand deduction that year that they incurred them now they can only take 20% of that that first year which means that they're missing out on an $800 deduction that year um and we've seen a lot of clients that were paying an estimated taxes based on prior deductions they got including research and development and all of a sudden some of these deductions were not allowed anymore they realized they didn't pay enough taxes so that's one big hit and and that let me ask you before we go to the next one let me ask you about this one what did you have a sense of what percentage of businesses qualify uh for this uh research and development tax credit so it really affects businesses in all areas um it's primarily people that are in any type of fields like uh you know like Pharmaceuticals Medical but it's also believe it or not some manufactur plenty of manufacturing businesses as well so some estimates to put anywhere from 25 to 40% of us businesses take some form of research and development expenses as a tax deduction when I look at my client base um that number jives in it's almost half of my clients have some form of research and development expenses we encourage them to do that because think about it Lauren I mean you know you're not sitting still you're trying to develop new products services and there's time and resources and money that go into that and if you're going to be doing that and if you've got a good smart accountant you'll be encouraged to you know take the time and money that you're doing and uh you know deduct that as a research and development expense which is perfectly allowed do you think there's a significant number of businesses out there who qualify for this and don't realize it and aren't taking it I do and in fact when I talk to so many groups around the country um I'm always talking about how you need to talk more to your accountants about taking advantage of our R&D expenses and by the way there's a tax credit as well for R&D expens that's another issue um but it is a um it it people Overlook it because they think that it only relates to engineering firms or pharmaceutical firms that is just not the case and in fact the tax you format to 2017 expanded the definition of the R&D uh tax deduction to include even more businesses and so to your question I don't think enough businesses know about that deduction but unfortunately the deduction itself is you know it's not available right now at least the full deduction in the first year well let me ask you about I mean I think this is such a great example of why you are so valuable to small businesses I mean there just aren't enough people out there who are writing the way you write who are familiar enough with the way these accounting issues uh and tax issues work pointing out making sure that businesses take advantage of everything they can take advantage of that said I'm not sure I would call this a tax increase the way you do I mean I understand you're right it means people may be paying more taxes this year but in the end it it's kind of a wash isn't it it's just a question over how long a period you get to deduct the uh the expense correct yeah it's five years to take the full deduction except before we could take the full deduction in the first year so it's increasing your taxes this year okay rning out a wash well o over five years it's a wash um it's not what we traditionally think of a tax increase you know you're paying a higher percentage um but but yes to your point you're paying more in taxes this year I get it yeah yeah hence a tax increase what's what's the second huge tax increase the second it has to do with depreciation um up until this year um most businesses could take something called bonus depreciation for the W for a vast majority of capital expenditures that they made which means if you bought furniture and fixtures uh you know machinery and equipment um up to a certain amount which is you know well over a million dollars you could just deduct it you know boom this year take a full year so similar to research and development uh tax deduction that immediate deduction has gone away you have to defer more over the life of the asset by the way this the assets might be you know have a life more than five years seven years nine years 15 years so what that means is is that instead of taking 100% of that deduction this year right away in the first year you're now only allowed to take 80% of that as a first year deduction and remaining 20% has to be deferred over the next however many years of the useful life of the asset next year that number goes down to 60% so whereas in 2020 or 2021 if you had bought a piece of equipment you could rate it off immediately in that year and take a big tax you know tax benefit for doing that now in 2024 you'll only be able to write off 60% of that cost in the first are you sure it's 60 I I thought you said 50 in your piece no 60 60 goes It goes it's from 80 and then the next the next level down is 60 and then it goes down to 40 and then 20 and then it disappears all together after 2025 um and remember the the that's the first year deduction the rest gets advertised over the remaining useful life of the asset so it's the same issue as with the research and development it's a wash over the entire period but an increase in the first year correct and the bigger issue is that it goes you know for an asset it it can go more than 5 years so you might have to wait again seven or 10 or 15 years before you get the full deduction for that asset how is that determined who who decides how long uh the the life of the asset actuals do so depending on the piece of equipment that you buy or whether it's furniture or whether it's you know Machinery uh there's definitions in the code that defines what kind of equipment that it is um and then you know you determine what your useful life is most people it the tax code gives you people the gives people the um the ability to make that decision based on a a framework of of what's called a Capital Equipment but what's most important is that you then keep it you know uh consistent going forward so when you buy other pieces of equipment like it you depreciate it in the same way that you have always depreciated the same type of equipment got it you referred to uh another looming uh increase in your column I believe and that's the 20% break on pass through income can you explain that one and when's that going to hit yeah you and I are going to be having a lot lot of conversations about this over the next year or two I bet you because um the qualified business income tax deduction which is the it's the pass through deduction um it it came about in the 2017 tax legislation act and it allows anybody most people not anybody but most businesses that run a pass through organization an S corporation a partnership uh you know they can before their income from that business passes through to their personal income statement you can take a 20% deduction on that income which means 80% of the income passes through to your income statement and that's huge you know if you made a thousand bucks in your business you only get taxed on $800 of it under that under that rule and and this this was completely new in 2017 right this this didn't exist at all prior to that correct and as you can imagine it's been super popular among small businesses um and what's going to happen is that that rule as well as a lot of other parts of the 2017 you know tax legislation expires you know either at the beginning or the end of 2025 depending on on on on the piece of legislation uh this in itself the the pass through deduction expires at the end of 2025 it goes away so there's going to be a lot of discussion about making a lot of these things permanent um and a lot of these things you know or or extending them um and I it's going to be you know obviously a political football and and that's going to happen as we get into the election year at some point um your the major candidates are going to start talking obviously budget and taxes and tax reform and all of that and I'm sure the Republicans are going to be pushing hard to make a lot of the things from 2017 permanent and the Democrats will push you know the opposite way and that's going to be uh back and forth that you and I will talk about the pros and the cons wow look forward to that last topic uh you wrote another piece about how businesses pay salespeople it's a topic I really am always fascinated by there's some people who believe in uh rewarding salespeople by commission some people uh favor the idea of paying even salespeople by salary because it builds more of a team environment what are your thoughts on this issue it's actually not necessarily my thoughts it's what I've learned you know like I interviewed a few sales Executives in the Philly area this for the inquire for the Philly inquire and um because we I get this question all the time from my clients and I'm sure you right I mean when you talk to people in your community people talk about what do we always comes up yeah and what I've learned number one is um there people generally don't do Straight commission deals anymore with employees I mean if you hire an independent rep or somebody that's got their own company and you just pay them on commission okay but if you bring on somebody as an employee most companies nowadays it's you know there is some salary involved so that's number one the other thing that I learned which was real which which really made sense to me is that your commission depends on the type of sale so there are some for example if you're running a company and the sales process is long because you're selling like I don't know property or you know big pieces of equipment or Machinery or you know what I mean or airplanes you know um where the sales cycle could be six months or a year or a year and a half those companies pay salaries and then a smaller commission or a bonus you know if and when the sale is closed so so they lean more towards they skew more towards salaries for those types of salespeople when there's a long cycle for the companies that have shorter sales Cycles like retail but maybe it's somebody that's selling I don't know Roofing Services you know door Todo or or you know ones where they can close a few deals a week you know what I mean um those tend to skew more towards commission based compensation so it's a lower salary but then you know a higher commission percentage because the person you know can turn over and close more deals and I you know I I never like I never really gave that much thought until I started talking to some of the sales Executives I'm like that kind of makes sense don't you think it it does I I've I again I'm just fascinated by this discussion and there are a lot of I meet a lot of True Believers out there who say you know that that paying salese by commission is just a bad idea because it it incentivizes them to sell yes but it doesn't incentivize them to be part of the team and sometimes you have people working AC cross purposes because because salespeople are making commitments that the the company has trouble uh keeping up with on the other hand you know you run this idea by smart people who do pay commission and they say you're never going to hire a good salesperson if you don't pay commission that's what they live for yeah uh so I just think to me it's just a really fascinating debate because smart people can end up on either side of it yeah and I'm on the belief that you want a greedy salesperson you know you want somebody that really wants to make money and and I think commission is what it's all about and your salesperson should be the highest paid person in your company maybe even making more money than you and you shouldn't have a problem with that um but it just depends on how much commission you're going to pay so to me it's not a matter of whether or not there's commission but you know how much you know what I mean how it's going to be handled sure that makes sense Gan are you working on anything we should be watching for this week yeah I actually just wrote a piece this morning uh for the inquire um that that that's going to address um um you know you people that are um jeez I can why am I forgetting uh what I just wrote about this morning for the inquire I second wait a second I just wrote about keep hanging around me too much G I am getting really old this is really terrible I spent um oh yeah that's oh yeah of course it was a security one and um once again I do this every like year or two I talked to some it experts and updated you got some updates on how businesses should be protecting themselves um from getting hacked and data breached and all that so um that was a that was a legy piece I just wrote and most people will read it and say yeah you know I really should do something about it and then forget about it I know I know I know and then I'm gonna write a piece for entrepreneur this week I interviewed uh Queen Latifa just uh two weeks ago it came out last week for uh on my paycheck was not expecting that Jean yeah she was awesome she was awesome and what did you talk to her about well she came on because um you she's promoting Lenovo you know she's like a spokesperson for Lenovo they have like a small business campaign and that's fine we talked about that for like a couple minutes but honestly she's written books she had a book out you know within the past 10 years about empowering women and women leaders so like I threw out some numbers to her about how like there's all these female business owners and entrepreneurs and yet the Lion Share of funding still goes to men and dude she went off and she she had some opinions on that and then she had some advice you know for female leaders and entrepreneurs and she was great it's like a 30 minute conversation so excellent so I'm gonna write about that I'm gonna write about that r preneur as well I'll look forward to that as well Gan marks is a CPA who writes weekly on small business for the guardian the hill the Philadelphia inquire the Washington Times the Chicago Daily Herald Forbes and entrepreneur you can also hear him on ABC radio's ey on the world with John Bachelor Jee hosts two small business podcast with paychecks Corporation and the Hartford this episode was brought to you by the great game of business which helps businesses use an open book management system to help build healthier companies you can learn more at Great game.com thank you g thank you Lauren we'll see you soon always a pleasure have a great week everyone