Plan For the Future

Do you have a plan for the future of your business?

Is your company a statistic? If you operate a family-owned business, the answer may be yes. According to the U.S. Small Business Administration, over 50% of all small business owners are aged 50 or older. If you’re included in that group, you might be wrestling with the question of selecting and training a successor. Think you’re too young to retire? Getting an early start helps you avoid “crisis mode” decisions that may damage your company’s future prospects. Early planning also provides opportunities for helping your successor learn the business and get prepared to assume full responsibility.

Here are two initial steps to consider.

  • Choosing a successor. Do you expect a family member — perhaps one of your kids — to take over the company when you’re ready to retire? Be sure to align your company’s best interests with your child’s dreams, skills, knowledge, and passion for success. The decision can be an emotional one, so it makes sense to involve an objective third party such as a financial advisor, attorney, board member, or trusted friend. Be open to considering a long-term employee or an outsider with more extensive experience in your industry.
  • Establish a training plan. Identify the critical functions of the company and provide the opportunity for your chosen successor to gain experience in operations, sales, and accounting. Establish a timetable for training, allow for mistakes, and resist the temptation to override routine decisions. Let your successor develop a management style that fits both the company’s mission and your successor’s temperament.

Succession planning takes time and effort. For assistance, put us on your team.

Establish these retirement plans

You still have time !

The problem with time is that you always think you have enough. And yet fall is already here, and the time for establishing a retirement plan for your business is ticking down to the deadline. Here are two plans with upcoming due dates.

  • Savings Incentive Match Plan for Employees (SIMPLE). The deadline for setting up a SIMPLE for your business is October 1. SIMPLEs are easy to establish and maintain. You can use an IRS “model” document to set up your plan, and you’re not required to file an annual retirement plan return with the IRS. Your business can deduct contributions made on behalf of employees. In addition, you may be eligible for a credit of up to $500 to offset the cost of establishing a plan and getting your employees enrolled.

    The maximum contribution for SIMPLE plans in 2016 is $12,500, plus an extra $3,000 when you’re over age 50.

  • Simplified Employee Pension plan (SEP). If you’re a sole proprietor and you requested an extension of time to file your tax return, the last day to establish and fund a SEP is October 17. You set up a SEP by signing a plan document such as IRS Form 5305-SEP, Simplified Employee Pension – Individual Retirement Accounts Contribution Agreement. Contributions are deductible, and you don’t have to file an annual return with the IRS.

    For 2016, the maximum contribution is $53,000.

Not sure which plan will suit your business? Contact us for a detailed comparison.

Check your financial fitness

How can you become financially fit? Here are suggestions for improving your fiscal muscles.

Get your budget in shape. Use your spending history to create a meaningful budget, then stick to it. Resolve not to spend more than you make, and remember that what you “make” is your take-home pay, not your gross salary. Budget for savings too. Pay yourself first. Set up a minimum monthly amount that you put into savings at the same time you pay your other bills.

Slim down your debts. Where possible, consolidate or refinance existing debt with more favorable terms. Concentrate on eliminating personal debt first because interest you pay on personal loans generally has no tax benefit.

Build up your benefits. Review your employer’s benefit package. Are you participating in every program that you can? Employer plans generally have favorable tax benefits that will make your dollar go further.

Tone your investment portfolio. Do your investments fit your current financial situation, age, and risk tolerance?

Strengthen your insurance coverage. Do you have adequate coverage for property, disability, life, and health? Avoid overlapping or excessive coverage.

Coordinate your estate plan. Does your will allow your assets to pass according to your wishes? Have you provided for guardianship of your minor children if something happens to you? Do you have a power of attorney that will give a person of your choice the ability to act for you in the event you are unable to act on your own behalf? Have you completed a health care proxy or living will?

Maintain your recordkeeping. Set up a recordkeeping system that tracks the income and deductions reported on your tax return so you can capture all deductions you are entitled to take.

Maintaining financial wellness, like physical wellness, is a continuous process. The sooner you start, the more likely you are to succeed. Schedule a meeting with us for assistance in reviewing your tax, financial, and estate plans.

Is S corporation status right for your business?

When you incorporate your business, one decision is whether or not to make an election to become an S corporation. By choosing to make the election, you switch from a regular corporation, known as a C corporation, which is taxed as a separate entity, to an S corporation, where profits and losses are taxed on the individual tax returns of shareholders. Put another way, an S corporation retains the limited liability feature of a corporation, but transfers the tax treatment on income and losses to the individual level.

When does the election make sense? In cases when your individual tax rate is lower than the corporate rate, passing income to your personal federal income tax return means less overall tax. Another example: The difference in the way losses are handled. In a C corporation, losses can offset future profits. Unfortunately, in a start-up business, generating a profit may take years. Shareholders in an S corporation can use losses to offset other income, as long as they have basis in the business.

So what is the downside? From a tax standpoint, C corporations may be able to provide more tax-free fringe benefits to shareholder-employees than S corporations can. In addition, S corporations must meet certain rules to avoid terminating the election. For example, the S corporation can have only a limited number of shareholders, all shareholders must be U.S. residents, and shareholders must generally be individuals.

Do you have questions about whether S corporation status is right for your business? Contact us. We can help guide you through the tax benefits and drawbacks.

What’s in a number? Understand your EIN

The Internal Revenue Service has your number – your employer identification number, or EIN, that is. Your EIN is a nine-digit number that you use to identify your business when filing tax returns or making tax payments.

Who needs an EIN? You could need an EIN even if you don’t have employees, and entities you might not think of as businesses, such as employee benefit plans, estates, or trusts, may need one. For instance, say you’re appointed as trustee of an irrevocable trust that receives or distributes income. If the trust is required to file a tax return, you’ll need an EIN.

When does your EIN change? Generally, your EIN lasts for the life of your business, and you can keep the same number when you change the name of your business. But a change from one form of business to another – incorporating your partnership or sole proprietorship, for example – means you’ll have to request a new identification number.

Can you have more than one EIN? When you own more than one corporation, each needs an EIN, even if you’re the sole owner. Partnerships also need separate EINs. However, when you conduct your sole proprietorship as a limited liability company and you have no employees, you can use your social security number instead.

You have our number, so give us a call. We’ll be happy to determine whether you need an EIN, and to help you complete the forms to request one if you do.

  • September 20, 2016
  • Taxes

Freelance? Temporary projects? Contract-based work? Congratulations on becoming self-employed!

Your side gig may mean you’re self-employed

Are you a first-time freelancer? Have you taken on temporary project- or contract-based work? Congratulations on becoming self-employed! If you didn’t know this type of work is considered self-employment, you have lots of company. The Small Business Committee of the U.S. House of Representatives recently held hearings that indicated many new entrepreneurs are unaware of some or all tax filing responsibilities. Here are issues to know about.

  • Recordkeeping. Tracking your income and the hours you spend working in your business makes filing your tax return easier. You can also use good records to help prove that your business is not a hobby. That’s important because expenses from hobbies are limited, unlike the costs of running a business. Other uses for your records include support for valuable credits and deductions, and the ability to reconcile the income you make against what is reported to the IRS. You should also note that all the income you earn is taxable, whether or not you receive a form such as a 1099.
  • Estimated tax rules. When you’re self-employed, you’re responsible for paying federal and state withholding as well as self-employment tax. In general, you have to prepay these taxes on a quarterly basis when you expect to owe $1,000 or more with your return. There are exceptions, but the best way to know if you qualify is to calculate your expected income. Failing to make estimated tax payments can lead to penalties.

From whatever source you earn income, keeping up with filing requirements can save you money. Contact us for help.

September Tax Deadlines

Call our office for more information or for assistance with any required tax filings.

September 15, 2016

  • 3rd quarter estimated tax payments due for the 2016 tax year.
  • Final deadline to file corporate tax returns for the year 2015 if an extension was requested. (Forms 1120, 1120A, 1120S).
  • Final deadline to file trust income tax returns (Form 1041) for the year 2015 if an extension was requested.
  • Final deadline to file partnership tax returns (Form 1065) for the year 2015 if an extension was requested.

What’s New – Get Transcript

You can use this free IRS service to get your tax information

Do you need a transcript of your federal income tax return, tax account, wages and income, or record of account? These transcripts, as well as a verification of non-filing, are once again available for no charge online at the IRS website. The online service, known as “Get Transcript,” was shut down for more than a year due to fraudsters using it to gain access to taxpayer information.

The IRS has reopened Get Transcript with increased security and authentication procedures, including verification with a credit reporting agency of your mobile phone number as well as a financial account number that you provide from a credit card, auto loan, mortgage, home equity loan or home equity line of credit.

Once you’re signed up, you can view, print, or download your transcript, or request that a transcript be mailed to you.

Transcripts only provide line-by-line information. If you need a copy of your original return, use Form 4506, Request for Copy of Tax Return, instead. Contact us if you have questions.

Tips for setting up your estate plan

Remember other taxes when setting up your estate plan

As you begin your estate planning, strategies for reducing estate tax may be first on your to-do list. Or perhaps you think the current $5.45 million exclusion, combined with portability of the exclusion for married couples, means you have nothing to worry about. But overlooking other types of taxes that may apply to your estate can be costly. Here are two.

  • Generation-skipping transfer tax. The generation-skipping transfer tax is imposed when you transfer assets to your grandchildren, or others who are two generations or more below you. The tax has a maximum rate of 40%, and applies to transfers made directly or in trust. Similar to estate and gift taxes, you can apply a lifetime exclusion of $5.45 million to your generation-skipping transfers. Both the tax and the exclusion are separate from estate and gift taxes.Tip: You may need to report generation-skipping gifts on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
  • Gift tax. For 2016, you can transfer up to $14,000, estate- and gift-tax free, to anyone you choose. You and your spouse can combine gifts and make a tax-free transfer of up to $28,000. For amounts greater than the annual exclusion, gift taxes are “unified” with estate taxes under current rules, meaning the two share a current lifetime exclusion of $5.45 million. The result? Whatever portion of the $5.45 million exclusion you use to offset gift taxes is unavailable to offset estate tax.

We’re here to help with your estate planning needs. Contact our office.

Social Media Marketing Has Benefits and Risks

Only a few years ago, Facebook, Twitter, Instagram, LinkedIn, and YouTube were mere dreams of forward-looking visionaries. Now, computer users worldwide spend hours every day communicating via these social media platforms. And the conversation is not all about weekend fun and dinner menus.

One study found that two-thirds of adult internet users were influenced by blogs and other social media outlets when making purchasing decisions. Whether your company’s target demographic includes retirees planning their next vacation or kids hanging out at the local coffee shop, the lure of online community and its potential as a marketing venue should not be overlooked. Here are pros and cons to consider.

On the plus side, social media marketing is relatively inexpensive. Compared to more traditional forms of advertising, such as billboards, television, radio, and magazines, placing your products in the public eye via social media can be done rather cheaply. You set up an account, upload a video, and voila! Your campaign is on its way. Social media sites let you reach a huge audience, both domestic and international. According to one survey, 89% of internet users between the ages of 18 and 29 participate in social media activities. That’s a big market. Professionals use social media sites, too, to network with colleagues.

On the other hand, maintaining a social media presence can be time consuming. Keeping content fresh, updating product information, and responding to customer feedback require significant resources, and the benefits are hard to measure. As a result, months may pass before marketing efforts produce a demonstrable return on investment. In addition, when you post a video or share a new product line, negative comments may follow. Some customers aren’t reluctant to criticize products and services that annoy them, whether or not the criticisms are justified. Erroneous and deceptive information can be shared at the click of a button, and negative feedback, if left unchecked, has the potential to damage your brand and reputation for years.

Connecting with others is the time-tested way to create a successful business, and social media is one more channel available to you. Just be aware of the benefits and risks before you begin leveraging the potential of this latest form of marketing.

Consider working with a professional Digital Marketing firm.