18 Financial Planning Tips for Business Owners
1. Consider establishing an employee stock ownership plan (ESOP).
If y');
document.write('ou own a business and need to diversify your investment portfolio, consider establishing an ESOP. A properly funded ESOP');
document.write(' provides you with a mechanism for selling your shares with no current tax liability. Consult a specialist in this area ');
document.write('to learn about additional benefits.
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2. Make a succession plan.
Have you provided for a succession plan for');
document.write(' both management and ownership of your business in the event of your death or incapacity? Many business owners wait too ');
document.write('long to recognize all the benefits from making a succession plan. These benefits include ensuring an orderly transition ');
document.write('and ensuring the lowest possible tax cost. Waiting too long can be expensive from a financial perspective (covering gift');
document.write(' and income taxes, life insurance premiums, appraiser fees, and legal and accounting fees) and a non-financial perspecti');
document.write('ve (intrafamily and intracompany squabbles).
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3. Consider the limited liability company (LLC) and limited liabilit');
document.write('y partnership (LLP) forms of ownership.
These entity forms should be considered for both tax and non-tax reasons.');
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4. Avoid nondeductible compensation.
Compensation can only be deducted if it is reasonable. Recent court ');
document.write('decisions have allowed business owners to deduct compensation when (1) the corporation’s success was due to the sharehol');
document.write('der–employee, (2) the bonus policy was consistent, and (3) the corporation did not provide unusual corporate prerequisit');
document.write('es and fringe benefits.
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5. Purchase Corporate Owned Life Insurance (COLI).
COLI can be a tax-effective too');
document.write('l for funding deferred executive compensation, funding company redemption of stock as part of a succession plan, and pro');
document.write('viding many employees with life insurance in a highly leveraged program. Consult your insurance and tax advisers when co');
document.write('nsidering this technique.
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6. Consider establishing a SIMPLE retirement plan.
If you have no more than 100 ');
document.write('employees and no other qualified plan, you may set up a Savings Incentive Match Plan for Employees (SIMPLE) into which a');
document.write('n employee may contribute up to $10,000 per year if you\'re under 50 years old and $12,500 a year if you\'re over 50. You, a');
document.write('s employer, are required to make matching contributions. Talk with a benefits specialist to fully understand the rules a');
document.write('nd advantages and disadvantages of these accounts.
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7. Establish a Keogh retirement plan before December 31st.
');
document.write('If you are self-employed and want to deduct contributions to a new Keogh retirement plan for this tax year, you must');
document.write(' establish the plan by December 31st. You don’t actually have to put the money into your Keogh(s) until the due date of ');
document.write('your tax return. Consult with a specialist in this area to ensure that you establish the Keogh or Keoghs that maximize y');
document.write('our flexibility and your annual contributions.
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8. Take advantage of section 179 expensing.
If you meet cer');
document.write('tain requirements, you may be able to expense up to $105,000 in purchases of qualifying property placed in service durin');
document.write('g the filing year, instead of depreciating the expenditures over a longer time period.
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9. Don’t forget deduction');
document.write('s for health insurance premiums.
If you are self-employed (or are a partner or a 2-percent S corporation sharehol');
document.write('der–employee), you may deduct 100% of your medical insurance premiums for yourself and your family as an adjustment to g');
document.write('ross income. The adjustment does not reduce net earnings subject to self-employment taxes, and it cannot exceed th');
document.write('e earned income from the business under which the plan was established. You may not deduct premiums paid during a calend');
document.write('ar month in which you or your spouse is eligible for employer-paid health benefits.
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10. Review whether compensat');
document.write('ion may be subject to self-employment taxes.
If you are a sole proprietor, an active partner in a partnership, or');
document.write(' a manager in a limited liability company, the net earned income you receive from the entity may be subject to self-empl');
document.write('oyment taxes.
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11. Don’t overlook minimum distributions at age 70½ and rack up a 50 percent penalty.
Minim');
document.write('um distributions from qualified retirement plans and IRAs must begin by April 1 of the year after the year in which you ');
document.write('reach age 70½. The amount of the minimum distribution is calculated based on your life expectancy or the joint and last ');
document.write('survivor life expectancy of you and your designated beneficiary. If the amount distributed is less than the minimum requ');
document.write('ired amount, an excise tax equal to 50 percent of the amount of the shortfall is imposed.
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12. Don’t double up yo');
document.write('ur first minimum distributions and pay unnecessary income and excise taxes.
Minimum distributions are generally r');
document.write('equired at age seventy and one-half, but you are allowed to delay the first distribution until April 1 of the year follo');
document.write('wing the year you reach age seventy and one-half. In subsequent years, the required distribution must be made by the end');
document.write(' of the calendar year. This creates the potential to double up in distributions in the year after you reach age 70½. Thi');
document.write('s double-up may push you into higher tax rates than normal. In many cases, this pitfall can be avoided by simply taking ');
document.write('the first distribution in the year in which you reach age 70½.
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13. Don’t forget filing requirements for househol');
document.write('d employees.
Employers of household employees must withhold and pay social security taxes annually if they paid a');
document.write(' domestic employee more than $1,400 a year. Federal employment taxes for household employees are reported on your indivi');
document.write('dual income tax return (Form 1040, Schedule H). To avoid underpayment of estimated tax penalties, employers will be requ');
document.write('ired to pay these taxes for domestic employees by increasing their own wage withholding or quarterly estimated tax payme');
document.write('nts. Although the federal filing is now required annually, many states still have quarterly filing requirements.
Although nondeductible IRAs are not as advantageous as');
document.write(' deductible IRAs, you still receive the benefits of tax-deferred income. Note, the income thresholds to qualify for maki');
document.write('ng deductible IRA contributions, even if you or your spouse is an active participant in a employer plan, are increasing.');
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15. Calculate your tax liability as if filing jointly and separately.
In certain situations, filing sepa');
document.write('rately may save money for a married couple. If you or your spouse is in a lower tax bracket or if one of you has large i');
document.write('temized deductions, filing separately may lower your total taxes. Filing separately may also lower the phaseout of itemi');
document.write('zed deductions and personal exemptions, which are based on adjusted gross income. When choosing your filing status, you ');
document.write('should also factor in the state tax implications.
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16. Avoid the hobby loss rules.
If you choose self-empl');
document.write('oyment over a second job to earn additional income, avoid the hobby loss rules if you incur a loss. The IRS looks at a n');
document.write('umber of tests, not just the elements of personal pleasure or recreation involved in the activity.
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17. Review po');
document.write('st-death planning opportunities.
A number of tax planning strategies can be implemented soon after death. Some of');
document.write(' these, such as disclaimers, must be implemented within a certain period of time after death. A number of special electi');
document.write('ons are also available on a decedent’s final individual income tax return.
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18. Check to see if you qualify for t');
document.write('he Child Tax Credit.
A $1,000 tax credit is available for each dependent child (including stepchildren and eligib');
document.write('le foster children) under the age of 17 at the end of the taxable year. The child credit generally is available only to ');
document.write('the extent of a taxpayer’s regular income tax liability. However, for a taxpayer with three or more children, this limit');
document.write('ation is increased by the excess of Social Security taxes paid over the sum of other nonrefundable credits and any earne');
document.write('d income tax credit allowed to the taxpayer.
For more information concerning these financial planning ideas, ple'); document.write('ase call or email us.
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