Category: Newsletters

If you own a business, why not consider the following off-the-beaten-path ideas?

WHEN DISASTER STRIKES

As cybercrimes increase, you need to have a disaster recovery plan. You may be a single-person business that needs only to back up files to tape or the cloud, but you need to have virus and malware software to protect your customers, whose information you have. Doing without can cost you big time. Protecting yourself can save you on insurance and other costs.

LESS IS MORE

If your business tends to keep its employees plugged in 24-7, consider the benefits of unplugging. Have employees unplug from all their work technology (including the Internet and their business cell phone) a couple of hours each day. Down time can help refresh your employees, lower stress, increase productivity and potentially lead to lower healthcare costs.

ACKNOWLEDGE EXCELLENCE

The best way to keep top employees happy and shrink hiring costs is to acknowledge them through word and deed, the latter including total compensation costs.

Save more for retirement. Make sure you have enough life insurance. Put money into a college savings account. This is all good advice most people should heed, but old news.

This year, why not consider the unexpected financial benefits for individuals who make the following New Year’s resolutions:

INCREASE YOUR STEPS

More people are wearing smart watches to monitor their heart rate, exercise and steps. Studies show increasing steps and, for that matter, standing more often may help people lose weight, lower blood pressure and reduce diabetes risk. Investing in — and using — this technology can help lower your healthcare and insurance bills and may even get you a discount on your employer’s plan, depending on your company and its insurer.

SHOP FOR EXPERTISE

Learn more about your current job and increase your marketability — and financial prospects — by shopping the Internet for courses that can help you learn more about everything from business writing to public speaking. Some courses, including from namebrand universities, may be free when not for credit.

CREATE AN EMERGENCY FUND

If you don’t have at least six months’ cushion via an emergency fund, consider the costs of not having one. If you have major car or home repairs, for instance, paying for repairs with a loan or credit card will cost you interest on top of principal. And interest rates have risen over the past few months.

Melissa runs a home kitchen-based business making fruit preserves and other sweets, selling them online and via mail order. She has no employees yet, but wonders about other types of insurance coverage her business might need.

Melissa should start with health insurance and a retirement account, two benefits she can buy for herself even if she doesn’t have other employees.
She might explore a high-deductible health insurance policy and pair it with a triple tax-free Health Savings Account (HSA). She can also contribute to a Simplified Employee Pension (SEP) or 401(k) plan, which offer tax-deferred growth.

Depending on her business structure, Melissa could deduct a variety of benefits’ costs, from company-paid premiums to administrative expenses. Other risks may include product liability and cyberthreats, from which insurance can protect her financially.

Melissa can learn more about leveraging business dollars to purchase employee benefits and insurance by talking with her tax and insurance professionals.

Client Profile is based on a hypothetical situation. The solutions discussed here may or may not be appropriate for you.

If you’re risk-averse, are concerned that investments in stock or bond mutual funds may lose principal or you’re looking for some guarantees in retirement, a fixed annuity* may be one answer.

WHEN YOU WANT CERTAINTY

If your only guaranteed income in retirement is Social Security and your employee retirement plan doesn’t offer an annuitization option, a fixed annuity can provide one avenue of dependable income in retirement. While fixed annuities are backed by the financial strength of the insurance companies issuing them, the guaranty fund of your state guarantees them up to certain limits if the insurer can’t meet its obligations.

A fixed annuity grows tax-deferred, so you are not taxed on gains until you begin withdrawals, and it offers payment options called “period certain,” which is the number of years specified in your contract. You may also choose a lifetime benefit option at an extra cost, which will last as long as you do.

WHEN YOU ARE UNINSURABLE

You might also buy a fixed annuity to provide a financial legacy to loved ones or as a way to pay for your potential long term care costs, in the event health makes insurance unaffordable or unavailable. While annuities offer certain advantages, they can be costly (see the disclaimer below), so make sure to compare annuity contracts from financially strong insurance companies with the help of a financial professional.

* An annuity may impose charges, including but not limited to surrender charges, mortality and expense risk charges, administrative fees and underlying fund expenses. You will have to pay federal income tax on any earnings you withdraw from the annuity. Payments and guarantees are subject to the claims-paying ability of the issuing insurance company.

Your accounting professional is only as good as the information you provide. So, if you want to find all the deductions and credits you’re entitled to, it pays to come prepared when you two meet.

FOR BUSINESSES

If you own a business, discuss with your accountant a list of documents and other information needed for thorough tax preparation. This list may start with last year’s income tax returns (if you’re a new client). You may also need copies of estimated federal and local income tax payments, and of other business taxes like payroll, sales and excise levies.

If you were an independent contractor or hired one, bring with you copies of the 1099-MISC documents. If you received 1099 income but didn’t get a statement, you are still responsible for reporting the amount and paying tax on it.

Don’t forget to keep supporting documents for your business expenses to back up any deductions you take. Depending on your firm’s legal structure, you’ll want to total employee costs such as Social Security and other payroll taxes, insurance premiums and employee benefits. Expenses incurred as a cost of doing business will range from rent or mortgage payments to the cost of goods you sell, and they may include marketing, legal and accounting costs.

FOR INDIVIDUALS

If you use a tax professional to file your personal income tax returns, you should provide wage statements such as W-2 and 1099 forms, and tax statements for your investment, retirement and bank accounts.

On the expense side, some federal tax deductions were eliminated, but mortgage interest and real estate taxes up to certain limits can still reduce your taxable income. Unreimbursed healthcare costs (exceeding 7.5% of adjusted gross income) and charitable contributions are deductible if you itemize.

Whether you pay business or personal taxes, talk to your tax preparer to gather the information needed to complete your returns.

Be Prepared – your accounting is only as good as the information you provide.

When Fixed Annuities Make Sense – if you’re risk-averse and looking for some guarantees, a fixed annuity may be one answer.

Client Profile – insurance coverage for a kitchen-based business with no employees.

3 Personal Benefits Of New Year’s Resolutions – good advice most people should heed, but old news.

3 Business Benefits of New Year’s Resolutions – if you own a business, why not consider these off-the-beaten-path ideas?

Questions And Answers

Short Bits

Insights And Tips

The end of the year is a good time to tidy up loose tax ends and fine-tune your tax planning strategies to maximize business net income. Here are three ways to make your company’s financial picture look brighter today and tomorrow.

Contribute to a Tax-Qualified Retirement Plan.

In return, you may find business tax deductions for costs related to running the plan and employer contributions to the plan. Additionally, potential growth in your individual account is tax-deferred until withdrawal.

Use the Right Bookkeeping Program.

Let your accountant know how you keep the books and develop a plan to record expenses, income and receipts in the most thorough way possible.

Take Advantage of New Tax Rules.

Again, your accountant can advise about the changes to business tax laws in 2018, including a new option to expense certain items immediately or over time.

MILLENNIALS REMAIN WARY.

Employees in their 20s have more target-date funds (TDFs) and other balanced types of mutual funds than older employees do. For many younger investors, the last recession was their introduction to investing. The Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI) found that at the end of 2016, 64% of retirement plan participants in their 20s owned a TDF, while 45% of participants in their 60s had one. Younger investors have the most to gain by investing for growth and relying on time to smooth out market volatility.

PAY OR SAVE?

PlanSponsor’s NewsDash asked readers whether it is better to pay off debt or save for retirement first. Three quarters chose paying off debt and saving for retirement at the same time. Even if you need to pay off high-interest debt, consider at least matching your employer match to your company-sponsored retirement plan.

IN A FIX.

Americans are increasingly enamored of fixed indexed annuities as a way to provide some financial certainty in retirement. According to the LIMRA Secure Retirement Institute, this annuity type accounted for $17.6 billion in sales during the second quarter of 2018 – a record – and $32.1 billion for the first half of the year. Sales for all of 2018 are also projected to break a record.

LOOKING GOOD.

The good news continued for the business sector through the second quarter of 2018. The Department of Labor’s Bureau of Labor Statistics reported a revised 2.9% non-farm productivity rate for the second quarter of 2018, while unit labor costs decreased 1.0% in seasonally adjusted annual rates.

Question

What’s your top tip for end-of-year business tax planning?

Answer

Wow, that’s an expansive question in a year with so many federal tax changes. You can cover all your bases by making an appointment to see your tax pro and going in as prepared as possible, bringing with you the documents needed to accurately complete your tax return. Include receipts for equipment you expense, taxes paid and business auto costs, and let them know whether you used the standard or actual mileage expense formula. Don’t forget to include business travel receipts with the dates and business purposes of the travel.

Question

My wife died earlier this year and I’m not sure if I’m responsible for paying taxes on her income for 2018. What should I do?

Answer

We’re sorry for your loss. Work with your tax professional and your wife’s personal representative, if she had one, to identify and file a tax return that includes any earned or unearned income of your wife during the year. And yes, you or the estate is responsible for paying her taxes. You can file a joint tax return during the year of her death and for two years afterward if you have a dependent child. Don’t forget to notify the Social Security Administration of her death, or have the funeral director do it for you.

How do you fairly treat family members who aren’t involved with the business when other family successors inherit your company? If estate equalization is the goal, life insurance can help you get there cost-efficiently.

ASSET RICH, CASH POOR

Let’s say you own a $2 million business, which you intend to pass to your daughter. You have a son who isn’t involved in the business at all and doesn’t want to be a future part of it. You could have your heir who won’t be in the business inherit an equal amount of other assets and cash. What, however, do you do if your portfolio is asset-rich but cash-poor like many family concerns?

ESTATE EQUALIZATION

With sufficient time and careful investing, you could sock cash into an account you will use to equalize your estate. Or you could buy a life insurance policy with a $2 million death benefit going to your son as beneficiary, while your daughter becomes beneficiary of your company.

Talk to a financial professional to learn how you might structure an estate equalization approach.