Does your family business’s succession plan include estate planning strategies?
When a family business owner creates a succession plan, it’s important to address whether you should separate ownership succession from management succession. Transferring ownership of assets to the younger generation as early as possible allows you to remove future appreciation from your estate, thereby minimizing estate taxes. Another reason to separate the two is to deal with family members who aren’t involved in the business. Providing heirs outside the business with equity interests that don’t confer control is often a good strategy. There are various ways to transfer business interests without immediately giving up control, including trusts, FLPs and ESOPs. Contact us for more info.
Answers to your questions about taking withdrawals from IRAs
As you may know, you can’t keep funds in your traditional IRA indefinitely. You must start taking withdrawals from a traditional IRA (including a SIMPLE IRA or SEP IRA) when you reach age 72. You must take your first RMD by April 1 of the year following the year in which you turn 72, regardless of whether you’re still employed. The RMD for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table.” If you take money out of a traditional IRA before age 59½, you may be subject to a 10% penalty tax, in addition to income tax on the distribution. Contact us with any questions.
Choosing a business entity? Here are the pros and cons of a C corporation
If you’re launching a new venture, you’re probably wondering which form of business is most suitable. There are advantages and disadvantages of doing business as a C corporation. For example, a C corporation allows the business to be treated and taxed as a separate entity from you as the owner. A properly structured corporation can protect you from business debts yet enable you to control day-to-day operations and corporate acts such as redemptions, acquisitions and liquidations. Plus, the corporate tax rate is 21%, which is lower than the highest noncorporate rate. One potential drawback: Earnings can be subject to double tax, once at the corporate level and again when distributed to you.
Take a look at stock options as a recruitment tool
Is your business struggling to fill its open positions? Many companies use equity-based compensation to attract, retain and motivate executives and other key employees. Stock options confer the right to buy a certain number of shares at a fixed price for a specified time. They come in two flavors: 1) Incentive stock options, which offer attractive tax advantages for employees, but they must comply with strict rules and offer no deduction for employers. 2) Nonqualified stock options, which offer more flexibility, don’t expose recipients to the alternative minimum tax and do generate a deduction for employers. Contact us for help reviewing the pros and cons of either type of stock option.
Choosing a retirement plan for your small business
Most growing small businesses reach a point when it’s time to offer employees a retirement plan. Perhaps the most well-known plan type is the 401(k), which is available to any size company. Contributions to a traditional 401(k) are made pretax, reducing taxable income, but distributions are taxable. Another option: a Simplified Employee Pension (SEP) plan, which is also available to any size business. SEP plans are funded entirely by the employer, though you can decide annually whether to contribute. Small businesses (those with 100 or fewer employees) may want to consider looking into a Savings Incentive Match Plan for Employees (SIMPLE) IRA. Contact us for more info about possible plans.
Intangible assets: How must the costs incurred be capitalized?
These days, most businesses have some intangible assets such as patents, trademarks, customer lists and leases. The tax treatment of these assets is complex. IRS regulations generally require the capitalization of costs to acquire or create an intangible asset, as well as take other actions involving intangibles. Capitalized costs can’t be deducted in the year paid or incurred. If they’re deductible, they must be ratably deducted over the life of the asset (or, for some assets, over periods specified by the tax code or under regulations). However, capitalization generally isn’t required for costs not exceeding $5,000 and for certain other amounts. Contact us with any questions.
Year-end giving to charity or loved ones
The holiday season is here and many people plan to donate to their favorite charities before the end of the year. In 2022, in order to receive a charitable donation write-off, you must itemize deductions on your tax return. What if you want to give gifts of investments? Don’t give away stock in taxable accounts that is currently worth less than what you paid for it. Instead, sell the shares and claim the loss on your tax return. Then, give the proceeds from the sale to charity. Plus, if you itemize, you can claim a full tax-saving charitable deduction. Contact us if you have questions about taxes and any gifts you want to make.
Is your business closing? Here are your final tax responsibilities
If your business is closing down, we’re here to assist you in any way we can, including taking care of various tax obligations. A business must file a final income tax return and some other related forms for the year it closes. If you have employees, you must pay them final wages and compensation owed, make final federal tax deposits and report employment taxes. Failure to withhold or deposit employee income, Social Security and Medicare taxes can result in personal liability for what’s known as the Trust Fund Recovery Penalty. You must cancel your Employer Identification Number and close your IRS business account. There may be other responsibilities. Contact us with any questions.
Like every business, a start-up needs a sensible budget
Per the U.S. Census Bureau, more than 430,000 new business applications for tax identification numbers were submitted in October 2022. One thing that every new company needs, along with a business plan, is a sensible budget. For the first year of operation, entrepreneurs can create one by forecasting the monthly numbers that will likely be reflected in the three basic parts of their financial statements: the income statement, balance sheet and statement of cash flows. By forecasting these statements every month, based on industry benchmarks and market-based research, you can identify when cash shortfalls, as well as seasonal peaks and troughs, are likely to occur. Contact us for help.
How savings bonds are taxed
If you own savings bonds, you may wonder: How is the interest taxed? EE bonds don’t pay interest currently. Instead, accrued interest is reflected in their redemption value. (But owners can elect to have interest taxed annually.) Series I savings bond interest is based on inflation. Series I bond owners may either: 1) Defer reporting the increase in the redemption (interest) to the year of final maturity, redemption or other disposition (whichever is earlier) or 2) elect to report the increase each year as it accrues. Savings bond interest isn’t subject to state income tax. And using the money for higher education may keep you from paying federal tax on the interest. Questions? Contact us.