Possible tax consequences of guaranteeing a loan to your corporation
What if you guarantee a loan to your closely held corporation? Before agreeing to act as a guarantor of a debt of your corporation, be aware of the possible tax consequences. If the business defaults on the loan, and you make good on the obligation, the payment of principal or interest generally results in either a business or a nonbusiness bad debt deduction. If it’s a business bad debt, it’s deductible against ordinary income. A business bad debt can be either totally or partly worthless. If it’s a nonbusiness bad debt, it’s deductible as a short-term capital loss (subject to certain limitations). A nonbusiness bad debt is deductible only if it’s totally worthless.
ABLE accounts may help disabled or blind family members
There may be a tax-advantaged way for people to save for the needs of family members with disabilities, without having them lose eligibility for their government benefits. It’s done though an ABLE account, which is a tax-free account that can be used for disability-related expenses. Eligible individuals must have become blind or disabled before turning age 26. ABLE accounts can be created by eligible individuals to support themselves, by family members to support their dependents, or by guardians. Contributions up to the annual gift-tax exclusion amount ($15,000 in 2021), can be made to an account each year. Contact us if you have questions about setting up or maintaining an ABLE account.
IRS additional guidance addresses COBRA assistance under ARPA
Recently, in Notice 2021-46, the IRS issued additional guidance on the COBRA premium assistance provisions of the American Rescue Plan Act (ARPA). Under the ARPA, a 100% COBRA premium subsidy and additional COBRA enrollment rights are available to certain assistance eligible individuals (AEIs) during the period beginning on April 1, 2021, and ending on September 30, 2021. The guidance provides helpful details on matters such as the extended coverage period, the end of an AEI’s subsidy period and comparable state continuation coverage. The guidance also addresses how businesses and other employers can claim a tax credit related to the COBRA subsidies. Contact us for more information.
Getting a divorce? Be aware of tax implications if you own a business
If you’re a business owner and getting divorced, tax issues can complicate matters. Your business interests are one of your biggest assets and in many cases, your marital property will include all or part of it. You can generally divide most assets, including business ownership interests, between you and your soon-to-be ex-spouse without any federal income or gift tax consequences. When an asset falls under the tax-free transfer rule, the spouse who receives the asset takes over its existing tax basis and existing holding period. Later on, there will be tax implications for assets received tax-free in a divorce. Contact us. We can help plan for the best tax outcome in your divorce.
Does your employer provide life insurance? Here are the tax consequences
Employer-provided life insurance is a coveted fringe benefit. However, if group term life insurance is part of your benefit package, and the coverage is higher than $50,000, there may be undesirable income tax implications. The first $50,000 of group term life insurance coverage that your employer provides is excluded from taxable income and doesn’t add anything to your income tax bill. But the employer-paid cost of group term coverage in excess of $50,000 is taxable income to you. It’s included in the taxable wages reported on your Form W-2 — even though you never actually receive it. We can answer questions about group life insurance coverage and whether it’s adding to your tax bill.
Expanding succession planning beyond ownership
Business owners are regularly urged to create and update their succession plans. If you want to take yours to the next level, consider expanding its scope beyond ownership. Many companies have key employees whose departure would significantly and adversely affect the business. Create a list of names and identify who might succeed them. Look for your “high potential” (HiPo) employees. That is, those with the ambition, motivation and ability to move up substantially in the organization. Once you’ve identified your HiPos, develop action plans for each. Consider your business’s needs as well as each candidate’s personality and learning style. Contact us for help.
Is your business underusing its accounting software?
Many businesses underuse their accounting software. The seeds of the problem often lie in an insufficient or even nonexistent training process. Consider engaging a consultant to review your accounting software’s basic functions with staff and then teach them time-saving tricks and advanced features. Encourage employees to look for labor-intensive steps that could be automated and steps that don’t add value or are redundant. In addition, ensure managers responsible for financial oversight of your company are reviewing your financial statements and other critical documents for inefficiencies and errors. We can help you reevaluate your accounting software use and suggest ideas for improvement.
Scholarships are usually tax free but they may result in taxable income
If your child is fortunate enough to be awarded a scholarship, you may wonder about the tax implications. Scholarships and fellowships are generally (but not always) tax free for students at elementary, middle and high schools, as well as those attending college, graduate school or accredited vocational schools. It doesn’t matter if the scholarship makes a direct payment to the student or reduces tuition. However, certain conditions must be met. A scholarship is tax free if it’s used to pay for tuition and fees required to attend the school, and fees, books, supplies and equipment required of students. Room and board, travel, research and clerical help don’t qualify. Contact us to learn more.
Large cash transactions with your business must be reported to the IRS
If your business receives large amounts of cash or cash equivalents, you may be required to report the transactions to the IRS. Each person engaged in a trade or business who receives more than $10,000 in cash in one transaction, or in two or more related transactions, must file Form 8300. Transactions conducted in a 24-hour period are considered related transactions. “Cash equivalents” include cashier’s checks (bank checks), bank drafts, traveler’s checks and money orders. In addition to filing Form 8300 on paper, e-filing is an option. The form is due 15 days after a transaction. Contact us with questions.
Evolve Your Supply Chain Management to Be More Strategic
The pandemic sent numerous shock waves through the world of small and medium- sized manufacturers (SMMs), and perhaps the most lasting have been disruptions and changes in the global supply chain. SMMs are now dealing with the reality that uncertainty is now part of a recipe for running a successful business. Among those uncertainties is […]
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