OWN A BUSINESS? SEE THIS GREAT END OF YEAR TAX STRATEGY

YEAR END DEDUCTION OR TAX ON RETAINED EARNINGS?
GUEST COLUMN By Ira L. Barnett, LUTCF

OK. We’re coming to the end of the year and my C-corporation made more money than projected (surprise, surprise in this economy) and has a decision to make: take a tax hit to Retained Earnings or find a deduction to offset some of the profits.

The Federal government, anticipating the Baby Boomer’s need for extended healthcare services, as they age, and wanting to deflect high utilization of Medicaid, created HIPAA (OK, this isn’t the only reason).

HIPAA (The Health Insurance Portability and Accountability Act of 1996) affects how Long Term Care insurance (LTCi) premiums and benefits are taxed, but, in this context, the primary concern is deductibility of the premiums.

Hey, wait a minute, we’re Baby Boomers. Spouse and I are getting older and we can expect, as that happens, that one (or both) of us will develop a condition that doesn’t allow us to do the things we used to do as easily as we used to do them. In fact, we may need, on occasion, someone to give us a hand.

Since we’re a C-corporation, we have kind of a ‘Trifecta’:

1. I can deduct, as a business deduction, 100% of the cost of LTC insurance for myself
AND for Spouse.

2. The premiums paid are not includible as income on my/our personal tax return.

3. Benefits paid aren’t taxable, at time of claim.

Oh, by the way, I do NOT have to cover any other employee. I can pick and choose, and if I only want to cover myself and Spouse - it’s OK.

But, if we do cover another employee, we can give them a very reduced benefit plan (compared to ours), and maybe, get some accommodations on the premiums charged and/or the underwriting rules applied to all of us. Wow, this is getting better and better.

In fact, I need to call my brother-in-law. His firm is an LLC taxed as a corporation and he’s eligible also. Oh yeah, Cousin Lou has that not-for-profit, and he’s can do this too.

Guess the next step is to sit down (and quickly) with my accountant and attorney, and that LTC insurance specialist that was calling, and have a conversation (wonder why my financial planner didn’t bring this up?).


Ira L. Barnett, LUTCF has been in the financial services industry since 1980. He is consulting with CFP®’s, CPA’s, attorneys and stock brokers to help them integrate Long Term Care insurance into
their practices, not as an insurance product, but, as a risk management strategy,.

Ira’s practice is centered in Orange County, California and he can be contacted via e-mail at iraleeb@aol.com or by telephone at either (847) 361-0030 or (714) 983-7901.


CIRCULAR 230 NOTICE: To comply with U.S. Treasury Department and IRS regulations, we are required to advise you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this e-mail, including attachments to this e-mail, is not intended or written to be used, and cannot be used, by any person for the purpose of (1) avoiding penalties under the U.S. Internal Revenue Code

ESSENTIAL LEGAL AND FINANCIAL PLANNING CHECKLIST FOR BUSINESSES AND MEDICAL PRACTICES

The following is a basic “must have” checklist (in no order) that most of our business owner and physician clients find to be indispensable. Many sources of loss or exposure can be easily planned for and addressed in a proactive manner.

The days of opening your doors and simply running a cash register are long gone; things are now much more complex. KEEPING your wealth requires an experienced and sophisticated team and in some cases almost as much effort as MAKING it in the first place.

Who's on your team? Do they have the skills and professional partners required to do the job or have you and your business outgrown them?

We see recurring patterns and common needs across many successful businesses. We help clients all over the U.S. coordinate all or any of these issues with the team of professionals we have assembled to help maintain their hard earned success. Please review this list to see which areas you need to update or explore. As always, call us with questions.

1. Asset Protection Planning – Think of it as Net Worth Insurance. Distancing you from your assets and protecting them from your personal and professional liability. This requires simple, cost effective and pro-active planning today while you still have well defined legal options. There is little or nothing to be done, except paying defense attorneys, if you get caught in a suit before you do something.

2. Coordinated Financial Planning – Making sure the money you make is working as hard for you as you worked for it and that the planning you have in place includes both growth and loss prevention strategies.

3. Disability Insurance – Protecting your cash flow against injury and illness, the times you need it the most. Large amounts of coverage with lots of sophisticated bells and whistles are available. Also, make sure that your cross-purchase or buy-sell agreements are properly funded. If your partner has a stroke or some other debilitating illness, how long will you (or he) be willing and able to make large monthly payments to a non-productive partner?

4. Liability Insurance – Let’s make sure it’s enough, and then let’s have a back-up plan (See item #1 above). This refers to both professional and personal liability coverage. These days we see multi-million dollar exposures from routine events like auto accidents routinely.

5. Life insurance – Making sure you have appropriate amounts to cover estate taxes, generate income for survivors and pay off debts you want settled. We also make sure that you are not paying too much and have the most flexible policy with the greatest number of benefits. Again, cross-purchase and buy-sell agreements must be carefully funded. We routinely see these agreements between our business owner clients that are either unfunded or under-funded. If your partner dies with no coverage or inadequate coverage in place you could easily find yourself across from their family in a courtroom explaining why the business should be liquidated to pay them the deceased’s share.

6. Worker’s Comp Coverage – Making sure that you and your employees are protected against injuries and their rising costs.

7. Employee Benefits Planning – From basic benefits like 401K to Executive Compensation planning. There are a number of ways to provide these benefits, some are more advantageous to you, the business owner than others.

8. Employee Handbook – Governs their rights and your responsibilities, controls actions in the workplace and your employer policy. If you don’t define certain polices the courts (or worse your employee’s attorneys) will define them for you. This is one of the highest ROI investments you can make in your business in my opinion.

9. Employee Dispute Resolution Package – Prevents employee lawsuits and makes you a hard target – reduces your exposure. Right now they win 75% of the time and the average sexual harassment verdict, as just one example, is at $530K. Your business is 5 times more likely to be sued by an employee than for any other reason. Have a plan.

10. Proper Corporate Formation – Is your formation or lack of it exposing you to liability and taxes? Will it hinder you in the case of sale? Do you have too many eggs in one basket? For example if your practice owns the building it operates from you are needlessly exposing the real estate asset to professional liability. Simple fixes can save you millions if something bad happens.

11. Professional Accounting Service – Do you have a good CPA? Taxes & payroll are just the beginning – have a pro. who proactively offers solutions and shows you legal tax avoidance options in addition to administrative and reporting functions we rely upon them for.

12. Real Estate Depreciation / Property Tax Reduction Study – Get tax deductions for depreciation NOW when you need them. You can get large current deductions on your investment real estate in a safe and legal way.

14. Income and Receivables Protection Planning – Make sure the cash flow you use to fund all these other things is safe. Your income can be “equity-stripped” just like a piece of real estate and the value put within protected structures that grow them in a protected and tax advantaged way.

15. Tax Reduction and Retirement Income Planning Including Pensions – Remember – it has to last at least 30 years and account for inflation! Instant lesson, compare the cost of an automobile or a loaf of bread 20 years ago to their costs today and see if inflation made a difference. Imagine dealing with that kind of cost increase on a fixed income 20 years from today.

16. Estate Planning – Who gets what, when and at what cost in estate taxes? You can make the Estate Tax exposure number zero in many cases. We do not consider dying in 2010 (when Estate tax will be zero for a very short time) to be a good estate plan. Do you really think our current national debt will allow doing away with this exposure? We and the tax and estate planners we work with don’t.

17. Exit Plan Strategy – Ok you’ve been successful – now what? Make sure that business is an asset when you want to leave and that the planning you have done minimizes your tax exposures on the sale or transfer. A little proactive work here can save you as much as 50% in taxes.

18. Long Term Care Insurance - The costs of this kind of care are soaring - can you risk your retirement savings and family's legacy by not having it? Medicare has a 5 year look back and requires that you are nearly destitute before they cover essential daily care.

As always – call or email for help or more info on any of these issues. Neither I nor any other planner can an expert at everything, but we have a tremendous list of national partner resources that we use to serve our clients and will be happy to point you to good help.

Yours, Ike Devji, J.D.

Business Owners and Executives - Are You Running Your Company's 401k? BEWARE OF LIABILITY!

Guest Author Roger Wohlner

Below is a great article by financial advisor Roger Wohlner. It once again points out the difference between what we can and should be doing.

There is tremendous liability in managing investments, and most of you would never dream of taking on that liability for everyone in your company - or have you already done so?

Ike

Why Are You Running Your Company’s 401(k) Plan?

Smart Money recently ran an article depicting several small companies where either the owner or a group of senior managers were in charge of the firm’s 401(k) plan and who were largely making decisions regarding the plan on their own.

The article pointed out that many of these folks do not have a background in either investments or qualified plans.The focus of the article was to point out to plan participants that in many cases their plan was being run by folks who may or may not be qualified to make decisions as to investments offered, the custodial platform, or the plan record keeper.

My take on this article is to wonder why these small/mid-sized company owners and managers would want to take on this responsibility.

First of all, these individuals would be considered plan fiduciaries,which means that they can be held personally liable under certain circumstances for doing a poor job. Effectively managing a 401(k) plan involves taking the time to select and monitor the investments, overall plan expenses, as well as the fees and performance of all plan vendors.

Today it seems that business owners and their senior managers have more on their plates than ever. Running a 401(k) plan is about more than the investments. Total plan cost has always been a key issue and is coming more into the limelight as the spotlight shines on the issue of Fiduciary roles and obligations.

Selection and monitoring of Target Date funds is receiving much attention in the press and in Congress in light of the losses suffered in 2008 by some of the shorter maturity date funds. Defaulting to the funds offered by a bundled provider is not always the right answer, this option will likely come under more and more scrutiny over the next few years.

Even if the business owner is a knowledgeable investor in his/her own right, does this knowledge translate into the ability or the time to select and monitor all aspects of a solid retirement plan that is a great option for the majority of the company’s employees?

I’ve seen instances of plans that will take the suggestions of their bundled provider (a fund company such as Vanguard, Fidelity, or T. Rowe, or an insurance company such as Prudential) and implement those suggestions as the plan’s investment lineup. The representatives of these companies are not plan fiduciaries, but company managers running the plan are. I doubt that these folks are trying to do the plan any harm, but at the end of the day their loyalty is to their employer not the plan participants.

If your company’s plan is via an insurance company, your agent or registered rep may be providing investment advice to the plan. Again, this person is likely not a fiduciary, they receive commissions paid by the provider and their loyalties are at best divided.

In the interest of full disclosure I am a fee-only consultant to 401(k) plans providing advice to small/mid-sized plans. If this post seems self-serving I apologize, but this is a key issue for both owners/managers of these companies and their employees.

In my opinion, running the company’s 401(k) plan requires a level of diligence and expertise that the “do it your selfer” business owner often does not have. Pulling out a Morningstar report on the funds once or twice per year does not, in my opinion, constitute proper diligence and monitoring of the plan.

For further reading in this area, please see Roger's prior posts:

The Process of Monitoring Investment Holdings http://bit.ly/Wnaj8

Characteristics of a Good 401(k) Plan http://ow.ly/ySZf

Hellish Retirement Plans http://ow.ly/yT0i

Here is a link the Smart Money article that inspired this post Who's Running Your 401(k): An Overview http://ow.ly/yT1I

Roger Wohlner,CFP® is a Fee-only financial advisor with Asset Strategy Consultants in Arlington Heights, IL. 847-506-9827; rwohlner@comcast.

People Don’t Live In Delaware. But They Keep Their Money There.

We see lots of discussion about the "best" legal & financial jurisdictions. If you are familiar with my writing or the work we do in protecting billions of dollars for our clients you know what I think of most domestic jurisdictions and that we think that they have little or no value for Asset Protection despite any nominee corporation b.s. and promises of secrecy that the snake-oil salesmen in various states pedal.

The link below is to an interesting piece about Delaware, which is also now promising Asset Protection through domestic asset protection trusts that we never use because they fly in the face of full faith and credit laws and we don't want our clients to be test cases.

Yours, Ike

See the story here on DEALBREAKER:

Its beaches don’t compare with those of Bermuda or the Cayman Islands. You can’t ski there. But the most boring state in the union is best damned tax shelter on earth.

The First State is finally first at something else, according to the Tax Justice Network. It’s the best place for non-Americans to hide from their taxmen, earning the august moniker, “most secretive financial jurisdiction.”

http://tinyurl.com/DELAWAREWTF

SOCIAL MEDIA FOR EMPLOYERS AND BUSINESS OWNERS

Massive increase in the use of social media for both business and personal use has created many new issues for employers. As our clients include thousands of business owners affected by these new tools and the liability they create, we turned to Employment Law expert, Attorney Rachel Weiss for a quick outline of current issues.

MySpace and Facebook and Twitter, Oh My!

Time to Start that Workplace Policy

Employers, it’s time to wake up. According to a 2009 survey conducted by Deloitte LLP*, 55% of employees visit social networking sites during work hours. More than a third of the employees surveyed don’t consider what their boss, co-workers, or clients would think about their online postings. Here’s the big red flag – almost 75% say it’s easy to damage a company’s reputation using social media.

While there’s no way to completely eliminate the legal and business-related risks posed by employee online networking activities, developing and enforcing a social media policy is crucial to avoiding legal pitfalls.

The exact wording will depend somewhat on the nature of the business and workforce, but at a minimum, a good social media policy should include these provisions:

1. Don’t expect privacy. Employees do not have a reasonable expectation of privacy if they use social media for personal purposes on a company computer or network.

2. Use good judgment. Employees may not post comments that are disrespectful, offensive or damaging to another employee or the employer’s business interests. The use of social media must not violate any other company policy (such as a computer usage or anti-harassment policy).

3. Only on your own time. Employees are prohibited from participating in social media during work time.

4. Post as yourself. Employees may not post anything that could in any way be attributed to the employer. Employees must notify readers that the views, opinions, ideas, and information are their own and are not sanctioned by the employer, and company trademarks or logos should never be used.

5. Keep secrets. Employees are prohibited from disclosing proprietary information, data, trade secrets or other confidential non-public information.

6. Don’t mess up. Violation of this policy may result in disciplinary action up to and including termination.

Distribute the policy in writing to every employee. Add it to any existing employee handbook.

Finally, enforce the policy. Better to have no policy at all than to have one and ignore it.

Rachel Weiss is an employment law attorney with the Phoenix firm of Gammage & Burnham, PLC. For additional information regarding this or any other employment-related legal issue, Rachel can be reached at (602) 256-4448 or rweiss@gblaw.com.

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* Social Networking and Reputational Risk in the Workplace, Ethics & Workplace Survey, Deloitte LLP 2009