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Don Bromley recently spoke with Christi Milligan, Senior Staff Writer for the Delaware Business Timess, about how delays in tax codes impact business owners now.    

Their clients may not have been blindsided, but with some renewal premiums going up as much as 100 percent, Delaware accountants admit that the brass tacks of the Affordable Care Act (ACA) are sobering. 

Funneling concerns to their most trusted insurance brokers, accountants are busy with other fine points of the ACA initiative:  The new 0.9 percent Medicare surtax and the 3.8 percent tax on net investment.

Read the full article here.

 

 

Clearly, one of the most important factors in attracting and holding key employees is your company's program for compensating executives. Naturally, the basic salary is of great importance, but equally important may be special plans of incentive compensation; plans for allowing executives to participate in the ownership of the company through stock options, stock bonuses and other stock-acquiring arrangements; and special plans for deferring compensation. For this reason, many special devices have been developed to compensate the executive.

There are three basic types of benefits currently in use for compensating the executive. These are direct compensation; perks or non-cash fringe benefits; and deferred compensation plans. There are basic differences among these three major types of executive compensation, including their respective tax implications for you, as the employer, and the employee.

Direct compensation. As its name implies, direct compensation is comprised of immediate pay to executives in the form of salary, cash bonuses and qualified stock bonus plans. Direct compensation differs from fringe benefits in that it typically involves cash payments or other evidences of indebtedness to the executive that can be readily negotiated or sold for cash. Direct compensation also differs from deferred compensation in that its impact is immediate (or within a year's time) rather than delayed until some future date. Generally, executives must recognize income in the year they receive direct compensation, and employers can deduct corresponding amounts in the year they pay direct compensation.

"Perks" or non-cash fringe benefits. Perks are those benefits that most employees think of as being fringe benefits. Thus, the perks that an employer may provide its employees consist of such non-cash benefits as company cars, exercise facilities and employee cafeterias. In the context of executive compensation, however, directors, officers, and managers have come to expect perks "above-and-beyond" those available to the average employee. Therefore, many companies have developed executive perks that consist of such "extra" benefits as chauffeured limousine services, use of corporate stadium skyboxes, and expenses-paid attendance at trade or professional conventions.

Perks tend to differ from direct compensation in that they typically involve the use of employer-provided facilities or reimbursement of employer-induced expenses rather than the payment of cash or its equivalent. Like direct compensation and unlike deferred compensation, perks provide an immediate economic and financial benefit to participating employees. Generally, the Internal Revenue Code provides that all perks are taxable as wages to participating employees unless the perk is specifically exempted from taxation.

Deferred compensation. Deferred compensation refers to what would otherwise be direct compensation or a perk (i.e., fringe benefit), except that it is so structured as to postpone receipt of a portion of an executive's taxable compensation until sometime after it has been earned by the executive. Conceptually, deferred compensation plans are a type of benefit located midway between the immediate benefits of direct compensation and perks, and the long-range benefits bestowed under a retirement plan.

A common aim of a deferred compensation plan is to shift otherwise taxable compensation into a future year and, thus, defer, if not reduce, the income tax that would otherwise be paid to the IRS. For example, the deferral of income may be for a fixed period of time or until the executive has satisfied obligations to the company. Deferral of taxable income depends, however, on whether a specific provision in the tax code permits such deferral relative to a given form of deferred compensation and upon what conditions. Types of deferred compensation include deferred bonuses, stock options, and the so-called golden parachute payments.

Because qualified deferred compensation plans lose favorable tax treatment if they do not meet nondiscrimination rules, few, if any, such plans are designed to provide executives with special treatment or benefits. However, a key means by which companies can attract and retain top executive employees is a nonqualified deferred compensation plan. By providing executive compensation through a nonqualified plan, employers can effectively furnish benefits to key employees beyond the benefits typically available to non-management personnel.

Nonqualified plans offer flexibility and ease in administration. However, benefits under a nonqualified plan are also not guaranteed and, therefore give employees less security than benefits provided by a qualified plan. In addition, nonqualified plans are subject to election, distribution and funding rules.

Individuals who defer compensation under plans that fail to comply with these rules are subject to current taxation on all deferrals and to enhanced penalties. Specifically, compensation deferred under nonqualified plans that do not satisfy the requirements, is subject to tax (and interest and penalties) in the year of the deferral, to the extent not subject to a substantial risk of forfeiture and not previously included in income. Therefore, these plans must be designed carefully to avoid the loss of any possible tax deferral.

Considering the importance of a quality compensation plan to retain key employees, it is essential that a plan be well thought out. Gunnip CPAs can assist you in developing a plan that will meet your needs and reduce your tax burden. Please call our office at (302) 225.5000 or email us at info@gunnip.com to arrange an appointment.

 

 

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Congratulations Diane and Jen on being selected to the DBT40! 

 

 

 

 

 

 

 

 

Read the full article here: http://www.pageturnpro.com/Today-Media-Inc/61537-Delaware-Business-Times-Oct-21,-2014/index.html#4

 

 

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Selling your businessMost entrepreneurs eventually think about selling their businesses, whether as a prelude to retirement or to pursue other activities. In doing so, they often underestimate the effort required for a satisfactory outcome and overestimate the value and salability of their enterprises. If you're contemplating selling, here are some common mistakes to avoid.

1. Overestimating the value of your business.

Your price should be based on the fair market value of the business in its current form. Buyers won't care about the work you've put into building your business or your unique vision for its future.

2. Failing to account for the nature and make-up of your business.

The values of most businesses proceed from a mixture of variables. If your business includes significant equipment, real estate, intellectual property, or other such assets, their values should be separately established before being factored into the overall price. If you're selling a service or professional firm, much of its value may depend on the experience and skills of your managers and employees. In such a case, the price may vary according to the expected retention of key individuals.

3. Failing to base your sale price upon independent appraisals.

Even if you think you know the value of your business, you should obtain two or more outside appraisals from professionals familiar with your industry. If the appraisals conflict with your opinion, they'll provide a much-needed reality check. If they confirm your opinion, they'll become a useful sales tool.

4. Not hiring a professional business broker to handle the sale.

Owners are often too personally invested (and/or eager to sell) to effectively negotiate sales of their businesses. A broker familiar with your type of business will know what issues are important to buyers and what characteristics to emphasize or de-emphasize, without becoming emotionally involved.

5. Neglecting to work with the buyer to ensure a smooth transition.

Nobody likes being thrust into unfamiliar circumstances without preparation. Notifying your managers, employees, and customers in advance and doing all you can to allay their concerns will serve your own best interests, as well as being the honorable thing to do. Discontent on the part of any of the affected parties could result in conflicts, reduced revenue for the buyer, withheld sale payments, and litigation.

6. Being unwilling to help finance the sale.

If you're unwilling to take back a note, your sale price is limited to the buyer's cash and ability to obtain outside financing. At best this could limit the number of potential buyers, and at worst it could limit your sale proceeds. (Conversely, if you finance too much of the sale price, you'll increase the risk of default.)

Selling your business is too important to attempt without professional help. If you're considering selling, call us at 302.225.5000 or email info@gunnip.com for an appointment to help formulate your plan.

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Gunnip & Company is pleased to announce the addition of Lynn B. Ritter, CPA, MST.  As a manager in the tax department, Lynn will be involved in all areas of taxation including strategic planning, research, analysis and preparation of returns for the firm’s clients, including individuals, estates, trusts, small and large privately-held companies, public corporations and nonprofit organizations. 

Lynn brings more than 25 years of diverse experience, primarily in the Wilmington area. She is a member of the AICPA, the DSCPA and on the Board of the Estate Planning Council of Delaware.  Don Bromley, Tax Partner for the firm, says “Lynn’s wealth of knowledge and experience makes her a key addition to the Gunnip family.  I am confident Lynn will play a key role in providing sound tax advice for our clients for many years to come!”

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How well do you know your customers? Which ones are the most profitable? Which ones take most of your time? It's worth taking the time to find out. If your business is like most, the 80-20 rule applies. That is, 80% of your profits come from 20% of your customers.

If you can identify that top 20%, you can work hard to make sure this group remains satisfied customers. Sometimes all it takes is an appreciative phone call or a little special attention. Also, by understanding what makes this group profitable, you can work to bring other customers into that category.

Keep in mind that it's not always profits alone that make a good customer. Other factors, such as frequency of orders, reliability of the business, speed of payment, and joy to deal with are important too. Ask your accounting staff and your sales staff. You'll soon come up with a list of top customers.

There's another way in which the 80-20 rule applies to your business. Very likely, 80% of your problems and complaints come from 20% or fewer of your customers. If you identify those problem customers, you can change the way you do business with them to reduce the problems. Consider changing your pricing for those customers so that at least you're being paid for the extra time and effort they require. Sometimes the only solution is to tell these customers that you no longer wish to do business with them.

The bottom line is that understanding your customers better can only help your business. Contact us if you need help analyzing your customer profitability.

 

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A bipartisan majority of the U.S. House of Representatives – 233 members – have signed a letter urging the House leadership to preserve the cash method of accounting for tax purposes, writing that proposals requiring a transition to the accrual method “will have a severely detrimental impact on thousands of businesses in our districts.”  

To read more, please see the full article on the AICPA's website:  AICPA - Press Release

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How much money did you save last year? If you didn't save at least 10% of your earnings, you didn't save enough. If your savings in 2013 fell short, the only solution is to take charge of your financial future right now and start saving more money.

Saving money doesn't have to be hard work. In fact, many successful savers have found simple ways to cut spending and increase their savings. Here are some tips to help you get started and stay on track.

* Set goals. To give your savings purpose, set specific financial goals. For example, it's advisable to have an emergency fund of approximately six months' worth of living expenses to cover any cash outlays that may catch you by surprise. Nothing can derail your financial plans faster than a series of mishaps that force you to take drastic financial measures. Other saving goals may include a college savings fund, vacation fund, or a fund for major purchases.

* Treat your savings as your most important monthly bill. Write a check to savings first, or have your savings automatically deducted from your checking account or paycheck.

* Tax-deferred retirement accounts offer a smart way for you to save money for retirement. If your employer offers a 401(k) or SIMPLE retirement plan, contribute the maximum amount allowed. If your employer offers no plan, contribute to an individual retirement account (IRA). The money you contribute to a retirement account can reduce your taxable income and grow tax-free until withdrawn.

* Another way to maximize savings is to track your expenses for a few months. This is a great way to spot unnecessary or wasteful spending; it doesn't take much work to see potential cutbacks.

* When it comes to saving, think "control." For example, control the use of your credit cards. The amount you pay each month in finance charges could go to savings instead. Also, control the use of your ATM card. Get in the habit of giving yourself a regular cash allowance, and try to live with it.

You should be saving at least 10% of your earnings. Seem impossible? If you took a new job at 10% less pay, you would get by. For help in setting financial goals and developing a savings plan, call us.

 

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Another strong warning from the IRS is alerting taxpayers to phone scams that have already resulted in 90,000 complaints and the theft of millions of dollars. Here's how the typical scam works: The caller claims to be from the IRS and, using hostile and abusive language, demands immediate payment of taxes by a prepaid debit card or wire transfer. The IRS reminds taxpayers it will never contact you by phone about owed taxes; the first contact will be by mail. It will never ask for credit, debit, or prepaid card information in a phone call, and it will never request immediate payment over the phone.

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If you are a small employer with fewer than 25 full-time equivalent employees, pay an average wage of less than $50,000 (as adjusted for inflation beginning in 2014) a year, and pay at least half of employee health insurance premiums then there is a tax credit that may put money in your pocket.

For tax years 2010-2013, the maximum credit is 35% of premiums paid for small business employers and 25% of premiums paid for small tax-exempt employers such as charities. For tax years beginning in 2014 or later, there are changes to the credit:

•  The maximum credit increases to 50% of premiums paid for small business employers and 35% of premiums paid for small tax-exempt employers.

•  To be eligible for the credit, a small employer must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace or qualify for an exception to this requirement.

•  The credit is available to eligible employers for two consecutive tax years.

This means that if you pay $50,000 a year toward employees’ health care premiums — and if you qualify for a 15% credit, you save $7,500. If you save $7,500 a year from tax year 2010-2013, that’s total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20%, your savings go from $7,500 a year to $10,000 a year.

Even if you are a small business employer who does not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

There is good news for small tax-exempt employers too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability.

And finally, if you can benefit from the credit this year but forgot to claim it on your tax return, there’s still time to file an amended return. Refund limitations may apply. Generally, a claim for refund must be filed within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid.

To be eligible, you must cover at least 50% of the cost of employee-only (not family or dependent) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs). Those employees must have average wages of less than $50,000 (as adjusted for inflation beginning in 2014) per year.

Remember, you will have to purchase insurance through the SHOP Marketplace (or qualify for an exception to this requirement) to be eligible for the credit for tax years 2014 and beyond. Participating in the direct enrollment process, such as the one adopted by federally-facilitated SHOP Marketplaces, counts as SHOP Marketplace participation for 2014 only.

What is an FTE?

Basically, two half-time employees count as one FTE. That means 20 half-time employees are equivalent to 10 FTEs, which makes the number of FTEs 10, not 20.

For example, if you pay total wages of $200,000 and have 10 FTEs. To figure average annual wages you divide $200,000 by 10 — the number of FTEs — and the result is your average annual wage. The average annual wage in this example would be $20,000.

Also, the amount of the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit. So if you have more than 10 FTEs or if the average wage is more than $25,000 (as adjusted for inflation beginning in 2014), the amount of the credit you receive will be less.

Now that you know how the credit can make a difference for your business, we can help determine if you can claim it. Please call our office for more details. 

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