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Some U.S. companies are using corporate inversions to reduce their taxes. Investors in companies that do an inversion may find that their own taxes are increased.

When the U.S. company becomes the subsidiary of the foreign company, it issues replacement shares. Typically, the new shares are equal to the former shares but no cash is involved. As a shareholder, you're required to recognize a gain on the exchange of stock even though your ownership position remains the same. The gain is the amount by which the value of the stock on the inversion date exceeds your basis.

Investors should also be aware that inversions can affect the amount of capital gain reported to you by mutual funds you own if companies in the fund's portfolio choose to invert.

Though not all mergers will create taxable income, keeping an eye on your portfolio can prevent tax bill shock when you file your 2014 federal income tax return.

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Corporate taxpayers that retain earnings in excess of the reasonable needs of their business rather than pay such earnings as dividends to shareholders are at risk for the accumulated earnings tax (AET). The AET is primarily an issue for closely-held companies because closely-held companies are more likely to have dividend policy influenced by a single shareholder or a small group of shareholders.

“Reasonable needs of the business” include, among other business needs, working capital, planned expansion or acquisitions, and replacement of facilities and equipment. Whether planned business needs are considered reasonable for accumulated earnings tax purposes depends upon facts and circumstances that are unique to each business. 

We believe that a review and analysis of your overall situation will help determine how to best utilize the profits from your growing business without running afoul of the prohibition on accumulating earnings. Please call our office to discuss strategies to retain your corporation's earnings and profits. 

 

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When it comes to taxes, being self-employed has some advantages. Whether you work for yourself on a full-time basis or just do a little moonlighting on the side, the government has provided you with a variety of attractive tax breaks.

  • Save for retirement. When you're self-employed, you're allowed to set up a retirement plan for your business. Remember, contributing to a retirement plan is one of the best tax shelters available to you during your working years.

Take a look at the SIMPLE IRA, SEP IRA, or Solo 401(k), and determine which plan works best for you.

  • Hire your kids. If your business is unincorporated, employing your child under the age of 18 might make sense. That's because your child's earnings are exempt from social security, Medicare, and federal unemployment taxes. This year, your son or daughter can earn as much as $6,200 and owe no income taxes. You get to deduct the wages paid as a business expense.
     
  • Deduct health insurance. Are you paying your own medical or dental insurance? How about long-term care insurance? As a self-employed individual, you may be able to deduct 100% of the cost of these premiums as an "above the line" deduction, subject to certain restrictions.
     
  • Take business-use deductions. Self-employed individuals can also deduct "mixed-use" items directly against their business income. Use your car for business and you can deduct 56¢ per business mile driven. The business-use portion of your computer purchases, Internet access, and wireless phone bills is also allowable. And if you meet the strict requirements, claiming the home office deduction makes a portion of your home expenses tax-deductible.

Please give us a call to find out more about the tax breaks available to self-employed individuals.

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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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