Gunnip Blog

You are here

Gunnip Blog

Are you aware of the numerous age-related provisions in the IRS code? They are probably more plentiful and significant than you thought. Here are a few examples of the age-related tax rules that could affect you and your dependents.

  • At birth up to age 19 and even 24: dependency deduction. Parents can claim a dependency exemption for a child under 19 or for full-time students under the age of 24.
     
  • Under 13: child care credit. This provision gives parents a tax credit for dependent care expenses.
     
  • Under 17: child tax credit. If parental adjusted gross income is below a threshold level, parents can claim a child tax credit of $1,000.
     
  • At 50: retirement contributions. The government allows extra "catch up" contributions to retirement savings. This is a helpful provision to encourage savings.
     
  • Before age 59½: early withdrawal penalty. Withdrawals from IRAs and qualified retirement plans, with some exceptions, are assessed a 10% penalty tax.
     
  • At 65: increased standard deduction. Uncle Sam grants a higher standard deduction, but there's no additional tax benefit if the taxpayer itemizes deductions.
     
  • At 70½: mandated IRA withdrawals. The IRS requires minimum distributions from a taxpayer's IRA beginning at this age (doesn't apply to Roth IRAs). This starts to limit tax-deferral benefits.

Awareness of how the tax code affects you and your family at different ages is important. For tax planning assistance through the various phases of life, give our office a call.

 

 

Posted in: 

Many small business owners pay too little attention to their financial statements. This is due in part to not understanding just what the statements have to offer. In fact, many may not be able to tell you the difference between a Balance Sheet and an Income Statement.

Think of them this way. The Balance Sheet is like a still picture. It shows where your company is at on a specific date, at month-end, or at year-end. It is a listing of your assets and debts on a given date. So Balance Sheets that are a year apart show your financial position at the end of year one versus the end of year two. Showing how you got from position one to position two is the job of the Income Statement.

Suppose I took a photo of you sitting behind your desk on December 31, 2013. And on December 31, 2014, I took a photo of you sitting on the other side of your desk. We know for a fact that you have moved from one side to the other. What we don't know is how you got there. Did you just jump over the desk or did you run all the way around the building to do it? The Income Statement tells us how you did it. It shows how many sales and how much expense was involved to accomplish the move.

To see why a third kind of financial statement called a Funds Flow Statement is useful, follow this case. A printer has started a new printing business. He invested $20,000 of his own cash and borrowed $50,000 from the bank to buy new equipment. After a year of operation, he has managed to pay off the bank loan. He now owns the equipment free and clear. When he is told his net profit is $50,000, he can't believe it. He might tell you that he took nothing out of the business and lived off his wife's wages for the year. And since there is no cash in the bank, just where is the profit? The Funds Flow Statement will show the income as a "source of funds" and the increase in equipment is an "application of funds." The Funds Statement is even more useful when you have several assets to which funds can be applied and several sources of funds such as bank loans, vendor payables, and business profit or loss.

Don't be afraid to ask your accountant questions about your financial statements. The more questions you get answered, the more useful you will find your financial statements.

 

 

Posted in: 

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.

Posted in: 

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. 

 

Posted in: 

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.

Posted in: 

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.

 

 

Posted in: 

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

 

 

Posted in: 

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.

Posted in: 


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!”

Posted in: 

Pages