Month: January 2011

I have been thinking a lot lately about the small business owner and how they can plan for the future in these turbulent times.

Several key techniques for mitigating risk and planning for the future are as follows:

1. Plan for the contiuation of your business if you should die or become disabled. This is an often overlooked principal that the small business owner never feels they have time for. A financial planner friend of mine told me of a company whose owner had a light-bulb moment. It became clear to him that two of his employees were extremely important to the company’s success – the head of the sale’s department and the project manager. So he approached them about getting life insurance. They in turn, expressed their own concern, saying the owner needed life insurance as well. The result was a buy/sell agreement funded by life insurance policies on all three. Just a short time later, the owner died in a car accident. The widow received the proceeds of the life insurance policy, while the two employees received control of the company. Those two employees took the company to new heights. Having a buy/sel agreement in place is crtical, especially when you have key employees.

2. The risk of not having enough liability insurance. Many small businesses believe that “big business problems” don’t apply to them. Things like harrassment suits or hackers bringing down their computer systems could potentially harm a small business or in some cases end it. Employment practices liability insurance is probably one of the more important coverages that is not purchased by small businesses. It covers employee litigation for such things as sexual harrassment and discrimination which often come in the form of a lawsuit for wrongful termination. Most business general liability insurance exclude this coverage while a small number offer very limited coverage. The lawsuits generated from wrongful termination are very expensive and could cost anywhere from $20,000 on up. Another overlooked coverage is privacy breach insurance. This insures a small business against the effects of having their computer system hacked and the network being destroyed or private records being made public. This type of insurance addresses the potential damages from these breeches that can cause litigation, busniness interruption or crisis management.

3. Many small business owners do not have a plan for retirement. Many are planning on selling their business and using that for retirement. Others have funded IRAs and 401k plans but is it enough? Considering the precarious position we are in with Social Security, we can’t rely too heavily on that. One way to assess whether we will have enough or not is to do a projection of future cash inflows and outflows after retirement and see how fast the money runs out based on a lifestyle that has been chosen. Our firm can provide this type of analysis free of charge and there are many other financial planners out there that will do likewise. Many of the financial projection software programs will give a matter-of-fact disclosure of what needs to be done to shore up your financial future.

Whatever you do, please don’t procrastinate implementation of sound plan for yourself and your business

Epay Your Estimated Tax Payments

Just had a client ask me today if he could shedule his estimated tax payments to come directly out his checking account on a quarterly basis.                     

There are two ways to have this automatic withdrawal to occur.  If you efile your return through a tax preparer, you can have your preparer designate how much to withdraw on each of the dates 4/15, 6/15, 9/15 & 1/15.  You can also notify the IRS within 2 days of the payment date that you don’t want to make the payment if circumstances change.  The other method is to register with EFTPS and you can designate up to a year in advance what dates and what payments you would like to have taken out of your account.  For those of you who have a tough time remembering to make your estimated tax payments on time, this is a great way to take the worry out it.  You just need to make sure you have money in the account on the appointed days

Six Important Facts about Dependents and Exemptions

Some tax rules affect every person who may have to file a federal income tax return – these rules include dependents and exemptions. Here are six important facts the IRS wants you to know about dependents and exemptions that will help you file your 2010 tax return.

1.  Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2010 tax return.

2.  Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.

3.  Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the social security number of any dependent for whom you claim an exemption.

4.  If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Tax Credit payments you received.

5.  If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.

6.  Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

If you need further clarification on who can be claimed as a dependent on your tax return, contact us!