Enhance benefits’ perceived value with strong communication

Providing a strong package of benefits is a competitive imperative in today’s business world. Like many employers, you’ve probably worked hard to put together a solid menu of offerings to your staff. Unfortunately, many employees don’t perceive the full value of the benefits they receive.

Why is this important? An underwhelming perception of value could cause good employees to move on to “greener” pastures. It could also inhibit better job candidates from seeking employment at your company. Perhaps worst of all, if employees don’t fully value their benefits, they might not fully use them — which means you’re wasting dollars and effort on procuring and maintaining a strong package.

Targeting life stage

Among the most successful communication strategies for promoting benefits’ value is often the least commonly used. That is, target the life stage of your employees.

For example, an employee who’s just entering the workforce in his or her twenties will have a much different view of a 401(k) plan than someone nearing retirement. A younger employee will also likely view health care benefits differently. Employers who tailor their communications to the recipient’s generation can improve their success rate at getting workers to understand their benefits.

Covering all bases

There are many other strategies to consider as well. For starters, create a year-round benefits communication program that features clear, concise language and graphics. Many employers discuss benefits with their workforces only during open enrollment periods.

Also, gather feedback to determine employees’ informational needs. You may learn that you have to start communicating in multiple languages, for instance. You might also be able to identify staff members who are particularly knowledgeable about benefits. These employees could serve as word-of-mouth champions of your package who can effectively explain things to others.

Identifying sound strategies

Given the cost and effort you put into choosing, developing and offering benefits to your employees, the payoff could be much better. We can help you ensure you’re getting the most bang for your benefits buck.

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Now’s a great time to purge old tax records

Whether you filed your 2016 tax return by the April 18 deadline or you filed for an extension, you may be overwhelmed by the amount of documentation involved. While you need to hold on to all of your 2016 tax records for now, it’s a great time to take a look at your records for previous tax years to see what you can purge.

Consider the statute of limitations

At minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, which generally is three years after you file your return. This means you likely can shred and toss — or electronically purge — most records related to tax returns for 2013 and earlier years (2012 and earlier if you filed for an extension for 2013).

In some cases, the statute of limitations extends beyond three years. If you understate your adjusted gross income by more than 25%, for example, the limitations period jumps to six years. And there is no statute of limitations if you fail to file a tax return or file a fraudulent one.

Keep some documents longer

You’ll need to hang on to certain records beyond the statute of limitations:

Tax returns. Keep them forever, so you can prove to the IRS that you actually filed.

W-2 forms. Consider holding them until you begin receiving Social Security benefits. Why? In case a question arises regarding your work record or earnings for a particular year.

Records related to real estate or investments. Keep these as long as you own the asset, plus three years after you sell it and report the sale on your tax return (or six years if you’re concerned about the six-year statute of limitations).

This is only a sampling of retention guidelines for tax-related documents. If you have questions about other documents, please contact us.

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Do you know the tax implications of your C corp.’s buy-sell agreement?

Private companies with more than one owner should have a buy-sell agreement to spell out how ownership shares will change hands should an owner depart. For businesses structured as C corporations, the agreements also have significant tax implications that are important to understand.

Buy-sell basics

A buy-sell agreement sets up parameters for the transfer of ownership interests following stated “triggering events,” such as an owner’s death or long-term disability, loss of license or other legal incapacitation, retirement, bankruptcy, or divorce. The agreement typically will also specify how the purchase price for the departing owner’s shares will be determined, such as by stating the valuation method to be used.

Another key issue a buy-sell agreement addresses is funding. In many cases, business owners don’t have the cash readily available to buy out a departing owner. So insurance is commonly used to fund these agreements. And this is where different types of agreements — which can lead to tax issues for C corporations — come into play.

Under a cross-purchase agreement, each owner buys life or disability insurance (or both) that covers the other owners, and the owners use the proceeds to purchase the departing owner’s shares. Under a redemption agreement, the company buys the insurance and, when an owner exits the business, buys his or her shares.

Sometimes a hybrid agreement is used that combines aspects of both approaches. It may stipulate that the company gets the first opportunity to redeem ownership shares and that, if the company is unable to buy the shares, the remaining owners are then responsible for doing so. Alternatively, the owners may have the first opportunity to buy the shares.

C corp. tax consequences

A C corp. with a redemption agreement funded by life insurance can face adverse tax consequences. First, receipt of insurance proceeds could trigger corporate alternative minimum tax.

Second, the value of the remaining owners’ shares will probably rise without increasing their basis. This, in turn, could drive up their tax liability if they later sell their shares.

Heightened liability for the corporate alternative minimum tax is generally unavoidable under these circumstances. But you may be able to manage the second problem by revising your buy-sell as a cross-purchase agreement. Under this approach, owners will buy additional shares themselves — increasing their basis.

Naturally, there are downsides. If owners are required to buy a departing owner’s shares, but the company redeems the shares instead, the IRS may characterize the purchase as a taxable dividend. Your business may be able to mitigate this risk by crafting a hybrid agreement that names the corporation as a party to the transaction and allows the remaining owners to buy back the shares without requiring them to do so.

For more information on the tax ramifications of buy-sell agreements, contact us. And if your business doesn’t have a buy-sell in place yet, we can help you figure out which type of funding method will best meet your needs while minimizing any negative tax consequences.

© 2017

How can you take customer service to the next level?

Just about every business intends to provide world-class customer service. And though many claim their customer service is exceptional, very few can back up that assertion. After all, once a company has established a baseline level of success in interacting with customers, it’s not easy to get to that next level of truly great service. But, fear not, there are ways to elevate your game and, ultimately, strengthen your bottom line in the process.

Start at the top

As is the case for many things in business, success starts at the top. Encourage your fellow owners (if any) and management team to regularly serve customers. Doing so cements customer relationships and communicates to employees that serving others is important and rewarding. Your involvement shows that customer service is the source of your company’s ultimate triumph.

Moving down the organizational chart, cultivate customer-service heroes. Publish articles about your customer service achievements in your company’s newsletter or post them on your website. Champion these heroes in meetings. Public praise turns ordinary employees into stars and encourages future service excellence.

Just make sure to empower all employees to make customer-service decisions. Don’t talk of catering to customers unless your staff can really take the initiative to meet your customers’ needs.

Create a system

Like everyone in today’s data-driven world, customers want information. So strive to provide immediate feedback to customers with a highly visible response system. This will let customers know that their input matters and you’ll reward them for speaking up.

The size and shape of this system will depend on the size, shape and specialty of the company itself. But it should likely encompass the right combination of instant, electronic responses to customer inquires along with phone calls and, where appropriate, face-to-face interactions that reinforce how much you value their business.

Give them a thrill

Consistently great customer service can be an elusive goal. You may succeed for months at a time only to suffer setbacks. Don’t get discouraged. Our firm can help you build a profitable company that excels at thrilling your customers.

© 2017

Individual tax calendar: Key deadlines for the remainder of 2017

 

While April 15 (April 18 this year) is the main tax deadline on most individual taxpayers’ minds, there are others through the rest of the year that are important to be aware of. To help you make sure you don’t miss any important 2017 deadlines, here’s a look at when some key tax-related forms, payments and other actions are due. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you.

Please review the calendar and let us know if you have any questions about the deadlines or would like assistance in meeting them.

June 15

• File a 2016 individual income tax return (Form 1040) or file for a four-month extension (Form 4868), and pay any tax and interest due, if you live outside the United States.
• Pay the second installment of 2017 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

September 15

• Pay the third installment of 2017 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

October 2

• If you’re the trustee of a trust or the executor of an estate, file an income tax return for the 2016 calendar year (Form 1041) and pay any tax, interest and penalties due, if an automatic five-and-a-half month extension was filed.

October 16

• File a 2016 income tax return (Form 1040, Form 1040A or Form 1040EZ) and pay any tax, interest and penalties due, if an automatic six-month extension was filed (or if an automatic four-month extension was filed by a taxpayer living outside the United States).
• Make contributions for 2016 to certain retirement plans or establish a SEP for 2016, if an automatic six-month extension was filed.
• File a 2016 gift tax return (Form 709) and pay any tax, interest and penalties due, if an automatic six-month extension was filed.

December 31

• Make 2017 contributions to certain employer-sponsored retirement plans.
• Make 2017 annual exclusion gifts (up to $14,000 per recipient).
• Incur various expenses that potentially can be claimed as itemized deductions on your 2017 tax return. Examples include charitable donations, medical expenses, property tax payments and expenses eligible for the miscellaneous itemized deduction.

© 2017

Bartering may be cash-free, but it’s not tax-free

Bartering might seem like something that happened only in ancient times, but the practice is still common today. And the general definition remains the same: the exchange of goods and services without the exchange of money. Because no cash changes hands in a typical barter transaction, it’s easy to forget about taxes. But, as one might expect, you can’t cut Uncle Sam out of the deal.

A taxing transaction

The IRS generally treats a barter exchange similarly to a transaction involving cash, so you must report as income the fair market value of the products or services you receive. If there are business expenses associated with the transaction, those can be deducted. Any income arising from a bartering arrangement is generally taxable in the year you receive the bartered product or service.

And income tax liability isn’t the only thing you’ll need to consider. Barter activities may also trigger self-employment taxes, employment taxes or an excise tax.

Barter in action

Let’s look at an example. Mike, a painting contractor, requires legal representation for a lawsuit. He engages Maria as legal counsel to represent him during the litigation. Maria charges Mike $6,000 for her work on the case.

Being short of cash, Mike agrees to paint Maria’s office in exchange for her $6,000 fee. Both Mike and Maria must report $6,000 of taxable gross income during the year the exchange takes place. Because Mike and Maria each operate a viable business, they’re entitled to deduct any business expenses resulting from the barter transaction.

Using an exchange company

You may wish to arrange a bartering deal though an exchange company. For a fee, one of these companies can allow you to network with other businesses looking to trade goods and services. For tax purposes, a barter exchange company typically must issue a Form 1099-B, “Proceeds From Broker and Barter Exchange Transactions,” annually to its clients or members.

Although bartering may appear cut and dried, the tax implications can complicate the deal. We can help you assess a bartering arrangement and manage the tax impact.

© 2017

Look at your employees with cybersecurity in mind

Today’s businesses operate in an era of hyper-connectedness and, unfortunately, a burgeoning global cybercrime industry. You can’t afford to hope you’ll luck out and avoid a cyberattack. It’s essential to establish policies and procedures to minimize risk. One specific area on which to focus is your employees.

Know the threats

There are a variety of cybercrimes you need to guard against. For instance, thieves may steal proprietary or sensitive business data with the intention of selling that information to competitors or other hackers. Or they may be more interested in your employees’ or customers’ personal information for the same reason.

Some cybercriminals may not be necessarily looking to steal anything but rather disable or damage your business systems. For example, they may install “ransomware” that locks you out of your own data until you pay their demands. Or they might launch a “denial-of-service attack,” under which hackers overwhelm your site with millions of data requests until it can no longer function.

Be mindful

Naturally, crimes may be committed by shadowy outsiders. But, all too often, it’s a company employee who either leaves the door open for a cybercriminal or perpetrates the crime him- or herself.

For this reason, it’s essential for your hiring managers to be mindful of cybersecurity when reviewing employment applications — particularly those for positions that involve open access to sensitive company data. If an applicant has an unusual or spotty job history, be sure to find out why before hiring. Check references and conduct background checks as well.

For both new and existing employees, make sure your cybersecurity policies are crystal clear. Include a statement in your employment handbook informing employees that their communications are stored in a backup system, and that you reserve the right to monitor and examine company computers and emails (sent and received) on your system. When such monitoring systems are in place, prudence or suspicious activity will dictate when they should be ramped up.

Don’t compromise

These are just a few points to bear in mind in relation to your employees and cybercrime. Although most workers are honest and not looking to do harm, all it takes is one mistake or one bad apple to compromise your company’s cybersecurity. We can provide you with more ideas for protecting your data and your business systems.

© 2017

A timely postmark on your tax return may not be enough to avoid late-filing penalties

Because of a weekend and a Washington, D.C., holiday, the 2016 tax return filing deadline for individual taxpayers is Tuesday, April 18. The IRS considers a paper return that’s due April 18 to be timely filed if it’s postmarked by midnight. But dropping your return in a mailbox on the 18th may not be sufficient.

An example

Let’s say you mail your return with a payment on April 18, but the envelope gets lost. You don’t figure this out until a couple of months later when you notice that the check still hasn’t cleared.

You then refile and send a new check. Despite your efforts to timely file and pay, you’re hit with failure-to-file and failure-to-pay penalties totaling $1,500.

Avoiding penalty risk

To avoid this risk, use certified or registered mail or one of the private delivery services designated by the IRS to comply with the timely filing rule, such as:

• DHL Express 9:00, Express 10:30, Express 12:00 or Express Envelope,
• FedEx First Overnight, Priority Overnight, Standard Overnight or 2Day, or
• UPS Next Day Air Early A.M., Next Day Air, Next Day Air Saver, 2nd Day Air A.M. or 2nd Day Air.

Beware: If you use an unauthorized delivery service, your return isn’t “filed” until the IRS receives it. See IRS.gov for a complete list of authorized services.

Another option

If you’re concerned about meeting the April 18 deadline, another option is to file for an extension. If you owe tax, you’ll still need to pay that by April 18 to avoid risk of late-payment penalties as well as interest.

If you’re owed a refund, however, it isn’t necessary to file for an extension: You won’t be charged a failure-to-file penalty if you file late but don’t owe tax.

We can help you determine if filing for an extension makes sense for you — and help estimate whether you owe tax and how much you should pay by April 18.

© 2017

What are the most tax-advantaged ways to reimburse employees’ education expenses?

Reimbursing employees for education expenses can both strengthen the capabilities of your staff and help you retain them. In addition, you and your employees may be able to save valuable tax dollars. But you have to follow IRS rules. Here are a couple of options for maximizing tax savings.

A fringe benefit

Qualifying reimbursements and direct payments of job-related education costs are excludable from employees’ wages as working condition fringe benefits. This means employees don’t have to pay tax on them. Plus, you can deduct these costs as employee education expenses (as opposed to wages), and you don’t have to withhold income tax or withhold or pay payroll taxes on them.

To qualify as a working condition fringe benefit, the education expenses must be ones that employees would be allowed to deduct as a business expense if they’d paid them directly and weren’t reimbursed. Basically, this means the education must relate to the employees’ current occupations and not qualify them for new jobs. There’s no ceiling on the amount employees can receive tax-free as a working condition fringe benefit.

An educational assistance program

Another approach is to establish a formal educational assistance program. The program can cover both job-related and non-job-related education. Reimbursements can include costs such as:

• Undergraduate or graduate-level tuition,
• Fees,
• Books, and
• Equipment and supplies.

Reimbursement of materials employees can keep after the courses end (except for textbooks) aren’t eligible.

You can annually exclude from the employee’s income and deduct up to $5,250 (or an unlimited amount if the education is job related) of eligible education reimbursements as an employee benefit expense. And you don’t have to withhold income tax or withhold or pay payroll taxes on these reimbursements.

To pass muster with the IRS, such a program must avoid discrimination in favor of highly compensated employees, their spouses and their dependents, and it can’t provide more than 5% of its total annual benefits to shareholders, owners and their dependents. In addition, you must provide reasonable notice about the program to all eligible employees that outlines the type and amount of assistance available.

Train and retain

If your company has employees who want to take their professional skill sets to the next level, don’t let them go to a competitor to get there. By reimbursing education costs as a fringe benefit or setting up an educational assistance program, you can keep your staff well trained and evolving toward the future and save taxes, too. Please contact us for more details.

© 2017

Matchmaker, matchmaker: Choosing the right lender

It’s easy to think of lenders as doing your company a favor. But business financing relationships are just that: relationships. Yes, a lender has the working capital you need to grow. But a stable, successful business represents an enormously beneficial opportunity for the lender as well. So you should be just as picky with your lender as it is with your financials.

Where to start

If you indeed have a long-standing relationship with a local bank, make that your first call. There’s no understating the importance of familiarity, good communication and an amicable rapport when negotiating terms, making payments and dealing with whatever business complications may come up.

But should your local bank not offer the size or scope of financing needed, or if you’d just like to get an idea of what else is out there, don’t hesitate to shop around. Look for a lender with multiple loan products, so you have a better chance at structuring one to your liking. And get some referrals regarding the strength of service and support.

Other alternatives

If yours is a small business, check into the availability of Small Business Administration or other government-backed loan programs. These are often designed to boost local economies, so you may be able to get favorable terms and rates.

Last, but not least, don’t limit yourself to traditional lenders. Today’s lending environment is competitive and technology driven. So businesses have a wide variety of alternatives, many of which are just a few clicks away. These include angel investors, online peer-to-peer lending networks and crowdsourcing.

Best results

Many, if not most, companies can’t grow without taking on some debt. But precisely how you go about using debt to your advantage depends largely on the lenders with which you choose to do business. Let us play matchmaker and help you find the ideal partner. We can also offer assistance in structuring and presenting your financial statements for best results.

© 2017

Saving tax with home-related deductions and exclusions

Currently, home ownership comes with many tax-saving opportunities. Consider both deductions and exclusions when you’re filing your 2016 return and tax planning for 2017:

Property tax deduction. Property tax is generally fully deductible — unless you’re subject to the alternative minimum tax (AMT).

Mortgage interest deduction. You generally can deduct interest on up to a combined total of $1 million of mortgage debt incurred to purchase, build or improve your principal residence and a second residence. Points paid related to your principal residence also may be deductible.

Home equity debt interest deduction. Interest on home equity debt used for any purpose (debt limit of $100,000) may be deductible. But keep in mind that, if home equity debt isn’t used for home improvements, the interest isn’t deductible for AMT purposes.

Mortgage insurance premium deduction. This break expired December 31, 2016, but Congress might extend it.

Home office deduction. If your home office use meets certain tests, you generally can deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, and the depreciation allocable to the space. Or you may be able to use a simplified method for claiming the deduction.

Rental income exclusion. If you rent out all or a portion of your principal residence or second home for less than 15 days, you don’t have to report the income. But expenses directly associated with the rental, such as advertising and cleaning, won’t be deductible.

Home sale gain exclusion. When you sell your principal residence, you can exclude up to $250,000 ($500,000 for married couples filing jointly) of gain if you meet certain tests. Be aware that gain allocable to a period of “nonqualified” use generally isn’t excludable.

Debt forgiveness exclusion. This break for homeowners who received debt forgiveness in a foreclosure, short sale or mortgage workout for a principal residence expired December 31, 2016, but Congress might extend it.

The debt forgiveness exclusion and mortgage insurance premium deduction aren’t the only home-related breaks that might not be available in the future. There have been proposals to eliminate other breaks, such as the property tax deduction, as part of tax reform.

Whether such changes will be signed into law and, if so, when they’d go into effect is uncertain. Also keep in mind that additional rules and limits apply to these breaks. So contact us for information on the latest tax reform developments or which home-related breaks you’re eligible to claim.

© 2017

A refresher on tax-related ACA provisions affecting businesses

Now that the bill to repeal and replace the Affordable Care Act (ACA) has been withdrawn and it’s uncertain whether there will be any other health care reform legislation this year, it’s a good time to review some of the tax-related ACA provisions affecting businesses:

Small employer tax credit. Qualifying small employers can claim a credit to cover a portion of the cost of premiums paid to provide health insurance to employees. The maximum credit is 50% of premiums paid by the employer, provided it contributes at least 50% of the total premium or of a benchmark premium.

Penalties for not offering complying coverage. Applicable large employers (ALEs) — those with at least 50 full-time employees (or the equivalent) — are required to offer full-time employees affordable health coverage that meets certain minimum standards. If they don’t, they can be charged a penalty if just one full-time employee receives a tax credit for purchasing his or her own coverage through a health care marketplace. This is sometimes called the “employer mandate.”

Reporting of health care costs to employees. The ACA generally requires employers who filed 250 or more W-2 forms in the preceding year to annually report to employees the value of health insurance coverage they provide. The reporting requirement is informational only; it doesn’t cause health care benefits to become taxable.

Additional 0.9% Medicare tax. This applies to:

• Wages and/or self-employment (SE) income above $200,000 for single and head of household filers, or
• Combined wages and/or SE income above $250,000 for married couples filing jointly ($125,000 for married couples filing separately).

While there is no employer portion of this tax, employers are responsible for withholding the tax once an employee’s compensation for the calendar year exceeds $200,000, regardless of the employee’s filing status or income from other sources.

Cap on health care FSA contributions. The Flexible Spending Account (FSA) cap is indexed for inflation. For 2017, the maximum annual FSA contribution by an employee is $2,600.

There’s also one significant change that hasn’t kicked in yet: Beginning in 2020, the ACA calls for health insurance companies that service the group market and administrators of employer-sponsored health plans to pay a 40% excise tax on premiums that exceed the applicable threshold, generally $10,200 for self-only coverage and $27,500 for family coverage. This is commonly referred to as the “Cadillac tax.”

The ACA remains the law, at least for now. Contact us if you have questions about how it affects your business’s tax situation.

© 2017