September 2013 Tax Alerts

Make Your Plan Accountable for Best Tax Treatment
Get Ready for the Net Investment Income Tax
Six Common Mistakes in Selling a Business


Make Your Plan Accountable for Best Tax Treatment

Are you looking for a way to give your employees a tax-free benefit that is also tax-deductible for your business? Why not consider an accountable plan?

An accountable plan is an arrangement that lets you reimburse your employees for expenses incurred on behalf of your company, such as driving to the post office or supply store. With a properly administered plan, you can deduct the reimbursements on your business tax return; yet the payments are not considered income to your employees.

How can you make sure your plan qualifies?

First, the reimbursements must be for allowable business expenses. For instance, you can repay employees for hotel and other travel expenses when traveling to a trade convention.

Second, your employees need to keep records of the expenses and provide those records to you.

Third, if you pay or advance your employees more than the amounts spent on business items, the extra must be returned, generally within 120 days. Amounts not returned to you are income to your employee, and are subject to payroll taxes.

The requirements are applied to each employee, and you can have more than one plan.

Contact us to discuss your policies for repaying employees' business expenses. We'll help you make your plan accountable.

Get Ready for the Net Investment Income Tax

Are you ready for the impact of the net investment income tax? This new 3.8% tax will appear for the first time on 2013 federal returns - and you don't want to wait until next April to find out if you'll have to pay.

Here's a quick refresher so you can begin to assess your exposure.

When the tax applies. When you plan to file a joint return, report investment income such as capital gains, dividends or interest, and expect this year's modified adjusted gross income to exceed $250,000, you may be affected by the net investment income tax. (The MAGI threshold is $200,000 when you file single or head of household, and $125,000 for married filing separately.)

What's MAGI? In this case, it's the amount you get when you add any excludable foreign income to your adjusted gross income. You're already familiar with adjusted gross income - that's the income on your return less above-the-line deductions such as moving expenses, alimony, or student loan interest.

What you can do. If you're coming up to the threshold, consider increasing your contributions to retirement plans. Installment sales, investments in municipal bonds, and timing asset sales can also help reduce your adjusted gross income.

Please give us a call for more suggestions. We'll run a tax projection, explain your options, and help you come up with a proactive plan.

Six Common Mistakes in Selling a Business

Most 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 for an appointment to help formulate your plan.