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Choosing the Right Retirement Plan to Maximize Benefits…

September 28, 2023 by BGMF CPAs

With the various restrictions and limitations on retirement plan contributions and benefits, small business owners and professionals may wonder whether it is possible to fund adequate retirement benefits for themselves using a tax-qualified plan. In many cases, it is — if the most appropriate plan design is chosen.

Why So Many Restrictions?

Many of the restrictions and limitations added to the federal tax code in the pension area have been aimed at making plans nondiscriminatory — i.e., making sure that the plan does not discriminate in favor of a firm’s highly paid employees. In some cases, the perhaps unintended effect of the restrictions has been to dampen enthusiasm for retirement plans because business owners question whether the benefits they will receive justify the expense of maintaining a plan.

What plans should a business owner who is concerned about funding his or her own retirement consider? Several possibilities are discussed below.

Age-Based Profit Sharing Plan

One type of plan that may be appropriate for many small business owners and professionals is the age-based profit sharing plan. The plan combines the traditional benefits of a profit sharing plan with the ability to allocate employer contributions to participant accounts using factors that consider both compensation and age. In contrast, traditional profit sharing plans allocate contributions based only on compensation, with each participant receiving a flat percentage of pay.

If employee demographics favor the age-based approach, more of the annual profit sharing plan contribution is shifted to the accounts of the older owner(s) and key employees participating in the plan. In some instances, the total plan contribution can be lowered while allocations to the owner and the key employees remain at the same levels — or even increase.

Target Benefit Plan

This type of plan is a cross between a defined benefit pension plan and a money purchase plan. It uses actuarial assumptions — including assumptions about remaining years to retirement — in determining the amount to be contributed for each participant. As with an age-based plan, no more than $66,000 a year (in 2023) can be added to each employee’s account, regardless of compensation or age. However, the plan is not as flexible as an age-based plan in that an annual employer contribution is generally required.

Defined Benefit Pension Plan

If the per-employee cap on additions to a plan account is a source of concern, a traditional defined benefit pension plan can often provide more lucrative benefits. With this type of plan, the closer a participant is to retirement age and the larger the promised retirement benefit, the higher the plan contribution, all else being equal.

Other Considerations?

Before deciding to implement any of these plans, the effect of the tax law’s top-heavy rules should be analyzed. These rules generally are triggered when key employees hold more than 60% of the account balances or accrued benefits in all plans sponsored by the employer. When a plan is top heavy, every active participant must receive a minimum contribution or benefit (3% of pay for a defined contribution plan).

There are both retirement and tax strategies to maximize contributions for the company’s employees and owners. This can be discussed in planning sessions we hold with clients on a regular basis.

Contact our team today to begin the process of reviewing or adding a retirement plan to your business.

Filed Under: General Business, Investing

4 Tips on How Small Businesses Can Reduce Taxes

November 15, 2022 by BGMF CPAs

As a small business owner, tax liability is the money you owe the government when your business generates income. With changing laws and gray areas regarding deductions, exemptions, and credits, it’s no wonder small business owners rank taxes at the top of the list of the most stress-inducing aspect of business ownership. To reduce that stress, taxes shouldn’t be something to focus on only at year’s end. Use these tips on reducing your business tax year-round and see your taxes and stress level decrease…

1. Business structure

Your company’s business structure is how it is organized – it answers questions like who is in charge, how are profits distributed, and who is responsible for business debt. The most common business structures are:

  • Sole proprietorships have one owner who takes all profits as personal income. The owner is personally liable for any business debts.
  • Partnerships are structured like sole proprietorships but can have an unlimited number of owners.
  • C corporations have unlimited shareholders who each own part of the company. Profits are distributed as dividends between them. Owners are not personally liable for business debts.
  • S corporations are structured like C corporations, but the number of shareholders is capped at 100.

In addition to affecting how a business operates, business structure impacts how much a company pays in taxes. The U.S. tax code is complex and includes four main tax categories:

  • Income tax – paid on profits
  • Employment tax – employee Social Security and Medicare contributions
  • Self-employment tax – Social Security and Medicare contributions for self-employed individuals
  • Excise tax – special taxes for specific goods and services like tobacco, alcohol, etc.

A sole proprietorship or partnership is a good idea for businesses wanting tax simplicity (legal protection discussions are important here as well). For those with less than 100 owners, an S corporation might be the right fit and best tax option. Again, business structure and tax laws are complex and are best determined by a qualified, experienced accountant.

2. Net Earnings

Net earnings (i.e., net income or profit) is the gross business income minus business expenses. Regardless of the business, it begins with gross income (the income received directly by an individual, before any withholding, deductions, or taxes), and allowable expenses are deducted to arrive at net income. How this figure is calculated is dependent upon business structure.

Net earnings are used to calculate business income taxes. Again, the calculation process differs slightly for different business structures. It is best to seek a professional to help with net earnings calculations for the proper calculation and maximum legal deductions.

3. Employ a Family Member

One of the best ways for small business owners to reduce taxes is hiring a family member. The (IRS allows a variety of options for tax sheltering. For example, suppose you hire your child, as a small business owner. In that case, you will pay a lower marginal rate or eliminate the tax on the income paid to your child. Sole proprietorships are not required to pay Social Security and Medicare taxes on a child’s wages. They can also avoid Federal Unemployment Tax Act (FUTA) tax. Consult a trusted accounting professional for details about the benefits of hiring your children or even your spouse.

4. Retirement contributions

Employee retirement plans benefit employees, but they can also be good for your small business. Employer contributions to an employee retirement plan are tax-deductible. They can also carry an employer tax credit for setting up an employee retirement plan. Again, this is a task an accountant can handle for you. They can guide you on retirement plan choices based on your business’s situation, employees, and other factors.

As a small business owner, you can deduct contributions to a tax-qualified retirement account from your income taxes (except for Roth IRAs and Roth 401(k)s). Sole proprietors, members of a partnership, or LLC members can deduct from their personal income contributions to their retirement account.

As with any tax situation, consulting your trusted accounting professional is always best. They are up to date on the latest tax laws, information, and allowable deductions. By being aware of ways your small business can reduce taxes, you can bring these topics up with your accountant, discuss the best options for you, and be prepared long before tax time rolls around.


This only scratches the surface when it comes to tax planning and minimizing taxes while building your wealth. Our team will cater to your goals with a full discussion and tax planning session.

Contact our tax professionals to learn more about how you can control tax exposure for your small business.

Filed Under: General Business, Tax Tagged With: business tax savings, reduce taxes, tax planning, tax savings strategies

Pandemic Is a Wake-Up Call for Underinsured Small Businesses

June 18, 2021 by BGMF CPAs

business insuranceMany small businesses have been devastated by the coronavirus pandemic. Unlike their larger brethren, small companies typically lack the cash cushion or access to funds that bigger businesses enjoy. Even with new programs to help small businesses out, such as the Paycheck Protection Program, many are seeing their resources run dry. A large number of them will not survive.

Those that do make it may want to look into their insurance coverage. Business insurance can cover a wide variety of issues, including property damage, liability, lawsuits, loss of key employees – and especially important today – loss of business income.

If it has been some time since you last reviewed your business’s insurance coverage, now may be a good time to conduct an in-depth review of your policies. A review can help detect shortcomings in coverage and help you protect your livelihood from financial harm.

What’s the “Right” Amount of Coverage?

It’s likely that you have commercial property and general liability coverage as well as additional policies. However, it may be that things have changed in your business since you last reviewed your policies — new locations, updated equipment, or other changes. The right amount of coverage should reflect the current status of your business. You may also consider reviewing your deductibles. Raising deductible amounts to reduce policy premiums is considered a fiscally sound strategy — but only up to a point. The bottom line is that if you cannot afford to pay the deductible, it is too high.

Look for Gaps in Your Coverage

Review your policies thoroughly before you renew them. In particular, look for new exclusions, since these can potentially expose your business to risks you assumed were covered. The review period is also a good time to dig deep into the financial soundness of your insurance carriers. Various insurance ratings agencies, such as A.M. Best, Moody’s Investors Service, Standard and Poor’s, and Fitch Ratings, measure the financial health of insurance companies and their ability to pay policy holders’ claims. Each ratings agency employs its own ratings system, though these are generally similar to letter grades used in education.

Take the time to investigate new areas of potential vulnerability that could harm your business. For example, what if there are repeated waves of coronavirus infections, resulting in more lockdowns and closures? Or what if another pandemic hits? Business income insurance may help cover your costs until your business is up and running again, helping you to continue to pay expenses, such as payroll and monthly bills, until the crisis has passed. But you’ll want to make sure crises such as a pandemic are covered, and the specific terms of coverage.

Insure Your Most Valuable Resources

Who is essential to your business’s success? Most likely, it’s you, your partner, or your most productive salesperson. Think what might happen if you or that person were to die unexpectedly. Your revenues could fall, your operations could be disrupted, and the future of your company could be placed in danger. A key person life insurance policy can provide the funds to carry on with operations as usual.

With a key person life insurance policy, the business buys the policy, pays the premiums, and is the beneficiary. If you or the other insured person were to die, the proceeds from the policy would be available to help your business make up for lost sales and interrupted cash flow. The proceeds also could help hire and train a replacement or permit the business to move on with any business or expansion plans. This calculator can give you an idea of the factors that determine how much personal life insurance coverage is typically called for.

Find Help

It can be time consuming and somewhat difficult to conduct a thorough insurance review. But as recent history shows, bad things can come out of nowhere and devastate your business. That’s why it may make sense for you to work closely with your financial professional to see if your business’s insurance coverage continues to meet your needs.

BGMF CPAs is not an insurance provider, but we do work with directly with them and our clients to obtain proper insurance. Contact us to discuss this complex subject further along with other strategies to protect your business and wealth.

Filed Under: General Business Tagged With: business insurance, pandemic, protecting assets

Family Business and Next Generation

October 25, 2019 by BGMF CPAs

family business next generationCreating a business that can be passed down to the next generation is a great way to build a legacy in the family and set up future generations.

Having your children work in the family business is a great way to teach your kids about work ethic and money management, and to kick-start their retirement or college savings plan.

It can also enable you to pay your children resulting in less taxes, providing a great tax planning strategy.

However, is having your children work in your family-owned business a blessing or a curse? Mixing business with pleasure and doing so with family can go from an exciting event to a decision you may regret (but not always).

Below are five tips for making it a blessing and preventing it from being curse:

Have them work elsewhere for at least five years. They need time to mature, becoming their own individuals, and to gain confidence learning and doing things as distinct human beings rather than just children of successful parents. Kids need to learn how to work, to be punctual, to earn their own money and to be held accountable. Everyone wins when potential successors have excellent training and gain skills and confidence outside the nuclear family.

Consider this scenario: A family-owned restaurant in a small town occasionally has three generations working together on a Friday night. The children are under the age of 16. Assuming that child labor laws have been taken into account, the family is content that they are passing on a tradition and family trade. The kids work one or two nights during the weekend.

In this example, the family is limiting the number of hours, and their expectations are reasonable. It’s a way for children to learn the family business and helps them gain self-respect. Indeed, one adult who remembers working with his mother in a greenhouse when he was 12 and 13 recalls that the job was hot, dirty and exhausting. However, he recalls he got paid for the work he did, and it gave him a greater appreciation for the work his parents did to support their family.

Understand generational differences. Today’s young people are far more likely to want to work to live rather than adopt their parents’ “live to work” attitude. That’s why your adult children don’t want to work 80-hour workweeks. Younger children and other employees are most likely looking for a different workplace experience.

With that said, if they have incentive to see the family business succeed, they will put the time and effort necessary to ensure this happens. Thereby, taking pride in the family business.

Give psychometric assessments to make their personalities/capabilities fit their jobs. One child may be temperamentally unsuited for a position demanding detail and strict deadlines; he or she may be more of a big-picture, laissez-faire personality. Assessing such things will go a long way to improving both business function and family harmony.

Hold them accountable, but not to an unreasonable standard. Give your kids crystal-clear roles and responsibilities and regular reviews so they know whether they’re living up to their job descriptions. The biggest morale killer in small businesses is under-performing or dysfunctional family members who are allowed to meander through various roles with virtually no accountability and to inflict themselves on others in your organization. In that case, pruning the family tree almost always results in improved business productivity.

Communicate formally and regularly with a third-party facilitator. Virtually every family employee thinks he or she works harder and contributes more than anyone else and stews over this. Family businesses have a greater need for formal communication to resolve perceived contribution issues, especially if you decide a family member is ill-suited to working at your company. You need to be able to discuss volatile topics constructively and productively. Seek the help of a talented facilitator to get the most from your family business.

It can be a wonderful experience for all involved to have your children work with you. Just remember that it’s a delicate balancing act that needs your attention.

BGMF CPAs offers consulting services to assist in situations surrounding family businesses.  Contact our team today to see how we can help ensure your family business is set up for future generations.

Filed Under: General Business, Succession Planning Tagged With: family business, paying children, succession planning, tax strategies

Winning Over a Larger Competitor

July 26, 2019 by BGMF CPAs

Winning over larger competitorRunning a small business isn’t easy. You probably wouldn’t have it any other way. The ability to survive and thrive is a source of great pride for small business owners.

So when a competitor moves in — especially a big one — it can feel like battle lines have been drawn.

Competition is a good thing. That is why you see you multiple fast food restaurants on the same block. If you are set up properly you will be able to not only compete, but win with your business.

Don’t fear competition and realize that smaller can mean moving faster and more efficient, but you have to be set up for that.

Below are a few tips on how to win over a larger competitor. Our team can help you strategize to ensure you’re in the right position to win if competitors move in!

Sharpen Your Edge

Before you do anything, accept the fact that you can’t compete on the same level as a large national chain. But that doesn’t mean you can’t win the battle. Study what the competition does and how they do it. Then use that information to define — and sharpen — your company’s competitive edge.

You will need to know what your USP is and what your strengths are to succeed against competition.

A large competitor will almost certainly have lower prices and a deeper inventory. But you can connect with customers in ways the competition can’t. You can add value to every customer interaction by being attentive and providing expertise and personalized service.  Price should not be what you’re competing on.

Perhaps your biggest edge is your size. Being small means you can respond to market trends and customer requests more quickly. You can also change and adapt policies and procedures faster.  Larger companies move at a much slower pace in many cases.

Rally the Troops

You have another big advantage; you have an established customer base and you know what they need. Establish a timeline to reach out to your customers directly via snail mail or e-mail (or both) with special offers.

If you have a loyalty program, consider doubling rewards for a period of time that overlaps with the competition’s opening. Get feedback from customers and employees on areas of improvement or wants they would like to have.

Look for Advantages

Having a big competitor move in may have some unexpected benefits. The new company validates the need for what your business offers and may do a fair amount of advertising.

If your marketing budget allows, this could be a good time to do some strategic advertising of your own. Use technology and social media to continue to get the word out and build a following.

The competition also may create some unexpected opportunities in the future. The new company will change the dynamics of the marketplace, which may lead you to steer your business in a new direction.

Don’t get left behind. Contact us today to discover how we can help you keep your business on the right track. Don’t wait, give us a call today.

Filed Under: General Business Tagged With: business consulting, business strategy, competition

Why You Need a Business Continuity Plan

June 19, 2019 by BGMF CPAs

business continuity against disasterWhat if disaster strikes your business? An estimated 25% of businesses don’t reopen after a major disaster strikes.1 Having a business continuity plan can help improve your odds of recovering.

Here in the Midwest we have recently been stricken with some major weather including flooding, a multitude of tornadoes and other factors outside our control that have the potential to devastate a community including the businesses.

As auditors, part of our process is to analyze risk exposure within a Company. This includes having a plan in place in case of a disaster that would cripple the business if proper steps were not implemented in a timely fashion.

Business continuity plans can be simple and efficient or complex and costly depending on the type of organization.  Below we provide an overview of how a continuity plan works and why there should be one in place.

The Basic Plan

The strategy behind a business continuity (or disaster recovery) plan is straightforward: Identify the various risks that could disrupt your business, look at how each operation could be affected, and identify appropriate recovery actions.

Make sure you have a list of employees ready with phone numbers, email addresses, and emergency family contacts for communication purposes. If any of your employees can work from home, include that information in your personnel list. You’ll need a similar list of customers, suppliers, and other vendors. Social networking tools may be especially helpful for keeping in touch during and after a disaster.

Risk Protection

Having the proper insurance is key to protecting your business — at all times. In addition to property and casualty insurance, most small businesses carry disability, key-person life insurance, and business interruption insurance. And make sure your buy-sell agreement is up to date, including the life insurance policies that fund it. Meet with your financial professional for a complete review.

Maintaining Operations

If your building has to be evacuated or destroyed, you’ll need an alternative site. Talk with other business owners in your vicinity about locating and equipping a facility that can be shared in case of an emergency. You may be able to limit physical damage by taking some preemptive steps (e.g., having a generator and a pump on hand).

This aspect is critical to ensure you continue to operate or get back up and running quickly.  There are different tiers of disaster recover that can be utilized as part of your business continuity plan.

You’ll want to analyze the business impact to identify functions and resources that are time-sensitive. You will review what critical business functions must be recovered and what steps to take. You should consider having a continuity team in place to help devise and manage this plan. Finally, ensure the team is well-trained and worked through all procedures.

Protecting Data

A disaster could damage or destroy your computer equipment and wipe out your data, so take precautions. This could include a natural disaster or a malicious attack on your organization to get into secure data. Invest in surge protectors and arrange for secure storage by transmitting data to a remote server or backing up daily to storage media that can be kept off site.  With today’s technology, work with your IT consultants to plan around protecting your data in the most efficient way possible.

Protecting Your Business

If you think your business is too small to need a plan or that it will take too long to create one, just think about how much you stand to lose by not having one. Meet with your BGMF CPA for a full review and begin mapping out a plan that makes sense for your situation and budget.

Source/Disclaimer:

1Source: U.S. Small Business Administration, www.sba.gov/content/disaster-planning.

Filed Under: General Business Tagged With: business continuity, business planning, disaster planning

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