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Why You Need a Business Continuity Plan

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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.

Time to Check Your Withholding

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check tax withholdingIn light of the tax law changes made by the Tax Cuts and Jobs Act of 2017, it may be an appropriate time for taxpayers to review their withholding.

Changes to the tax rates and brackets, the removal of personal exemptions and certain other deductions, the new limit on the deduction for state and local taxes, and various other modifications may have a significant impact on personal income tax liabilities.

BGMF CPAs offers tax planning services to clients to properly strategize and save in taxes.  Like many taxpayers found out during tax filing season, their withholding was lower than expected, resulting in lower refunds or a tax bill. At a minimum we recommend reviewing your withholding to ensure you’re not surprised next tax filing season.

The IRS offers workers the opportunity to perform a quick “paycheck checkup” to make sure they have the right amount of tax withheld from their paychecks. The IRS Withholding Calculator can be found at http://irs.gov/individuals/irs-withholding-calculator.

Getting it right is important since you could face an unexpected tax bill or penalty at tax time next year if you have too little tax withheld. Or, if you have too much tax withheld, you may be eligible for a tax refund. Many people see a large tax refund as a plus — but in reality a large tax refund is effectively an interest-free loan of taxpayer money to the IRS. A better approach may be to have less tax withheld up front and receive more in your paycheck. That way, the extra money would be available to save or invest, pay down debt, or spend as you see fit.

The withholding calculator can help you figure out if you need to give your employer a new Form W-4, Employee’s Withholding Allowance Certificate. Your results from the calculator can be used to help you fill out the form and adjust your income tax withholding.  If you prefer not to calculate this yourself we’re glad to help. Please contact us today to start that conversation.

Steps to Take

The key is to plan ahead. Before you access the calculator and start entering data, the IRS suggests that you:

  • Have your most recent pay stubs within reach.
  • Have a copy of your most recent income tax return available. A copy of your completed Form 1040 can assist you in estimating your 2019 income and identifying other items that may affect your tax.

The IRS cautions that the calculator’s results will only be as accurate as the information you enter. If there is a change to your circumstances during the year, you will have to use the calculator again to ensure that your withholding is still correct.

Moreover, the IRS withholding calculator may not work for those with more complex tax situations. Taxpayers who owe self-employment tax, alternative minimum tax, the tax on unearned income of dependents, or certain other taxes, and those with long-term capital gain or qualified dividends should use the instructions in Publication 505, Tax Withholding and Estimated Tax.

If you have questions about your withholding or would like assistance with analyzing your tax situation, consult with your tax advisor.  We’re available all year around to answer your questions.

Tax Deductions When Traveling for Business and Pleasure

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business travel and taxBusiness owners who travel out of town on business sometimes like to extend their trips and take a little time to relax and see the sights. When a trip is partly for business and partly for pleasure, various expenses may still be deductible.

Domestic Travel

A self-employed individual whose trip is primarily for business may deduct the full cost of the travel itself (such as airfare or train fare) even though some of the trip is devoted to personal activities.1 Additionally, various other expenses allocable to business, such as lodging and 50% of meal costs incurred on the business days, are deductible.

There needs to be a legitimate business purpose for each person taking the trip for there to be a write-off.  For example, if your spouse or kids travel with you, the cost of their travel may not be deductible if they are not involved in the business.

In addition, you may have to allocate a portion of the trip when both business and personal activities are intertwined.How do you maximize your deductions when traveling? Easy! Turn more days into business days. Consider getting your spouse and kids involved and find ways to conduct business-related matters.  Ultimately, you’ll have to demonstrate how the activities performed helped your business.

If a trip is primarily for personal reasons, the entire cost of the travel is a nondeductible personal expense. However, expenses incurred while at the destination that are directly related to the taxpayer’s business may be deducted.

For example, if you travel to Disney with your family and set up a couple of lunch meetings with clients in the area, the cost of the meals could be deductible as a business expense. The trip to Disney would be non-deductible.

Foreign Travel

The deductibility rules for combined business/pleasure trips outside of the U.S. are a little more complicated in some respects. Even if the primary purpose of the trip is business, the cost of the travel itself generally has to be allocated, and only the business portion is deductible. However, no allocation has to be made — and the full travel cost is deductible — if:

  • The trip lasts for no more than seven consecutive days (excluding the day of departure but including the day of return); or
  • Personal days total less than 25% of the total days spent on the trip (including both the day of departure and the day of return); or
  • The taxpayer can establish that the opportunity to take a personal vacation was not a major consideration for the trip.
  • For these purposes, business days include days when business is conducted for only part of the day, days spent traveling to and from a business destination, and weekend days or holidays that fall between two business days.

As this brief overview suggests, with smart planning, self-employed business owners can maximize their write-offs for combined business/pleasure travel.

Contact us today to discuss how we can help you maximize your deductions and limit your tax liability with proper planning.

Source/Disclaimer:

1Under The Tax Cuts and Jobs Act of 2017, employees may no longer deduct unreimbursed employee business expenses as a miscellaneous deduction, effective with the 2018 tax year.

10 Things to Know About an LLC

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Whenever we meet with clients who want to start a business or invest in real estate, the discussion of what type of entity to select is always part of the discussion. The LLC has become a very popular entity for businesses for many reasons including protection, tax planning, flexibility and other reasons we won’t cover in this post.

An LLC may not always be the right choice for entity selection, but that is something we discuss during those consultations.  Below we share some insights to help you decide if an LLC is the right way to go for your business.

You probably know of several businesses whose formal names end with the acronym LLC. And you probably also know that LLC stands for limited liability company. Here are 10 things you may not know.

  1. An LLC generally protects its owners from personal liability for business obligations in much the same way a corporation does, but an LLC is not a corporate entity.1
  2. Like a corporation, an LLC can do business in multiple states, although an LLC must be organized in a specific state.
  3. The owners of an LLC are called members. There is no limit on the number of members an LLC can have, and members don’t necessarily have to be individuals. Members’ management roles are typically spelled out in an operating agreement.
  4. Upon formation of an LLC, the members contribute cash, property, or services to the LLC in exchange for LLC shares or units.
  5. An LLC may borrow money in its own name and is responsible for repayment of the debt.
  6. An LLC is usually treated as a partnership for federal income tax purposes if there are two or more members. If there is a sole member, it is considered a disregarded entity for tax purposes.

    (The remaining four points assume partnership treatment.)

  7. Like partners, LLC members are not considered employees of the company. However, an LLC can have non-member employees.
  8. LLC members are taxed directly on company income. The LLC itself doesn’t pay federal income taxes.
  9. If an LLC has a loss, its members generally can deduct their share of the loss on their own tax returns.
  10. For tax purposes, an LLC’s income and losses are divided among its members according to the terms of their agreement. Tax allocations must correspond to economic allocations of profit and loss.

An LLC is but one structure you might consider using for a business venture. The input of a professional may be helpful in determining which type of arrangement will best meet your objectives.

BGMF CPAs can help guide you through the entity selection process as part of your planning and strategy to start and operate your business or real estate venture. There are some great tax planning strategies that can be utilized through the LLC that can also be discussed.  Talk with one of our advisors today.

Source/Disclaimer:

1Each state has its own laws governing LLCs. Consult with an attorney before establishing an LLC.

Tax Strategies for Retirees

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retirement tax strategies

Now that the 2018 tax filing season is partially behind us, our Springfield, OH CPA firm is starting to review tax strategies for a variety of groups, including retirees at varying stages of their retirement.

As the dust settles, we continue to dive deeper into how the new tax laws are impacting individuals.

Nothing in life is certain except death and taxes. — Benjamin Franklin

That saying still rings true roughly 300 years after the former statesman coined it. Yet, by formulating a tax-efficient investment and distribution strategy, retirees may keep more of their hard-earned assets for themselves and their heirs. Here are a few suggestions for effective money management during your later years.

Less Taxing Investments

Municipal bonds, or “munis,” have long been appreciated by retirees seeking a haven from taxes and stock market volatility. In general, the interest paid on municipal bonds is exempt from federal taxes and sometimes state and local taxes as well (see table).1 The higher your tax bracket, the more you may benefit from investing in munis.

Also, consider investing in tax-managed mutual funds. Managers of these funds pursue tax efficiency by employing a number of strategies. For instance, they might limit the number of times they trade investments within a fund or sell securities at a loss to offset portfolio gains. Equity index funds may also be more tax efficient than actively managed stock funds due to a potentially lower investment turnover rate.

It’s also important to review which types of securities are held in taxable versus tax-deferred accounts. Why? Because the maximum federal tax rate on some dividend-producing investments and long-term capital gains is 20%.3 In light of this, many financial experts recommend keeping real estate investment trusts (REITs), high-yield bonds, and high-turnover stock mutual funds in tax-deferred accounts. Low-turnover stock funds, municipal bonds, and growth or value stocks may be more appropriate for taxable accounts.

The Tax-exempt Advantage: When Less May Yield More
Would a tax-free bond be a better investment for you than a taxable bond? Compare the yields to see. For instance, if you were in the 25% federal tax bracket, a taxable bond would need to earn a yield of 6.67% to equal a 5% tax-exempt municipal bond yield.
Federal Tax Rate 12% 22% 24% 32% 35% 37%
Tax-exempt Rate Taxable-equivalent Yield
4% 4.55% 5.13% 5.26% 5.88% 6.15% 6.35%
5% 5.68% 6.41% 6.58% 7.35% 7.69% 7.94%
6% 6.82% 7.69% 7.89% 8.82% 9.23% 9.52%
7% 7.95% 8.97% 9.21% 10.29% 10.77% 11.11%
8% 9.09% 10.26% 10.53% 11.76% 12.31% 12.70%
The yields shown above are for illustrative purposes only and are not intended to reflect the actual yields of any investment.

Which Securities to Tap First?

Another major decision facing retirees is when to liquidate various types of assets. The advantage of holding on to tax-deferred investments is that they compound on a before-tax basis and therefore have greater earning potential than their taxable counterparts.

On the other hand, you’ll need to consider that qualified withdrawals from tax-deferred investments are taxed at ordinary federal income tax rates of up to 37%, while distributions — in the form of capital gains or dividends — from investments in taxable accounts are taxed at a maximum 20%.* (Capital gains on investments held for less than a year are taxed at regular income tax rates.)

For this reason, it’s beneficial to hold securities in taxable accounts long enough to qualify for the favorable long-term rate. And, when choosing between tapping capital gains versus dividends, long-term capital gains are more attractive from an estate planning perspective because you get a step-up in basis on appreciated assets at death.

It also makes sense to take a long view with regard to tapping tax-deferred accounts. Keep in mind, however, the deadline for taking annual required minimum distributions (RMDs).

The Ins and Outs of RMDs

The IRS mandates that you begin taking an annual RMD from traditional individual retirement accounts (IRAs) and employer-sponsored retirement plans after you reach age 70½. The premise behind the RMD rule is simple — the longer you are expected to live, the less the IRS requires you to withdraw (and pay taxes on) each year.

RMDs are now based on a uniform table, which takes into consideration the participant’s and beneficiary’s lifetimes, based on the participant’s age. Failure to take the RMD can result in a tax penalty equal to 50% of the required amount. Tip: If you’ll be pushed into a higher tax bracket at age 70½ due to the RMD rule, it may pay to begin taking withdrawals during your sixties.

Unlike traditional IRAs, Roth IRAs do not require you to begin taking distributions by age 70½.2 In fact, you’re never required to take distributions from your Roth IRA, and qualified withdrawals are tax free.2 For this reason, you may wish to liquidate investments in a Roth IRA after you’ve exhausted other sources of income. Be aware, however, that your beneficiaries will be required to take RMDs after your death.

Estate Planning and Gifting

There are various ways to make the tax payments on your assets easier for heirs to handle. Careful selection of beneficiaries of your accounts is one example. If you do not name a beneficiary, your assets could end up in probate, and your beneficiaries could be taking distributions faster than they expected. In most cases, spousal beneficiaries are ideal because they have several options that aren’t available to other beneficiaries, including the marital deduction for the federal estate tax.

Also, consider transferring assets into an irrevocable trust if you’re close to the threshold for owing estate taxes. In 2018, the federal estate tax applies to all estate assets over $11.2 million. Assets in an irrevocable trust are passed on free of estate taxes, saving heirs thousands of dollars. Tip: If you plan on moving assets from tax-deferred accounts, do so before you reach age 70½, when RMDs must begin.

Finally, if you have a taxable estate, you can give up to $15,000 per individual ($30,000 per married couple) each year to anyone tax free. Also, consider making gifts to children over age 14, as dividends may be taxed — or gains tapped — at much lower tax rates than those that apply to adults. Tip: Some people choose to transfer appreciated securities to custodial accounts (UTMAs and UGMAs) to help save for a grandchild’s higher education expenses.

Strategies for making the most of your money and reducing taxes are complex. Your best recourse? Plan ahead and consider meeting with a competent tax advisor, an estate attorney, and a financial professional to help you sort through your options.

BGMF CPAs can provide the resources you’ll need to plan properly moving forward.  Contact our team today!

Source/Disclaimer:

1Capital gains from municipal bonds are taxable, and interest income may be subject to the alternative minimum tax.

2Withdrawals prior to age 59½ are generally subject to a 10% additional tax.

3Income from investment assets may be subject to an additional 3.8% Medicare tax, applicable to single-filer taxpayers with modified adjusted gross income of over $200,000 and $250,000 for joint filers.

How to Hire the Right Accountant

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hire a CPAChoosing an Accountant Who Puts Your Goals First

There is an endless supply of do-it-yourself accounting software, tax preparation tools and websites, and the sheer volume of options can lead you to believe the process of handing this function of your business or tax situation is simple.

However, a DIY approach only works if you are satisfied with paying more than necessary and questioning whether your business is making money or not. Tax preparation software handles all of the basics, importing income and considering common tax deductions. Accounting in itself is challenging and it’s important to ensure your financials are accurate to know how to make proper decisions.

Unfortunately, when it comes to careful application of less-common tax-reduction techniques, these programs simply can’t compete with a skilled tax professional.

Our most successful clients utilize our Springfield, OH CPA firm to the fullest based on their individual and business needs. Robert Kiyosaki (Author or Rich Dad Poor Dad) said, business and investing are team sports and surrounding yourself with a quality team of professionals will assist you in achieving your goals.

Trying to save money upfront, majority of the time, will cost you in the long run.

Six Reasons to Hire a Highly-Qualified Accountant

As you know from your experience in business settings, companies that focus on their core mission are more successful. Devoting internal resources to creating excellent products and services, while outsourcing peripheral functions like IT and HR, makes it possible to innovate and deliver best-in-class solutions.

Focusing on your core mission is just as critical when it comes to taxes and accounting. The time you would spend trying to track down tax and financial information is better applied elsewhere, and you are likely to pay more in the end anyway. Cleaning up accounting and tax matters is more time consuming and costly to you.

These are six ways your accountant will free up resources for you to use in ways that will further your personal mission:

  • The tax code is constantly changing, and deductions that were available last year may not be appropriate today. Conversely, expenses you couldn’t deduct in previous returns may now be permitted. A skilled accountant stays on top of these changes and applies them to your situation, so you don’t have to complete extensive research.
  • Much of the tax code is spelled out and clarified based on specific cases. Unless you are following industry developments day in and day out, you are likely to miss all but the most significant decisions. Your accountant has years of experience with filing returns, and continuing education is required in every state. You can be sure that these professionals understand what works – and what doesn’t.
  • Experience also helps when it comes to developing your long-term tax savings strategy. Accountants have watched businesses grow and change, and they know how to get results. Their expertise in complex decisions like choosing a business entity or whether to consider cost segregation can be invaluable.
  • Different types of income are taxed at varying rates, and do-it-yourself filers often assume there is nothing that can be done to change their circumstances. Talented accountants know better. With the help of a skilled professional, it may be possible to move income from high-tax categories to low-tax categories, which can mean significant savings. .
  • Assisting with accounting and financial reporting matters ensures an expert review enabling you to focus on other strategies. Each day, week or month you will confidently know where you stand from a financial aspect.
  • Finally, timing is always important in the financial world, and that holds true when it comes to your tax strategy. Accountants have a deep understanding of the economy’s ebb and flow, and they notice patterns that have played out over the course of their careers. They use this experience to advise on when and how to apply tax strategies for maximum savings.

Learn more about why and how to choose the right accountant for all of your tax, accounting and consulting needs by clicking here!