Planning Ahead for Retirement

Transferring Your Retirement Savings?

When moving around your retirement savings, it is always best to have a plan. There are several options available to you when changing a job or just changing your retirement plan. 

  • Lump sum withdraws from your 401(k) from your old employer. Generally, this option is not advisable unless, in dire need of cash, as it can considerably reduce your retirement savings. Also, this could end up boosting you up into a higher tax bracket. Either way, you’ll end up paying more taxes.
  • Leave the money in your old employer’s 401(k) plan. Generally, once you reach retirement age, your former employer may require you to withdraw the balance. The balance may also be left in the old plan temporarily while you look into new plans and find the right one for you. Unfortunately this not always an option. If your vested balance is $5,000 or less, your old employer may require you to take it out upon leaving the company.
  • You can choose to have your balance transferred directly to your new plan, if allowed, through your financial institution. This is generally the best decision as the savings go on without any disruption or withholdings.
  • Another option, within the transfer option, is to have a check made out to you for the amount and then to deposit the check into your new employer’s plan or an alternate IRA. When using this option, you should be aware of the implications that come along with it, primarily the 60 day window that you must transfer the deposit within. Not doing so can have hefty tax consequences. The full amount will be taxable and if you are under the age of 59 and a half then you will be subject to a 10% penalty. Generally, taxpayers do not knowingly miss the 60 day window and have unwillingly faced financial burdens as a result. Because of this the IRS has cut taxpayers a break and provided a set of rules designed to offer relief from penalties. 

Basic Qualifying Factors:

  • An error was committed by the financial institution receiving the contribution or
  • making the distribution to which the contribution relates;
  • The distribution, having been made in the form of a check, was misplaced and
  • never cashed;
  • The distribution was deposited into and remained in an account that the
  • taxpayer mistakenly thought was an eligible retirement plan;
  • The taxpayer’s principal residence was severely damaged;
  • A member of the taxpayer’s family died;
  • The taxpayer or a member of the taxpayer’s family was seriously ill;
  • The taxpayer was incarcerated;
  • Restrictions were imposed by a foreign country;
  • A  postal error occurred;

Myriad options exist when rolling your retirement plan assets, including utilizing these new rules in the event an inadvertent violation of the 60-day rollover provision occurs. 

Contact your William Vaughan Company advisor for more information and to discuss these rules in depth. 

- Matthew J. Babcock, Staff Accountant

Categories: Audit & Accounting, Other Resources

Home Sweet Office

Do you have a room in your home that you use just for your business? If so, you could claim a deduction on your tax return for your home office. 


Before we get ahead of ourselves, we should acknowledge that you will have to meet certain requirements. However, most are able to deduct a percentage of the costs of running the home such as utilities, rent, insurance, depreciation, mortgage interest, real estate taxes, some casualty losses, repairs, and improvements as related to the portion of your home used for business.


A “home”, as defined by the IRS, can be a condo, house, apartment, mobile home or boat (with provided amenities). The home can be rented or owned,  however, to qualify for the home office deduction you must meet two tax law requirements:

  1. You must regularly use part of your home exclusively for a trade or business. 
  2. You must be able to show that you use your home as your principal place of business meaning you meet patients, clients, or customers at your home or you use a separate structure on your property exclusively for business purposes. 

Regular use: 

The IRS doesn’t offer a clear definition of regular use – only that you must use a part of your home for business on a continuing basis, not just for occasional or incidental business. You should qualify by working a couple days a week for a few hours. 

Exclusive use: 

Exclusive means that you must use a portion of your home only for your business. If you use a portion of your home for work but also for personal use then you will not meet that requirement. However, you are able to use a portion of a larger room as long as your personal activities do not enter that area.  There are two exceptions to the exclusive use rule. If you run a qualified daycare out of your home or store inventory or product samples then you do not have to meet the exclusive use test. 

If you are storing inventory or samples in your home, you can still qualify for the home business expense even if you are not using that space exclusive for your business.The inventory will need to be stored in a certain location such as the garage, a closet, or bedroom.  However, you will not get the deduction if you have an office or business location outside of your home. 

Remember you can only claim this deduction if you are running a business. If the IRS believes it’s a hobby the deduction will not be honored. 

- Brittany Jennings, Staff Accountant

Categories: Audit & Accounting, Other Resources

Looking to Sell?

240_F_101916353_CLAc4e3dzc1FPbfNwJctpwVCrbqBZclbAre you looking to sell your business? Maybe you’re considering retirement, in poor health, or just ready to cash in. Whatever your reason, you should be aware of the complexity of your venture, as well as the tax consequences that come along with it. The very first step should always be consulting with your WVC adviser. You can obtain an accurate business valuation and develop a tax planning strategy to minimize capital gains, and any other taxes from the sale, to maximize your profits.

Most business owners do not know how much their business is worth. This can result in severely under or overestimating a proper selling price. Obtaining a third party business valuation allows owners to sell at a price that is realistic for potential buyers, while maximizing the total value and profit at the same time.

As a business owner, you may think of your business as a single entity sold for one lump sum. However, it is actually a combination of assets to be sold that will be subject to different taxes under federal and state laws. The IRS requires each asset to be classified as capital assets, depreciable property used in the business, real property used in the business, goodwill or property held for sale to customers. The gain or loss on each asset is figured separately, classified as capital or ordinary, and taxed accordingly.

The sale of depreciable property can be tricky. Section 1231 gains and losses are the taxable gains and losses from the sale or exchange of real or depreciable property held for longer than one year. Whether you have a net gain or loss from all 1231 transactions determines if they will be treated as ordinary or capital. When section 1245 or 1250 property is sold at a gain, you may have to recognize all or part of the gain as ordinary income due to depreciation recapture rules. The remaining gain would be considered a 1231 gain.

The way a business is taxed when sold also depends on the business structure. “Pass-through” entities such as sole proprietorship, partnerships, and limited liability companies are required to sell each asset separately. This provides much more flexibility when structuring a sale to benefit both the buyer and seller with regard to tax consequences.

Corporations and s-corporations are subject to more complex regulations when selling assets and stock. For example, when a corporation is sold, the seller is taxed twice for all assets. The corporation pays any gains tax when the assets are sold, and the shareholders pay capital gains tax when the corporation is dissolved. On the other hand, s-corporations are only taxed once. Income or loss flows through to the shareholders who then report it on their individual tax returns.

Are you thinking of selling your business soon? Our team of business valuation and tax planning experts can help you make the most money with the least amount of consequence.

-Halie N. Baker, Staff Accountant

Categories: Other Resources

Disaster Recovery Planning: Protecting Your Business

Fire, floods, hurricanes, earthquakes. When they happen, they can destroy buildings, equipment, and hard-to-replace data, and even injure or kill employees. It can take a business weeks, sometimes months, to resume operations after a disaster. Some businesses never recover. You can’t pin down the time or day when a disaster may strike your business. However, you can certainly prepare for one. Preparing for a disaster can minimize the potential damage and may protect you and your employees from harm.

Knowing what to do if a disaster strikes your business is half the battle. Savvy business owners draw up a disaster plan and update it regularly. They consult with experts and draw on the lessons learned from the past. Moreover, they designate alternate business sites, emphasize data preservation, and ensure that the business’ insurance coverage is sufficient.

Drawing Up a Disaster Plan If your business does not already have a disaster plan, now may be a very good time to develop one. Consider forming a disaster planning committee and assign it the task of crafting and implementing a disaster plan for your business. Give committee members the opportunity to attend seminars, meet with experts, and take training courses related to disaster planning.

If your disaster plan is to have any value at all, it must, at a minimum, outline in detail all of the steps managers and employees need to take if disaster hits your business. An effective and workable disaster plan should cover personnel safety and management succession.

Personnel Safety and Management Succession

An effective disaster plan should clearly identify safety areas for employees as well as an evacuation route. Specific individuals should be responsible for confirming that all employees have reached the safety area. The plan should outline a chain of command, indicating the responsibilities and duties assigned to each manager or employee during a disaster.

A list of emergency phone numbers — hospitals, doctors’ offices, and the company’s lawyers and accountants — is an important part of the plan. Be sure to include the home phone numbers of employees and the names of family members who can be contacted in an emergency.

Ensuring management continuity after a disaster should also be a top priority. That requires establishing procedures that detail the responsibilities and duties of each member of the management team in the days and weeks after a disaster. The procedures should clearly define a line of succession and give instructions on how to communicate any changes or information to employees, customers, vendors, and professional advisors. Creating and implementing these procedures helps keep your business operational during a difficult time.

Alternate Business Sites Getting your business up and running after a disaster is much easier if you have an off-site facility for storing backed-up data vital to your operations. You’ll need to be able to access customer and vendor lists, accounts receivable records, and other critical records if you are to resume operations quickly. Make sure you identify and classify corporate data according to its importance and begin to back it up as soon as possible.

It may be worthwhile to look into alternate business sites, essentially office complexes with computers, work areas, and phones. When disaster strikes, you move your personnel to the alternate site.

Insurance Coverage Review your business insurance policies to identify any potential shortcomings in your coverage. Business interruption insurance, which compensates a business for the loss of operating income when normal operations are disrupted by disaster, is a key element in business insurance planning. Take the time to periodically reexamine your business’ umbrella liability, fire, vehicle, and property insurance. Keep several copies of all your policies at different locations.

Don’t Let Your Plan Gather Dust Make sure key employees receive a copy of the disaster plan. Keep it updated. Practice emergency drills. A proactive approach can potentially minimize the impact of a disaster.

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Tax Implications Of A Divorce

Divorce can be stressful enough without discovering down the road the assets weren’t divided equitably even when spouses were in agreement about the division of their property. Failing to take taxes into account may be to blame when one spouse receives a smaller net share than expected.

Here are some issues to consider if divorce is on your horizon.

Taxable or Not Taxable?

Legal_Balance3Payments from one spouse to the other can have tax consequences for both spouses depending on how the payments are designated. Alimony generally is deductible by the spouse who pays it and is taxable to the recipient. Child support isn’t tax deductible by the person paying it nor is it taxable income to the recipient.

Who Claims the Exemptions? The IRS has specific rules for determining which spouse is entitled to claim the dependency exemptions for the couple’s children. Who claims the exemption can also affect eligibility for certain tax credits, such as the child tax credit. Typically, the custodial parent claims the dependency exemption. However, parents can also choose to alternate claiming the exemption. And couples with more than one child may decide to split the exemptions.

The QDRO and Retirement Benefits

A qualified domestic relations order (QDRO) is a court order that specifies the property rights regarding qualified retirement plan assets of a spouse or dependent during a divorce. A QDRO allows the transfer of all or a portion of the assets in a qualified retirement plan from one spouse to the other without loss of the plan’s tax advantages. A QDRO should be carefully executed to avoid costly mistakes.

What’s Its Future Worth?

The value of assets that seem equal may no longer be equal once taxes come into play. Selling an asset in the future may create a tax liability. So spouses will need to consider more than current value when dividing investments and similar property.

Issues related to dividing assets during a divorce can be complex. Couples should seek professional advice.

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