Jun 27, 2016
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.
Categories: Other Resources
Jun 24, 2016
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?
Payments 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.
Jun 22, 2016
The unexpected can always happen. That’s why, if you’re the co-owner of a business, you need to prepare for the possibility that you — or the other owner — won’t be at the helm one day. The fact is, either of you could die tomorrow. What would happen then?
When you enter into a buy-sell agreement, you face this issue head on. A buy-sell agreement is a legal contract between you and the company’s other owners. In it, you each agree that your ownership interest will be sold (or offered for sale), at a certain price, to the company or to each other when you die. Often, the company or the owners buy life insurance policies so they’ll have the cash to make any agreed-upon purchase.
Tax Advantages Buy-sell agreements offer more than simple protection for you and your family. You may also gain estate-tax benefits. Your estate can usually value your business interest according to the price or formula set in the agreement. This lets you plan in advance for what that value will be.
Buy-sell agreements can also help your estate avoid time-consuming and costly battles with the IRS. When an estate includes a closely held business interest, the IRS may see a red flag. The IRS wants to be sure that estates don’t come up with artificially low values for businesses in order to save taxes. If you have a buy-sell agreement in place, and follow all the tax law rules, the IRS is likely to accept your value.
What’s Your Interest Worth? The key to making the value in your buy-sell agreement stick is to make sure that it is a “fair market” price. If you and the other owners aren’t relatives, this shouldn’t be a problem. You’ll probably bargain with one another to get the best deal possible. However, if you intend to pass your interest in the company on to a child or other family member, the IRS may argue that you and your close relative didn’t negotiate a fair price. That’s why it may be best to provide in the buy-sell agreement that a qualified professional will value the company annually or at the time of the sale.
Our team of business valuation experts can help you plan for the future through a buy-sell agreement. If you have questions or concerns about your business, contact Jack Hagmeyer at email@example.com
Categories: Other Resources
Jun 16, 2016
This seems like such a simple question. However, many companies and employees never take the time to consider their position. This is one of the most important decisions in the tax world. In fact, it goes well beyond taxes as it involves workers’ compensation, unemployment insurance, state and federal wage and labor laws, pension laws, nondiscrimination laws and more.
From an employer’s perspective, it’s often preferable to hire freelancers and contractors instead of employees. An employer is not required to pay for all the benefits offered to regular employees, such as health insurance, bonuses, 401(k) plan contributions, and so on. As a result, employers experience considerable incentives when utilizing independent contractors. More often than not, such employment follows the regulations set forth by the law. Nevertheless, some employers have been accused of misclassifying workers who should be considered employees as contractors instead.
The IRS has issued guidelines on the matter, stating “if you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.” Meanwhile, “If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result, then your workers are probably independent contractors.” The distinction is important because there are penalties for misclassification.
For businesses of all sizes, the fines are everywhere and they’re not cheap. Take a look:
- The Department of Labor ordered three construction companies to pay $491,100 in back wages and damages to 99 employees who were misclassified as independent contractors, in addition to another $108,900 in civil fines.
- A prominent shipping company settled a series of class action lawsuits alleging worker misclassification for a total of $27 million. Previously, the IRS had already ordered the company to pay $319 million in back taxes and penalties.
- The San Diego Union Tribune, owned by The Copley Press Inc., was ordered by a state court judge in California to pay $6.1 million in legal fees to the attorneys for a class of over 1,200 paper carriers to whom the court had earlier awarded $3.2 million in damages and another $1.75 million in interest. The final cost of the verdict against the newspaper for misclassification of the paper carriers as independent contractors totaled $11 million.
The IRS has given guidelines to its agents to determine worker status. In the past, a list of 20 factors compiled by the IRS had been used in court decisions to determine worker status. The list, sometimes called the “20-Factor Test” is still used as an analytical tool, although some of the factors are no longer as relevant as they once were.
Basically, the IRS’ 20-Point Checklist focuses on three main factors:
- How much control the employer has over the worker’s behavior and work results. (Who controls training, where and what time the person works, what equipment they use?)
- How much control the employer has over finances? (Does the employer have primary control over the person’s profit or loss?)
- What is the relationship between the parties? (Does the worker receive benefits? Is it a long-term relationship?) Estimates are that 20% of businesses misclassify workers, so make sure your business understands the difference.
By: Mark Dietrich, Accountant
Jun 09, 2016
For every CPA, the CPA Exam is a rite of passage, one of the first milestones on the path to a career in accounting. Long hours of study and prep work and the stress of the test itself are rewarded with the joy and/or relief of passing scores on all parts of the exam.
If you or anyone you know is planning to enter the field of public accounting, be aware changes are coming to the Uniform CPA Examination in April 2017, the first major update to the exam since 2011. Periodically, the AICPA conducts a practice analysis, seeking input from state boards of accountancy, state CPA societies, public accounting firms, and other stakeholders to assess whether the test is able to measure the skills and knowledge needed by newly licensed CPAs. This analysis determined that due to the automation and outsourcing of routine accounting tasks, greater critical-thinking skills were needed of new hires.
The four basic content areas of the exam – Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation – are not changing. How those areas are tested, however, will be. There will be fewer multiple-choice questions, and a greater emphasis on task-based simulations that better assess higher-order critical-thinking skills. Because of this, total test time will be increased from 14 to 16 hours.
To aid new candidates with preparation for the exam, an array of preparation and support materials reflecting the new exam format are being rolled out. The current Content Specification Outline and Skill Specification Outline are being replaced by new “blueprints” that will contain about 600 tasks across the four exam areas that will align with the skills expected of new accountants. AICPA.org will offer a sample of the new exam at aicpa.org/nextcpaexam, as well as a LinkedIn group for exam candidates.
Based on historical trends in advance of previous changes to the exam, the AICPA expects a surge of exam candidates in 2016. Forty total testing days will be added – ten each quarter beginning in April 2016.
Jake Freppel, Senior Accountant
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