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Look into the benefits of a solo 401(k)

Have you heard about solo 401(k) plans? The traditional type of 401(k) retirement plan is now available for self-employed individuals. And it lets you save more than other types of plans.

In the past, 401(k) plans were typically offered by larger corporations. Employees could make pre-tax contributions by payroll deduction. The company would then usually match a percentage of those contributions. Investments grew tax-free until withdrawn at retirement. One advantage of a 401(k) plan is the relatively large amount you can contribute each year - $16,500 in 2011 with an extra $5,500 catch-up if you’re 50 years old or older.

Now you can establish the same type of plan if you’re self-employed or run an "owner only" business. That’s a business with just you and possibly your spouse, but no employees. You can save more with a solo 401(k) than with the traditional SEP, SIMPLE, or Keogh plans. That’s because you are able to make two types of tax-deductible contributions. First you make the usual employer contribution as owner of the business. Then you can make an additional salary deferral as an employee. As a result, you could potentially shelter up to $49,000 of your 2011 self-employment earnings from tax. If you’re eligible for the over-50 catch-up, that rises to $54,500.

The solo 401(k) plans are flexible and relatively simple to administer. If you think this plan might be right for you, please contact our office. We can tell you more about it and help show you how much you could save.

Should you "ROBS" your 401(k) to start a new business?

ROBS is an acronym for a relatively new financing arrangement known as a "rollover as business startup" being touted on the Internet and arranged by some investment firms.

Typically a ROBS works like this: You pay a fee to a plan sponsor to create a corporation, which sets up a profit sharing or 401(k) plan of its own. Then you roll funds from your own 401(k) plan into the newly created corporation's plan. Your next step is to use the funds in the corporation's plan to buy the stock of your new company, thereby providing working capital for your new business.

Sound too good to be true? It probably is. For one thing, profit sharing plans, while a legitimate way to reward employees by sharing profits from your business, must follow strict rules. These include filing annual tax returns and avoiding transactions that discriminate in favor of highly paid employees, including yourself. The IRS scrutinizes ROBS very closely to be sure all the rules are carefully followed.

When you're looking for capital to set up a new venture, the idea of tax-free cash is appealing. But if the IRS determines that the deal is a prohibited transaction, you can be hit with penalties and you risk losing your retirement money.

Please contact us before you enter into any complicated, questionable arrangement. We're here to help you make the right choices for your business.

Do you owe taxes when you give a gift?

Some gifts are big, others are small - and the Internal Revenue Service expects you to report them all.

Or do they?

Gift giving can be an important tax planning strategy. This year, a slowing economy might lead you to help family members with upcoming fall college bills or unexpected expenses. Now - before you write the checks - is a great opportunity to get a handle on the rules.

Here are two:

• Tax returns are not always required. The person receiving your gift does not have to file a return, no matter the amount.
  
  More good news: When you give gifts of $13,000 or less to any one person within a calendar year, you don't have to file a return either. If you're married, your spouse can also make gifts of $13,000 to the same or different recipients without the need to file a return.
  
  Other non-reportable gifts include amounts you pay for anyone's tuition or medical bills, as long as you write the checks directly to the school or health care facility. That's true even if the cost exceeds $13,000.

• When a return is required, you may not owe gift tax. Under present tax law, up to $5 million of gifts made during your lifetime can be shielded from tax. This is in addition to the $13,000 per donee annual exclusion.
  
  Call us about other rules that apply to your situation. We'll be happy to discuss tax-wise strategies and help you make the most of your gift giving.

When is income taxable, and when is it not?

You only have to examine your paycheck to realize certain income is tax-free. For example, health insurance premiums paid by your employer are generally not includible in your income.

Do you know the tax status of other types of income? Here's a quiz to test your knowledge.

1. You tell your son he'll be the sole beneficiary of your estate, and that you've decided to give him an advance on his inheritance. You hand him a check for $10,000. He wants to know how much he'll have to pay in taxes. What do you tell him?

Answer: Gifts, bequests, devises, and inheritances are generally not taxable to the beneficiary. Income produced from those sources is taxable to the beneficiary.

2. You withdraw $20,000 of the contributions you made to your Roth IRA over the past five years, but you're not of retirement age. Do you have a taxable event?

Answer: Unlike traditional IRAs, distributions from Roths are first allocated to amounts you contributed to the account. To the extent the distribution is a return of your contributions, it's not included in your income, and you can withdraw it penalty- and tax-free.

3. You purchase a piano at an auction and take it home. While cleaning it, you discover $5,000 inside. Is this money taxable to you?

Answer: Yes. Once it becomes yours, "treasure trove" property is taxable to you at fair market value.

Your business succession plan must answer three key questions

Succession planning is very important for a family owned business. Before you sit down with your tax and legal advisors to draw up a succession plan, you should think through three key issues: who do you want to succeed you, when do you want the transition to take place, and how do you want to structure the transition?

* WHO? The question of who will succeed you in the business can be the toughest of all, largely because there is so much emotion involved. Most owners want to pass the business on to the family. But are your children willing to take on the business, and if so, are they capable of running it? Will it cause a family squabble if one or two children want to run the business, but others are not interested? Resolving these issues may take a lot of honest, open discussion with family members to discover their true feelings. If there is not an obvious family successor, other alternatives include selling the business to an outsider, promoting an existing employee to head the business while you retain ownership, or even selling the business to the employees.

* WHEN? When you make the transition depends on a number of factors, such as your age, health, retirement goals, and the readiness of a successor. Consider whether you want to maintain some involvement with the business or make a clean break. Remember, though, you should always have a contingency succession plan in case of sudden death or disability.

* HOW? How you structure the transition depends partly on the answers to the earlier questions and partly on financial considerations. Think through issues such as whether you need retirement income from the business or whether you primarily want to minimize estate taxes. Knowing your goals for the transition will make it much easier to tailor a succession plan that fits your specific situation.

For guidance in your business succession planning, give us a call at 305-500-9361

Have you done an insurance checkup lately?

When was the last time you reviewed your insurance coverage? An annual insurance review makes good financial sense. Here are points to consider as you review your various insurance policies.

• Health care. If you have an individual policy, investigate whether your employer, union, or professional association offers a less expensive group policy.
•  Long-term care. Long-term care insurance may be advisable if you're between the ages of 55 and 72 and you don't have enough assets to fund long-term care.
•  Life. The protection you need depends on the number of people who rely on you for support. Whole, variable, and universal life policies combine insurance coverage with an investment future. If you want insurance only, consider term life.
•  Disability. Studies show that less than one American in six owns enough disability insurance to provide a comfortable lifestyle during a two-year disability. Disability coverage is generally limited to 60%-70% of salaried income. If you have adequate emergency funds, electing a longer waiting period for coverage to kick in will reduce your premiums.
•  Homeowners. With fluctuations in the real estate market, it's possible that your home is now under- or over-insured. Coverage equal to the current replacement cost (excluding land), not its original cost, is advisable.
•  Auto. Liability insurance is a must, but consider dropping collision coverage if you can afford to repair or replace the vehicle on your own. Collision insurance is probably required if your car is financed or leased.
•  Umbrella liability. Personal liability coverage is included with most homeowner and auto policies. However, if you own substantial assets, umbrella coverage will provide additional protection at minimal cost.
•  Unnecessary insurance. Avoid policies with narrowly defined coverage (such as credit, travel, or cancer insurance) if they duplicate other coverage.

 For assistance in your insurance review, give us a call at: (305) 500-9361