This and That

Some stuff to think about:

A great estate planning opportunity expires on December 31, 2012.  Time is growing short, but if you can get it done before that date, you can transfer $5 million, completely free of federal estate or gift tax.  A bit of planning is involved, so this is not something that can be done overnight.  If you want to take advantage, contact your CPA or estate planning attorney immediately.  Even if you decide to do nothing, it is a good idea to review your estate plan every few years.


If you don't have a buy-sell agreement, or if you have one and have not reviewed it for a few years, now is the time.  Do you even know what your buy-sell agreement says?  When you review it and have to decide if it is fair, ask yourself if you would rather be a buyer or a seller.  The fact is, you don't know which you will be, so it should be fair to all parties.  Maybe you can even kill two birds with one stone, that is, do your estate planning in conjunction with your buy-sell agreement, and think about using the $5 million exemption to gift some business ownership to the next generation.


For those of you who are "too busy to do planning," you are planning, except your plan is to pay a ton more estate tax than you have to, and to let a judge decide how much your or your partners' business interests are worth.  That is definitely a plan, but probably not a good one.


The IRS is getting a lot more aggressive in assessing penalties, and I mean serious penalties like the accuracy related penalty.  We see these assessments more frequently, and they often appear to be arbitrarily based on the IRS' perception of the amount of tax underpayment, whether or not it is correct.  Whether you are a business or individual taxpayer, it is important that you are able to support your tax return income and deductions with documentation.  If you need help getting organized, call us.  We can help you.


In case nobody noticed, states need more money.  They get more money by collecting more tax.  They are on the lookout for businesses that operate in a state and don't pay taxes to that state.  If you enter a foreign state to make a delivery, a service call, provide customer training, or do practically anything else, your business is subject to tax in that state.  If you don't file tax returns and get caught later, it will be really ugly.  And the thing is, if you do it correctly you will not pay tax on the same income twice, but if you don't file and get caught later, you will, plus a lot of penalties and interest.  If you have questions about this, call us.


My daughter is leaving for college in two weeks.  After 18 years, this is really scary (for me).  I'm happy that she is doing well and has a great future, but I am going to miss her a lot.


I enjoy photography, and will include pictures from time to time.  I took this one in Grover Cleveland Park in Caldwell, NJ.  Click on it to view a larger version.

Tax the Rich

The new health care law includes many provisions to "tax the wealthy," that is those of us whose annual income exceeds $250,000.  Perhaps $250,000 of income makes you wealthy in some parts of America, but certainly not in the New York City metropolitan area.  Many of us work hard to earn whatever we do, often working 60 or more hours per week and taking many business risks.

What do we do with all this excess wealth?  Most of us send two or more children to college, and often help them with graduate school.  Of course we do all this without financial aid, because, after all, we are the wealthy.  We live in moderate homes, make our mortgage and property tax payments (which are among the highest in the country), without default.  In New Jersey, we also pay the highest state taxes in the country.  Those of us who are self employed pay our own health insurance, and of course we have the discipline to save for retirement because we don't expect any help when we retire.  And all this is after we pay federal income, social security, and medicare tax.

Oh, I forgot the best part.  We own businesses, provide jobs and provide health insurance to our employees.  But we have to be careful, because if the health insurance we provide is too good, it is also subject to tax.  The new law even contains a provision that provides for an additional tax on investment income.  For as long as I can remember, I've been hearing about how bad the savings rate is in the United States.  If this additional tax doesn't discourage savings, nothing will.

I do not disagree that all Americans should have access to affordable health care, but exactly who is it that decided that Americans with $250,000 of annual gross income  are wealthy and should bear the majority of the costs of the health care plan?  I guess it was a politician, probably one that has not had to   work an honest job to support his family.

Obama Care & Your Business

I've been reading a lot about Obama Care, and thinking about how it will affect small business.  Basically, if your business has more than fifty full time employees, it is not good.  For the purposes of the Health Care Act, a full time employee is defined as one who works 30 hours per week.  And the testing period to determine how many full time employees a business has is the calendar year preceding the year to which the Act applies.  Since the insurance portion of the Act (Employer Shared Responsibility) is effective after 12/31/13, the 2013 calendar year is the testing period for 2014.  If you plan to rearrange your workforce to fall below the fifty full time employee threshold, you should start working on it now.  Since the test is based on annual averages, if you wait until the end of 2013 to address this issue, you will be too late.

The Act contains penalty provisions for businesses that fail to comply with the insurance requirements.  For businesses that do not comply, it appears that the penalty is $2,000 per employee, after the first thirty employees.  If your business has eighty full time employees who are not covered by health insurance, the penalty will be $100,000 per year.  I observe many business owners who say that they will pay the penalty rather than provide health insurance, but I don't know if that is a wise choice.  For federal tax purposes, penalties are not deductible expenses.  To decide if the penalty less costly than the insurance coverage, one must analyze and compare the after tax cost of each.

For businesses that are labor intensive and low margin, the health insurance requirement will be devastating.  It is unfortunate that President Obama has never run a business.   Perhaps if he had, he would understand what he has done.