Final Touches on Your Financial Performances

Finishing the Year Strong

It is hard to believe 2011 only has two months remaining! This leaves less than 60 days to place the final touches on your financial performance. The little nuances and subtle changes can have dramatic affects. It is about hitting singles, not home runs. This episode will focus on some singles you can hit before the end of the year.

It is important to plan and make the most of the tax rules. Small businesses, and some individuals, tend to pay last year's taxes with current year profits and cash flow. This eventually means you need to pay two years of taxes with one year of cash flow and profits (ouch!) or one year of taxes with no cash flow and profits (watch out!). This cash flow and tax trap can be devastating to businesses and hard work combined with patience to correct. Being prepared allows you to avoid this trap as well taxpayers tend to take more aggressive and risky positions when reacting to a "tax surprise".

Individuals

• Review employee benefits and be certain they are structured the most tax efficient way 
• Do you know your benefits? 
• Are you using the employee benefits to help meet your financial goals? 
• Saving More 
• Should you save inside a retirement or in a regular savings account? 
• Do you know the tax benefits of a Traditional Retirement Vehicle, Roth variation of a retirement vehicle and a regular investment account? 
• How should you allocate between these? 
• Liquidity
• Current tax savings vs. future tax savings

General Businesses 

• Review structure of employee benefit rules
• The Health Care Act has changed the discrimination rules and testing
• You should hire an employee plan expert (not health insurance agent) to review and update your employee benefit plans
• Hold annual corporate meeting and update minutes
• Review (or create) business plan and strategy
• Set up or change retirement plan type
• Prepare written documentation for employee benefit plans
• Calculate cash flow projections and financial forecasts
• Review financial position and working capital requirements

S-corporations 

• Is your officer compensation to distributions reasonable?
• Zero wages (i.e. no W-2) can lead to the IRS telling you what your wages should be
• Officer compensation needs to be "reasonable"
• Officer wages should be the same or greater than distributions
• Officer wages should equal the same salary a third-party employer would have to pay an employee to retain their service
• Employee benefits need to be reported on Officer's W-2s W-2
• Health insurance and long-term care insurance needs to be reported as officer compensation and shown as a part of taxable wages and in the information box on the Officer's W-2 (Box 1 and Box 14)

C-corporations 

• Review bonuses for officers and owners 
• Which tax rates are more efficient; remitting corporate income tax or individual income tax (remember payroll taxes are remitted with compensations!)? 
• Any retained earnings greater than $250,000 need to be ear-marked for a specific use
• The excess not ear-marked is subject to an excise tax if not distributed to owners via dividend distribution

Partnerships 

• Be prepared for income to be subject to both income taxes as well as self-employment taxes
• For individuals who are partners and are actively involved with the business operations would be aware their portion of income will be subject to income tax and self-employment tax
• Self-employment tax is Social Security and Medicare and since the partner is the employee and the employer they are required to pay both the employee and the employer's portion.  In 2011 the total tax can be up to 13.3%, but traditionally the tax is an additional 15.3%.
• Unreimbursed Partner Expenses (UPE)
• Partners have the ability to deduct expenses they incurred for their business directly against their income
• A written documentation at the partnership levels needs to be prepared in order allow UPE
• Retirement Plan Matches
• The partnership needs to  inform all partners the retirement match percentage
• All partners need to contribute the same retirement match percentage
• i.e. Bob cannot contribute the maximum match of 25% if Mary is only contributing 5%

Deadline Reminder

IRS Circular 230 disclosure:  To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein

In This Issue

Focus on Solutions

Deadline Reminders

Ratio of the Month - Fixed Asset Turnover

The higher the ratio the more effective the company's investments in Fixed Assets are.

Contact Information

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Suite 205

Alpharetta, Georgia 30009

phone:

(770) 664-8583

fax:

(678) 762-9413

www.pro-active-cpa.com