At Vickney & Associates, we pride ourselves on attending to your needs and educating you. It’s the quickly returned phone call, getting you the information you need when you need it, making sure you have all the answers. It’s educating clients on everything from understanding the complex new tax laws – to the simpler daily processes of running a business or a family. The more we share with you, the more successfully you can run your life.
Transferring the family business requires the family to:
- Create a business strategic plan
- Create a family strategic plan
- Prepare an Estate Plan
- Prepare a Succession Plan, including arranging for successor training and setting a retirement date.
A strategic plan is a long-term plan that focuses on where you want the business to be at some future date. It defines goals, objectives, and targets for a company and outlines the resources that will be allocated to achieve them. It insures that everyone in the family and in the business has the same clear picture of the company’s future.
The family strategic plan establishes policies specifically for the family's role in the business and helps maintain a healthy, viable business. It should include the creed or mission statement that outlines the family's values and basic policies for the business. It may include an entry and exit policy that outlines the criteria for working in the business. It should deal with which family members desire to have a part in management of the business versus those who desire a more passive role.
An estate plan is a written document that outlines the disposal of one's estate and includes such things as a will, trust, power of attorney, and a living will. Without one, you will pay higher estate taxes than necessary. The estate plan should be used in conjunction with the succession plan to see that the family business is transferred in a tax-effective manner.
A succession plan identifies key individuals who will be groomed to take over the business when the time comes. It outlines how succession will occur and how to know when the successor is ready. A succession plan can go a long way mitigate the current generation's concerns about transferring the firm.
A successful business must be based on something greater than a desire to be your own boss. One must make an honest assessment of their own personality, have an understanding of everything involved, and be willing to work hard to be successful. You have to be willing to plan ahead and make improvements and adjustments along the way.
Failure to properly plan cash flow is one of the leading causes of small business failures. In addition, many small business owners lack an understanding of basic accounting principles.
A business's monetary supply can exist either as cash on hand or in a business checking account available to meet expenses. A sufficient cash flow covers your business by paying bills, serving as a cushion in case of emergencies, and providing investment capital.
You should always keep enough cash on hand to cover expenses and as an added cushion for security. Excess cash should be invested in an accessible, interest-bearing, low-risk account, such as a savings account, short-term certificate of deposit or Treasury bill.
You can put a greater effort on collecting receivables. You can tighten your credit requirements, causing more people to pay cash for their purchases. You can raise your prices. You can also take out a short-term loan – perhaps a revolving line of credit or an equity loan. You can work to increase sales, but keep in mind that if large portions of your sales are made on credit, your accounts receivable may increase, but not necessarily your cash.
Corporations, limited liability companies (LLCs), limited partnerships, and limited liability partnerships (LLPs) are the three most common business entities that limit liability. General partnerships and sole proprietorships don't limit owners' liability. Limited partnerships limit the liability of some partners (limited partners) and not others (general partners).
Double taxation of corporations results in a significant tax burden on corporate income. Often referred to as the "corporate double tax," it occurs when a business pays a federal tax on its income, and tax is also paid by its owners in the form of individual income tax on capital gains and dividends when they collect corporate profits.
Double taxation occurs even if the corporation retains its after-tax earnings (as opposed to distributing them as dividends) because the value of the stock increases to reflect an increase in assets held by the corporation. Shareholders who decide to sell their stock will realize a capital gain and pay tax on that gain.
The tax on the corporation is called an "entity level tax" and an entity so taxed is called a "C-corporation" (C-corp). The double tax can be avoided one of two ways:
- By electing to be an S-corp. This doesn't change its nature under state business law, but in most cases it eliminates federal tax at the corporate level.
- By postponing profits distributions to corporate owners, the second tax (on the owners) can be postponed.
You have much control over whether the entity you choose is treated as a pass-through entity for federal tax purposes, but the leading pass-through forms are general partnerships, limited partnerships, LLPs, LLCs, S-corps, and sole proprietorships.
If your business is in the form of a partnership (any type) or limited liability company, you may choose whether your business is treated for tax purposes as a corporation or a partnership. Tax and business advisors call this choice the "check-the-box" system. If it's actually incorporated, or you choose to have it treated as a corporation, you may qualify to have it treated as a pass-through by electing S-corp status.
Limited Liability Companies
You should consider forming an Limited Liability Company (LLC) if you are concerned about personal exposure to lawsuits arising from your business. For example, if you decide to open a store-front business that deals directly with the public, you may worry that your commercial liability insurance won't fully protect your personal assets from potential slip-and-fall lawsuits or claims by your suppliers for unpaid bills. Running your business as an LLC instantly gives you personal protection against these and other potential claims against your business.
While the S-corporation's special tax status eliminates double taxation, it lacks the flexibility of an LLC in allocating income to the owners. An LLC may offer several classes of membership interests, while an S-corporation may only have one class of stock. Any number of individuals or entities may own interests in an LLC. However, ownership interest in an S-corporation is limited to no more than 100 shareholders. There are other details we can discuss with you.
An LLC operating agreement allows you to structure your financial and working relationships with your co-owners in a way that suits your business. In your operating agreement, you and your co-owners establish each owner's percentage of ownership in the LLC, his or her share of profits (or losses), his or her rights and responsibilities, and what will happen to the business if one of you leaves.
Your financial records should show how much income you are generating now and project how much income you can expect to generate in the future. They should inform you of the amount of cash tied up in accounts receivable as well as what you owe for merchandise, rent, utilities, equipment, and expenses like payroll, payroll taxes, advertising, equipment, facilities maintenance, and benefit plans. Records will tell you how much cash is on hand and how much is tied up in inventory. They should reveal which of your product lines, departments, or services are making a profit, as well as your gross and net profit.
A basic record-keeping system needs a basic journal to record transactions, accounts receivable records, accounts payable records, payroll records, petty cash records, and inventory records. An accountant can develop the entire system most suitable for your business needs and train you in maintaining these records on a regular basis. These records will form the basis of your financial statements and tax returns.
Before you automate your business, you must first create and/or improving your manual systems. Then consider the following:
Business Applications Performed by Computers
A computer's multiple capabilities can solve many business problems from keeping transaction records and preparing statements and reports to paying your staff. A complete computer system can organize and store many similarly structured pieces of information, perform complicated mathematical computations, print information quickly and accurately, facilitate communications among individuals, departments, and branches, and link the office to many sources of data available through larger networks. Computers can also streamline accounts receivable, advertising, inventory, payroll, and planning.
Computer Business Applications
Computers also can perform more complicated operations, such as financial modeling programs that prepare and analyze financial statements and spreadsheet and accounting programs that compile statistics, plot trends and markets and do market analysis, modeling, graphs, and forms.
her rights and responsibilities, and what will happen to the business if one of you leaves.
Software can help you with payroll check writing, accounts receivable, posting or inventory reporting. QuickBooks is a good example of this type of software. To determine your requirements, prepare a list of all functions in your business. in which speed and accuracy are needed for handling volumes of information. For each of these applications, make a list of all reports that are currently produced. You should also include any pre-printed forms such as checks, billing statements or vouchers. If such forms don't exist, develop a good idea of what you want - a hand-drawn version will help. For each report, list the frequency with which it is to be generated, who will generate it and the number of copies needed. In addition to printed matter, make a list of information that you want to display on the computer video screen (CRT).
For all files you are keeping manually or expect to computerize list, identify how you retrieve a particular entry – by account number, ZIP code, product purchased? The more detailed you are, the better your chance of finding programs compatible with your business.
Set target dates for key phases of the implementation, especially the last date for format changes. Prepare a prioritized list of applications to be converted from manual to computer systems, and then train, or have the vendors train, everyone who will be using the system.
After installation, each application on the conversion list should be entered and run parallel with the preexisting, corresponding manual system until you have verified that the new system works.
If you will have confidential information in your system, you will want safeguards to keep unauthorized users from stealing, modifying or destroying the data. You can simply lock up the equipment, or you can install user identification and password software.
The best and cheapest insurance against lost data is to back up information regularly. Copies should be kept in a safe place away from the business site. Also, it is useful to have and test a disaster recovery plan and to identify all data, programs, and documents needed for essential tasks during recovery from a disaster.
Travel & Entertainment
Generally not. Usually, you can only deduct costs of meals when you're away from home overnight. Even so, the deduction is allowed only to the extent of 50 percent of the cost of meals and related tips. Also, because business-related entertainment expenses were eliminated under tax reform, starting in 2018, the deduction for meals at entertainment events is deductible (at 50 percent) only when costs for meals are itemized separately from entertainment costs.
Under tax reform, miscellaneous itemized deductions subject to the two percent floor were eliminated for tax years 2018-2025.
If you give your employer a detailed expense accounting, return any excess reimbursement, and meet other requirements, you don't have to report the reimbursement and you don't deduct the expenses. This means that any deduction limits are imposed on your boss, not you, and the two percent limit on miscellaneous itemized deductions won't affect your travel, entertainment and meals costs.
Starting in 2018 and continuing through tax year 2025, no deduction is allowed for business entertainment. Tax reform also eliminated deductions for expenses relating to sporting events such as those for skybox expenses (previously 50%), tickets to sporting events (previously 50%), and transportation to and from sporting events (previously 50%).
A wide range of expenses can be deducted while traveling away from home. Transportation fares, or actual costs (or a standard per mile rate) of using your own vehicle. Also, transportation costs of getting around in the work area to and from hotels, restaurants, offices, terminals, etc.; lodging and meals (subject to the 50 percent limit on meals); phone, fax, laundry, baggage handling; tips related to the above.
The following travel expenses cannot be deducted:
Costs of commuting between your residence and a work site, but it's a deductible business trip if your residence is your business headquarters; travel as education; job hunting in a new field or looking for a new business site.
All corporations start as "C" corporations and are required to pay income tax on taxable income generated by the corporation. A C-corporation becomes an S-corporation by completing and filing federal form 2553 with the IRS. An S-corporation's net income or loss is "passed-through" to the shareholders and are included in their personal tax returns. Because income is NOT taxed at the corporate level, there is no double taxation as with C-corporations. Subchapter S-corporations, as they are also called, are restricted to having no more than 100 shareholders.
The primary advantage of incorporating is to limit your liability to the assets of the corporation only. Usually, shareholders are not liable for the debts or obligations of the corporation. So if your corporation defaults on a loan, unless you haven't personally signed for it, your personal assets won't be in jeopardy. This is not the case with a sole proprietorship or partnership. Corporations also offer many tax advantages that are not available to sole proprietors.
Some other advantages include:
- A corporation's life is unlimited and is not dependent upon its members. If an owner dies or wishes to sell their interest, the corporation will continue to exist and do business.
- Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation.
- Ownership of a corporation is easily transferable.
- Capital can be raised more easily through the sale of stock.
A corporation possesses centralized management.
Your corporation is required to have an Employer Identification Number (EIN) also known as your Federal Tax Identification Number so that the IRS can track payroll and income taxes paid by the corporation. But, like a social security number, an EIN is used for most everything the business does. Your bank will require an EIN to open your corporate bank account.
We can obtain your EIN for you.
You must have your initial shareholder(s) meeting to elect your director(s), if your director(s) haven't been designated in the articles. Then, you must have your initial organizational meeting of your directors. At this meeting, you will need to elect your officers, adopt your company's bylaws, and issue your stock (among other actions). Once you have decided on a name, order your corporation online. Once we receive your paid order, we verify the availability of your name choices, draft your articles, file them with the state and send you all appropriate documents after they have been filed.