A SUMMARY OF CUTTING EDGE INFORMATION FOR YOUR BUSINESS AND YOUR LIFE The BSE LETTER is a concise summary of some of the most important and recent information concerning all aspects of your business and the world in which we live. It is prepared exclusively by the accounting firm of Bailey Schaefer & Errato, LLC (BSE). We hope you will find these summaries useful. For further information on any of these topics, please contact any of the BSE Partners: Andrew J. Errato, David Y. Bailey, Dominic Scarano, Jr. or Michael E. Bailey. All can be reached at (203) 481-1120, or through our website: www.bsecpa.com. IF IT’S NOT ONE THING, IT’S ANOTHER . . . Times and credit are more than just a little tight. One option for you or your employees is to borrow against 401(k)’s. But, there are some serious cons to measure against the pros of borrowing against your own money. The pros are easy. Federal law limits these loans to 50% of the vested account balance or $50,000, whichever is less. The loans are easy to get, easy to process and don’t come with a lot of paperwork. And, no-one can get rejected because of a low credit score or low income. You pay it back with deductions from paychecks. Okay, the cons? The reduction in paycheck amount may be difficult to handle. Remember, you might end up cutting back on regular 401(k) contributions to pay back the loan, and thereby save less for retirement. Also, the money you use to pay back the loan, a tax deductible contribution before the loan, is not deductible. And because you’ll eventually pay taxes on account withdrawals, you will be paying twice.
THE MORE YOU DO, THE MORE YOU MAKE . . . That’s the simple rule for determining employee bonuses. The more an employee does for your company, the more they should be rewarded. The challenge is to set up specific goals and measurable results that each employee can see, understand, and achieve. Every employee has to understand their goal is to give 100% all the time. It’s the only way for a company to survive right now. Your bonus plan should be effective, rewarding, but most of all...simple. It’s best to start off with as few complexities as possible. You can always make changes as you go along. You can’t determine bonuses for a sales person and a receptionist using the same guidelines. Sales staff are judged on sales. Reception on customer service and efficiency. Another idea is to cap certain salaries and then base bonuses on performance of individuals and your company. This protects the company while giving further performance incentives to employees. For more ideas on how to utilize bonuses for the benefit of everyone involved, give BSE a call at (203) 481-1120.
IT MAY NOT PAY TO BE THE RICH UNCLE . . . Sometimes, lending money to family members – for a down payment, a business, or anything – can complicate things. Yes, it can strain relationships and hurt feelings. But, it can also have serious tax implications for the person loaning the money. The best way to proceed with any loan, to anyone and in any amount, is to treat it like a business arrangement. Make sure everyone understands the terms of the loan with a written document detailing the interest rate, payment schedule, and other options. If necessary, this will be on record so the IRS sees this for what it is – a loan – and not a gift, which may fall under different tax liability rules depending on the amount loaned. You may even want to use a professional to make sure the document is solid. Also, you may have to charge interest, depending on the amount loaned, so that it is not considered a gift. In any case, consider loans carefully before you proceed. Yes, it’s great to help your children or other relatives, but always protect yourself from every angle.
IT MAY FEEL LIKE THE END OF THE WORLD . . . but it’s not. As CPA’s, we aren’t supposed to guarantee predictions, but we’ll stand by this one. It’s not the end of the world, but it is the end of an era. The good news is that a new era is just beginning and there are solid ways to make the most of it. By now, we have come to realize that we are living through unprecedented economic times. Yes, the world financial situation is in trouble. It may be scary at times, but you don’t have to go through any of this alone. If you’ve made a sound financial plan, it’s important to stick to it now more than ever. In fact, doing things like continuing to invest in your 401(k) will allow you to buy less expensive shares as time goes on. Right now we are making ourselves more available than ever before because we realize the urgency of the situation and the decisions you are making. If you are considering any changes in your portfolio, business or other financial matters, please contact us first. It’s important to remember that economic downturns are temporary and recoveries are often as sudden and unexpected as the collapses.
SOMETIMES, IT’S JUST TOO LATE . . . But, not yet. If you have tax issues and questions to be resolved, there’s still time. Don’t wait one more minute. Call BSE today at (203) 481-1120.
Circular 230 Disclaimer: Any tax advice contained in the body of this material was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.
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