Month: June 2017

Here are some of the key tax-related deadlines affecting businesses and other employers during the second quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

July 31

• Report income tax withholding and FICA taxes for second quarter 2017 (Form 941), and pay any tax due. (See exception below.)
• File a 2016 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 10

• Report income tax withholding and FICA taxes for second quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

September 15

• If a calendar-year C corporation, pay the third installment of 2017 estimated income taxes.
• If a calendar-year S corporation or partnership that filed an automatic six-month extension:
  • File a 2016 income tax return (Form 1120S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due.
  • Make contributions for 2016 to certain employer-sponsored retirement plans.

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The majority of North American businesses are family owned and many are facing ownership-transfer issues as the baby-boomer founders enter retirement.

On the eve of a retirement, or following a death, family-run businesses have four basic choices. The first two involve giving up a family tradition: closing up shop or selling the business to outsiders or non-family employees.

The second two choices involve keeping the business under family control and either hiring outside managers or passing on the business to younger family members.

That final option of family succession can be difficult and not every business that attempts it is successful. Family dynamics often play a major role in the success or failure of a transition. Only a very small number of family businesses succeed in transfers to the second generation and even fewer make it to the third generation.

The key to success: Clear communication and the cooperation and commitment of everyone involved. Set up a family retreat early on in the process and bring in an independent third-party facilitator, such as your accountant, who can keep everyone’s eye on the ball and smooth over the rough patches.

The facilitator can objectively help to determine strategy, assess the current situation, develop strategic plans and discuss, review, implement and monitor those plans. Other professionals, such as insurance agents and bankers, may also be called in to help devise the plans and put them into effect.

The planning involves mapping out four distinct strategies in this order:

1. A business plan that sets out the founders’ original vision, mission and goals and gives other family members a clear picture of what the future should entail.
2. A family plan aimed at avoiding sibling rivalries and management-control issues. Here, you address compensation policies, management expectations, performance measures, job descriptions and codes of conduct within the business. You should also outline who is entitled to join the business and how to treat family members who aren’t involved with the company.
3. An estate/retirement plan that incorporates a business valuation, how to finance the buyout, distribute retirement funds and calculate estate taxes. Another critical issue here is the inheritance of corporate and non-corporate assets.
4. A succession plan that sets the date for retirement, establishes a timetable for training new management, outlines any role the founders will continue to play and arranges for the management of cash flow.

It’s never too soon to start: Succession planning helps you balance both personal and business interests and helps ensure that your family-run business gets through the transition successfully.

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Under the tax code, no deduction can be claimed on your tax return for any contribution to a charitable organization of $250 or more unless the taxpayer substantiates the contribution with a contemporaneous written acknowledgment of the contribution by the donee organization. For donations of money, the donee’s written acknowledgment must state the amount contributed, indicate whether the organization provided any goods or services in consideration for the contribution, and if so, provide a description and good faith estimate of the value.

A written acknowledgment is contemporaneous if it is obtained by the taxpayer on or before the earlier of:

• The date the taxpayer files the original return for the year of the contribution, or
• The due date (including extensions) for filing the original return.

You can’t just rely on the charity to provide the correct documentation. Many organizations know the rules and are careful, but some are not. Obviously, the larger the contribution, the more care you should take.

Shortly after a contribution, most charities will follow up with a statement. Some organizations mail out their statements just after the end of the year. Large contributions may be acknowledged quickly.

After making a substantial contribution, set up a reminder to look for the acknowledgment. Then, make sure the amount listed is correct and the other requirements are met.

Here’s a synopsis of the most frequently encountered charitable donation rules:

Cash contributions. No matter how small the amount, you need:

• A canceled check, credit card statement or other banking record, or
• A receipt or other written documentation from the charity with the donee’s name, amount and date of contribution.

For contributions of $250 or more, you’ll need an acknowledgment from the charity (see below). The $5 bill you drop in the kettle during the holidays isn’t deductible unless you get a receipt.

 

Noncash donations under $250. For each donation, you must have a receipt or letter from the organization indicating the organization’s name, date and location of donation, and a description (no indication of value required) of the property donated.

Many charities are lax with the rules. Make up a detailed list of items before contributing (don’t just write “five bags”). If that’s impractical, for example in the case of a clothing drop box, you may be able to satisfy the requirement with a reliable written record.

 

Contributions of $250 or more. For these donations, you must receive a contemporaneous written acknowledgment from the organization. It must include:

• The amount of cash and/or a description of the property contributed.
• Whether or not any goods or services were provided in return for the contribution and a good-faith estimate of the value of the goods or services.
• A statement that the only benefit you received was an intangible religious benefit, if that was the case.

Noncash contributions of more than $500.  Property contributions of more than $500 require a description on IRS Form 8283 of your tax return of the donated property and certain other requirements. The $500 threshold is determined by totaling all similar items of property donated to one or more organizations and treating that as a single item.

 

Noncash contributions of more than $5,000. You need a qualified appraisal of the property donated. There are certain exceptions to this rule. One is for publicly traded securities for which market quotations are available on a securities market.

 

Vehicle contributions. If the vehicle is valued at more than $500, you need an IRS Form 1098-C or other contemporaneous written acknowledgment from the charity. The rules here can get complicated. Talk with your tax advisor before contributing.

 

Payroll deductions. Save the W-2, pay stubs or other documentation provided by your employer. You must also have a pledge card or other document prepared by, or for, the qualified organization that shows its name. If your employer withheld $250 or more from a single paycheck, you must also have an acknowledgment from the charity that you did not receive any goods or services in return for any contribution.

There are other rules dealing with conservation easements, contributions of appreciated property, facade easements, etc. And, while there are chances to save some significant tax dollars with these types of donations, there are plenty of traps. If you’re making a substantial contribution, or a series of contributions over time, check the rules carefully and consult with your tax advisor.

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When it comes time to transition your role as business owner to someone else, you’ll face many changes. One of them is becoming a mentor. As such, you’ll have to communicate clearly, show some patience and have a clear conception of what you want to accomplish before stepping down. Here are some tips on putting your successor in a position to succeed.

Key information

Find ways to continuously pass on your knowledge. Too often, vital business knowledge is lost when leadership or ownership changes — causing a difficult and chaotic transition for the successor. Although you can impart a great deal of expertise by mentoring your replacement, you need to do more. For instance, create procedures for you and other executives to share your wisdom.

Begin by documenting your business systems, processes and methods through a secure online employee information portal, which provides links to company databases. You also could set up a training program around core business methods and practices — workers could attend classes or complete computer-based courses. Then, you can create an annual benchmarking report of key activities and results for internal use.

New challenges

Prepare your company to adapt and grow. With customer needs and market factors continually changing, your successor will likely face challenges that are different from what you encountered.

To enable your company to adapt to an ever-changing business world, ensure your successor understands how each department works and knows the fundamentals of key areas, including customer service, marketing and accounting. One way is to have your successor work in each business area.

Outside help

Also have your successor join industry trade associations and community organizations to meet other executives and successors in diverse industries. In addition, require him or her to review and, if necessary, help update your company’s business plan.

To encourage your successor to develop relationships with key players inside and outside your company, include him or her in meetings with managers and trusted advisors, such as your accountant, lawyer, banker and insurance agent.

Fruitful future

Ideally, when you walk away from your company, your successor will feel completely comfortable and ready to guide the business into a fruitful future. Please contact our firm for more help maximizing the effectiveness of your succession plan.

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