Employees get more than a paycheck

Surveys show that employees tend to underestimate the amount of money that their employer is spending on employee benefits. It's up to you to get them to realize their paycheck is only part of the compensation they are receiving as employees.

Make your employees aware of their total compensation package. After all, your employees can't appreciate all those extra dollars the company pays if they don't know about them.

In conjunction with preparing an employee's W-2 for 2013, prepare a list of the amounts that make up his or her total compensation package. Consider going over each employee's total benefits package during the employee's annual review.

Your benefits summary should include such items as the following: salary, bonus, pension plan contribution, deferred compensation, medical and dental insurance, life insurance, disability insurance, FICA (social security & Medicare), worker's compensation, and unemployment insurance.

Also include the number of paid vacation days, personal days, sick days, and the value of employer-provided benefits such as work clothing, parking, and meals.

Are disability insurance benefits taxable?

Have you decided to include disability insurance as part of your financial plan? If so, the next decision is how to pay the premiums. Here's why: The choice you make now can affect the taxability of the benefits received later.

For example, say your employer offers disability insurance as part of a cafeteria plan. When you sign up, the premiums are deducted from your paycheck before taxes. You're getting a current break in the form of excluding the premiums from income, and later payouts of policy benefits are generally taxable to you.

What if you pay part of the premium with after-tax income and your employer pays the rest? In that case, policy benefits are split into taxable and nontaxable portions.

Illustration: You pay 40% of the premium and your employer pays 60%. Benefits are 60% taxable.

If you opt to buy a policy yourself, premiums are not deductible on your personal tax return, and benefits you collect are not taxable.

Like other aspects of financial planning, choosing insurance involves weighing your alternatives and selecting what's most suitable for achieving your goal of protecting and growing assets. Give us a call. We'll help ensure that your financial plan remains on track.

Stay alert for holiday fraud

Thieves and con artists thrive during the holidays. All that good cheer, all those weary and distracted shoppers, all that money being spent - it's a fraudster's paradise. Here are a few tips to keep the bad guys at bay, whether you're shopping online or at your local mall.

*Stick with reputable merchants. During the holidays, your e-mail in-box may be filled with unsolicited messages urging you to "click here." Don't. Scammers set up websites that mimic legitimate stores. Their sole purpose is to extract personal information from unwary consumers. If you don't know the merchant, either type in the web address yourself or, better yet, shop elsewhere.

*Take care with charities. Of course, many legitimate church groups and nonprofit organizations engage in fund-raising activities during the holidays. If you're confident that the group is above-board, go ahead and donate. But if you catch a whiff that something's not quite right - the solicitor is too pushy or the guy at your front door evades reasonable questions about the organization - hold on to your money.

*Be attentive at the mall. Thieves love to lurk in and around shopping malls. So be aware. Take only the cash and credit cards you need to make purchases. Don't be fooled by someone selling $10 Rolex watches or $50 Armani suits. Some crooks even hang out in store parking lots stalking potential targets. In one scam, a thief will approach a woman in a parked car and inform her that the vehicle is damaged. When she gets out to check, the thief's partner absconds with the lady's purse. If an activity or person seems suspicious, call 911 or mall security.

*Be on guard with gift cards. These little pieces of plastic can be great stocking stuffers, but they're also prime targets for crooks. Scammers have been known to copy numbers from gift cards hanging in store displays. They then call a toll-free number to learn when the card is activated and use the card number to make purchases. One way to avoid this is to buy from retailers who keep gift cards behind the checkout register.

Should you use a bank line of credit?

Just exactly what is a bank line of credit and who should be using one? A bank line of credit is not a great deal different from a credit card. You make draws against your line of credit from time to time as you need cash. You pay interest only on the amount of the loan balance outstanding. You are expected to make payments and occasionally bring your outstanding balance to zero. Let's look at an example.

Let's say that your bank has arranged for you to have a $100,000 line of credit. You are not obligated to draw any of it at any given time, and you will pay no interest until you actually make a draw (much as you do with a credit card).

Assume that you want to build up your inventory for the holiday shopping season and need $30,000 to do so. After your inventory purchase, you still have $70,000 available even if the $30,000 is still outstanding, but you are only paying interest on the $30,000. You may have several occasions during the year to borrow on your line of credit. Since your line of credit is intended for short-term cash needs, your banker expects your balance to be paid down as your cash flow improves.

 

Do not use a line of credit for capital purchases. If you need to expand your building or buy new equipment, arrange a term loan for that specific acquisition. You should not use a credit card for such an investment, and you should not use your line of credit for that either.

If your business has at least two years of making a profit, you may well qualify for a bank line of credit. Start by checking with your current bank. Your banker would like to keep your business, and if your financial statements support it, you will most likely be offered a loan. Lines of credit for small amounts may not require collateral. On larger loans, you may need to put up collateral, and you may need a co-signer.

A bank line of credit can make your operation more efficient. There is comfort in knowing that you have a reliable source of instant cash for your short-term needs.

Most banks are willing to make loans to businesses that have uneven income cycles. You may want to shop around for the best loan terms. Some banks may already have several customers in your industry and do not want more (perhaps a bank examiner's concern). Accordingly, their terms may be less favorable than some other bank or credit union.

Please contact us if you would like assistance in preparing a request for a bank line of credit.

Time is running out for 2013 tax cutting

There's not much time left for you to make beneficial tax moves for 2013. Consider these possibilities.

* Maximize retirement plan contributions. For 2013, you can put $17,500 in a 401(k) plan, $12,000 in a SIMPLE, or $5,500 in an IRA. If you're 50 or older, you can set aside even more as "catch-up" contributions.

* Decide whether to sell investments to offset gains or losses already taken this year. You can deduct $3,000 of net losses against ordinary income.

* Estimate your tax liability for 2013, taking the new Medicare tax increases for higher-income taxpayers into account. If you'll be underpaid, adjust your final quarterly tax payment or your December withholding.

* December 31 is the deadline for taking a 2013 required minimum distribution from your traditional IRA if you're 70½ or older. Miss this requirement and a 50% penalty could apply.

* Purchase needed business equipment to use the first-year $500,000 expensing option for new and used equipment and 50% bonus depreciation for new equipment.

* Make energy-saving home improvements that could qualify for a lifetime tax credit of up to $500.

* Finalize annual gifts to use the 2013 exclusion from gift tax on gifts of up to $14,000 per recipient.

Contact our office for details on these and other year-end tax moves.

Tax strategies for charitable giving

Now that the holiday season has arrived, you might decide to step up your charitable donations to boost your deductions for 2013. Here are six timely strategies.

1. Audit-proof your claims. The IRS imposes strict substantiation rules for charitable donations. In fact, you're required to keep records for all monetary contributions, no matter how small. The best approach is to obtain written documentation for every donation.

2. Charge it. The deductible amount for 2013 includes charitable gifts charged by credit card before the end of the year. This covers online contributions using a credit card account. So you can claim a current deduction for donations made as late as December 31.

3. Give away appreciated stock. Generally, you can deduct the fair market value (FMV) of capital gain property owned longer than one year. For instance, if you acquired stock ten years ago for $1,000 and it's now worth $5,000, you can deduct the full $5,000. The appreciation in value isn't taxed.

4. Sell depreciated stock. Conversely, it usually doesn't make sense to donate stock that has declined in value, because you won't receive any tax benefit for the loss. Instead, you might sell the stock and donate the proceeds. This entitles you to a capital loss on your 2013 return plus the charitable deduction.

5. Clean out the storage space. The tax law permits you to deduct charitable gifts of used clothing and household goods that are still in "good used condition or better." Don't be so quick to discard items that can be donated to charity.

6. Donate a car. The deduction for a donated vehicle valued above $500 is generally limited to its resale amount. However, if the charity uses the vehicle for its tax-exempt purposes, you may be able to deduct its fair market value.

Call us for more details on the tax rules governing charitable contributions.

Take a credit for saving

Depending on your income, you might qualify for a tax credit of up to $1,000 for contributing to an IRA or other retirement plan. Don't overlook this "saver's credit" as an opportunity to both cut your 2013 tax bill and increase your retirement nest egg. You have until April 15, 2014, to make a 2013 IRA contribution that could qualify for the credit.

Supporting a parent could cut your taxes

If you provided more than half a parent's support in 2013, you may be entitled to a $3,900 dependency exemption. If other family members helped to provide support, you can use a "multiple support agreement" to decide who gets the exemption for 2013. Paying a caretaker or paying for a parent's medical expenses might qualify for a tax credit or deduction. For details, contact our office.

An HSA may be a good choice for you

Health savings accounts (HSAs) allow taxpayers with high-deductible health insurance plans to set aside pretax dollars that can be withdrawn tax-free to pay unreimbursed medical expenses. You might find an HSA to be the right choice for you and your family. The 2014 contribution limit to an HSA is $3,300 for individuals and $6,550 for families, with a $1,000 catch-up contribution for older individuals.

Energy credits still available

The IRS reminds taxpayers that certain energy credits are still available. If you haven't already taken advantage of them, this may be the year to make energy-efficient improvements to your home. You may be entitled to a credit of 10% of the cost of certain energy-saving improvements such as insulation, windows, doors, skylights, and roofs. The credit has a maximum lifetime limit of $500; the credit for windows is limited to $200. Not all energy improvements qualify, the IRS cautions taxpayers, so be sure you have the manufacturer's credit certification statement (usually available with the product's packaging or on the manufacturer's website).

IRS sends "possible income underreporting" notices

Form 1099-K is a new information return sent to businesses by "payment settlement entities" reporting the amount of credit card and other electronic receipts that were processed for the business. The IRS also receives a copy of Form 1099-K and cross checks the reported amounts with the business's total income reported on its tax return. Where the numbers don't seem to make sense, the IRS sends notices to businesses telling them they "may have underreported gross receipts." Notices go on to say "This is based on your tax return and Form(s) 1099-K, Payment/Merchant Cards and Third Party Network Transactions that show an unusually high portion of receipts from card payments."

The IRS has sent thousands of letters labeled "Notification of Possible Income Underreporting" to small business owners. The notification project is ongoing as part of the IRS's campaign to deal with the "tax gap," the difference between taxes owed and taxes actually collected.

If you receive a notice, contact us immediately so that we can determine what response is required.